Monday, May 2, 2011


The then Uganda Commercial Bank was one of the public enterprises shown up as the reason why government should have no business in business.

The bank had a sh100b hole on its books thanks to loans gone bad – many of them to connected individuals who were unable or unwilling to pay back.

An initial tender process for a sale of a majority stake in the bank saw widespread interest. The only catch was that all bidders pointed out that the bank’s 50-plus branch network was unviable with the most inviting bid suggesting that 15 branches was an optimal number to keep.

Government rescinded the offer promptly falling into the hands of “Malaysian” firm Westmont Bhd, which promised to keep the banks countrywide network running when it took over the bank.

Shenanigans involving the now closed Greenland Bank, saw the bank being taken over by the Bank of Uganda and eventually sold to the one-branch-but-asset-heavy Stanbic Bank for about $20m.

That was nearly ten years ago. Since then Stanbic has invested heavily to make the bank a seamless operation and rather than shut “useless” branches in the rural areas have actually opened new branches.

In fact in releasing this year’s results bank boss Philip Odera said at the heart of the reason Stanbic profits dipped sh23b to sh72b in 2010 is because they had invested 21 new mini branches and 44 new ATM machines.

If you had gone to sleep at the height of the privatization of UCB and woken up on Thursday when Stanbic announced its annual results you would have been forgiven for thinking you were delusional.

As an aside Stanbic’s 2010 profit came in at about $30m. But more importantly services are being delivered and to add icing to the cake there is a 20% of the very profitable enterprise is in public hands. We may argue about the composition of the public holding Stanbic shares, but as they as you may take a horse to the water but you cannot force it to drink.

Interestingly the trust that was created to recover the bad debts is in danger of failing to collect sh82b due to lack of a law allowing the debt to be sold off to a private entity.

The former UCB is a useful test case for our privatization process. Everything that could go wrong did go wrong and in hindsight a lot has gone right that would otherwise not have gone right under its previous ownership.

As a rule public enterprises are less efficient than private enterprises in providing stakeholder value. And we are not talking only about profit but also of service delivery to its clients.

This could come as no surprise as public enterprises pander to politicians whose objectives are often times opposed to enhancing profits or service delivery. That is not an entirely bad thing as politicians may task the enterprise to deliver services to places that would otherwise not be commercially viable.

And that is where private enterprises fall short. As maximisers of the profit they are the more efficient model, however if left to their own devices profit making or enhancing shareholder value can be achieved to the detriment or exclusion of a demanding public.

In an ideal world companies should strike a happy balance between the two, the social responsibility of the public enterprise and the wealth creating private company.

I think that private enterprise works in the manufacturing and services is a moot point, but in Uganda we should explore this model in provision of health services for example.

In Lesotho a new 425-bed hospital is being built by a private consortium of investors and medical workers that is intended to operate at the same cost to the population as the soon to be demolished national referral hospital.

Beyond providing affordable medical care the new hospital will provide specialized care, that is until now handled abroad.

Government will provide annual fixed service fee and in turn the hospital will take in any patients in any condition up to 20,000 inpatients and 310,000 outpatients annually.

Beyond the medical staff at the new hospital other local investors have an equity stake in the project.

An independent authority will monitor standards and ensure both government and the private operator meet their ends of the bargain.

The hospital opens in October and it would be worth watching its progress as it is the first such arrangement on the continent.

Clearly we need to shake off our socialist pretensions – like we did in the 90s and focus on the end result of what we want from social services. Privatisation if handled well works in manufacturing and commercial services why not in social services as well?

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