27 July 2009

Tanzania: Govt Takeover of Privatised Firms Worries Economists

Some economists are worried about the Government repossession of privatised companies.

They told The Citizen that the measure proved public sentiments and warnings that privatisation was carried out haphazardly.

They said although divestiture cannot be regarded as a total failure, success stories were few and far compared with flops.

They suggested that it was high time the Government took stock of the privatisation process to establish where it went wrong and avoid future mistakes.

The comments follow a series of initiatives by the Government to rescue from collapse some formerly privatised parastatals.

Recently the Government announced that it would repossessed shares in the Kilimanjaro Airport Development Company (Kadco) and Kiwira Coal Mine. This was announced by the Government late last week in Parliament.

Others include the termination of the management contract for the Tanzania Telecommunications Company Limited (TTCL) with Sasktel. Economist Haji Semboja said the recent developments proved that all was not well in privatisation deals.

He gave examples of the TTCL management, Kiwira Coal Mine and the Tanzania Railways Limited as proof that something had gone awry with privatisation. He said generally privatisation was a failure as it started off on the wrong footing.

He said the process was plagued by loopholes which attracted corruption. "What should be done is to review policies and structures on privatisation.

That will involve overhauling the whole process," he said. He called for a scrutiny of each privatised company and contract before being given a clean bill of health.

He suggested that thorough investigations were needed on the privatised entities to ensure that they are on the right track. A St Augustine University of Tanzania lecturer, Dr Isaac Safari, said parastatals were privatised without thoroughly checking capabilities of investors.

Dr Safari proposed that instead of relying on foreign investors in privatisation, the Government should look for ways to empower local investors. He said it was important for the Government to scrutinise the investors' financial viability and ability.

"We got into this mess because we do not have a strong private sector and partly because the Government hasn't done its best to boost confidence among investors whether domestic or foreign," he noted.

Infrastructure Development minister Shukuru Kawambwa, said generally Kadco investors had made a lot of promises but they failed to deliver.

However, the Tanzania Investment Centre (TIC) executive director, Mr Emmanuel ole Naiko, disagrees. He said the few flaws should not be used to judge the entire privatisation process.

He pointed out that failure of a few entities did not mean the total failure of privatisation. He said privatisation should be taken on merits as "these are individual companies with different market characteristics."

Giving an example, he said the TTCL used to enjoy a monopoly in the telephone sector. But with the introduction of mobile phones, the company found itself facing a stiff competition.

"One cannot judge privatisation as a failure by just looking at only two poorly managed companies. Look at the Tanzania Cigarette Company and Tanzania Breweries Limited.These entities were private, nationalised, then went private again and are doing quite well," he said.

However, he acknowledged that the Government did not have the right mechanism to check on investors who seek to acquire the privatised firms.

Civic United Front (CUF) chairman Ibrahim Lipumba said the Government was supposed to privatise parastatals to financially capable investors.

He added that many of the privatisation contracts were made secret, giving room to suspicion. Chadema secretary-general Willibrod Slaa said a serious problem with privatisation was secrecy.

"The fact that all these contracts lacked transparency explains that there was a corruption agenda behind them as has been demonstrated by the Richmond power deal," he explained.

He said it was strange that the privatisation of many parastatals was carried out without feasibility studies to justify the environments under which they should have been privatised.

"How can you privatise an organisation and then take money from the Government to run the same entity?" he said. His doubts follow reports that funds from the National Social Security Fund (NSSF) were used to finance the Kiwira coal project. A Mzumbe University lecturer, Dr Honest Ngowi, criticised the Government bailout of privatised firms.

Without naming any firm, it is known that the Government has been spending money on bailing out companies such as TRL.

He said Air Tanzania Company Limited (ATCL) was among companies privatised without bearing in mind the consequences of doing so.

"If the private PrecisionAir can flourish in a local market, why should ATCL fail?" he said. He said ATCL had an upper hand in the market because for a long time it enjoyed the monopoly.

"We have many institutions which train managers like the Mzumbe University, University of Dar es Salaam, Esami [East and South African Management Institute] in Arusha and so on.

All those could be used to improve the local managerial capacity rather than hiring foreigners for the same," Dr Ngowi said.

"We should not criticise privatisation for the sake it, but the Government should not privatise everything for the sake of it There must be an extensive research to determine the viability of the projects."A finance assistant lecturer, Mr Tobias Swai, said the main justification for privatisation was that the parastatals were performing badly.

"We were to establish what made the entities perform poorly before we privatised them," he said. He said by knowing the problems it would have been easy to also know how to carry out the privatisation process.

Mr Swai suggested a review of privatisation contracts. But he said the Government was supposed to be prudent right from the beginning. He said in some cases it was the managers of the privatised firms who caused huge losses and failed to perform.

"Under such circumstance, there was no need to privatise such parastatals. Other good leaders should have replaced the failures who had also to be prosecuted," he suggested.

Copyright © 2009 The Citizen. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.