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Sunday, 17 August 2008

Nationalisation in Tanzania?

An interesting news item I forgot to blog last week! Apparently, the Tanzania government are contemplating re-possesing "all non-performing" privatised public firms. In other words, not all non-performing private firms, just the ones they sold!

29 comments:

  1. "CHC is responsible for following up and ensuring that investors adhere to agreements under which they purchased the respective public enterprises, failure of which tantamounts to repossession"

    So apparently the privatized firms were not following the agreements under which the businesses were sold.
    This could be because market forces could change (less tourists for example due to high oil prices) making it difficult for investors to rehabilitate those businesses.

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  2. I'm not sure I understand the motive.. "under-performing" ?

    Does it mean those companies are doing badly ? That they're loosing money ? Or not growing ?

    Is that really grounds for nationalisation ? I mean, does the government want to own underperforming companies ?

    May be it's because I don't know what kind of agreement they had and what kind of goodies those companies receive as part of them, but it doesn't make much sense to me.

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  3. Yes, most probably it means that those companies are doing badly and losing money. Most likely what happened is that the businesses which were rundown during the previous socialist government were privatized on the condition that the new investors retain the employees and rehabilitate the business. In return, the investor would be able to operate the business (in a good location like a lodge in a national park for example) with good chance of a profit. However in real life, businesses are subject to market forces, so for example if the price of oil went up making airfares more expensive, then fewer tourists would come to the lodge making it unprofitable and reducing the money available to pay employees and rehabilitate the lodge. So market forces may be causing these businesses not to comply with the agreements by which they were privatized IMHO. I don't think it is grounds for nationalisation.

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  4. Hush I blog Anonymously19 August 2008 at 10:06

    Tanzania's concept of nationalization was similar to our own Zambianization programme back in the days. They also had their brand of humanism.

    The case of NCZ shows that there are strategic industries that bolstered people's faith in government (cheap source of fertilizer to bribe voters/a majority share in ZESCO to fund campaigns etc.).

    Wait and see not too long we will be setting up a board of enquiry to find out how the experiment went.

    We (like them) should question why business have failed to perform and the problems with the existing business environment. We should research these firms and not grab them back. It takes away investor confidence and could cause a rift valley to develop in Arusha's fantastic run on attracting DFI.

    How sad. Our governments should be thinking MORE businesses. Not recycling and resuscitating. Real governments bail out vital industries. We surely can afford to do what the Americans and Italians do for their industries (remember FIAT and Parmalat).

    But that wouldn't make us "good" Africans now would it? So lets grab the firms and borrow for consumption!

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  5. A general question.

    Ignoring the Tanzanian rationale for a second, I am curious, are there any grounds under which re-nationalisation is permissible?

    Or are we ruling it out as a complete non-starter?

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  6. Cho,

    Ignoring the Tanzanian rationale for a second, I am curious, are there any grounds under which re-nationalisation is permissible?

    Generally speaking, there usually is a 'use it or lose it' clause that requires companies to actually use the assets they acquire.

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  7. MrK,

    I was asking in terms of the 'economic or social' case for government repossessing companies they previously sold or indeed nationalisation?

    Sort of Chavez style....

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  8. If it is a key asset vital to the economic interest of the nation (in other words, the economy would collapse without it). But even then, the government should provide sufficient compensation for re-aquiring the asset.

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  9. Ignoring the Tanzanian rationale for a second, I am curious, are there any grounds under which re-nationalisation is permissible?

    There are plenty of reasons to re-nationalize or to nationalize..

    You can have them as part of bail-outs or urgent rescue..
    You can do it if the company is supposed to deliver a public service and fails to do so...
    You can do it to "fix" a sector.
    Often the goal has to be to reprivatize though, after a while.


    The issue is not so much whether it's permissible but rather whether it's a rational.

    The "use it or loose it" clauses are great when it applies to vital assets or sector with little competition.. Railways for instance, or even mines to an extend.

    Hotels though ? Why would you want to take over one that is loosing money or that private investors fail to run ? We have to learn that sometimes it's a good idea to let businesses fail.

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  10. Kafue001,

    ”If it is a key asset vital to the economic interest of the nation (in other words, the economy would collapse without it).”

    You mean for security reasons or economic reasons?

    Also what exactly have you got in mind there? Is it energy? Going by definition for Zambia copper would fall under that remit….lol!!

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  11. Quote of the day for sure:

    "We have to learn that sometimes it's a good idea to let businesses fail."

    Whoa!!!! Shumpterian creative destruction.....

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  12. Random,

    ”There are plenty of reasons to re-nationalize or to nationalize..

    You can have them as part of bail-outs or urgent rescue…..
    Often the goal has to be to reprivatize though, after a while.”


