Government Cannot do business, not even poorly. IV

There has been a debate in Uganda over the revival of Uganda Airlines as a Government corporation. I am one of those who believe that government cannot do business and I will add not even poorly. However government enterprises were at one time seen as vehicles to deliver development in the poor developing countries. These countries that adopted this policy especially the United Kingdom, saw economic decline. The fortunes of the United Kingdom were revived by Margaret Thatcher (RIP) who advocated for private enterprises and it did the miracles in the UK.

Most of the developing countries disbanded public enterprises especially as the pressure for economic reform in the World Bank mounted. Uganda was no exception; we disbanded most of the parastatals. However Europe continues to have public enterprises that actually operate profitably. The difference is in management and possibly societal values. The public enterprises in the developed countries are essentially intended for public good. In the developing countries, they have tended to be more organs for distribution of public assets to managers and employees rather than an organ for the public benefit.

When we closed Uganda airlines, it was losing money. Government was paying almost a million dollars a month as a subsidy to support the airline. This was not necessary because the service that the airline was rendering could be rendered by somebody else cheaply. Earlier on as a Board, we had requested for funds from government to invest in equipment to enable the airline operate efficiently. This was never granted instead government simply picked up the bills monthly. There was no critical will and no proper mission for the airline. The result is what we saw.

Air Rwanda, a recent institution, has had investments by government in the article appended to this one, it is reported that the Rwandese government was to invest USD200million. For an African airline, this is something to talk about. For a small African airline, this is something to talk about. Rwanda is said to have the will and determination to do things. This is attributed to President Paul Kagame, one time described as a man of steel.  Coming to the scene about 20 years back, he has led Rwanda to economic prosperity in an orderly manner. Hiss possibly somebody we can compare to Lee Kwan Singapore or Mahatir Mohammed of Malaysia. Like Singapore, understand Kigali, the Rwandese capital, screams, clean at you. This is attributed to the no nonsense approach that President Kagame has had which has resulted into economic change in the country.

Rwanda Air may or may not succeed. Being landlocked like Uganda and of course being in a much worse condition, Rwanda needs an airline. Whether it us Rwandese government or the private sector, it is a different matter.  If it is the Rwandese government, the airline will not fail because of government failure rather if it fails, it will be due to market failure. Market failure will be because it fails to get passengers to fly on the airline. Ethiopia airlines, one of the oldest airlines in Africa, has a very interesting marketing strategy, it combines a retail strategy with wholesale. It collects passengers from different parts of Africa and then puts them in one plane and then distributes them. Whether Rwandese Air can get passengers and finally get a return on investment is an open question. I know the airline because if there is a will of government to operate it, it will operate for years but not with commercial profit.

I have been one of the people who think Uganda needs no government airline yet. For Uganda’s case, the challenges would be more than those of the Rwandese government. We are likely to have problems of government failure, market failure and even management failure. The closure of Uganda airlines, the inability to restart Soroti flying school is because of the weaknesses that government has had. Either government does not have the money or if it has, it is reluctant to invest. That is government failure. Market failure is due to the small numbers the Ugandan economy has. Management failure would again be attributed to management failure. Uganda therefore cannot run an airline profitably for the time being. To stimulate air traffic, Uganda needs an economic boom, the type that will come out of the petroleum boom or a mineral that will bring wealth to the country. But with the current numbers of the economy, Uganda cannot have a government run airline.

I am talking about a government owned airline because, if there is enough economic activity, this will be a right option. Having looked at the parastatals in Europe, I look at parastatals as vehicles for wealth creation in poor countries like Uganda but only if they are managed properly. Government would start the businesses and sell shares especially through unit trusts to the public. This is the only way the poor people in the developing countries will ever participate within free market enterprises that has a global dimension.

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