WHY DO WE FEAR THE MARKET?

It has been three decades since economic reforms kicked off with the currency reform of 1987.

Since then government has privatised its large portfolio of companies and broke up the monopolies that these controlled.

For a near bankrupt economy this was just what the doctor ordered.

The truth is government had no room to manoeuver other than shed these haemorrhaging companies, release their assets to productive players in a last ditch attempt to jump start the economy.

This is after the NRA straight out of the bush tried everything from price controls, commodity rationing, barter trade and came up against the reality that the only way to get the economy going was to fire up production, which its derelict companies were unable to do.

So with a lot of reluctance, they turned to the market for help.

"By privatising the companies and liberalising markets they improved the environment for doing business in Uganda...

Coffee farmers started getting paid in cash for their crop instead of the chits they got from the government marketing boards that would take months to be paid out, if ever. We stopped importing sugar, sodas, beers, blue band and even bread because were now producing them locally.  On shoulders of those initial reforms we have seen improvements in everything from banking to telecommunications; from education to health care (if you think our health services are bad now you should have been around in 1987), in everyone of these instances it was the private sector jumping where government was failing.

There have been mistakes of course. Neither the victors nor the bureaucracy they found in place had a clue about what it takes for a market driven economy to work optimally and their role in making this happen.

So they took advice from the donors who were driven by a desire to return the country’s economy to a functioning state rather than trigger transformation.

The trouble with the market is that left to its own devices, it is a terrible distributor of the value it creates, concentrating it with the owners of capital, to the detriment of labour and the poor.

A competent and patriotic state not only restrains the market players’ instincts for primitive accumulation but also facilitates them to be innovative and produce for the larger population.

The colonial state for instance facilitated the extraction of value for the benefit of the capitalists in Europe with little regard to the welfare of indigenous populations. That is how at independence we had about 300 A-level students out of a population of seven million people, if you extrapolate it today, with 40 million population we would have under 2,000 A-level students.

Without investing in people, governments cannot expect to cause economic transformation.

So the inadequacies in government over the last three decades means while we have had the longest continuous stretch of economic growth since the creation of Uganda, this has not been spread equitably.

It’s not difficult to see why this is so.

For starters with seven in ten Ugandans deriving their livelihood from the land, agriculture accounts for under 30 percent of GDP. Agriculture’s share of GDP has fallen sharply from almost 80 percent in 1986 as services and industry have grown as a proportion of the total economy.

In more developed economies agriculture accounts for an even smaller percentage of the economy but so do the people who depend on it for sustenance. Industry has sucked up the labour from the rural areas, which has led to consolidation of farms and greater mechanisation.

Relatedly while most Ugandans rely on agriculture, output in this sector has been anaemic, not keeping up with the growth in services and industry.

As a result in the last three decades the biggest beneficiaries of the economic growth have been urban dwellers, who have not only seen their incomes but also their standard of living rising.

It has been claimed that Kampala for instance accounts for 60 percent of the nation’s GDP since most of the value addition, services and industry are located there. If we were to be conservative and say half of Uganda’s $25b GDP is generated in Kampala and parcel this amongst the city’s two million daytime population the per capita GDP of Kampala is about $6000 almost ten times more than the national figure of $600...

This obvious inequality is being seen as a market failure, being held up as a red flag and reason for a greater state intervention in the economy and even more scary, a return to era of the state enterprise.

First of all what do you expect from a pig than a grunt. The market while being the most effective creator of wealth or growth is the worst distributor of these, as mentioned earlier.

There is nowhere in the world where the market left alone can result in an equitable society. It is the job of government to not only facilitate the development of the market but to distribute its gains to the people.

"If there are huge inequalities in a society, more so in a growing economy like Uganda’s, this is an indictment of government not on the market...

The market is doing fine, as evidenced by the continuous growth over the years. So it is counterintuitive to give more and more control of the economy to the same sector that has failed to facilitate equitable development.

