THE GOOD, BAD & UGLY OF PRIVATISATION

My column last week “We were right to privatize UCB,” threw up a lot of comment. Some of it illuminating but a lot of it based on rumour, urban myth and downright ignorance.

When the government set out to privatize state enterprises in the 1990s as a way to unlock their assets and stimulate the economy, it came up against loud, even shrill opposition. I learnt last week that opposition is still alive and kicking – despite the evidence to the contrary.

The critics argued that the government was in effect selling the family silver – never mind all of them were hemorrhaging money that would be more profitably used funding health, education and infrastructure rehabilitation; that foreigners would take over the economy – never mind that the economy was in shambles and teetering on the brink of bankruptcy; and that it would lead to a lot of job losses and social upheaval – never mind that most workers in these companies were not even being paid a living wage and many did no work to speak of.

"The critics were right to be worried about job losses, but those same companies have employed multiples more people than the old shells ever employed; The critics were right that foreign capital would dominate the economic landscape, but we are much better for it with improved goods and services, jobs and ever increasing revenues; the critics were wrong to rail against selling of the badly tarnished family silver, which were a drain on the treasury and disincentive to competition...

The benefits of the privatization in resuscitating these companies quickly, unlocking the value of their assets and jumpstarting the economy are hard to argue against once the facts are in your possession.

As a young reporter I covered the privatization process and below are some of the good, bad and ugly of the process, which if events had gone another way it is most likely we would be talking a very different language today.

THE GOOD: TORORO CEMENT

Previously the Uganda Cement Industries (UCI) the company whose plant had long ground to a halt was privatized in 1995. The value, to the investors who changed its name to Tororo Cement Ltd, was the lime deposits that came with the factory. The factory’s equipment had not only broken down, but was obsolete and a complete overhaul of the factory was required.

"The case officer in charge of the deal later said that the factory was so bad that he was relieved to be handing over the keys with one hand and embarrassed to be asking for a check in the other. He said he felt like a con man, that Uganda should have been paying these investors to take the companies off their hands rather than the other way around...

He could not leave the premises fast enough after the transaction was done.

But today Tororo Cement is the leading manufacturer of the building material and have completed an expansion of their plant that allows them to produce three million tons of cement annually. It has been at the center of the real estate boom of the last few years and now exports to the region as well.

THE BAD: Coffee Marketting Board (CMB)

This was one of the most difficult attempts at privatization. Around 1997 government begun the process of the divesting 49 percent of CMB. The company which until a few years prior, had monopolized the marketing of Uganda’s coffee.

Its share of the bean’s export trade had collapsed to less than 10 percent at the time, but the people at the privatization unit were touting the four million bag a year coffee roasting plant as the key asset for investors to look at, as well the land on which it stood in Bugolobi.

After the first round of bids Swiss coffee trading firm Sucafina was the highest bidder of four, with an offer of $8m. Unfortunatley the company had assets then with a book value of about $40m. MPs at the time thought Sucafina were indulging in daylight robbery and ordered the PU to cancel the process and retender the sale.

"At the second round of asking there was only one bidder left, Sucafina and this time they offered $4m, effectively giving us the finger. Needless to say parliament threw this one out, the company was boarded up and that was that. We effectively cut off our nose to spite our face.

THE UGLY: UGANDA AIRLINES

By the time Uganda Airlines came up for sale it was sucking sh10b (about $5.5m at the time) a month out of the treasury, flew one Boeing 737 (not the max) on a solitary route, the Entebbe-Nairobi route and its only claim to fame was it would keep time.

South Africa Airways (SAA) was the leading bidder and their proposal was to turn Entebbe into a regional hub, with flights flying out across the continent and beyond. The process was a start-stop-start again affair over almost five years. Rumours of some powerful types subverting the deal to pave the way for their own airline were whispered. Objections to handing over the routes to SAA, with some muttering about racism under their breaths, seem to have scuttled the deal in the end.

"Eventually President Yoweri Museveni shut down the airline arguing he couldn’t keep shoveling sh10b a month down the Uganda Airlines black hole and that we would be just fine without a national airline. We would not die. That was in 2002...

There were many more eventful privatisations – successful and failed. In some instances they even against good economic sense palmed off some companies to Ugandans, I can't think of one that is productive. There were some companies for which the industry economics were so bad that they failed to rise again and folded anyway.

I shudder to think what would have happened if those companies stayed in government hands. How much good money would have gone chasing bad money down those black holes, all because we wanted to hang on to the family silver.