PUBLIC ENTERPRISE REFORM AND PRIVATISATION

The creation of state enterprises, whether by nationalisation or new starts, was an important instrument of policy in Tanzania for over two decades until the mid-1980’s. Most such firms enjoyed a combination of a monopoly position and preferential treatment with lack of accountability for results that has been characteristic of public enterprises worldwide. Multilateral and bilateral donors and their advisers assisted many such enterprises and share responsibility for results.

AIMS OF THE STATE ENTERPRISE POLICY
The aims of policy were many fold, including: gaining national control and thus pursuing self-reliance; taking initiatives to promote development where the private sector was seen as inactive; broadening the indigenous managerial base; achieving widespread regional development, and employment creation. Substantial progress was achieved towards many of these goals but by the late 1970’s it had become clear that commercial results and prospects were poor: on the one hand consumers’ interests were not being served, and on the other, most enterprises would neither be able to replace their initial capital nor create savings for the future.

RESPONSE OF THE GOVERNMENT TO PROBLEMS FACED
The response since the mid-80’s has been fourfold.

Firstly, parastatals in a monopoly position have gradually been expected to meet competition, often for the first time, as in the case of agricultural marketing bodies. An example is Tanzania Hides and Skins which, as a private purchasing and processing firm in the early 70’s had achieved around a 60% market share. Once nationalised it was given a monopoly and was profitable, but when the internal market was opened to new entrants in the mid-1980’s its 100% market share slid until the early 90’s when it almost hit zero; rental income from properties leased to competitors was sufficient to sustain the remaining staff houses and vehicles.

The second response has been to introduce external competition through liberalised imports, which has tested private and public sector firms alike. For some commodities, such as beer and clothing, import duties have in practice not been fully collected so import penetration has accelerated and public enterprises such as TEXCO have been hard hit: 13 of TEXC0’s 14 textile businesses are technically bankrupt.

Thirdly, the commercial banks – primarily the NBC and CRDB – have been expected to exercise commercial judgement in extending credit, and the share of parastatal firms in lending has dropped accordingly. Many firms, aware of the restructuring that must be undertaken if they are to be commercially viable, are unable to proceed because they have neither the reserves nor credibility in the eyes of lenders to be provided with further resources.

This constraint is paralleled by the fourth policy response by government which is, under the ‘hard budget constraint’, to decline to provide subsidies or additional share capital to public enterprises. This has affected marginal businesses such as Southern Paper Mills which, despite investment of over $400 million (in today’s prices) has yet to become profitable – but many other firms depend on it.

CONSTRUCTIVE INITIATIVES
This competitive commercial environment has led to many constructive initiatives by firms themselves, their holding companies (there are 28, some providing services of uncertain value) and potential buyers or joint venture partners. The emergence of the latter is the result of the latest policy thrust which complements those taken earlier. Divestiture of parastatals to private owners is actively being sought by the Presidential Parastatal Sector Reform Commission (PSRC) set up in 1992, whose policies have been set out in the Parastatal Privatisation and Reform Master Plan, published by Government in August 1993, and updated by the 1993 Review and Action Plan for 1994 and 1995, which was scheduled to be published in mid- 1994.

Divestiture has begun to take a variety of forms: in 1993 some 20 firms were sold, either through outright sales or joint ventures with a (majority) trade partner, or leases. A further two dozen firms were placed in liquidation or closed, and the assets put to alternative use. Sales included most firms in the leather sector; Carnaud Metal Box (T) Ltd reverted to the control of its former parent as a result of dilution of the government shareholding; the largest sale was that of Tanzania Breweries Ltd in which Indol 1nternational B.V. a subsidiary of South African Breweries, obtained a controlling interest by competitive tender which included assurances about rehabilitation as well as construction of a long-awaited brewery in Mwanza. In addition, Kunduchi Hotels, Mafia Island Lodge, the Mount Meru Hotel and Serengeti Safari Lodges have been leased to the French Accor (Novotel) Group.

BRINGING UNPALATABLE TRUTHS TO THE SURFACE
Divestiture as a process has the characteristic of bringing unpalatable truths to the surface – like, in the UK, the full cost of decommissioning nuclear power stations. A couple of Tanzanian examples will suffice. Firstly, in textiles, apart from the problem of protection mentioned earlier, divestiture requires the resolution of awkward questions on outstanding unserviceable debts, and raises the question: given the original (often erroneous) choice of location, inputs, technology and product mix, what can be done to help attract a buyer? Secondly, in the case of a firm supplying good quality professional services, the management wishes to purchase the company from the Government – an attractive MBO proposition. The assets comprise a solid, experienced team and some equipment in a leased building. A perfectly feasible proposition until it was realised that the main assets in fact comprised some three dozen executive and staff houses, undervalued, and rented to employees for between £1 and £2 per month. The business could not sustain the cost of purchasing or maintaining such a property portfolio. The solution? That requires another article!

By the end of 1993 almost 120 further enterprises were under consideration for divestiture. Other businesses which will remain under public ownership for the time being, such as Tanzania Harbours Authority, are likely to enter into Performance Contracts with their parent Ministry, spelling out their commercial and other objectives and accountabilities. Others, like Tanzania Telecommunications Limited, are divesting non-core functions such as subscriber premises wiring and preparation of directories, while inviting private firms to supply new services e.g. card-operated public call boxes and cellular networks.

PARASTATAL POLICY CHANGE WITHOUT A CHANGE IN RULING PARTY
All told, policy towards the parastatal sector has changed as dramatically and almost as rapidly in Tanzania as similar policies in Hungary or Poland but without a change in ruling party. Progress in ownership change, as a tool of parastatal reform rather than as a goal in itself, is likely to continue, but not at a breakneck pace. Reaching a consensus on the best courses of action requires consultation with managers, employers, the holding company and within Government.

Experience to date suggests that employees and their OTTU (Trade Union) representatives are well aware of the need for structural and management change including, often, an interim reduction in employment. However, the benefits of any programme of enterprise reform inevitably tend to emerge only over a period. So far though, the level of commitment to the programme remains high. 1994 should reveal whether enterprise buyers are similarly enthusiastic.
Bevan Waide

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