REMAKING TANZANIA PLC

By Joseph Sabas

The financial crisis has availed us of a golden opportunity to see the two major schools of political and economic thought being played out in an open arena and the divergence in approach to solutions.

The school on the right characterised by the Conservative Party in the UK, Republican Party in USA and the CDU in Germany offers a simple and clear approach of allowing the recession to take its course. (The left call this “the do nothing approach”). This school also believes in protecting individual liberty, private property, in fiscal conservatism and small government and fewer taxes. To them a country is a sum of individuals rather than societies.
The left school of thought characterised by the Democrats in USA, the Labour party in the UK and the Social Democrats in Germany believes in Government interventions in economic activities to safeguard economic prosperity and to act as a safety net for the people. The left believes a country is made up of societies hence unions and such overused phrases like “hard working families”.

While the left, led by President Obama and Prime Minister Brown favours increased government spending and bailing out failing key companies, the Right led by Mr Cameron in the UK and the seemingly leaderless Republicans in the USA are vehemently opposed preferring instead to encourage the opening of lines of credit to viable business while allowing bad businesses to fail, which is a good case of “constructive destruction”.

In most countries these two schools of thought tend to converge and form a more or less identical centre-right/centre-left position with the demise of socialism and the rejection of pure capitalism offering a more amenable form of governance.

In Tanzania, with the exception of the Mwalimu phase, the IMF engineered policies that bear no resemblance to either school. Interestingly, CCM’s core belief remains that of “Socialism and Self Reliance” which is centred far to the left. God knows what it means in today’s CCM world. The opposition parties fare even worse. The irony here is that the IMF prescribes economic and social medicine but bears no political or economic responsibility for the consequences.
Over the period of Mr Kikwete’s presidency we have witnessed a restrained approach in diversifying the remaining major companies and utilities still in government hands. The government has intervened directly: in Air Tanzania by breaking the partnership with South African Airways, appointing a new management, and loaning it over Shs 5 billion of taxpayers’ money; in the Port Authority, the Telecommunication company (TTCL), TANESCO and the postal service by issuing directives on the way forward; in the National Insurance Corporation (NIC) the government has underwritten a NIC reorganisation; and, in TRL employees’ benefits have been improved.

In most countries the conclusion from the convergence of the two schools of thought is that the state is a bad allocator of capital and therefore the best job for the government is to legislate and regulate business and not to run it. This is only possible if the government policy framework is credible and sets clear objectives and there is an understanding of the conflicting goals of government and private investors/shareholders. In the words of Adam Smith in ‘The Wealth of Nations’ “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner but from their regard to their own interest”.

There is no doubt that most of TRL’s many problems emanate from these sorts of conflicts.
One cannot blame President Kikwete for trying to prop up the Mwalimu era of publicly-held companies and utilities. As he directs from the state house pulpit, summons CEO’s for a dressing-down and makes surprise visits to the port to highlight inefficiencies he also notes their critical importance to the country. But in this year of the 200th anniversary of Darwinism the nature of human beings in pursuit of self interest in the course of survival comes very much into play. This human behaviour has tested Mwalimu’s structure of governance at a huge cost to the country let alone the tax payer.

In this structure the taxpayer owns the companies, the President appoints the Chairman and Chief Executive with the respective Minister constituting the Board. The management bear no risk to the capital they are charged to employ and stand not to receive rewards for taking risks as they are serving at the pleasure of the appointing authority. So no matter what the President may promulgate, their goals are always short term. In the private world of owners and managers there is increasing professionalism (business competence, audit committees, independent non-executive directors). Rewards are linked with ownership through share option schemes. This is not perfect as seen in the case of the Royal Bank of Scotland but at least it addresses the key weaknesses. Now the government’s shares in public and partly privatised firms are vested with the Treasury Registrar and very few if any in government can claim to have either the knowledge or the professional experience to run major businesses.

The shenanigans emanating from the THA, NIC, TANESCO, the TTCL, the Postal Service, TRL, etc are almost guaranteed.

Vesting these shares in government-owned but independently and professionally run companies similar to the UK Financial Services Authority may go a long way in safeguarding taxpayers’ money, and creating value, while removing direct political interference.

1 Comment »

  1. sabasjoe said,

    October 8, 2009 at 1:30 pm

    Correction!
    In the last paragraph the UK Financial Services Authority (FSA) Should read as UK Financial Investments Ltd (UKFI) which was set up to manage government’s investments in Royal Bank of Scotland, Lloyds Banking Group, Bradford & Bingley and Northern Rock. FSA is the Financial Services Regulator in the UK.
    Joseph Sabas

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