Tanzania: JPM Emulating Vietnam's Revolution - Lissu Should Learn From Singapore About Govt Role in Business

FIRSTLY, I am delighted to realize differences in some policy propositions by Tundu Lissu - the Chadema opposition presidential candidate against those of the incumbent and the ruling party Chama cha Mapinduzi (CCM) presidential candidate, Dr John Magufuli.

One of those important policy propositions that Lissu is in contention with Dr Magufuli is the role of State-owned Enterprises (SOE) in investments as commercial entities; citing the examples of Tanzania Building Agency (TBA) and SUMA JKT.

Only to insist on Lissu's position being that the government shouldn't engage itself in commercial activities but it is supposed to oversee the private sector.

In his opinion Mr Lissu, the policy that Dr Magufuli is implementing to give financial and operational muscles to the SOEs to engage in commercial endeavors is to weaken the private sector and it is like taking the country back to the failed Nyerere's Socialism! Probably, in one instance to understand this matter, I would prefer to take you through the experience of some pioneer nations in the SEO sector.

These nations are now inspiring other nations (especially in Africa) to learn from, because of their success in making a wider proportional economic revolution from the SEOs sector.

On the other hand, I will share the advice by the world economic legend, Prof. Joseph Stiglitz, regarding the role of the Government in overseeing national resources ― especially for third world countries. I am convinced that in the end it will become grasped.

MALAYSIA:

One of the more economically successful nations in a space of thirty (30) years. This country has five (5) mega commercial state-owned corporations that are contributing to the economy and Government Budget.

These corporations are: Petronas, Khazanah Nasional (Sovereign Wealth Fund with assets at a tune of 35bn US dollars) the corporation as one of largest oil companies in the world. Other governmentowned corporations are: CIMB (Bank), Malaysian Air and Telekom Malaysia.

In 2012, Petronas registered profits worth 21bn US dollars, paid government taxes and dividends in a tune of 9.4bn US dollars and 6.9bn US dollars respectively (Refer Petronas, Annual Report 2014).

VIETNAM:

This in 1990 was in a similar economic position to Tanzania. This nation has nine (9) large commercial State- Owned corporations which have been making profits. Among those, three (3) are in the telecommunications business and they compete fiercely among themselves, these are: Viettel, MobiFone and VinaPhone.

How is this scenario different from our SOEs (TBA, National Housing Corporation (NHC) and SUMA JKT the competing in the real estate sector?

SINGAPORE:

This has gained proportional economic success in a very short period. She has six (6) State-owned corporations among them is the construction company ST Engineering and Singapore Telecommunications Limited (SingTel).

CHINA:

This is a peculiar nation (embracing Market State Capitalism) in the world considering how she managed to build her super strong economy to the extent of surprising European economies and becoming a threat to the US (embracing Private Market Capitalism).

But her largest Banks and Construction companies are government-owned and are leading and commercially competing inside and outside China in their industries. In 2019 reports indicate that out of the top 10 banks in the world 4 are from China.

Until 2011, 43 per cent of the profits generated by companies in China came from government- owned corporations. Not only the Asian economies but also the imperial Western nations have government- owned corporations, for instance:

FRANCE:

This is an economically large nation but her government owns shares in several companies. For instance the government owns 50 per cent of ST Microelectronics Holdings as well 84.4 per cent of Electricite de France.

NORWAY:

This is also among the economically powerful nations in Europe but the government owns some commercial corporations. Among others, for instance the brewing company Vinmonopolet, the telecommunications Telenor, and one of the largest oil and gas companies in the world, StatOil.

The bottom line is that the majority of nations with natural resources and are performing extraordinarily are those whose governments are involved commercially through their government- owned corporations (SOEs).

The involvement of these countries in commercial endeavors through their Government- owned corporations (SOEs); could probably be emulated from the legendary in economic globalization Prof. Joseph Stiglitz (The Economist, former Vice-President of the World Bank and published author of the famous book Globalization and its Discontent).

Prof Joseph Stiglitz has advised several times on the role of the government in ensuring that the public is benefiting from their natural resources endorsements against the foul play by the private sector which Lissu believes that it should neither be interfered nor competed by the government.

Regarding the Role of the State in protecting natural resources, in page 23 of the book ESCAPING RESOURCES CURSE, which is the contributor: Prof Joseph Stiglitz insists upon the need of the government to ensure transparency, fairness and ownership of the public in the contracts.

In the same book, Prof Joseph Stiglitz gives an example of a large oil and gas company Exxon Mobil Corp, which through a natural gas extraction contract with the State of Alabama where the company used accounting maneuvers to misrepresent their actual commercial dealings which eventually made the Alabama state to lose public revenues.

The matter was settled in a court of law by ruling that a penalty worth 11.8bn and 64.7m US dollars of unpaid royalties (Refer to the famous case .ALABAMA V.EXXON MOBIL CORP). As reference to this case, Prof Joseph Stiglitz aptly argues: if these companies can steal from strong and smart governments like the US, how much will it be of the third world countries?

