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1.The programme of economic restructuring in Lesotho continues to face major challenges primarily because of limited understanding of relevant and basic economic concepts among some key players. One cause of the persistent confusion in response to queries could have been the use of the term privatisation at the very onset which implies for many people merely selling off state enterprises whereas economic restructuring entails reorganisation of the economy including such elements as allocation of resources. Many people continue to believe that the Government is somehow able to provide services without cost to the public little realising that what appear to be free services by the Government are in fact paid for ultimately by the tax-payer in some form or the other. Hence it is that many people continue to lament the demise of the old Lesotho Airways Corporation, or the bankrupt Lesotho Agricultural Development Bank unaware that these loss-making enterprises were sustained directly by the taxpayer, and that their pre-emptive subsidised existence distorted the rational allocation of resources which should be the basis of sound economic management. The Government of Lesotho gives many hidden or unacknowledged subsidies to the general public in many sectors ranging from free water in some urban areas to subsidised electricity in so far as current electricity tariffs for all consumers are below economic cost. This is not to say that all subsidies are essentially bad, but rather that the public should be made aware that there is really no free lunch: the cost of all public services eventually comes back to the taxpayer. If a subsidy has to be given the decision should be based on clear analysis and deliberate choice among available options. Concepts such as economic efficiency then become important because inefficiency in part means wasteful use of resources. It is only when the public fully appreciates the horrendous cost of inefficiency to them that they will stand up and demand efficient service, and appreciate the value of economic restructuring based on a rationalised allocation of resources.

2. There are other more sophisticated concepts such as leasing which seem to confuse members of the public as well as some key officials of the Government of Lesotho. The repeated calls for review of the vehicle leasing arrangements with Imperial Fleet Services (Lesotho) derive in part from a failure to understand the concept of leasing of vehicles, and its relative advantages or disadvantages in comparison to outright purchase of vehicles. On the face of it the monthly vehicle leasing charges seem high compared to anything that has been known in the past, but what is often forgotten is that when you lease you do not have to put up all the capital cost of the vehicle up front: you can in effect spread the capital cost of the vehicle over a period of time. Because of the facility to spread capital cost over time you may in fact be able to provide for more new vehicles to more departments all at once than you would if you had to pay the full cost of every vehicle one at a time. Hence it is that so many departments and agencies of the Lesotho Government have access to new vehicles today. Obviously the leasing service has to be paid for and the company that provides the service rightfully expects a reasonable rate of return on the capital it has invested. Leasing also provides a good idea of the consolidated cost of Government transport services including not just the capital cost of each vehicle but also the related costs of insurance and routine maintenance. All these monthly costs are consolidated in a manner which is not easily available if the vehicles are bought for cash, and therefore the capital cost is forgotten in computations of overall cost. One benefit at least of the leasing arrangements with Imperial Fleet Services is that for the first time managers in Government have some idea of the high cost of Government transport services when all the factors are taken into account. If there are some who maintain that the same standard of transport services can be provided at a substantially lower overall cost then they should be welcome to submit their alternative proposals to the Government for consideration.

3. The debate on electricity tariffs is beginning to attract attention. Here again there will have to be a determination of the economic cost of electricity, and if the Government then decides to subsidise the cost to consumers for whatever reason, then that policy decision should be openly acknowledged! It will have to be understood that the cost of the subsidies will ultimately return to the taxpayer.



Privatisation Unit
Maseru

21 May 2003