Actually we should be more afraid of greater state intervention (read state enterprises) than the market. The market is the devil we know and the means to leverage it for transformation and equitable development are known and all around us.

There is a role for governments to play in facilitating growth and development by underwriting the security of person and property, infrastructure development and the provision of social services. In addition they can underwrite research and development.

All this on the basis of a national strategies aimed at exploiting our competitive advantages and creating new markets. They need not start state enterprises to do that.

The argument that countries in Asia relied on state enterprises to jumpstart their economies after the Second World War has its loop holes.

The more successful Asian tigers – Japan, South Korea, Singapore and Taiwan, relied on strategic support of the private sector to drive their export led growth agendas.

And secondly if those same countries were to copy what the western economies had done to develop, should they have tried their hand at colonialism and slavery, because it had worked for western economies?

LOOKING TO A PROSPEROUS 2019

Happy New Year to all our readers.

In the greater continuum of time a year is but a moment but for us living through it has far reaching repercussions for us.

There are things we did or things we omitted to do; there is the route we took or did not take when came to the fork in the road in our journey; Things we said or did not say. All of them but moments in our lives but whose consequences will live with us and generations to come long into the future.

"There is a lot to say about 2018 but I think the key issue that is going to lay a basis for 2019 and beyond is our attempt to resolve the frustrations around land in this country...

The land probe led Justice Catherine Bamugemeirere has been wading through the chaos of our land situation in this country. They have uncovered fraud and victimisation the total picture of which most of us have been unaware.

To state the obvious the land issue and its speedy and judicious resolution is key to our development ambitions.

It is a challenge enough that we do not have one uniform land tenure system across the country. To begin with most land around the country is owned privately. In other countries the government owns all the land and people lease it. This makes a big difference when it comes to public projects and planning of land use .

So we have freehold, mailo, leasehold and customary tenure systems.

That aside because of decades of sweeping land issues under the rag, powerful interest groups have grown around this resource that have proven not only to be a counter to government’s authority over the resource but have also been unafraid to take the law into their hands to resolve ambiguities over this resource.

This uncertainty has caused investors to pause, which attitude we least in a country that is in a hurry to develop.

"Land underpins all assets and therefore an uncertainty about the security of land rights means no meaningful investments can be carried out...

If I going to put down billion s of shillings to start a farm or construct an industrial park or factory or set up any productive asset I need for a start to be sure that the land I will buy for the purpose will be locked down against any unreasonable claims.

This is basic common sense. Which makes me wonder when some “investors” claim to have invested billions in a project and yet they have not even secured the property.

Uncertainity, which leads to unpredictability is not capital’s friend.

A resolution of out land issues and the development of a useful baseline from which to handle the various tenure systems is critical to unlocking the full potential of our land.

We have almost half the region’s arable land, yet the output of our farms is among the lowest in the region because not enough people want to invest in farms to raise output. They say that an aerial survey of our potential minerals showed that if we were to exploit our full potential, Ugandans would have to move out first, but we are not a great mining nation at all.

"Is it any wonder then that titled land sells at such premium even compared to elsewhere in the region? Relatedly is it any wonder that the urban areas, particularly Kampala continue to hog the benefits of the last three decades of economic growth?...

Unfortunately land issues all over the world are politically explosive and seating governments tend to pussy foot around them at best or maintain a bad status quo rather than do what is necessary to unlock its potential.

The Bamugemereire probe is not going to unfurl the mess in the land sector but we are hoping that it can at least create a base from which to start resolving the issues and allow for the full exploitation of  the land to our benefit.

WHY UGANDA SHOULD NOT REVERT TO PARASTATALS

Some people in government and in sections of society are hell bent on resuscitating the era of the state enterprise.

In a nutshell they argue that nearly 30 years of neo-liberal, Bretton Woods Consensus, market driven economics has only created jobless growth, promoted speculation and widened incomes and wealth disparities.

