Written by Muzamani
Translated by Francisco Chuquela
In recent years, the issue of privatization of companies owned or controlled by the State has been discussed again, a matter that had already been approached and implemented between the 1980s and 1990s, when the Economic Rehabilitation Program (PRE) was implemented. During the PRE, privatization was recommended and overseen by the Bretonwood Institutions (IMF and World Bank) on the basis of the need for openness to the market economy system, as opposed to the centralized economy system of the political option of socialist ideology.
At present, the recommendation is again of IMF, but this time comes as a solution to the dispute that emerged from so-called hidden debts. That is to say, the privatization of companies in the control of the State is imposed in one case for the change of political regime from socialism to capitalism and the other case to solve the financial inefficiencies of these companies. Addressing this issue in the contexts of capitalist or socialist economic systems, or the ability to generate profits, seems rather simplistic, which leads to errors of reasoning that can lead to wrong decisions, at least for Mozambique.
The genesis of companies under State control in the world had nothing to do with financial efficiency or with political systems adopted. They have emerged as instruments of governments to carry out actions of public benefit and/or of strategic character, usually the return of national sovereignty and economy. At the time designated as mercantilism (between the fifteenth and seventeenth centuries), companies such as the East Indian companies of European countries had control of their states as sole trading companies with India. It was thus that the British East India Company exercised its monopoly on the tea trade and later, silk, salt, cotton and opium. Following the formation of the British East India Company, the Netherlands, France, and Sweden, they created similar state-owned enterprises to pursue the same monopolistic goal in trade with India and possibly compete with their British rival. Mozambique saw the Majest Companies as Niassa Company, Zambezi Company with Sena Sugar, etc … which, although private, had a tight control of the Portuguese Crown. These companies had exclusive monopolies in commerce and functioned as administrative and military authorities in the territories that were (sub) concessioned to them by the crown. This modus operandi lasted for over 200 years and reduced its influence on European development and its colonies with the emergence and gradual acceptance of liberal economic theories. However, soon after the end of World War II, state-owned enterprises returned to the chessboard. Indeed, throughout Europe (socialist and capitalist) after the Second World War there were massive nationalizations that turned some private companies into state-owned ones as a way of rehabilitating the economy destroyed by the war. Here, telecommunications, energy, oil, railways, airports and ports, public transport, post offices, banks, and often in the areas of health and education are included. Large industrial companies were also included in the nationalizations, such as the British Steel Corporation, Statoil (petroleum) and Irish Sugar (Agriculture). Some of these companies were once again privatized after overcoming the obstacles created by the war. In colonial times, Portugal hated communism and socialism, but it had many companies in the state category.
Even today, Portugal maintains some such as the post office, Caixa Geral de Depósitos (Bank), TAP (airline company), Carris, Comboios de Portugal, Metro do Porto and Metropolitano de Lisboa, Radio and Television of Portugal, and many others. Some of these companies are or have been under total or partial privatization pressure. The key reason for this pressure emerged as part of the solution to the country’s financial crisis as a whole. And this pressure wasn’t internal to the country, but the famous troika that “helped” Portugal to “get out” of the economic crisis. Portugal resisted this pressure and where there was no transfer was total. And it isn’t only Portugal that keeps some companies under State control safe. The United States maintains today more than 30 state-controlled companies, including Corporate Credit Corporation, Corporation for Public Housing, Federal Agricultural Mortgage Corporation, Corporation for Public Broadcasting, Export-Import Bank of the United States, Farm Credit Banks, Federal Home Loan Banks, Tennessee Valley Authority, etc. In addition to these companies that occasionally receive funds from the State to operate, there are others where the American Government participates with voting power/veto. One can cite the same situation in many other Western countries that despite seeking to force Mozambique to privatize, they had and have state-owned companies openly or simulated. The United Kingdom and France each have more than 20 companies controlled or wholly State or municipalities. Other examples are found in all European countries. And many of them receive State subsidies because they are designed to perform functions considered strategic. Thus, the “judgment” of the performance of state-owned enterprises must be made in terms of the purpose of their existence and not only on the financial side.
The assumption that, at the outset, state-owned enterprises are less efficient than private companies, it is nothing more than a myth dressed in the politicization of appearance. It would be easy for any minimally curious human to “find out” that there was and there are many private companies in the world that went bankrupt and many state-owned companies that produce fabulous profits. Examples of recent bankruptcies of Energy Holdings, Genco and General Motors, all of the US that survived was recourse to State aid through the famous “Chapter 11”. And there are positive examples of profits, companies with Fannie MAE, which have the US Federal Government, which declares annual profits of between $40US and $50US billion, or Chinese state-owned company China Construction Bank, which has profits of around $30US billion dollars. Not to go to distant examples, it is worth remembering that when the big Wall Street banks and the US (all private) car industry were on their way to bankruptcy with the financial crisis of 2008, the Federal Government entered with financial assistance (Bail Out) for these companies not to fall, treating them as if they were State enterprises. But when the Mozambican government did the same to prevent the BPD from falling, it was criticized and the IMF insisted on its privatization as salvation. Same problem with two different solutions: Bail out for there and privatization for here. Here in Mozambique, if anyone dares to do a little research he will find that many of the state-owned enterprises that were handed over to the private sector during the implementation of the ERP have disappeared without surviving a decade.
This reflection invites us to raise issues that need to be deepened when our country and government is pulled to privatize some of its companies. These questions include the following:
1. Why has Europe nationalized private companies and created other state-owned enterprises to accelerate development after World War II, when to Mozambique, the same Europe brought the doctrine of privatization as a way to accelerate development after the end of the war? Why for Europe the solution was to nationalize and for Mozambique to privatize?
2. The Mozambican State and public enterprises were created with what strategic and public purpose? Are they or are not doing this?
3. If, for example, the TDM company is privatized, what guarantees does the country have that prices will not be used as a form of social exclusion, since the ultimate objective is profit? The same applies to LAM. If it is privatized for the sole purpose of profit. In the case of LAM, there are routes where it loses money, but national imperatives require that this company fly on these routes. If profit is the only parameter to evaluate LAM, then should not these routes be classified as efficient?
It is looking at the problem in its entire dimension that a solution is found, adjusted for companies under State control. And each of them has a solution of its own. Many of these companies were created as a means to an end and so can’t be treated as an end in itself. It is not useful to think that all are saved with the same remedy, because being a State company is not the disease. Perhaps it is worth mentioning that private sector participation is vital for Mozambique. But its entrance can’t be through the door of state-owned enterprises. If the private sector wants to enter telecommunications, railways, distribution of water or energy, etc., it must be able to do so without having to sell the public companies that are in those sectors. Let the private investor bring something new to add. We will not repeat the same mistakes we have already made. As African wisdom says, “the first time you make a mistake is an accident. The second time you make the same mistake is a mistake. But the third time is intentional.”