Why the State is a bad entrepreneur

This is interesting! From the look of things, on the one hand, the State is giving us the picture that it wants to discharge some services as a business venture, asking consumers to pay for the full cost, so to speak.

But, on the other hand, the same State is investing billions of kwacha, equivalent to 10 percent of the National Budget, in subsidising poor households to produce maize through the Farm Input Subsidy Programme (Fisp).

Subsidies are a benefit given by governments to groups or individuals in form of cash or tax reduction to ease the burden of the full cost of a good or service. It is believed that doing so is usually in public interest although, in most cases, politics plays a central role in the whole arrangement.

It all started in May 2012 when government, through the Malawi Energy Regulatory Authority (Mera), introduced the automatic pricing mechanism (APM) for fuel and Automatic Tariff Adjustment Formula (Ataf) for electricity to ensure that motorists and electricity users pay for the full cost. The result has been high fuel prices and electricity tariffs.

To some extent, it makes sense. I mean why should the State subsidise a litre of fuel for an individual or organisation that can afford to buy a K50 million-plus vehicle? Indeed, why should an individual who can afford a K1 million television set fail to service a K30 000 monthly electricity bill?

Our sole power utility, the Electricity Supply Corporation of Malawi (Escom), recently justified its 29 percent increase in tariffs despite implementing the Ataf (much like the case with fuel), tariffs should be adjusted either upwards or downwards whenever there is a five percent (minus/plus) change in variables such as the kwacha exchange rate and inflation rate.

Ironically, Escom raised its tariffs when the kwacha was appreciating and the same regulator, Mera, reduced pump prices for diesel and petrol!

Escom claims it sells a unit of electricity at K6 yet it costs K12 to produce the same. If this is true, then Escom is not in business, but charity.

Escom is not the only one out of business. If media reports are anything to go by, most State-owned ventures, including water boards and local councils, are not in business. Yes, we accuse them of poor service yet, at the same time, we, the citizens, fail to timely pay bills and ground rates. For instance, recently, the Blantyre Water Board (BWB) said it is owed K1 billion. In the case of BWB, one wonders how such colossal sums in outstanding bills accumulate when poor households are disconnected with bills as low as K200 but asked to pay K3 500 in reconnection fees.

Besides, I thought the water boards and even Escom are mandated to disconnect supply where a customer fails to settle it after 30 days?

Back to Fisp. Yes, the country has achieved surplus maize harvests over the years. But, have the beneficiaries graduated to self-sufficiency? No. Year in and year out, they extend their begging bowls, getting Fisp coupons to buy a 50 kilogramme bag of fertiliser at K500 against the market value for the same bag of K15 000 or more. What this means is that, to score political mileage, government gets from taxpayers K14 500 to buy each bag of ‘subsidy’ fertiliser.There is a need to depoliticise Fisp.

Now President Joyce Banda has also announced creation of the Mudzi Transformation Trust targeting individual villages across the country with comprehensive interventions that will accelerate the betterment of well being of rural and urban poor. She said the objective will be to mobilise accessible,responsive and flexible resources to support social and economic projects for the transformation of the lives of Malawians in all 28 districts.

All these are subsidies. It is like the State is recovering the full cost of service from motorists at the pump and electricity as well as water users, among other sources, to finance such subsidies.

Minister of Finance Ken Lipenga is on record as having said that apart from the fuel and electricity subsidies removed last year, there are still heavy subsidies in agriculture by 75 percent, education close to 90 percent, health by 100 percent and water.

This is why the State, in many parts of the world, is not the best entrepreneur. Imagine where our country would have been if it was run like a business? Surely, there would be high productivity from the civil servants and their colleagues in State-owned enterprises. There would also be less wastage or abuse of resources. Did we not hear the other day that one third or 33 percent of resources in the National Budget go down the drain or into people’s pockets?

Businesses invest with an expectation to reap results in form of profits. Sadly, government seems to be investing to score political mileage as the case of Fisp would testify.