On this basis they say that government needs to take back the "commanding heights of the economy" (sounds so sanctimonious) by setting up strategic industries that, while critical to long term development, are currently unattractive to private sector investors.

In so doing they see the government creating jobs, jumpstarting these critical industries and beating a path for the eventual entrance of private players.

"There are many reasons why this argument is flawed, not least of all because its proponents seem not to have learnt the lessons of the past or are ignoring them conveniently for their own motives....

Allowing for the benefit of doubt, the end to which all economic engineering is aimed at, is development, which unlike growth — the quantitative improvement in the size of an economy, development goes a step further to mean an improvement in the living standards of the people.

While we are still at it, there can be no development without growth. Development is the distribution of the fruits of growth. 

The most effective and maybe even efficient creators of growth in an economy are the private sector or business or the market, terms which are used interchangeably.

The market has two things going for it in this regard.

One, it feeds off the desire of every individual to better themselves. Some call this greed but this falls short of the actual driver because in order for businessmen to make more and more money they need to to serve more and more people, which seems contrary to being greedy.

So for instance the most successful bank or telecom or fuel companies are those that serve the most people, if success is measured by the profits they make.

Another thing going for markets is that it takes advantage of the laws of evolution, that its not the strongest or the swiftest but the most adaptable of the species that survive. Those that survive benefit from the lessons of the multitude of experiments of trying to survive in the market, by themselves or their colleagues, past and present.

This is the most important argument against centralised economies. 

"There is no one person or group of people intelligent enough to simulate the thousands, even millions of experiments that occur in the market, needed to choose the market winners . Attempts in history to do so have failed dismally....

The USSR for instance, while it developed into a nuclear power, at the height of its “power” breadlines were a regular feature of its citizens’ lives!

These two features of market economies means the market is the most effective system to generate economic growth or create wealth, the human race has ever conjured.

That being said, it is no secret too that the market is the worst possible distributor of the growth or wealth it creates. Markets left to their own devices will give to those who have more and more and to those who have little even the little they have will be taken away.

So once consistent growth has been achieved how is this translated into development?

The distributor of this growth is supposed to be the government.

"First of all the government has to create a conducive environment for businesses to flourish and create this wealth. Alongside that government through the budget, distribute this wealth to the people by paying for social services, infrastructure and other public goods like security, social and environmental protection with revenues from taxation. In doing so across the population it ensures there is an improved standard of living, development for all...

It is clear that government has to partner business not subvert it, if it wants to foster development. If there is growth and no development it is a failure of government not the market, because the market has done its part.

Uganda's economy last contracted in 1985, it has otherwise seen more than 30 years of uninterrupted growth. the growing inequality in society is therefore an indictment on government as the private sector is wildly successful.

Which brings us around to why a reversion to parastatals is a bad idea and should be nipped in the bud.

The privatisation of the 1990s happened because the companies we had, gutted and mismanaged since the 1970s, had become a drain on the treasury, diverting much needed resources from service delivery.

To kill two birds with one stone – increase productivity and revenues while at the same time rid ourselves of these financial black holes, government decided to sell them off to private players who could fulfil the above conditions.

It is true that the initial impetus for this policy initiative came from the donors, who made it a condition of opening up the financial taps. But the logic was hard to refute. To get these companies to a point where they would produce enough revenues would require resources which the country did not have at the time.

So we had three choices. 

Either we could continue to soldier on with these ailing institutions, hoping they would turn around without much capital injection from government (hope is not a strategy); strip them of their assets and use the money to keep government running until the money run out or sell them as going concerns, which would not only continue to operate but increase their productivity, create jobs and pay more and more revenue over the years that would allow government to carry out its basic functions.

Thankfully government chose the last option. We are much better for it.

"The promoters of the return to the past base their thinking on the wrong analysis that the companies failed for lack of money. The truth is they failed for lack of proper management. More accurately, the management of these companies did not have the right support, which goes beyond finances, to include insulation from the politics of the day....

