MADNESS: DOING THE SAME THING REPEATEDLY HOPING FOR A DIFFERENT OUTCOME

The voices calling for government to go back into business are growing louder.

They argue that there are key investments that need to be made that the private sector has failed to take up and government should. They explain that this is another way for government to create jobs. 

And they conclude by saying that monetary gain is not the only reason to start business, so even if the companies make losses the businesses will have served a greater good of absorbing farmer produce, create jobs and put new products on the shelf.

Who can argue with that logic. No one. Except that it is based on a wrong premise and bound to fail.

Let us take the three arguments in order.

"The reason private sector does not invest in a place is because the viability of a project is suspect. Either there are not enough inputs or there is no identifiable market or the eventual product cannot be competitive in the open market....

In Uganda today there is a concentration of economic activity along a “growth corridor” that stretches from Tororo, passes through Jinja and Kampala and onto Mbarara. With the activity come jobs and higher incomes. It is not a coincidence that along this belt is Uganda’s most travelled highway, a railway line and almost the full extent of Uganda’s power transmission lines, which convey industrial energy.

This last part is important because if you do not have the 132kva or 220 kva transmission lines, the power you have is good for only lighting and not industry.

It explains why the cement factories in Tororo ferry their lime from Karamoja. By some estimates it takes two tons of lime to make one ton of cement. It would be much cheaper to set up a factory in Moroto and truck packed bags of cement out. The reason they don’t build a factory in Moroto is because they do not have industrial grade energy.

So even if government says it wants to start a cement factory there, it will be doomed to failure – after spending billions of tax payer money to build a factory, because Moroto is not serviced by industrial grade energy.

"Looking at that logic you can see how the second goal of creating jobs falls by the wayside. No working factory no jobs. Unless for the security guards who will be manning the redundant hulk...

And finally they argue that profitability need not be an end of all enterprises. There are other “strategic” objectives that a business can serve. They are right and wrong.

They are right because business are created to provide a good or service and profit is a byproduct of that effort. So while the businessman wants to see a return on his investment, he has to focus on providing a good or service in a cost effective way before he can see profit.

They are wrong because without profit the sustainability of the company is compromised and the chances of collapse are improved. Non-profit making enterprises will be supported by our taxes, which would be better used improving social services and opening up other parts of the country to investment by laying infrastructure.

The building of roads, railways and some of the bigger infrastructure investments, which will facilitate investment should be government’s business.

Why can’t governments, not only the Uganda government, not do business?

From day one a government’s key mission is to maintain itself in power. The tendency to people state owned enterprises with their supporters, regardless of competence, to destroy markets by giving their own companies favourable status and to subsidise their losses indiscriminately, while shoring up their political support, doom these companies to mediocrity or even worse, total collapse.

 This mission comes in direct conflict with the profit motive. Profit as stated above is critical to an enterprises sustainability.

It is no wonder that the politically appointed task force to investigate the viability of the Uganda airlines are the same people who became its managers.

If government is really sincere about creating jobs it can do so in a cost efficient way by investing in understanding how business works. Not so they can go into business for themselves, but so they can facilitate businesses to thrive and provide the much needed good and services the economy needs.

Beyond infrastructure investors may need additional concessions, which government should be able to assess and negotiate.

This takes a little more intelligence than rushing around like a mad bull starting fruit factories or airlines or beef abattoirs, which have less than even chance of succeeding because of the clumsiness of their inception....

Believe it or not, government had a fish factory by Lake Victoria and it collapsed!

This country does not have infinite resources. Such circumstances demand that we apply a little more brain than brawn to get the intended outcomes. A return to the state enterprise in circumstances of scarce resources is to throw good money after bad.

We give the champions of this policy reversal the benefit of doubt, to believe they know not what they are doing.  But the truth maybe even more sinister.