Treasury’s Sh40 Billion Safaricom Gamble Could Cost Kenya Trillions, Auditor Warns

The Kenyan government stands accused of mortgaging the nation’s financial future for immediate cash as Auditor General Nancy Gathungu delivers a scathing assessment of the controversial Safaricom dividend deal that could see taxpayers lose out on trillions of shillings over the coming decades.

In explosive submissions to Parliament, Gathungu has warned that the Treasury’s plan to accept a one-off payment of Sh40.2 billion from telecoms giant Vodacom instead of receiving future dividends represents a dangerous conversion of Kenya’s most reliable revenue stream into what she terms an arbitrary lump sum that significantly undervalues long-term returns.

The warning comes as the government pushes ahead with plans to offload a 15 percent stake in Safaricom to Vodacom at Sh34 per share, generating Sh204 billion in gross proceeds. However, the devil lies in the details of what happens to the remaining 20 percent government stake.

Under the proposed structure, Vodacom would make an upfront payment of Sh40.2 billion to compensate the government for future dividends from its residual shareholding. But Gathungu argues this arrangement warrants intense scrutiny given Safaricom’s profit-generating prowess.

The telecommunications behemoth has historically delivered annual dividends of between Sh15 billion and Sh20 billion to the government when it held a 35 percent stake. Even with the reduced 20 percent holding, proportionate dividend flows would still represent substantial recurring income for decades to come.

“This arrangement effectively forfeits long-term returns that would otherwise accrue to the government’s remaining stake,” Gathungu told the joint parliamentary committees on Finance and National Planning, and on Debt and Privatisation. “The Sh40.2 billion payment represents only a few years of potential dividend income.”

The mathematics paint a troubling picture for Kenya’s fiscal future. If Safaricom continues generating dividends at historical rates, the government’s 20 percent stake could reasonably be expected to yield between Sh8 billion and Sh12 billion annually. Over a 20-year period, that translates to between Sh160 billion and Sh240 billion, potentially reaching Sh600 billion over 50 years without accounting for inflation or growth in Safaricom’s profitability.

Gathungu has demanded that Treasury disclose exactly how it arrived at the Sh40.2 billion figure and how many years of dividends were factored into the calculation. If no definite period was used, she insists the valuation should be based on perpetual cash flows, reflecting the reality that dividends from a profitable entity like Safaricom are expected to continue indefinitely.

“Use of the perpetual cash flow approach ensures the government captures the true economic value of an ongoing dividend stream rather than accepting an arbitrary lump sum,” the Auditor General stated in her written submissions.

The concerns extend beyond the dividend arrangement. Gathungu has also questioned whether the Sh34 per share price, despite representing a 17 percent premium over the six-month volume-weighted average, truly reflects optimal value for such a strategic national asset, particularly given the absence of competitive bidding.

She has called for additional valuation benchmarks including Discounted Cash Flow analysis, Comparable Company Analysis, and simulations of what the shares might fetch through a public tender or Initial Public Offering.

The government currently owns 35 percent of Safaricom, with the total stake valued at between Sh280 billion and Sh300 billion based on current market prices. The proposed sale would reduce this to 20 percent while Vodacom, which already holds the majority stake, would further consolidate its control.

In another red flag, Gathungu has warned that the Sh204 billion proceeds must be ring-fenced to prevent diversion to recurrent expenditure, citing previous instances where funds from Eurobond proceeds were misallocated. She noted that while the government claims the money will fund critical infrastructure including energy projects, roads, water systems, airports and digital transformation, the sessional paper makes no mention of the proposed Sovereign Wealth Fund or National Infrastructure Fund.

“Without a clear legal and governance framework, there is a risk of misallocation or opaque utilisation of the proceeds, which could compromise fiscal discipline and accountability,” Gathungu cautioned, insisting that enabling legislation must be enacted before any funds are credited to such vehicles.

The Kenya Bankers Association has added its voice to growing concerns, recommending that five percent of the shares under divestiture be reserved for public purchase to broaden ownership of the national asset and deepen capital market participation.

Parliament now faces mounting pressure to scrutinize a deal that critics have already labeled a monumental mistake in terms of national sovereignty. With regulators including the Communications Authority, Central Bank, Nairobi Securities Exchange and Competition Authority expected to maintain heightened vigilance over Safaricom’s operations post-sale, the question remains whether Kenya is selling off its most valuable asset at fire-sale prices while simultaneously trading future prosperity for immediate cash to plug budget holes.

The joint parliamentary committees are currently seeking public views on the transaction, but with the government eager to conclude the deal and access the proceeds, time may be running out for Kenya to reconsider what could prove to be one of the most consequential financial decisions in the nation’s history.​​​​​​​​​​​​​​​​