Management is key, because money follows good management. And we are not talking about the people alone– we have MBAs flowing out of our ears, there are the governance issues, policies and compliance to regulations and best practice. You can have the “best” managers but no systems and the business will fail.

And after all that, why is it a bad idea for our government or any government for that matter to go into business?

Governments’ sole preoccupation is how to stay in power. Everything they do is aimed at that goal. Government do this by doling out goodies to their support bases. 

In more advanced economies that may be industry supporting infrastructure or slanting policy to ensure industries are set up in their areas.

In pre-industrial societies like Uganda, the needs of the people are more basic than the self-esteem that comes with a job and the ensuing self-sufficiency. We just want something now to keep us and our families going.

It’s bad enough that the US government can’t do business, now imagine our government which has to pander to our base needs and instincts? You cannot run a business where you are donating stock, employing constituents despite their qualifications or allowing massive fraud go unabated because it’s being perpetuated by your supporters.

It is as simple as that. It’s not rocket science.

"

What government should do, which it has not been doing well, given the widening income and wealth disparities existing today, is work on improving the business environment – we are ranked 127 out of 190 people in a World Bank’s “Ease of doing Business” index, collect all taxes due to it and use that money effectively and efficiently to provide public goods....

These social services and public good ensure that the people's productivity improves and therefore earn more and their standard of living rises.

It is counterintuitive to think that if you cannot create a conducive business environment for the private sector, somehow the government companies will operate profitably.

That is another thing, the promoters of this return of the parastatals seem to think, that government companies need not be profitable.

What they don’t say is who is going to pay for the losses. 

They sidestep this issue because they know that we the citizens, shall have to pay for the losses with poor social services, derelict infrastructure and bad security. In fact if government is failing to pay its suppliers now – to the tune of sh1.4 trillion, now imagine what will happen when its companies owe hundreds more businessmen.

"In fact a return to parastatals will not only widen income and wealth disparities, as a fraction of the society will be sponging off the state, but will also jeopardise the economic growth we have been achieved over the last three decades....

While growth has not been equitably spread --- and we know why, it at least gives us a springboard for the future.

HAVE WARREN BUFFETT GUIDING YOUR NEW YEAR

American investor Warren Buffett is the fourth richest man in the world. His $80b fortune has been built over the last seventy or so years by investing in good companies either off the stock exchange or by buying them outright.

Through long experience he has developed a way of thinking about business and life that is simple, straight to the point and has earned huge success

You cannot do better than borrow some of his wisdom to take you through 2019.

On life …

1.       “The most important thing to do if you find yourself in a hole is to stop digging”

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

This say the more or less the same thing differently.  In the New Year evaluate yourself there are those things or people who keep taking and taking and never giving back, getting rid of them will make you better off instantaneously.

2.      “There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume. Isn’t that a little like saving up sex for your old age?” 

Buffett turned 88 in August and has the benefit of experience and wisdom in saying this. To the rest of us trying to make something of our lives this advice can seem rather impractical in the face of mounting bills.

But if you think about it, if you do what you enjoy you will be able to surmount the obstacles to make it a successful and even profitable endeavour.

3.       “It’s better to hang out with people better than you. Pick out associates whose behaviour is better than yours and you’ll drift in that direction.”

Hanging out with people who are your equals or worse, are lesser than you, will keep you in your comnfort zone which not where growth happens. To grow into greater success you need to burst out and feel the discomfort.

In the New Year audit your friends and general environment.

4.       “Chains of habit are to light to be felt until they are too heavy to be broken”

Watch out the habits you adopt. Enough said.

5.       “Honesty is an expensive gift, don’t expect it from cheap people”

Life is so much smoother when you trust the people around you. Mistrust is expensive and can lead one to do things you would not ordinarily do and that would be detrimental to your future plans and wellbeing.

On business ….

1.       “Risk comes from not knowing what you are doing”

So the way to minimise risk is to increase one’s knowledge. The moe knowledge you havet he risk you can take on and still be successful.

