Safaricom Sale Risks Lower Government Returns Auditor Warns

Kenya faces potential long-term revenue losses if the government proceeds with selling a portion of its stake in Safaricom to Vodacom, according to Auditor General Nancy Gathungu. Her warning came during an appearance before the National Assembly’s joint committees on Finance and National Planning, and on Debt and Privatisation.

Proposed Sale and Payment Structure

The government plans to divest a 15 per cent stake in Safaricom through Sessional Paper No. 3 of 2025, aiming to raise approximately Sh204 billion ($1.57 billion). The government currently holds a 35 per cent stake, valued between Sh280 billion and Sh300 billion. Under the proposed arrangement, Vodacom Group, through Vodafone Kenya, would pay the government Sh40.2 billion upfront instead of receiving future dividends from the remaining 20 per cent stake.

Concerns Regarding Revenue Loss

Gathungu cautioned that this upfront payment could shortchange the government, as Safaricom is expected to continue generating substantial profits. Historically, annual dividends to the government, when it held a 35 per cent stake, averaged Sh15–20 billion. She suggested applying a perpetual cash flow model to determine a fair valuation for negotiation, emphasizing that dividends from a profitable entity like Safaricom are expected to continue indefinitely.

Recommendations for Valuation and Oversight

Gathungu urged the joint committees to seek clarity on how the Sh40.2 billion figure was calculated. She recommended additional valuation benchmarks, including Discounted Cash Flow analysis, Comparable Company Analysis, and public tender or IPO simulations, to ensure optimal returns. She also advised that the proceeds from the sale be ring-fenced and not diverted to other government expenditures.

Fund Allocation and Legal Framework

The sessional paper indicates the proceeds would support critical infrastructure investments, but does not specify whether funds will be channeled through the proposed Sovereign Wealth Fund or National Infrastructure Fund. Gathungu stated that enabling legislation to operationalize these funds must be enacted first. Without a clear legal and governance framework, there is a risk of misallocation or opaque utilization of the proceeds.

Regulatory Oversight and Public Participation

Gathungu called for heightened post-divestiture regulatory oversight from agencies including the Communications Authority of Kenya, Central Bank of Kenya, Nairobi Securities Exchange, and Competition Authority of Kenya. Separately, the banking sector, through the Kenya Bankers Association, proposed reserving five per cent of the divested shares for the public to broaden ownership and participation in the national asset. They believe this would deepen market participation and increase liquidity on the Nairobi Securities Exchange.