    Good, good!!

    ”You can do it if the company is supposed to deliver a public service and fails to do so...”

    Not sure what this means….please elaborate….

    ”……You can do it to "fix" a sector.”

    Examples please!!

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  13. You mean for security reasons or economic reasons?

Also what exactly have you got in mind there? Is it energy? Going by definition for Zambia copper would fall under that remit….lol!!

    The best example is the financial system. A bank collapse can not only affect other banks but also the rest of the economy.
    Energy is probably there too.
    Or to an extend agriculture..

    Whoa!!!! Shumpterian creative destruction.....

    Hmm, yes.
    I mean, if a business is inefficient, it's inefficient and not all of them are vital.


    ”You can do it if the company is supposed to deliver a public service and fails to do so...”

Not sure what this means….please elaborate….


    You privatize a railway. The new owners let their asset go to waste.
    It'll be fine if they're waisting their money in anything else but if the railway is the only one or is crucial to an entire region, the government cannot afford to let it go to waste. Hence, guarantees of service.

    Or when a city privatizes its water distribution network, because it's a natural monopoly, there are usually clauses.. minimum service, pricing schemes etc.. If those clauses aren't respected, yeah, it's justified.

    ”……You can do it to "fix" a sector.”

Examples please!!

    Well, banking is the classic one. Sometimes it's so messed up that you have to nationalize it all, clean it up and re-privatize. The same argument can be made for all sorts of things.
    Usually you do it knowing that some money loss would occur (even if you hope you can sell at a good price).. But having a healthy banking system or *whatever* pays off more than the cost of fixing it.

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  14. Random,

    So in short where the externalities are so huge that they spread beyond the immediate industry, either because they impact on expectations or have severe redistribution issues?

    That is a wide net, and not one I fully sign up to.

    My prepared answer was that it is where Regulation and market interactions fail. And I think the best example is one you gave earlier where TIME prevents markets from adjusting or reflecting new information etc or at times of war where market interactions prove impossible due to huge or asymmetric risks.

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  15. So in short where the externalities are so huge that they spread beyond the immediate industry, either because they impact on expectations or have severe redistribution issues?

That is a wide net, and not one I fully sign up to.

    It's cost-benefit calculation really.
    It's worth it if the cost of taking over is lesser than the cost of letting it fail.


    My prepared answer was that it is where Regulation and market interactions fail.

    Fail to do what ?

    And I think the best example is one you gave earlier where TIME prevents markets from adjusting or reflecting new information etc or at times of war where market interactions prove impossible due to huge or asymmetric risks.

    hmmm.. A financial crisis can be a lot more costly than a war and cause more risk issue. Remember the Asian crisis.

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  16. "You mean for security reasons or economic reasons?

Also what exactly have you got in mind there? Is it energy? Going by definition for Zambia copper would fall under that remit….lol!! "

    Interventions are necessary to prevent system failures, while a correcting mechanism is instituted. For example, recently the Federal Reserve intervened and brokered a buyout of Bear Stearns by JP Morgan Chase while establishing financial measures to assist financial institutions.

    In Zambia's case, a few years ago, a government run operation of the copper mines would not have worked, because they had been losing money for many years due to low copper prices and rundown mines, in other words the government could not afford massive subsidies for a long period of time. There would have to be a structural solution. i.e. privatize them by selling them to entities that can raise the capital to rehabilitate the mines and improve operating efficiencies.

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  17. Kafue001,

    In Zambia's case, a few years ago, a government run operation of the copper mines would not have worked, because they had been losing money for many years due to low copper prices and rundown mines, in other words the government could not afford massive subsidies for a long period of time. There would have to be a structural solution. i.e. privatize them by selling them to entities that can raise the capital to rehabilitate the mines and improve operating efficiencies.

    I would disagree that selling the mines was the only option during a period of low copper prices. Notice that the mines were only sold at the end of the low copper price period.

    They could simply have been closed. Selfjustifying claim by the politicians of the day that the 'investors' helped them out by 'saving jobs'. This was and is a very poor excuse for the fact that Zambia so far has forfeited billions of dollars in revenues because it no longer owns the mines, nor was willing to tax the mining companies.

    Even today, the $413 million tax that is aimed for (but is not even collected yet) is paltry in comparison to the mines $2400 million annual profits (at minimum).

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  18. "They could simply have been closed. Selfjustifying claim by the politicians of the day that the 'investors' helped them out by 'saving jobs'."