2.      “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” 

This should be at the foundation of human resource process. It would save a lot of time and stolen money.

3.      "No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."

 What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: you don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

4.      "You can't make a good deal with a bad person."

This should help with dispelling the fallacy or ego trip we so often make when we think that just because someone was dishonest or scheming with other people they will not be the same with you.

If he has conned someone before or reneged on a deal before chances are they will do it again so stay clear.

There is very little commentary you can add to Buffett’s words of wisdom, he is often straight and to the point. You pay attention because he has not only lived a long and full life, but also because he has been widely successful financially without drama and theatrics.

Merry Christmas and Happy New Year to you all!

HOW NOT TO BECOME A ZIMBABWE OR VENEZUELA

Last week I came across two disturbing stories from Zimbabwe, which has just done yea since the dismissal of Robert Mugabe and Venezuela, whose economy is in rapid decline despite having the largest oil reserves in the world.

In the Zimbabwe story it had the heart breaking revelation that shortages are so total and the people so desperate that if they see a queue they just fall in line in the hope that they will be something at the end of the line. That’s just unimaginable, to me at least.

That if I was on my way to work and I turned the corner and I saw a queue had formed I would park my car or jump out of the taxi to join it. Interestingly the next ten people in the line probably wouldn’t know what they were queuing for and I wouldn’t have answers for the man behind me. That is so heart-breaking.

In Venezuela the economy is so in the toilet that the HIV/AIDS victims who only a few years ago were getting free anti-retrovirals from the state cannot get any neither the free ones or even buy at the pharmacy. As a result they go on blind fate and drink the juice from a tree known as the guasimo, whose potency scientists doubt.

For us we need to ask how did these countries, once beacons of development, get there and how can we avoid sinking into their quagmire.

Below is my four ways to avoid a Zimbabwe/Venezuela situation, in no particular order.

1.       Don’t attack the productive sectors

In the early 2000s Mugabe needed to shore up his political support and decided to forcefully redistribute the Whites Zimbabweans’ land to his cronies and a few token peasants. He was largely successful in achieving this and subsequently won the election, but it was Pyrrhic victory.

The same white farmers were the main producers of food and agricultural produce, which produce supported arguably the continent’s most vibrant agroprocessing industry, which in turn employed thousands of Zimbabweans.

"Many of the farms that were expropriated have reverted to bush, Zimbabwe now relies on the imports and donors for food and the famed agro processing industry has gone to ground. The effect of this is that exports have fallen off, hard currency receipts have plummeted and the country despite the best intentions of the new leadership is once again rolling into the abyss....

2.       Don’t try and be cleverer than the economy

In Venezuela the government of then president Hugo Chavez buoyed by oil prices that reached $140 a barrel a decade ago thought they could subvert the laws of economics. They instituted price caps on essential commodities as a way to raise the living standards of all. They imported food and sold it at less than the cost price. While the oil prices were high and the government could afford to subsidise the adventure things were good for Venezuelans. But productivity fell, after all why work hard to save costs and improve efficiencies when the government will pay you. When the government couldn’t sustain the subsidies and the producers fat on government subsidies could produce efficiently they went out of business and living standards plummeted.

When governments are flush with cash their instinct is to do the popular thing like lower the economic burden of the people in ways that are unsustainable and subject to abuse.

Surpluses should be invested in education, health and infrastructure, to improve the ease of doing business in the country, to ensure the economy’s competitiveness is maintained.

3.        Nip corruption in the bud

When you look at the fall of Robert Mugabe his corrupt cronies including his wife Grace had a lot to do with the collapse of his regime. In the last two decades or so many of these were let loose to not only take for themselves prime farmland – which was supposed to be redistributed to the lower classes, but also expropriated the revenues from state owned enterprises and mines. 

They did so without replacing parts or trying to run them as going concerns. They literally ground them to a halt.

