Inside the titanic battle for the soul of Safaricom

In the changes that will be keenly watched by investors, speculation is rife that Mr Khawaja, who is a managing partner at Nairobi-based law firm Denton's Hamilton and Mathews, could be headed for a bigger office.

A statement by Safaricom said Mr Khawaja, currently serves on various boards, including Rhino Ark Charitable Trust, Al Futtaim Automotive-CMC Motors Group Ltd and Atua Enkop Africa Ltd.

He previously served as a director of KCB Bank Group as well as Kenya Power and Lighting Company and as a Trustee of Kenya Wildlife Service (KWS).

"The new chairman will be elected by the board of directors in coming weeks," said Safaricom in a public notice on January 5.

Financial Standard has learnt that the crucial meeting could take place anytime, with sources both in Vodafone and Vodacom indicating that they will be pushing for the conclusion of the vote within a month.

Already, consultations between the main shareholders - the Kenya government, which holds a 35 per cent stake in Safaricom, and both Vodafone and Vodacom with a combined stake of 40 per cent - are set to start soon.

The Safaricom board is made up of 10 non-executive directors and two executive directors.

The non-executive directors are three government nominees, including the National Treasury Cabinet Secretary, Linda Muriuki and now Mr Khawaja.

There are also three Vodacom nominees to the telco's board, one from Vodafone and three independent directors.

The executive directors are the CEO Peter Ndegwa and Chief Financial Officer (CFO) Dilip Pal.

Safaricom has had four chairmen since its inception, all of them government nominees.

They include Ndolo Ayah, Nicholas Ng'ang'a, Michael Joseph and most recently John Ngumi.

Financial Standard has learnt that the government is pushing hard for its latest nominee to the board to become chairman.

The shareholder relationship is complex, setting the stage for a fierce boardroom battle.

Vodacom and Vodafone wield great influence as technical partners.

Without their presence and active involvement, Safaricom risks falling technically behind and stagnation.

On the other hand, the government has tremendous influence through its regulatory, taxation, and policy powers.

It could arm-twist Safaricom if it wanted to. For instance, there are major pending policy decisions on mobile termination rates and the long-term question of Safaricom's dominance.

Legal attempts in the past to split Safaricom have failed amid mounting concerns that the telco has become too big through its dominant market share in voice, mobile data and mobile money.

But the calls gained momentum recently after the banking regulator signalled it is mulling a legal roadmap to implement the split.

Mobile money

The Central Bank of Kenya (CBK) reiterated late last year it will back legal efforts to compel Safaricom, Airtel Kenya and Telkom Kenya to split their telecommunications businesses from mobile money transfer and lending units.

CBK Governor Patrick Njoroge said recently a road map for the split of the telcos' business units could be in place by January this year.

At the same time, the government relies heavily on Safaricom's tax contributions, both directly and through its entire ecosystem.

Safaricom remains the National Treasury's biggest corporate cash cow at a time the country is struggling to grow revenues.

In the financial year ended March 2022, Safaricom paid Sh144 billion to the Exchequer, including Sh124.7 billion in taxes and licence fees and a Sh19.5 billion dividend payout courtesy of the government's 35 per cent stake in the firm.

Safaricom is also responsible for an estimated one million jobs.

There are also Safaricom's considerable activities in health and education as well as directly and through its two foundations - Safaricom Foundation and M-Pesa Foundation.

M-Pesa is now a de facto national payments system, which makes it a critical part of the economy.

Safaricom is also intimately involved in the financial sector through mobile money lending platforms Fuliza and M-Shwari.

Government interference

On the flip side, its revenues depend on the skilful handling of its relationship with the government, according to analysts.

All these factors make investors highly sensitive to any perceived government interference, analysts say.

It is for these reasons the chairperson's pick will be keenly watched around the world.

While the chairperson is non-executive, their pick would signal how the government will treat Safaricom.

M-Pesa accounts for about 99.9 per cent of the value of mobile money transactions, underlining the entrenchment of the platform in the economy.

The National Treasury in earlier reports warned that the collapse of the M-Pesa service would cause widespread disruption in the economy.

This means M-Pesa is classified as a systemic risk to the country's economy, underlining its crucial role.

In the year to March 2022, payments valued at Sh1.4 trillion were made through the Lipa na M-Pesa platform and a total of Sh9.78 trillion was paid through M-Pesa, entrenching the popularity of the platform as a means of commerce as opposed to paying via cash.

Safaricom's mobile money business made a profit of Sh50 billion before tax in the year ended March, contributing nearly half of the company's total gross earnings and solidifying M-Pesa's position as its most profitable service.