By Kabi Kolobe
Imagine watching the prime time bulletin on LTV and for economic news the newsreader reports “Shares on the Maseru Stock Market jumped to an all-time high today following excellent results announced by the Palama Limited*, the first listed Lesotho entity which leases vehicles to government.
The stock market was further propelled by Bua Limited*, the listed mobile network operator whose shares jumped 30 percent on news that they acquired a major stake in one of the existing local operators”.
Better yet, imagine seeing these headlines in your lifetime on your local newspaper;
“Palama Limited to pay its 50,000 Basotho shareholders a record special dividend following excellent financial results”
“Bua Limited shares go up 30% in daily trading on news of acquisition”
At this point, you are probably wondering what variation of cannabis I smoke or whose socks have I been smoking.
I know for sure that to many this sounds all too far-fetched, especially for our beloved Lesotho whose headlines are usually about some political wrangling or presentation of some donation by an international donor.
We have become a nation without hope. Let me at the outset bring my non-Sesotho audience into the conversation.
The term ‘maleo’ figuratively speaking refers to spoils of war, and it goes without saying who the beneficiaries of the spoils are.
In a literal sense, ‘maleo’ refer to the more exotic edible parts of an animal, which are the sole preserve of the men who slaughter the beast.
As a passer-by or a late comer to the ceremony of slaughter, one would not have a ringside position around the fire. They would literally have to wait until those who slaughtered have had helpings to their heart’s content.
Our current reality
About three weeks ago I came across newspaper headlines that the Government Fleet tender has once again landed in the courts of law with allegations of tender rigging and impropriety.
It is alleged that the preferred bidder should have been disqualified from the outset. This was hardly surprising given the divisive history of the government fleet contract.
The contract was central to the demise of the previous 7 party coalition headed by former Prime Minister Mosisili where allegations of corruption were levelled against then Minister of Finance, Dr Khaketla.
To date, all allegations against her are yet to be tested in a competent court of law. Apart from the bribery allegations, the biggest gripe from Basotho was that the then Minister deliberately opted to exclude Basotho from this lucrative opportunity.
In his article penned in 2014 at the height of political troubles for the first coalition government led by Prime Minister Thabane, Tito Mboweni asked a very pertinent question, ‘What are people fighting about?’
He then proceeded to explain what causes political strife in Lesotho. ‘The answer to this question is a very long exposition.
There are books and periodicals written about this.
But to our readers, let me state the obvious. In this country, which is POOR and with a small economy, control of government is key to the most primitive forms of wealth accumulation’.
Fast forward to today, the current government made amends and when the contract with the previous operator Bidvest expired, Government made sure to use vehicles leased from individual Basotho.
Government basically opted for a hybrid model where vehicles would be leased from Basotho and whatever deficit would be supplied by a larger contractor who would also oversee the overall contract from a day to day management perspective.
The jury is still out on whether this was the most optimal design in terms of Basotho participation and from a client perspective, client being government.
Historical background and context
To give better context and some historical background to the whole concept one will need to go back to the 90s after the military had handed over power to a democratic government led by Dr Ntsu Mokhehle.
Developing economies across the globe were enticed to the International Monetary Fund’s (IMF) silver bullet of the time – Structural Economic Reforms which was centred around Privatisation.
Given the state of her economy, which was characterized by ailing parastatals, unsustainable debt levels and limited tax base, Lesotho like her peers was compelled to sign on the dotted line and implement privatization.
The goals of privatization in the main were to:
- unburden government of the many state entities and activities which were deemed as non-core to the regular business of government,
- raise funding from the disposal of these non-core assets to supplement government financial muscle, and
- realize efficiencies and optimal budgeting structure for government
This resulted in the liquidation and disposal of entities such as Agric Bank, Lesotho Building Finance, Lesotho Bank, Lesotho Telecommunications Corporation, Lesotho Airways and most relevant to the topic at hand the Plant Vehicle and Pool Services (PVPS).
The ‘storm’ of privatization came, conquered and vanished, and in the end all these entities had ownership change from government to predominantly foreign ownership, something which is a topic for another day on its own.
The biggest lesson that Basotho should have learnt with privatization is that without properly functioning domestic capital markets, Basotho will always be at a disadvantage when large opportunities such as these present themselves. This in fact is a well-documented lesson for all countries that embarked on this journey of Privatization in the 90s.
Golden opportunity – hit or miss?
In 2016, the Central Bank of Lesotho launched the Maseru Stock Market (MSM) in a bid to provide a platform for Basotho to channel their savings and invest in domestic companies.
Late as it were given the lessons from privatization a decade before, this was an important and welcome development in many respects.
For one, we have local pension funds which conservatively should be valued at anywhere between 7 – 10 billion Maloti, which to date leaves our shores to the Republic of South Africa in search of investment opportunities.
The simple reason being that there are not enough credible and sound investment opportunities at home.
My logic says: Govt Lease opportunity + Platform to raise capital (MSM) + Vision = Perfect storm to jump start the economy to the benefit of Basotho.
I think Lesotho missed a golden opportunity on a silver platter to create inclusive wealth creation and value. As stated earlier, when the Bidvest contract came to an end, Government of Lesotho opted for a hybrid model where Government would lease vehicles directly from Basotho, and then ultimately award a fleet management contract to a provider to oversee operational management.
