KENYA PRIVATISATION, BETTER LATE THAN NEVER

Last week Kenya’s President William Ruto announced his government would be privatising 35 state owned companies.

To that end, a new law  been enacted that brings into force an agency to carry out the exercise without bureaucratic interference.

The naysayers of course are up in arms, seeing this as an International Monetary Fund (IMF) plot to take Kenyan assets on the cheap.

Even if that is true no one is asking how Kenya came into a situation that the IMF would dictate to it.

"The IMF is like the lender of last resort. When no one else will touch you with  a 100-foot poll the IMF is the one you go to. But they are not a charitable organisation, their money has a cost.

Normally others will not lend to you, because the probability is high you will not be able to repay them.

So the IMF may insist on more efficiency in the economy and the easiest thing is to flog all the deadweight companies that are sucking more out of the government than they are paying back in taxes and dividends.

Greater efficiency in the economy will make the IMF redundant, as the country will be able to go to the open market to borrow funds.

Privatisation can take many forms, selling the company as a going concern or liquidating it all together – selling the assets and paying off the liabilities.

In the last incidence the company maybe beyond salvage – up to its eyeballs in debt, in need of major recapitalisation and in a dying industry, in which case it may not make business sense to try and keep it going.

But if the company is to be sold as a going concern one can expect that the labour force will be cut (tribalism and nepotism are never an efficient recruiting mechanism), minimum efficiencies achieved, while replacing obsolete machinery before they may think about beefing up staff numbers again.

The Uganda experience shows that the labour force eventually surpasses the original numbers before privatisation. The only thing is that it is not all those who are retrenched that regain their old jobs.

"The main aim is not to raise money but to create greater efficiency in the economy...

Kenya has a fairly robust stock exchange on which some of these companies can be offloaded – if they have sound management and strong balance sheets, but chances are they will be sold to investors directly.

The critics will say that since many of these companies will be snapped up by foreign investors it amounts to colonialism via the back door.

It would be ideal that local businessmen buy the companies. But often what happens is that it is cronies of the political elite who “buy” these companies, who often can not raise capital to revamp them and end up selling them anyway, to foreign investors at multiples of the price they bought it at.

The ordinary citizen  is often conned into thinking it is better to sell to our own, not knowing they are facilitating crony capitalism with they being the eventual loser. They lose because efficiencies are not created that would see a wide supply of goods or services.

Kenyan indigenous capital would have a better chance of participating in the up coming privatisation, because not only are they wealthier but also because they know how to mobilise resources in groups. They have longer experience in SACCOS and investment groups than we do or did in the 1990s, when our privatisation process was taking off.

In the final analysis the man on the street wants better goods and services at a fair price, they really don’t care who owns the company.

In theb 1990s Russia, still hung up on their socialist dogma, privatised many of their companies by giving shares to the workers. The workers ended yup selling their shares to a few connected Russians who are today’s oligarchs, fabulously wealthy people (all men) and the workers’ plight is worse off than it was under communism, especially since expected efficiencies did not turn up in the economy. And also because they took the money from these companies to buy assets abroad, like Chelsea FC.

But if ownership is such a big deal, the Kenya government should make listing on the Nairobi Stock Exchange (NSE) within a certain time frame as a condition of sale. No gentleman’s agreement as happened here, with the eventual owners not acting as gentlemen eventually.

"The powerful interest groups in Kenya that have resisted the privatisation of companies have finally run out of runway. These companies should have been privatised 20 years or so ago. But the economic realities have dictated that  they have to go now.

Dictated because the short term suffering from privatisation can be politically costly. Ruto did not come to this decision with out the economic reality staring in the face. He needs to offload as much excess baggage on the national purse strings, if he is to have ha lf a chance of getting the Kenya economy back on track.

Again we bring such hard decisions on ourselves. If these companies were well run and making contributions to the treasury the case for their sale would be hard to sustain.

But no, people are not asking the major question, who put us in this position?

 

SAPS; UGANDA’S FAVOURITE BOGEY MAN

Picture this, you are in a world of hurt. Your income can not cover a month as the demands on that money –school fees, rent, fuel, food are just overwhelming. As if that is not enough, you lose your job. So, you go to your neighbour who is better off, for a loan.

Your neighbour would love to help, but more importantly he wants to get the money he lends you back, at some pre-determined point in the future. He is not a charity.

So, he sets some conditions for you if he is to lend you the money. Getting a job may not be easy, so most immediately he makes it a condition that you cut back on your lifestyle – move into a cheaper house, shift your kids to less expensive schools, cut out morning and evening tea and on some days you can eat two instead of one meal.

In the meantime, he wants you to look for a job. He may even be willing to pay your school fees to upgrade your qualifications. He wants to improve his chances of being paid back.

You have a choice to put pride aside, bite the bullet and accept the prescription in order to get the loan or tell your neighbour to go to hell and go and beg or con someone else who will lend you the with less onerous conditions.

Extrapolate this to the national level and these are the choices that faced the NRM and the Obote II before them.

"When the NRM came to power in 1986 not only were the national coffers bare, but also the economy had shrunk below its level fifteen years prior. In fact, it took almost 15 years from 1986 to grow the economy back to where it was in 1971...

After trying to get the economy back on its feet on our own resources failed, they turned to the World Bank and the International Monetary Fund (IMF) for help.

To access financing from these two Bretton Wood institutions they had to sign up to some conditions, which basically were to cut back on government spending and raise tax collections – Structural Adjustment Programs (SAPs).

This is not high finance, its commonsense.

Among the things government had to do was to shrink the size of government, sell loss making parastatals and liberalise the economy, let the private sector drive growth. In terms of raising taxes the Uganda Revenue Authority(URA) was created and invested more in infrastructure.

