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NATIONAL DIALOGUE ON PRIVATISATION AND RESTRUCTURING OF THE LESOTHO
ECONOMY: MASERU, 1-2 SEPTEMBER 1999 KEYNOTE ADDRESS BY THE DEPUTY PRIME MINISTER AND MINISTER OF FINANCE AND DEVELOPMENT, HONOURABLE K.A. MAOPE Right Honourable the Prime Minister, Honourable Ministers, Your Excellencies, Distinguished Guests, Ladies and Gentlemen, 1. I should like to begin by thanking you Right Honourable Prime Minister for having taken some of your valuable time to be with us at this important National Dialogue and for your critical contribution in highlighting the political aspects of privatisation and economic restructuring. As you have correctly indicated economic reforms occur within a political framework. Economic reforms demand clarity of vision. Economic reforms require commitment. Economic reforms are about fundamental choices. Economic reforms entail setting priorities. The fundamentals of economic reforms assume that there is adequate and disciplined debate among all interested parties or stakeholders as they are often called. That is why we are here, engaged in this important National Dialogue, to review our economic strategies and to map out the way ahead. 2. I have said that one of the assumptions underlying economic reform is informed and disciplined debate. In my humble view one of the serious limitations of our country in the recent past has been the inadequacy of factual information about the true situation in key sectors and enterprises of the economy. We have not lacked views and opinions, some of them expressed in most extravagant language, but often based on nothing but personal or political prejudice. If we base our disciplined debates on factual information, as a nation we will derive benefit from this and other national dialogues. It is only a misinformed nation which would say that a particular enterprise is profitable when it is in fact loss-making, or the other way around to say that a profitable enterprise is a loss-maker. 3. During preparations for this dialogue I urged the officials concerned to ensure that the dialogue is provided with all relevant factual information about all sectors and enterprises. We must admit that in the past economic discourse in this country has been vitiated by excessive and sometimes unnecessary secrecy. The weakness of our Press and its inability to probe beneath the surface of economic issues has not helped the situation. To make a start in providing you with some factual information, I can tell you that over the five years prior to its privatisation, Lesotho Airways Corporation lost M40 million. As 100% owner of the corporation, Government was obliged to provide funds to subsidise these losses. In addition, the National Abattoir, frequently considered to be a thriving enterprise, has lost over M25 million since 1992 and continues to absorb Government resources as I speak. It should be understood that these vast resources consumed in subsidies could have been used to meet other pressing needs. 4. One of the peculiar horrors of the Lesotho economy has been the low priority accorded to auditing of enterprises in practically all sectors. The accounts of major state enterprises have often not been audited on a regular annual basis as required by law and, amazingly, Boards of Directors have tolerated this situation in their enterprises. The Press has barely noticed. And while the watchdogs of economic activities were asleep, some of the key national enterprises were sliding into deep distress. For example the last year for which audited accounts are available for Lesotho Telecommunications Corporation is 1995. For Lesotho Electricity Corporation 1995 is also the last year in which the accounts were audited, although in this and the previous year the auditors only gave qualified opinions. Clearly we need a new culture of economic accountability and this is one reason why the Private Sector is being challenged to participate more actively in the ownership and management of key enterprises such as banks and telecommunications. We expect, and worldwide experience has shown, that the Private Sector would exercise more vigilant stewardship of its investments than we have seen from Public Sector managers. Only when citizens directly own shares in these companies will they take an interest in their day to day operations. 5. The Second issue to which I should like to draw your attention is the Culture of entrepreneurship in Lesotho. Entrepreneurship can be described in the simplest terms as the ability to identify and seize business opportunities. I would not be able to say whether we have a deficiency in our educational system but what I have noted is a chronic disability among our people to see business opportunities and to exploit them. We saw glaring examples with Phase I A of the Lesotho Highlands Water Project where our people were unable to see any new opportunities for economic activity presented by this vast project. Instead, as has become our tradition, we generated vast numbers of complaints about foreigners taking over our country. Entrepreneurship is not management and it is not investment. It is simply the ability to see opportunity. Once opportunities have been identified financing and management can be organised. My point is simply that our economy will remain stagnant until we develop our entrepreneurial eyes in the Private Sector to see, and seize the opportunities that are emerging from privatisation and economic restructuring. 6. I should also like to say a little more about foreign investment. I know of no country in the world, no matter how rich, which does not endeavour to attract foreign investment. It therefore strikes some of us as an amazing symptom of economic illiteracy to hear some of our people speaking in negative terms about foreign investment in Lesotho. Of course we know that foreign investors come to our countries in order to generate profits for themselves. But it is incumbent upon us as a nation to seek to derive maximum benefits from their investments in terms of employment, taxation, transfer of skills, and market access in their own or other countries. 7. We in Government would like to see the emergence of a new culture of partnerships between foreign investors and local entrepreneurs. Obviously such partnerships can only emerge out of mutual confidence when players on both sides get to know one another and appreciate one another’s potential contributions. There cannot be any progress in the partnerships if we begin with antipathy, suspicion, and negative prejudices We should like to see private-sector organisations such as the Lesotho Chamber of Commerce and Industry, or Women in Business, or the Employers Association come up with more promotional activities which Government could also support to build better mutual confidence between Lesotho citizens and potential foreign investors. 8. We have to accept that one of the cornerstones of successful business partnerships is a functioning and efficient legal system where aggrieved parties can obtain quick redress. It has taken a long debate, as is typical in our country, before all players could finally agree that a Commercial Court is indeed a necessary component of economic restructuring. We see that finally a Commercial Court is being established although it will commence operations already faced with a huge backlog of cases. Nevertheless we hope that its mere establishment will bring about fresh confidence in possibilities of new business relationships. 