Last week Umeme Holding Ltd (UHL) sale of half it shares to
National Social Security Fund (NSSF) and their announced intention to offload their
remaining shares brings to a close one of the most successful chapters in the country’s privatisation process.
The privatisation of state owned enterprises was based on
the premise that old parastatals were a drain on the treasury, that they needed
huge investment outlays the government could not afford and that we did not
have the managerial capacity locally to turn them around. The last issue beyond
inadequate managerial capacity was that local managements were not properly
insulated from the interference of the state.
"The opposition to the privatisation process argued that we were selling the family silver, never mind that it was badly tarnished, to foreigners for a pittance. In doing so forgoing any leverage the government had over the economy and that it wold cost us jobs, earnings and prestige to sell...
Thankfully the economic reality was that the government
really couldn’t afford to carry the load of these resource draining black holes
in the face of more pressing needs – getting the economy back on its feet,
rehabilitating roads, ensuring security and providing social services. Forcing
the government’s hand to sell.
If the same debates were happening now the opposers of
privatisation would have won the day.
The liberalisation and privatisation of the power sector was
always going to be a sensitive issue because of its potential strategic
importance to the economy. At that time we were only generating about 200 MW,
the then Uganda Electricity Board (UEB) was covering less than three percent of
the population and power availability was sporadic.
A law was enacted to break up UEB’s monopoly before it was
unbundled into its generation, transmission and distribution components. The
break up of the former UEB was important to bring specialisation to the various
functions and to make it easier to sell, as resuscitating the whole UEB would
have cost too much and increased the risk to potential investors.
The generation arm was leased to South Africa’s Eskom and
the distribution arm to a consortium led by the UK’s Commonwealth Development
Corporation (CDC). Later Actis, a spin off from CDC took over Umeme.
Under the arrangement the assets of Umeme still belong to
government, but Actis was given a 20 year concession to run them from 2005.
"Half way through the concession Umeme has accomplished a lot of what the privatisation was intended to -- widen power consumption, deliver a more efficient service and increase revenues to government. And as a bonus they have sold their shares to Ugandans who have benefitted from its increasing profitable operations...
Of course the naysayers will point to the sh500b they got
from share sales and dividends and say we got the short end of the stick. But
this would be to ignore the growth in the economy and improvements in welfare
to individual households and businesses that came with adding almost 700,000
accounts – the projection is there will be a million accounts by year end.
And not to mention the increase in wealth for the thousands
of shareholders who have rode the company’s share price from its Initial Public
Offering (IPO) of sh275 to the current sh525 a share price. Shareholders almost
doubled their money when one considers capital gains and dividend pay-outs
since 2012.
And then as if that is not enough they mentored a management
cadre that will take this project to the next level.
The now disbanded privatisation unit could not have asked
for a better poster boy for the process than Umeme.
The private sector is not the panacea for all our problems.
But as a creator of wealth through the manipulation of land, labour and capital,
no other economic system comes close. But for it operate for the benefit of all
the people, we need to understand what
motivates it and leverage this to our own benefit.
In their pursuit of profit companies seek to maximise
revenues and minimise costs. Governments on the other hand, ultimately, are
looking to deliver goods and services to its people to improve their standard
of living.
These two goals need not be mutually exclusive.
Government needs to create a conducive environment – good
legal and policy environment, efficient infrastructure and productive human
resource, these coupled with growing market demand should attract the kind of
credible investors – internal and external, we need to move this economy to the
next level.
"Unfortunately for us our appreciation of the private sector – how it works and what it needs to work well, is rudimentary at best or bordering on total ignorance at worst. We have an unhealthy, even envious suspicion of money makers, which does not allow us to make the necessary concessions required to allow businesses to thrive...
Let us study the Umeme deal in more detail and maybe use it
as proforma for attracting investors into our infrastructure, agriculture and
social services sectors. And who knows, with sufficient exposure to
international best practice we will not only appreciate business better but we
will incubate our own crop of super businessmen.
