Last week I happened upon a commentary by Kenyan economist
David Ndii in which he, in not so many words criticized planners for thinking
and acting like simply processing commodities was the way to add value to them.
Using the experience of coffee he demonstrated that roasting
coffee is not necessarily where the value is created in the coffees you buy off
the shelf.
He complained that the problem with planners is that they operated from the supply chain side and not from the value chain side, dooming many of their well-intentioned plans to death on arrival...
Ndii made the distinction between the two by explaining that
supply chain analysis would involve thinking from the input side – availability
of raw materials, the production process and getting it out to market, while
value chain analysis would involve thinking from the final consumer’s angle and
working backwards.
There is a world of difference between the two ways of
thinking and their eventual outcomes.
I have abbreviated his commentary – and very badly I
suspect, but with this information one probably can see why governments are bad
at business.
The key motivation of governments is to stay in power,
everything else has to define itself by how it meets that requirement. Given
the short political cycles, governments are often keen for quick wins which
don’t have to necessarily translate into service delivery – service delivery,
believe It or not, may not be key to them staying in power.
Hence their preference for supply chain thinking. Just build
the classrooms, clinics or whatever as tangible, physical evidence that we are
working.
The businessman on the other hand is thinking, or should be,
about the end consumer of his product or service. The theory that if you build
it they will come, is a myth as any businessman will tell you.
Last week a report run that the lauded Soroti Fruit Factory
was not operating. This was weeks after the management said they needed sh35b
from government to pay off farmers and for use as working capital.
So all the fanfare of the opening was clearly to impress
President Yoweri Museveni.
Even more bizarre in 2016, MPs visited an ice plant in
Buyende near the Bukungu landing site in eastern Uganda. Government had
splurged sh2.4b on an ice plant to fishermen preserve their catch.
The plant had been completed in 2011 and had not produced so
much as an ice cube because it was not connected to the grid. I wonder whether
it is working now.
When we joke about uncoordinated troop movements in
government isn’t it that they are stuck in this supply chain thinking? Can you
blame them given how governments think?
You see it too in the relaunch of Uganda Airlines. We are
celebrating because we have got two planes – again supply chain thinking. If
its promoters thought from the end consumers’ perspective they would do things
very differently.
You see it with the Kiira Motors Corporation, whose stated
aim is to commercialize a venture that started as university students’
assignment. Setting up an assembly line, never mind the viability of the
enterprise as a standalone project, if we thought from the value chain side of
things we would do the project very differently.
"All the people manning these projects are not stupid people, far from it, but clearly they have been caught up in government thinking...
It is not rocket science and makes the difference between
success and failure for these projects. Governments out of some false pride may
try to sustain these projects but the laws of economics eventually prevail and
they have to throw up their arms in surrender and let them go.
The problem with this is by the time they give up they will
have sent billions of much needed cash down the drain. Monies that would have
shown a much better return if funneled into education, health, infrastructure
and even security. (Already government has reneged on a agreement to boost
teachers salaries)
The promoters of these projects tend to couch the rationale
for these projects in nationalistic rhetoric and pay little to no attention to
the value chain.
Let us assume that the planners are pushing these projects
out of some honest omission, that they carry out no value chain analysis, what
would we like to see so that these projects --- if the government really must
do them, can have a decent chance of success?
"They should focus on the output they want to achieve and work backwards...
So in the case of the fruit factory in Soroti what do they
want to achieve? Processed juices that can be marketable locally and abroad. Do
they have to be the ones who build it? No.
In the case of the ice plant in Buyende what do they want to
achieve? Higher incomes for fisher men in the open market. Do they have to be
the ones to build it? No.
The Kiira Motor Corporation? Where is the market for the
expected vehicles? Can we service those markets competitively and sustainably?
How can we do it more cost effectively, because it’s not as if we have money
flowing out our ears?
Uganda Airlines? We want to have more visitors to our borders
(support tourism)? Do tourists come because we have a plane or because there is
something to see in this country? Is the airline the best use of our money to achieve
the stated aim?
Of course this is thinking from a business perspective, but
we know, governments have weightier issues to deal with than business!