"The corrupt are rapacious, they don’t have self-regulating mechanism to determine that enough is enough. They will keep gorging on the public funds and extorting the productive sectors, even when to do so would be to kill the geese that lays the golden eggs. And even then they won’t stop. They will begin to feed on themselves triggering instability.

4.       DO NOT PRINT MONEY!!!

At one point inflation in Zimbabwe was so bad that it was measured in thousands of percent. The story is told of the man who caught a bus to go across town to buy bread. By the time he got to the bakery the bread had run out. As if that was not enough he then found he couldn’t afford the bus fair to where he had come from because it had quadrupled in the interim.

When governments begin to print money this signals their final capitulation and desperate attempt to subvert the laws of economics. After messing up the productive sectors, letting corruption run rampant and tried all sorts of shenanigans to trick the economy to bending to their will – you can’t cane or torture the economy into shape, they resort to printing money to alleviate the immediate need for salaries, payouts to cronies and the rest be damned...

From then on you are on slippery slope which can lead to in Zimbabwe’s case where they have had to rely on US dollars or South African rand. The problem though is because you have gutted the productive sectors you are not exporting much of anything to have enough dollars to keep the economy afloat.

In Venezuela’s case they launched a crypto currency backed by their oil reserves. The problem is the oil sector is producing less than half its capacity and all the oil they export is used to pay off existing debt.

GOVERNMENT SHOULD SIGN OFF ON UMEME

One of the best things this government did for this country as to privatise public enterprises and liberalise the economy.

"As a result the private sector has unlocked national assets and individual initiative which has ensured that we the economy has grown every year since 1985. In 1985 the last year the economy contracted it did so by 3.3 percent...

The majority of Ugandans were too young or not yet born when these two initiatives kicked in but just to illustrate it took me two years to get a telephone line, it could take you the same amount of time if not more to get an electricity line and at this time of the years we would suffer shortages of everything from sugar to soda.

All these are totally inconceivable for the majority of Ugandans, eight in every ten are 35 or younger, and for the rest of us we have forgotten.

One of the outcomes of this process is the Umeme concession, which was the privatisation of the management of the electricity distribution process.

The owners of Umeme, led by UK Private Equity firm Actis, took over the 20 year concession in 2005. The concession basically meant that government remains the owner of the assets and Umeme runs the distribution function for them.

Since the concession begun Umeme has signed on an additional one million users from the 290,000 they found online and have invested more than $500m to rehabilitate a dilapidated network and expand it to keep with not only the growing demand but also the increased generation capacity.

At the beginning of the concession Uganda had a generation capacity of 380MW, which has more than doubled since to 850MW and is set to double again in the next 12 months when electricity from the 600 MW Karuma dam and the 183 MW Isimba dam are switched on.

There have been intense negotiations to have government give an early indication that the Umeme concession will continue, when it comes up for renewal in 2025. This is important for Umeme and the economy as a whole because the distribution needs to contract financing to continue with its investment plans.

Umeme estimates that it will need to invest at least $1.2b (sh4.5trillion) over the next eight years to maintain and expand the existing grid.

"Recent outages may suggest that new investment into the network is struggling to keep pace with increasing demand. Last year new signings onto the grid increased by about 15,000 a month, a rate set to increase for this year...

Uncertainty would mean financiers would cost their funds much more expensively or even worse, withhold the badly needed funds until they can be more confident about the way forward. The higher cost of money will invariably feed into the price we pay for our power.

Over the last 15 or so years Umeme has got itself to a good place, raising the confidence in itself to the point that it can go to the open market to source funds. This is confidence is not easily won.

Government understandably has concerns about the cost of power in the economy. Umeme accounts for a third of the tarriff and anything to reduce this or at worst k keep it stable would be great.

And the icing on the cake on the Umeme deal is that the National Social Security Fund (NSSF), which boasts at least two million contributors, and the other Ugandans through listed shares, own about half the company as we speak. This allows a bigger pool of people benefit from the good fortunes of the distribution company, and by extension have a real interest in the dealings around the concession.