The measures to cut costs meant for starters, quite a few people lost their jobs a government was downsized and parastatals were sold off. Government struggled or cut budgets to things like university education and sports.

It is understandable why people were not happy with it.

"NRM tried to do it alone, thinking they could print money to climb out of the economic hole they found themselves, but this only made matters worse, with inflation hitting 250 percent a year...

To put that inflation rate in perspective it means prices were doubling every four months. That meant if you paid one million in school fees for your kids in January when you went back for second term it would be two million shillings and in third term would be four million shillings. we were here screaming when the price of petrol went up from sh4000 to sh5000 a 25 percent increment in a year, what would we be saying in 1987 when inflation was galloping out of control?

So when I hear people criticizing SAPs I think two things, either they were the beneficiaries of the economic chaos or they don’t know what they are talking about. I found that more times than not it is the latter rather than the former.

The main criticism of the SAPs was that it opened up our economies to the acquisition of our “assets” by foreign capital.

In Uganda’s case we are being very generous by classifying our parastatals as assets. An asset makes you money but these companies were a drain on the treasury, diverting money for more essential services to prop up under capitalised and badly run companies. People say if only government had recpaitalised the companies they would have been fine. When I hear this I don’t know whether to laugh or cry.

Government was so broke that it shut down Uganda airlines because it could not afford the sh10b (about $10m) a month it cost to keep it afloat. Today government would fill little pain with such payments.

If our “assets” were taken it was because of our own weakness. Kenya across the border from us did not have to let go of their state enterprises, because they were actually net positive contributors to the budget.

Now I hear President William Ruto is looking to flog them on the open market to raise money to clear some of the country’s huge debt. Common sense.

 

WHY WE SHOULD BE CONCERNED ABOUT KCCA ROADS

Last week Kampala Capital city Authority (KKCA) boss Dorothy Kisaka announced plans to pave roads around Kampala, a project that would cost $288m (one trillion shillings).

Her political boss Mayor Erias Lukwago quickly jumped into the fray accusing KCCA of overinflating the cost of the project which by his calculation the 69km of road earmarked would cost sh14b a km to build. For a long time we have known that to build a kilometer of road costs about a million dollars or about sh4b.

KCCA are yet to respond to their boss.

The need for a functioning road network cannot be overemphasized especially in the capital.

"Speaking from personal experience without traffic I whiz to work in less than 15 minutes without pressing the accelerator to the floor. This is a far cry from 15 years ago where I would have to navigate badly rutted roads for most of the way to work. My productivity has increased as I can do more as I do not have to stay too long on the road....

I am not alone. Sine the paving of the roads in our leafy suburb, businesses have sprouted along the roads, real estate development a little off the paved roads is on steroids and generally it’s a more pleasant place to live – we are not chocking on dust and any number of pestilences that come with it.

As a driver of economic growth and subsequent development, improved infrastructure is critical. As shown above it improves productivity and efficiency and opens up new avenues for economic activity where there was none before.

It would help even more if KCCA could decongest our roads via the use of more organized public transport – bus and rail and the introduction of tolls for people wanting to drive into the city. But that is a story for another day.

At a basic level transport infrastructure links the producers to the market. The better the infrastructure the more the potential of the producers can be actualized.

I remember years ago that matooke used to ripen on the tree in one village in now Sheema district because the rains had made the murram roads impassable. As soon as the road quality improved the economic fortunes of the farmers improved exponentially.

No lesser an authority than the International Monetary Fund (IMF) have made the connection between the speed of traffic on roads and poverty.

"In a graphic of the world published last year, the IMF showed that the countries with the slowest roads are also the poorest in the world....

Surprise! Surprise! 

But the fastest roads – where mean speed ranges were 91 – 110 kph were in north America, Western Europe, Australia, Singapore and Japan. In Africa only Morocco and South Africa made the cut.

On a recent visit to South Africa distances the equivalent of Kampala to Jinja were being done in under 45 mins, thanks to express ways, as opposed to double that time here. The quality of the cars also had something to do with it. That time differential has serious economic implications.

It is no surprise that Kampala is the economic hub of the country given its concentration of road network, about 3.5km of paved road per kilometer squared as opposed to the national average of 0.02 km per kilometer squared. Is it any wonder that by some calculations Kampala’s GDP per capita is ten times the national $850 figure.

So that is why we should care about KCCA’s plans for the road network. Lukwago’s allegations should be taken seriously to the extent that over priced contracts mean we build fewer roads.

That aside it was worrying that KCCA reported their budget for maintenance of the roads was way below requirements and hence the proliferation of port holes on Kampala roads.

"Laying down tarmac all over the place if we can not maintain it is not a very prudent way of carrying out public affairs. You spend more on building roads than if you had just maintained existing roads in good time. Of course, the increased expenditure is an attraction for certain types.

We forget but Kampala, especially its suburbs are a better place to be than 15 to 20 years ago. That is a double-edged sword for KCCA as our expectations have been elevated not only in the places that have been paved but those who wait in anxious hope for the coming of tarmac in the other suburbs.

You know what hey say? When you give them an inch they take a mile.

KCCA and government by extension, need to pay attention. While the near-term benefit is to placate Kampala’s chattering masses the long-term benefit is increased and improved economic activity, more revenues for the treasury to build and maintain more roads. QED!

PS Since this column was published in the New Vision KCCA boss Dorothy Kisaka has explained that allegations of overinflation on road costs were misplaced as the costs have been explained and various stakeholders including the KCCA political leadership have signed off on the process that begun in 2016.