It all seems very easy. If government is so keen on growing
the economy why doesn’t it get into the business of doing business itself?
After all it has sacks of money at its disposal?
If only life was so simple.
Last week President Yoweri Museveni commissioned a tomato
processing plant in Nakaseke and launched a special economic zone in Kaweweta,
also in Nakaseke. Almost at the same time the director of the Presidential
Initiative on Banana Industrial Development (PIBID), Reverend Florence Muranga
was being detained in parliament for not cooperating with the Public Accounts
Committee (PAC), which was looking into the accounts of the project.
And in the letters page of the New Vision someone lamented
the tax incentives BIDCO got to set up a palm oil industry on Kalangala island.
All these initiatives have two things in common they are all
agro-based projects and they are being supported by government. What seems to
determine the success rate is the nature of government involvement.
For two of the projects – the Nakaseke initiatives, it is
too early to judge their results but for the banana project and BIDCO
sufficient water has gone under the bridge to make a qualified assessment of their
success or lack of thereof.
"With the PIBID government decided to go it alone, staffing the project, financing research and bankrolling production. Eight years down the road and our super market shelves are not overflowing with its products. Or maybe they are still in development or their communications people are not doing their job....
BIDCO on the other hand, while braving sniping from the
environmental lobby are single handedly lifting Kalangala into the formal
economy, introducing farmers on the island to a new cash crop, providing market
for their produce and yes their products are on our shelves.
A decade into the project and BIDCO have invested $150m,
brought 20,000 acres under the crop, provide employment for about 40,000
directly and indirectly and have brought in additional $21m in taxes.
Government support in the project is in way of access to
land, infrastructure development and some tax incentives that reflect the long
term nature of the project.
The difference is as plain as night and day.
Where the government has identified credible investors,
negotiated the support they will lend projects have more or less succeeded. But
where government has jumped into the fray itself and tried to develop an
industry the results have been dismal.
The old economists taught that there were three factors of
production – land, capital and labour. This have to be manipulated for
production to take place. Later the role of entrepreneurship and management,
distinct from labour, was recognised as the missing ingredient in the
equation.
One reason government attempts at business collapse is
because they are manned by technocrats.
A technocrat, unlike an entrepreneur needs the resources to
be in place in order to start working.
Often the technocrat has no sense of
making a return on the capital that is entrusted to him, after all if the
enterprise collapses he will be transferred to another enterprise. The
entrepreneur, while he learns some of his best lessons from failure, needs
minimal resources to kick off and will do everything to ensure the enterprise
succeeds.
The urgency for job creation and economic growth is clear
and present. Government needs to be thinking in terms of the most efficient
deployment of the resources at its disposal – mostly capital and land and
matching it with entrepreneurial and managerial capacity to get the desired
outcome.
"The model that seems to pip all the rest is for government to identify projects with long term and far reaching benefits to the economy, attract investors foreign and local to these investments, mitigate away as much of the risk as is justifiable and let them run with the project....
During the privatisation process of the 1990s, quite a few
projects fell through because government in trying to appease the locals was
unwilling to make the necessary concessions to allow credible businessmen to
take some of our derelict companies.
A case in point was the Coffee Marketing Board (CMB) whose
key asset apart from the land on, which it stood was the roasting plant that
could handle Uganda’s entire export crop of four million bags at the time.
Government wanted to flog half the company off, valuing its assets at about
$30m.
Two rounds of tendering saw the leading offer—both times by Swiss coffee trading
giant Sucafina, plummet from $8m to $4m. The plant probably rusted and was sold
for scrap and the buildings were home to the ill-fated Tri-Star Apparel
project, which was also bedevilled by poor design and management.
Nothing is perfect as even the best designed projects can
fail, but the odds seem strongly in favour of a hands off approach to its
partnerships with the private sector, the two projects in Nakaseke may, with
time, confirm or disprove this thesis.