This is good because it takes the sting out of the naysayers argument that Ugandans are not benefitting from the investment --- apart from improved electricity distribution, that is.

SUSPENDING ECONOMIC LAWS CAN ONLY END BADLY

Tanzanian President John Magufuli last month decided that his government will buy all 220,000 tonnes of the cashew nut crop because the market was not giving his farmers a fair price.

He has bought the crop at almost double the market price and incurred an unbudgeted $320m.

Tanzania’s output account for under five percent of world production so it is unlikely that this development will move the needle on global prices to ensure the government breaks even.

And this comes at precarious point for our southern neighbour because with a reduction in the nuts’ exports the currency can be expected to depreciate, which is not a good thing as a$66m Eurobond payment is due in March. It will cost more in local currency – a further drain on the treasury to meet the country’s obligations.

"Populists and anti-free marketers will be toasting the president for his action and his political approval ratings may even jump to historical levels. But when the dust settles down the high fiving and back slapping will go with it...

Magufuli is trying to subvert the law of supply and demand because it is not convenient for him. In simple terms the law dictates that prices will rise and fall according to supply. When there are shortages prices go up, when there is too much of anything around prices will fall.

We may fault him on the nature of his intervention but he probably has no choice but to intervene.

The fault is in his government and those before him, who refused to face the cyclic nature of the cashew nut market squarely.

Throughout history politicians have tried to defy the law of supply and demand, because it did not suit their purposes or threatened them politically, often blaming it on foreign conspiracies to unseat them.

But Tanzania will learn this course of action is expensive – see the hit the exchequer has taken already and often causes the same problem you were trying to avert – in this case, a collapse of the cashew nut industry.

It seems global cashew nuts have fallen due to lower demand from India and Vietnam – big producers in their own right, but also reduced demand from Iran which is suffering trade sanctions.

Dar es Salaam had two choices both hard to swallow, either they let the farmers take the loss and may the best survive, which might have been a disaster as most of the farmers are small holders and therefore the industry’s collapse will be felt among more households.

Or do as they did and try and prop up the price for the farmers, although now they are stuck with a crop they cannot sell for a profit, in fact they are facing a 50 percent loss if they sell at market prices.

The aforementioned populists and anti-free market proponents will argue that that’s what governments are for to protect their people from such vagaries out of their control.

"What they don’t say is that the funds committed to this subversion of the free market have to come either from diverting funds in the budget, which may hurt social services, infrastructure development or other support to the productive sectors of the economy, or by printing more money, which will invariably trigger inflation which will affect the productive sectors, harm tax collections, which will affect service delivery – the dreaded vicious cycle....

What the populists are not addressing is the question of what happens if prices remain depressed next year and the next, then what? They say the market can remain irrational longer than you can remain liquid.

And if you think about it farmers will develop a kind of moral hazard. Because they are shielded from the market forces their incentive to be efficient – to produce more with less, is diminished and not only that whenever there is a problem they will expect the government to step in. Not a recipe for growing a globally competitive industry.

The solution is simple but not necessarily easy.

Clearly the market has to be restructured which is a medium to long term venture.  Tanzania needs to incentivise processors to set up there. These can provide a better price than that that the export markets will give for raw cashew nuts. As they should also support these producers market their output locally, regionally and even abroad. Incentivising processors and subsiding marketing costs is a more efficient use of resources than buying nuts from farmers at inflated and unsustainable prices.

While the market is the best creator of wealth, It is true too that it is the worst distributor of resources – to those who have more will be added on to them. Wealth distribution is the role of governments But for governments to fulfil this role they need to understand the way markets work and not be corrupt.

Tanzania will pay a high price for this misadventure, but some people just like to learn the hard way.

The trick is not to subvert the market but like a Judoka, to use the opponent’s weight – the market in this case, to bend it to your will.