9. Historically in Lesotho the privatisation process began with relatively large enterprises which, at least by Lesotho standards, are well beyond the reach of a sole owner. The Lesotho Flour Mills for example would have required over Thirty Million Maloti for a fifty per cent shareholding. Lesotho Airways Corporation would have required around Six Million Maloti for a fifty per cent shareholding. With the Plant and Vehicle Pool Services we could be talking about close to Fifty Million Maloti for a fifty per cent Shareholding. I mention these figures to show that the sale of these enterprises to citizens of Lesotho would have required well-organised joint investment groups to subscribe some of the needed capital working with Merchant Banks or Investment Houses which we do not even have in Lesotho. In reality groups of Lesotho citizens have not invested in these companies and Government has retained shareholdings as custodian for future sale to citizens of Lesotho. 10. Formulating a mechanism for selling these shares to Lesotho nationals has been a challenging exercise. After abandoning earlier plans to establish a Stock Exchange the Government is about to launch a Unit Trust which will be a vehicle for cooperative investment in the already privatised and profitable enterprises. Admittedly this Unit Trust has been long in coming but there were many legal issues to settle to afford investors adequate protection as well as design issues to address to ensure ready access to invested funds in the event of family emergencies. The challenge will once again be before us whether, as a nation, we are ready for a national cooperative investment scheme. The purpose of the unit trust is to make shares a practical and accessible form of investment to as broad a section of the nation as possible. It will enable citizens to invest passively in the profitable companies and thereby benefit through dividend payments and, hopefully, capital appreciation. It is not however the intention to channel all Government’s shares through this vehicle. If a group of Lesotho nationals were to approach Government with a proposal to purchase some of the shares in, for example, Lesotho Flour Mills, a sale could be negotiated. The sale would have to take place within the legal framework provided by the constitutional documentation of the Lesotho Flour Mills Limited, the Sale Agreement and Shareholders Agreement. The issues which would need to be addressed would include the price of the shares and the pre-emption rights of existing shareholders. The sale of shares in a company is never a simple task, but Government is committed to selling these shares to Lesotho nationals in a fair and proper manner. 11. Returning to the central theme of economic reform, I wish to emphasise the fundamental economic argument for pursuing the policy of privatisation. Apart from Government’s inability to continue to inject money into these non-performing enterprises, there is a more fundamental need to restructure the economy to face the challenges posed by integration into the global economy. Under the old economic model in which Government played an intrinsic role in business activity, companies managed to survive without generating profits as subsidies were liberally injected in the form of soft loans, grants, and outright subventions to cover operating losses. 12. Subsidies, whichever form they take, distort the economic forces which, if allowed, automatically guide resources to their most efficient allocation. In a global scenario, market forces should pull labour intensive industries to countries with relatively inexpensive, abundant labour like Lesotho. Within our country these market forces should also work to allocate our limited resources in the most efficient manner possible. Resources simply move to areas in which they will be the most profitable - people work where wages are higher and capital is lent to ventures which have a higher probability of being successful and of reaping highest returns. A subsidised industry artificially attracts labour and capital to itself, often tying up scarce resources which could be used more effectively elsewhere. Inevitably this has a negative impact on the overall performance of our economy, stifling development opportunities and hindering attempts to improve the standard of living. 13. The banking sector has been a key player in this misallocation of resources. Political and personal influences interfered in the decision making process for granting loans. Instead of loans being given to assist viable, innovative investment opportunities which would stimulate economic activities, bank resources were misallocated and promising positive economic activities were stifled. 14. In some sectors, for example the agroindustry sector, subsidies may be justified in the short term on the grounds that the rural economy plays a vital role in the social and cultural infrastructure of Lesotho. However, political decisions of this nature must be explicit, and the benefits must be clearly assessed and quantified, ensuring that the subsidy will significantly benefit the targeted sector. The costs must also be explicitly calculated, and compared with the benefits to be achieved. The electorate are thereby empowered with the information required to make an informed choice about the way in which their taxes are spent. 15. In any sector, private sector managers should make more prudent and economically efficient decisions than their civil service counterparts. Led by the need to survive, with no opportunity of Government rescuing their enterprises from financial distress, the Private Sector invest in projects which will maximise their growth and maximise returns. This approach by all companies, motivated to maximise their own success, has a direct, positive influence on the macroeconomy. An example of a sector in which improved performance is expected to have an especially significant macroeconomic impact is telecommunications. The introduction of private sector managers and private sector equity holders will drive LTC to extend its network to accommodate more customers, to improve the quality of service, and to make investment decisions which will increase the efficiency of the company. The creation of an efficient national telecommunications provider will help attract inward investment and stimulate economic development. Here we should not forget other utilities like water and electricity both of which are the foundations of more economic development. Private sector investment in utilities is needed to extend coverage and to meet growing demand. A recent study has shown that twenty-thousand applicants are currenlty on the waiting list for telephones. 16. Throughout this National Dialogue, we need to keep these facts and issues in mind. We need to remember that the ultimate goal of economic reform is to achieve a more streamlined, efficient, and productive economy. Privatisation, although a key component of the restructuring, is just part of a much larger reform programme including market liberalisation, regulatory reform and opening up to global markets. We want to create an economy which will attract investment, create employment and which will prosper to the benefit of all citizens of Lesotho. This is the essence of our dialogue and your contributions will be most welcome. Thank you. |
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