[kictanet] Orange and yu exit: Market Failure or Creative Destruction (Capitalism Style)?

[Ali Hussein]

Listers

Jaindi Kisero's article on the imminent departure (demise?) of two telcos in Kenya make compelling reading.

http://www.nation.co.ke/oped/Opinion/mobile-phone-firm-pullout-market-failure/-/440808/2257472/-/2crh39/-/index.html

The article basically explores the possibility that market failure is what we are experiencing in Kenya. 

According to Wikipedia Market Failure is a concept within economic theory describing when the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. (The outcome is not Pareto optimal.) Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view.[1][2] The first known use of the term by economists was in 1958,[3] but the concept has been traced back to the Victorian philosopher Henry Sidgwick.[4]
Market failures are often associated with time-inconsistent preferences,[5] information asymmetries,[6] non-competitive markets,principal–agent problems, externalities,[7] or public goods.[8] The existence of a market failure is often the reason for government intervention in a particular market.[9][10] Economists, especially microeconomists, are often concerned with the causes of market failure and possible means of correction.[11] Such analysis plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, sometimes called government failure.[12] Thus, there is sometimes a choice between imperfect outcomes, i.e. imperfect market outcomes with or without government interventions. But either way, if a market failure exists the outcome is not Pareto efficient. Mainstream neoclassical and Keynesian economists believe that it may be possible for a government to improve the inefficient market outcome, while several heterodox schools of thought disagree with this.[13]

While Creative Destruction alludes to free-market economics as a description of processes such as downsizing in order to increase the efficiency and dynamism of a company or economy.

The case of Orange and yu in my humble opinion is the stuff of Business School studies at Strathmore and others for years to come.

The questions that the country now needs to ask include:-

1. How will the demise of two major multinationals in Kenya going to affect the country's FDI outlook? Kenya is quickly gaining a reputation as a graveyard for MNCs who come here without appreciating the GLOCAL Principle.
2. What are the market dynamics that are going to be unleashed by a a defacto duopoly that now exists?
3. What impact will it have going forward on the attractiveness of Kenya as a destination for tech giants and Startups alike?
4. Is the regulatory environment being optimally executed to protect both investors and consumers alike? 
5. Lastly - the more things change the more they remain the same? Seriously. The way this is going I won't be surprised if Airtel also throws in the towel seeing as they haven't turned a profit since their entry into the country.

Ali Hussein

+254 0770 906375 / 0713 601113

Twitter: @AliHKassim
Skype: abu-jomo
LinkedIn: http://ke.linkedin.com/in/alihkassim
Blog: www.alyhussein.com

"I fear the day technology will surpass human interaction. The world will have a generation of idiots".  ~ Albert Einstein

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