How the
re-launch of Uganda Airlines is most likely going to bring our country to tears
– unless
The
decision by Uganda government to re-establish a state-run airline is a
strategic mistake. In the early 1990s Uganda took a strategic decision to get
government out of business. It disbanded state monopolies, privatized state run
enterprises, liquidated others (like Uganda Airlines) and largely restricted
itself to the role of overseer/regulator of private enterprise. This move was
backed by a reorientation of the ideology of state bureaucrats, especially in
the economic agencies, towards free market economics.
Government
held onto some enterprises many of which have been very successful – The New
Vision Printing and Publishing Corporation, National Water and Sewerage
Corporation, Post Bank, Housing Finance Bank, National Social Security Fund,
Pride Micro Finance, etc. are prominent examples. However, these have been
successful in large part because they are very few.
Across
most of the world airlines are losing money – including our neighbors Kenya and
Rwanda. Why is Uganda government opening a new business in a loss-making
industry? Indeed many experienced analysts have pointed out – and quite
correctly in my view – that the choice of planes Uganda is buying, the routes
it intends to fly, the liberalization of passenger and cargo handling and
in-flight catering services, competition from the big players etc. all limit
the business opportunities this airline can rely on to succeed.
However,
these criticisms address tactical not strategic risks. If government were
totally committed to building a successful airline, these mistakes would be
corrected with time and more robust airline has potential to growth against the
odds. The strategic challenge is political: the ideology of government
bureaucrats, the behavior of our legislators – both in government and opposition
– and the attitude of Ugandan elites towards the state. How?
The
initial years of this airline are going to be characterized by nepotism,
favoritism, fraud, corruption and gross incompetence. These weaknesses
(in-and-of-themselves) are not unique to Uganda or even a strategic risk to the
airline. They are part of the process of growth and learning, which many
successful businesses have historically faced. In fact they are an inevitable
short-term cost for a long-term goal.
The
issue is the bureaucratic and political response to these early challenges. The
award of contracts and hiring of staff, however honestly and transparently
done, will evoke suspicions and intense contests among the different factions
of our body politic. The losers in the contracts-and-jobs-lobby will run to the
media, parliament, the IGG and other oversight institutions to complain of foul
play. These will kick off the dust, which will now pollute social and
traditional media. The management of the new airline will be besieged.
In this
politically charged environment, Uganda’s international creditors will weigh
in. IMF and World Bank will argue that they knew all along this was going to
happen and threaten to cut aid and other support. Uganda’s bureaucrats at the
ministry of finance and central bank will spot their quarry. Being free
marketers hostile to the state doing business, they will make public statements
against the airline. MPs (including those of NRM) will exploit this to
grandstand by refusing to approve the budget of the airline.
We must
remember that in the initial years, the airline will have invested heavily in
capital expenditure and have high operating costs yet business will be low. So
the losses will be very high –up to $50m per year. These losses will have to be
funded from the budget. The strategic challenge is whether the Ugandan body
politic can accept taxpayers’ money subsidizing a loss making state enterprise
accused of nepotism, corruption, incompetence and mismanagement.
Entebbe
Airport
Given
our knowledge of Uganda’s politics, we can predict that every mistake by the
airline, however small, will not be a moment for reflection and a platform of
learning so as to improve. Rather it will create an opportunity for our
legislators to grandstand, journalists, and other elites in “civil society” and
social media to win cheap popularity by positioning themselves as champions of
the “masses” against a corrupt and incompetent government.
In this
politically and diplomatically toxic atmosphere, President Yoweri Museveni,
will withdraw his support from the airline. Money to the airline will be cut,
its ambitious growth strategy like flying more routes, will be halted. Then the
service will decline and the mechanical condition of the planes will
deteriorate. In short, the political debate will have created a self
fulfilling-prophesy. After four or five years in operation and over $500m or
even more lost, the airline will be closed, the critics proved right.
Yet in
ideal conditions it does not have to be like this. Every young business behaves
like an infant. In the early years it is helpless and fragile. The parents have
to feed it while it pees everywhere. As it begins to walk, it breaks things in
the house, wrecking havoc. Parents have to spend more than two decades feeding,
clothing, housing and educating it while the child brings zero returns and the
parents are unsure whether the investment in upbringing and education will
yield expected results.
Successful
nations that midwifed great businesses went through these challenges. For
example, the government of Japan subsidized Toyota, a private company, for 20
years before it broke even. Three times the company came to the verge of
bankruptcy, three times the government bailed it out. Today Toyota is the
second largest automobile company in the world. What we see in Japan is
patience and understanding, qualities that Uganda lacks.
Many
Ugandans think this deep-seated suspicion of the state is because of the way
Museveni has managed the country. There has been a lot of corruption, which has
led people to lose faith in the benevolence of the state. I used to think this
way too. But that is only partly true, mostly an excuse not an explanation of
the suspicion. Ethnically diverse societies tend to have deep-seated suspicions
of “the other” – making it hard to manage public goods. Museveni is not the
president of Kenya, Malawi, Ghana, Zambia, Nigeria, Congo DR, USA, etc. yet
similar suspicions dominate.
I have
learnt from Rwanda that building a national airline needs a grand, national
vision, backed by a political commitment to succeed against all odds (by taking
a very long term and broad view of the business) buttressed by a politics where
citizens believe in the state. Rwandair has faced many challenges. It has made
losses for years. President Paul Kagame has constantly changed managers and/or
management, all the time trying many things without letting tactical challenges
cloud his strategic objective.
For
Uganda airlines, Museveni will need to do with it exactly what he has done with
oil: build a highly competent technical team, insulate it from political – and
most especially democratic – pressures, by making it accountable directly to
him. He will also need a person of the caliber of Allen Kagina, someone who can
hold her own and fend off wheeler-dealers that may seek to scavenge on the
airline. But in the wider scheme of things, this airline is small with limited
strategic value to attract such political commitment from Museveni as oil did.
Hence, the project may be “dead on arrival” i.e. headed to failure even before
it begins.
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