    I doubt whether the loss of thousands of jobs would have been acceptable to the population in a climate of high unemployment. In addition 70% of the foreign exchange was generated by mining exports:

    http://news.bbc.co.uk/2/hi/business/1904972.stm

    Closing the mines would have been an economic disaster.

    http://news.bbc.co.uk/2/hi/business/1854274.stm

    http://news.bbc.co.uk/2/hi/business/1634209.stm

    It is all very well to argue that Zambia has lost millions of dollars in tax revenue because of privatization deals, but that is in hindsight. There had been many years of low copper prices and even mining giant Anglo American decided to pull out, a decision they are probably regretting in hindsight.

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  19. Kafue001,

    Job losses could (and should) have been mitigated with works projects and agriculture. And they were small in comparison, about 10,000 people among a workforce of millions.

    It is all very well to argue that Zambia has lost millions of dollars in tax revenue because of privatization deals, but that is in hindsight.

    People were against privatisation even at that time. Even finance minister Edith Nawakwi stated that the IMF "wanted blood".

    There is no hindsight involved.

    Zambia's huge debts meant it had to expedite the copper sell off if it was to continue getting money from the International Monetary Fund.

    And the irony of course is that the money received from the sale of the mines never made up for Zambia's debt, and that it was forgiven by the same IMF and World Bank that forced Zambia to sell it's mines.

    Privatisation is a failed concept, all over the world.

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  20. Job losses could (and should) have been mitigated with works projects and agriculture. And they were small in comparison, about 10,000 people among a workforce of millions.


    If the problem is that the mines are loosing money, re-hiring the workers to do other projects barely changes the problem. And if it's decrepit installations, it pushes the problem back.

    But you're right, the jobs looses were small compared to the rest of the economy. However, and that's part of the problem with government ownership, no politician will get up and tell 10,000 voters that they're being fired.

    And you're right on people overselling the benefits of privatization. It's one thing to stop the drain (wasn't Nawakwi talking about $1 millions a week of looses). It's another to pretend that privatization will pay for other things.


    Privatisation is a failed concept, all over the world.

    ^^^ That's the problem with Mr K. No definer, no explanation, nothing.
    "Privatizations are universally bad, all the time, in all circumstances."

    I guess Estonian miss state-ownership of everything.
    I guess the French complain daily about money loosing Renault having been sold.
    I guess Zambians feel like Celtel shouldn't exist and miss the days of Zamtel only.

    That's stupid. And sorry if that hurts your feelings.

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  21. Random,

    ”It's cost-benefit calculation really. It's worth it if the cost of taking over is lesser than the cost of letting it fail.

    It is, and a very difficult one, with many unmonetised costs / benefits, plus political risks. And may I suggest the biggest problem with state ownership for me is that government operates in a market they regulate. If government was the only supplier you could argue its understandable, but where it is a supplier and a regulator…..then things get problematic. How do you quantify such a cost?

    ”Fail to do what ?”

    Fail to function, and that is largely due to coordination failures.

    ”hmmm.. A financial crisis can be a lot more costly than a war and cause more risk issue. Remember the Asian crisis.”

    Well it can, but the issue is whether government ownership is necessary, all other interventions could be found.

    Kafue,

    ”Interventions are necessary to prevent system failures, while a correcting mechanism is instituted. For example, recently the Federal Reserve intervened and brokered a buyout of Bear Stearns by JP Morgan Chase while establishing financial measures to assist financial institutions.”

    But there’s a difference between a buyout and Northern Rock. We are talking about interventions that goes beyond regulation or simple cash. Government actually taking something over. I think the case for that is very slim, mainly because government can always do things without intervention…and as I note above, I struggle with government being in a market it regulates.

    MrK

    ”They could simply have been closed. Selfjustifying claim by the politicians of the day that the 'investors' helped them out by 'saving jobs'. This was and is a very poor excuse for the fact that Zambia so far has forfeited billions of dollars in revenues because it no longer owns the mines, nor was willing to tax the mining companies. “

    Presumably you mean shutting them down indefinitely………? Wow….that is brave……but presumably not good because other options yielded benefits greater than zero, and certainly increased employment!

    kafue001

    ”It is all very well to argue that Zambia has lost millions of dollars in tax revenue because of privatization deals, but that is in hindsight. There had been many years of low copper prices and even mining giant Anglo American decided to pull out, a decision they are probably regretting in hindsight.”

    But I think the deals where bad…from Nawakwi’s recollection, it sounded like we got duped because she failed to think through the issues…. It was so obvious that any economist could have told them that prices go up and down, and we need to ensure our country for that…it was so basic….We are deeply let down by our leaders and its unfortunate they have never apologised but instead write silly autobiographies justifying their flawed logic….

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  22. It is, and a very difficult one, with many unmonetised costs / benefits, plus political risks. And may I suggest the biggest problem with state ownership for me is that government operates in a market they regulate. If government was the only supplier you could argue its understandable, but where it is a supplier and a regulator…..then things get problematic. How do you quantify such a cost?

