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.