The problem with this approach is multi fold;
- The sole purpose of privatizing PVPS was premised on a business case of ownership vs leasing. As we know, government previously used to own all its vehicles which necessitated in them having to have a unit that focuses on maintenance. For government this meant running a both a large capital expenditure budget to acquire new cars and a recurring operational expenditure budget for the maintenance and repairs of the fleet. Once outsourced, government had all the capital budget for acquiring vehicles freed up to priority capital projects and only had recurring operational budget for the use of the vehicles. The lease costs most importantly come as a managed service cost which includes fleet, maintenance and the management thereof. The current model (interim) is in contrast to this principle as the client now pays for the leasing with Basotho individuals and still has to oversee the management and provisioning of the fleet by itself.
- The biggest problem of them all is the non-inclusivity of the model. Let’s pause for a second and glance over Lesotho in numbers. If we conservatively assume that a base sedan retails at M250,000 and a base double cab bakkie retails at M400,000, how many Basotho do we exclude purely based on affordability? I know for sure that the informal trader who sells fruits and vegetables is excluded. I know for sure that the factory worker is excluded. I know with certainty that the young graduate who is starting out in their first job is also excluded. I know with certainty that the majority of the working population is excluded which is essentially a few hundred thousand people. How is this even fathomable given that the major partner in the coalition has its slogan as ‘sera sa motho ke tlala’?
- All leading service providers who offer fleet management services, do not offer this as a standalone service. They normally provide an end to end solution where they provide a vehicle that is insured, and comes with a maintenance plan. They use economies of scale to their benefit and to that of the customer. It would be difficult to lure their services if as a client you have already leased vehicles from 800 individual providers who all have different maintenance plans, different insurers and different tracking mechanisms to their vehicles. It simply becomes an unmanageable or too costly to manage contract which defies the whole point of a leased arrangement for government as a client.
I can count many more of these challenges and constraints which make the chosen model impractical, but I will leave it at these top three.
Realizing a dream – Building wealth for the majority
How far-fetched is it that the government fleet contract can have participation of at least 50,000 Basotho and not just 500 Basotho who can afford to buy vehicles that meet the specification of government? Is this even practically feasible?
Basotho can come together to establish a large publicly owned company to be listed under the Maseru Stock Market. Shares in the company will be priced such that they become affordable to most Basotho e.g. M100 per share.
It is within reach for Basotho to raise M500 million for argument’s sake, and all it takes is for 50,000 Basotho each to investing M10,000, though in reality this will vary, others will invest more and others less.
Where Basotho individuals come short, the institutional investors in the form of Public Officers Pension Fund could step to shore up the investment and ensure target capital requirements are met.
The listing will serve both as a means for price discovery for the valuation of the entity and an exit and entry for those wishing to dispose or acquire more shares as the entity goes into the operational phase.
The next biggest move for the entity would be to identify a suitable strategic partner in the form of a Fleet and Maintenance Leasing partner which would come in with its share of capital but even more critically bring the experience and intellectual capital to manage the operation.
At a strategic level, shareholders would elect a Board of Directors that would craft the strategic direction of the company.
Given the size of the expenditure by government on leasing its fleet, this new entity by turnover will immediately be in the top 10 companies by size in Lesotho if not in the top five.
The company will easily be turning over +M700m per annum which is very significant. Properly managed without undue interference, this company can easily diversify its operations and venture into the many facets of the motor industry given its capital base which will be of benefit to the multitudes of its shareholders.
This is how sustainable value and wealth are created. Value from a customer perspective, i.e. government will reap the true benefit of the outsourced model. Wealth will be created all round.
There will now be an entity that pays significant corporate tax, and all other forms of taxes.
There will be +50000 shareholders who reap the benefit of dividends on a sustained recurring basis, meaning more money will circulate within the economy.
The local Pension Funds will also now have an avenue to invest locally other than shopping malls whose payback periods are much longer.
The Stock Market will also benefit in that more businesses will now have a practical reference point to demonstrate how capital markets function.
Without a doubt in my mind, there is no better model than the proposed model. At a listing price of R100 per share as an example, the graduate who has just landed his first job can afford to buy a few shares; the informal trader who sells fruits and vegetables can afford to buy herself some shares.
The factory worker who earns barely M2000 per month, will now have an opportunity to also invest for the long term and get an additional income stream. It is a win-win for all parties.
The problem that Mboweni identifies is indeed true, that people (read politicians) fight to control economic means in a small and poor economy.
However, what is an even bigger problem, is the fact that none of those fighting work hard enough to expand the size of the pie.
The mentality remains that of ‘How do we extract immediate benefit’?
The time for Lesotho to stand up and be counted is now. We need to chart a new path towards prosperity for all.
We as Basotho need to overcome this hopelessness that permeates across our society. We need to implant a new winning mentality.
We need to cultivate an ambitious mind-set, a mind-set of a nation that co-creates, that collaborates and that is creative in responding to our economic challenges.
In a recent social media exchange, I listed 12 countries, all much smaller than Lesotho, and all of them all having GDP per capita much higher than South Africa – some by as much as six times.
All of these did not start as wealthy nations. Some were actually poor as recent as 1960, but they charted new growth paths, and executed their plans diligently and with discipline.
The reason for comparing these 12 countries in size to Lesotho and GDP to South Africa, was to dispel two notions that are on many people’s minds;
- That size is a constraint to Lesotho’s prospects of economic prosperity
- That integration into South Africa is the answer to our economic challenges. This would only limit Lesotho’s true potential.
As Sankomota said it: “It is now or never!” NW
*Palama Limited and Bua Limited are fictional company names.