Who needs private capital?

In this country, the notion of private companies risking their capital on infrastructure projects is a no-no. While it complains about “market failure” and high prices, the Financial Mail‘s Duncan McLeod reports that the government has just decided to spend $2-billion (!) on its own undersea cable project. It’s no surprise that foreign investors are being chased away. It’s no surprise the World Bank is perplexed.

Clearly, our government’s idea of a New Partnership for Africa’s Development is central control over all major projects. It is to crush private competition and stubbornly forge ahead with state-led development. We don’t need neo-colonialist exploiters, we’ll lay our own damn cables, is what Poison Ivy, the Communications Minister, appears to be saying.

There’s a wealth of evidence that Keynesian or socialist state-led development has failed for decades to lift poor countries out of poverty. Those countries in which significant economic development occurred achieved this by encouraging private investment and free markets.

In addition to the statistical evidence, the theoretical problem is that state competition scares off private investors, without which there will be no competition, whether on service quality or price. The state can only solve problems in series, trying one possible solution after another. When it does appear to solve it, there is no way of knowing if it did stumble on the best solution, whether supply actually meets demand, or whether the price is right. Besides, to date the government’s record at telecoms development has been atrocious.

By contrast with the state’s serial approach, multiple competing companies — in the case of undersea cables at least three private cables were being mulled — attempt solutions in parallel, intent on outsmarting each other. This raises both the likelihood that, and speed with which, the consumer’s needs are met. Some companies may fail by providing the wrong solution, oversupplying the market or mispricing their product, but the outcome of such failure is cheap prices for consumers and assets that another company can pick up at fire-sale prices.

That’s exactly what happened with the telecoms boom in the rest of the world: many telecoms companies may have gone under, but telcos now are falling over themselves to offer cheap — or even free — bandwidth to consumers. And all we can do is brag that we didn’t let our incumbent take on large debts!

The biggest advantage of all this private over-investment was that only private capital was at risk. Public money was safe. Taxpayers didn’t pay for the misinvestment and bad technology choices. And governments not only saved tax money they could spend on social service delivery (which the ANC promised to make a priority), but also made an absolute fortune from auctioning off spectrum. Fiscally responsible government, dirt-cheap abundant bandwidth everywhere … anyone see any harm in that?

Let’s take free.fr as an example, since it is a new operator that belatedly entered the market against incumbents in a country that had been lagging the world in connectivity. It now offers a bundle consisting of 28Mbps uncapped broadband, 200 TV channels and free telephone calls to 70 countries, for less than R300 a month. It is now laying fibre to French homes. Nobody who hears these numbers — and certainly no French consumers — asks: “But what about France Telecom? Are they heavily indebted? Will they survive?”

How can it do all this? Many reasons, one of which is a process of liberalisation that began well after we initiated our own “managed liberalisation”, but was completed years ago. Another is the glut of bandwidth. Look at the cables that the private sector put down:

Yes, there are cables around Africa, though you may have to click through to see them. Why so sparse? Don’t they like us? Is our money not good enough for them? No. The reason we don’t have any more cables is that it’s been illegal for private companies to land them in South Africa. Amazing, but true. The incumbent had a monopoly on international connectivity, and it wrung every cent it could out of the gift the government gave it. Even now, new projects are welcomed with bureaucratic intervention, onerous obligations, rapacious conditions and the threatening announcements that South Africa will lay its own tax-funded competitor.

The message is crystal clear: investors, you’re not welcome in our socialist paradise. Bugger the consumer. Long live the revolution!