Citing some other events of Multinational Corporations engaging in non-mutually beneficial arrangements with several nations are: (1) Shell was involved in one LNG project in Peru. Since having invested there, however, the company was only able to pay government taxes in 2017 to a penny amount of 1.9m US dollars.

(2) Repsol Company in their business operations they did not reveal their natural gas selling prices in Peru. The government of Peru had to take this matter to court to be determined and it was ruled that the company should pay punitive damages to the tune of 62m US dollars.

It is highlighted that the Government of Peru between 2011 and 2017 was able to collect only 1.04bn US dollars instead of 2.1bn US dollars as royalties. This is due to the fact that Multinational Corporations do not share the same interest as those of host nations.

Thus, the issue of government ownership in extraction of natural resources cannot be excused and must be given strong emphasis as opposed to Lissu's position whose ideal is instilled from Europe that the private sector should neither be interfered nor receive commercial competition from the government-owned corporations (SOEs).

These are dangerous policy proposals which could imply selling a part of the country.

The countries that have made proportional economic revolutions like Singapore, Dubai, Vietnam, South Korea and Malaysia they had government- led initiatives even through subsidies and sometimes via statutory protection whenever possible against global competitors and marketplace which was not at level playing field.

We have witnessed the US imperialist nation protecting her companies (refer to iPhone and Samsung court case).

The investment of the US government in US corporations is explained in a book Entrepreneurial State by Mariana Mazzucato ― an economist and consultant ― who has detailed how the US government has invested in large US corporations among others pharmaceuticals and telecommunications.

Let me conclude by emphasizing three (3) issues: One; the private sector is vital similar to the public sector. If we know the path that was taken by the tiger economies to gain their success.

In recognition of the importance of the private sector, the Government carried an initiative to launch the Blueprint for Regulatory Reforms to Improve the Business Environment, which is a covenant between the government and the private sector to remove or easy the obstacles and challenges facing the private sector which are emanating from even before the fourth phase government of Tanzania.

Greater revolutions in the construction of infrastructures are the main pillar to enhancing the ease of doing business. The need for reliable power energy and transportation infrastructures was the World Bank's chorus to Tanzania if it was to stimulate investment and they even emphasized to what extent tax relief should be.

If the current state of electricity power and transportation infrastructure should remain the same over years it would be difficult to attract investments.

That was the WB's position during the 4th phase government of Tanzania which was leading in East Africa for tax exemptions which were about 4 per cent of GDP compared to other EAC countries which were not above 1 percent of their respective GDPs.

It is possible that the hangover of the shadow economy still lingers among Tanzanians as we travel from the shadow economy into the realm of the real economy. This is regardless of the efforts being taken to work on the challenges we are currently facing.

The hangover will not go in a short while. From the tax exemptions of 4 per cent to 1 per cent (CAG Report, April 2017), for a 63bn US dollars economy the exempted taxes would be the lost government revenues of more than 1.89bn US dollars (approx 4.3 tri/-), which were accounted as profit margins to the exempted companies but the same would have been mandatory taxes if it had been in Kenya, Uganda or Rwanda.

Let alone the illegal 400 ports. The truth be told, there are businesses that were severely hit after these unofficial ports were put under constant surveillance and after the removal of unwarranted tax exemptions.

These businesses, however, are not triggering policy discussion but rather that of emphasizing the rule of law in the Tanzanian business community, which was driven by low compliance level due to weak enforcement.

We have done an enormous job in reviving the National Housing Corporation (NHC) which in 2016 was the company with the largest capital in East Africa also it was among the three (3) largest real estate companies in Africa, South of Sahara.

It is clear that we can do more! I understand that TPDC is taking strides in the oil and gas sector. Instead of following Lissu's cunning ideas, we must take an even more ambitious move to have a national road and bridges construction company.

We may start with the army, which may establish such a company by investing in it so as it can undertake such endeavors; or we can make a statutory requirement that foreign construction companies, to secure a construction contract in Tanzania, must form a joint-venture with a local entity, in all mega projects, and hence contribute toward capacity building of the local counterpart companies.

This will eventually reduce the mega spending on foreign companies in construction of infrastructures, which annually costs the nation huge amounts in terms of government budget disbursement. This kind of decision will enable us in establishing the actual costs (price reference), and build local capacity and technology transfer into the local companies as well as Tanzanians at large.

Nevertheless, it should be noted that having state-owned corporations is more than just revenues but it is a national security issue, it is also building the ability to compete, it is a national treasure, it is a protection of national resources and investment into the people.

Thus, it is imperative for the Chadema presidential candidate Lissu to keep a sober mind and ponder in depth regarding these policy proposals instead of being spoon-fed without weighing- in such ideals. A renowned economist once said: "Don't do as the Americans tell you to do, do as the Americans did."

As I have explained in these paragraphs, there is no single developed nation whose government did not invest in strategic economic endeavors.

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