    I don't know.. It is tough. But then again, it's all about social losses vs private losses.

    ”Fail to do what ?”

Fail to function, and that is largely due to coordination failures.

    It has to be more precise.
    I mean, it's hard to know if a market should exist or not and sometimes we tend to be broad when it comes to defining market failures.


    Well it can, but the issue is whether government ownership is necessary, all other interventions could be found.

    Well for financial crises of the liquidity trap kind, bail outs is the only solution.
    The question though is if it has to be unconditionnal. Americans bail companies out but that's all. Swedes nationalize them, fire the management and re-privatize them when they bail them out.

    It was so obvious that any economist could have told them that prices go up and down, and we need to ensure our country for that…it was so basic….

    You do that with that evil thing the IMF promotes called "stabilization fund".

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  23. Presumably you mean shutting them down indefinitely………? Wow….that is brave……but presumably not good because other options yielded benefits greater than zero, and certainly increased employment!


    In the long run, this would have brought the greatest return.

    And most of Zambia's mines are not shaft mines, but open pits, which do not flood or need to be kept running to save the machinery from flooding.

    It would have been easy to suspend operations there.

    Instead, the country has missed out on billions of dollars in profits and billions more in taxes.

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  24. Random,

    ”Fail to function, and that is largely due to coordination failures.”

    “It has to be more precise. I mean, it's hard to know if a market should exist or not and sometimes we tend to be broad when it comes to defining market failures.”


    Its an equity issue as well. I mean if you consider the intervention for Northern Rock. The British Government clearly intervened partly to restore credibility to the banking system and partly because the poor people who put money in Northern clearly stood to lose – and of course as the saying goes….banks never lose money! And of course all of risks represent a significant political risk….

    ”Well for financial crises of the liquidity trap kind, bail outs is the only solution. The question though is if it has to be unconditionnal. Americans bail companies out but that's all. Swedes nationalize them, fire the management and re-privatize them when they bail them out.”

    Presumably the differing approaches have nothing to do with economic considerations, but rather more cultural or historic?

    ”It was so obvious that any economist could have told them that prices go up and down, and we need to ensure our country for that…it was so basic…”. You do that with that evil thing the IMF promotes called "stabilization fund".

    Indeed.

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  25. MrK,

    ”In the long run, this would have brought the greatest return. And most of Zambia's mines are not shaft mines, but open pits, which do not flood or need to be kept running to save the machinery from flooding.

    It would have been easy to suspend operations there.

    Instead, the country has missed out on billions of dollars in profits and billions more in taxes.”


    I see that Kavindele is campaigning on your platform?

    He is arguing for investing the Nawakwi debacle of selling the mines for a penny….lol!

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  26. the British Government clearly intervened partly to restore credibility to the banking system and partly because the poor people who put money in Northern clearly stood to lose

    The British government could have paid the people who put money in Northern.

    The issue was the rest of the people who put money in the banking system in general.

    Presumably the differing approaches have nothing to do with economic considerations, but rather m the British Government clearly intervened partly to restore credibility to the banking system and partly because the poor people who put money in Northern clearly stood to lose

    The British government could have paid the people who put money in Northern.

    The issue was the rest of the people who put money in the banking system in general.

    Presumably the differing approaches have nothing to do with economic considerations, but rather more cultural or historic?

    Oh yeah, of course.
    Nationalization is an ugly word in the US. I've read people getting all offended by the idea of tighter regulation for the banks who ask for a bail-out.

    Think about it.ore cultural or historic?


    Oh yeah, of course.
    Nationalization is an ugly word in the US. I've read people getting all offended by the idea of tighter regulation for the banks who ask for a bail-out.

    Think about it.

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  27. Cho,

    I see that Kavindele is campaigning on your platform?

    Cool, I'll look into it but if you have a link that would be great. All I know is that he is busy keeping a railway project going.

    He is arguing for investing the Nawakwi debacle of selling the mines for a penny….lol!

    I agree that Edith Nawakwi signed off on it, but she was not the only person in government - and she wasn't president.

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  28. Cho,

    You need to read this. I don't know whether they have a national party or stand any chance at all, but their platform is a break from neoliberalism - or at least it's corporate version.

    CDP HOME PAGE

    http://www.thecitizensdemocraticparty.com/decentralization.html

    I don't know who is behind it yet, but the platform appears very well thought out.

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  29. MrK,

    The Kavindele platform is stated in one of the Post articles. I'll see if I can find it.

    That CDP I have been aware of it for a while. Its unclear who is running it....It does look very outward....

    Are you sure it has no "neoliberal tendencies" ? lol!!

    It strikes me what you want is the old UPP of Simon Kapwepwe....lol!!

    African solutions with a small dose of the market..

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