Advertisement

How government ‘preferential treatment’ harms private enterprise

Thursday February 18 2021
makakala pic
By Charles Makakala

Prestige projects – we have them and governments have them too.

They are not conceived for their economic value – mansions aren’t built in villages because of their lucrative financial returns, and capitals aren’t moved because it is necessary for nations’ development. It’s not money, it is usually prestige, recognition, or, in the case of Mobutu Sese Seko’s (pictured) Gbadolite Palace and Houphouet-Boigny’s Yamoussoukro Basilica, lunacy.

Human beings are sentimental, competitive, and proud. They crave for people’s approval, so they can be forgiven when they sometimes make decisions which are less than common-sensical. But one expects a government to transcend the petty flaws of puny humans. A state is expected to be always rational, sober, and pragmatic. While individuals may be flawed, you can’t allow the state to adopt their crookedness. It is extremely unfortunate when states act like mere mortals.

Lomayan, not his real name, is a businessman who, despite his humble beginnings, has managed to develop a remarkably successful logistics business, with several million dollars a year in revenues. He has a national reach, serving government and non-government institutions across the regions.

When I met him last year, he was bullish about his future. But that was before that future came crashing down the day the government instructed all its institutions to use the state-owned service provider for the services he was providing. By that one pen stroke, the man was practically pushed out of the market. He is thinking of starting over in a neighbouring country.

His is one of the many examples showing how individuals get affected by government’s preferential treatment of its usually non-competitive operations – mainly at the huge cost to private enterprise. If a state-owned enterprise that has been in existence for decades can’t compete with a start-up, why punish the start-up instead?

Advertisement

A few years ago, one software developer went into a hideout for three months to develop an e-payment system which he intended to be used by, among others, the government. He had developed multiple systems that are used by tens of thousands of people, so the work was quite straightforward for him.

Then the government ordered all payments to be channelled through its proprietary system. The man’s project – and the investment – went down the drain.

While people no longer ask whether the states should own businesses or not – nations in Asia have clearly shown that strategic state-owned enterprise can catalyse economic growth. However, when those projects are sustained mainly at the expense of all others in the nation, you have a big problem.

Think of TTCL. Other operators compete to have rights of way, permissions to get into buildings, or connect government offices, but TTCL doesn’t have any of those challenges. As a manager of NICTBB, TTCL has significant potential at its disposal, giving it a huge strategic advantage over others. In business, that usually means the ability to sustain higher than average profits compared to competitors. But, alas, TTCL’s fixed line connections are still going down and anecdotal evidence suggests that many government institutions will prefer alternative service providers if they could choose.

So, why shield such enterprises from competition despite their strategic advantages? What is it we are trying to protect – incompetence?

Last year, I met one outstanding entrepreneur whose solutions are used by thousands in Rwanda. For years he has been trying to pitch for his solutions to be authorised by multiple government agencies in Tanzania without success. Then one agency decided to approve another solution which practically ruled his solution out of Tanzanian market for years. Speak of the prophet not being honoured in his own country.

When we hear of these stories, many people tend to think that it is okay – those are rich people who have been taking advantage of the us. Probably – but what’s wrong with taking advantage of the government if you provide value-for-value in return? In business we call that being competitive. However, many common people suffer from these non-progressive business practices, people who, despite their ingenuity and sacrifices, have been marginalised by the artificial hurdles erected by the government. Is it any wonder then that only a few businesses – 40 according to Unido (2013) – have grown to become large enterprises, employing hundreds, and making hundreds of billions in revenues a year?

Why do we entertain deals which provide preferential treatment to some, and lock everyone else out of competition? Isn’t that why mediocrity prevails and corruption thrives? Why not allow the market to decide which services it prefers?

The government cannot afford to be parochial in its outlook. If its goal is to achieve increased efficiency, why not allow that to happen through competition and innovation, rather than providing preferential treatment to some? The words of Lee Kuan Yew, the man who made Singapore what it is today and a true embodiment of pragmatic leadership, when he was launching Singapore Airlines in 1972, ought to set us right:

‘Singapore runs an airline not for reasons of prestige, but for plain economic benefit. But if we cannot make profitable use of (our strategic advantages), we should have no compunction in closing a service down. This is our approach to life.’

Tanzanians need to adopt a very sober approach to life if Tanzania is to develop economically.