Is TANESCO’s Profit-Making Setting a Precedence for State-Owned Enterprises in Tanzania?

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The Tanzania Electricity Supply Company has recently announced a notable profit for the financial year 2021/22, amounting to 110 billion Tanzanian shillings. This achievement has captured the attention of citizens, given the sensitivity surrounding the nation’s power supply. The sudden revival of TANESCO’s performance has been noteworthy, especially considering its historical underperformance as the country’s sole company responsible for generating and supplying electricity.

In 2022, the Controller Audit General’s report validated TANESCO’s classification as an underperforming state-owned entity, a characterization shared by other enterprises like TTCL, ATCL, TRC, NHC, KADCO, NDC, etc. However, the government took several measures to rescue this crucial national asset in response to the CAG report. These measures included converting the overwhelming debt into equity and implementing a management transformation, with new faces from the private sector joining the company’s board, a new Managing Director, and even a new Minister.

Two years later, TANESCO’s announcement of 110 billion profit raises questions about whether other state-owned enterprises require similar support to become profitable and demonstrate their potential. The Tanzanian government has consistently shown unwavering support for its state-owned entities to maximize their potential and contribute to the national GDP. However, the results have been disappointing, with several entities incurring jaw-dropping losses and misusing funds, as revealed by the CAG.

This has been an ongoing issue under different administrations, despite some SOEs claiming profits and dividends, which amounted to 455 USD during the late John Pombe Magufuli’s tenure. Only recently has the government, through the Treasury Registrar, begun to evaluate the fate of most state-owned entities, with TANESCO’s being an exceptional success story, highlighting the importance of these enterprises to the government even though their day-to-day activities have been a consequential burden to the government budget year on year.

An essential factor to consider is whether the performance of SOEs results from visionary leadership or capacity. While TANESCO serves as an example of successful reform, other SOEs have faced regular upheavals in leadership, with boards and managing directors frequently changing after every presidential transition or three-year term. Some entities have not seen new faces in administration for a considerable time, potentially affecting their performance.

The involvement of critical private sector figures as decision-makers in state-owned enterprises is becoming increasingly important. The government has shifted from solely involving public servants in executive committees and boards to embracing private-sector individuals. This action combats the idea of having individuals who take positions for granted instead of being results-oriented.

TANESCO’s success in this regard indicates that bringing in private sector expertise and mentality can be beneficial as it is summed that recent profits in the energy sector under Tanesco have resulted from such action. In industries such as agriculture, appointing board chairpersons from the private sector has aimed to replicate the performance and competitiveness of this sector, particularly those with a background or experience in the profitable banking industry. This approach holds promise for achieving desired results in other state-owned entities over time.

Tanzania’s history of state-owned enterprises reflects a shift in economic ideology from post-independence socialism to state-led economic activities through SOEs. However, financial crises during the 1970s and 1980s led to SOE stagnation and fiscal losses, necessitating reforms. Supported by the IMF and World Bank, these reforms aimed to reduce the SOE burden and enhance the role of the private sector. Reforms and divestments in the past have resulted in inefficiency and poor management among SOEs. Still, TANESCO’s turnaround performance serves as a wake-up call for the government and other state-owned entities.

State-owned enterprises are the backbone of many countries. While they are pivotal in service provision such as water, electricity, transport, and communication in Tanzania, SOEs fill a portion of the unemployment void by being employment sources. Especially in the developing world; thus, if appropriately used, they can help spur growth for individual and national economies.

It is still unclear, though, if the other varieties of SOEs comparably boost the economy, even with the success stories from all around the world, including China and Norway. On the contrary, SOEs have been negatively characterized by running losses and excessive borrowing, operational efficiency due to capacity issues, but also used as a significant indicator of the competency of a government in power.

TANESCO has shown a sign of wokeness and positive results that a function of the government support, the establishment of a functional supervisory board, and capacitated top management, any state-owned enterprise can live and support the government in its established objectives.

Looking ahead to the near future, with the government’s intention to revamp the SOE performances through the Treasury Registrar with auditing and recommending necessary actions and reforms for SOEs, it is anticipated similar events to what happened in mid-1995 under the late Benjamin W. Mkapa’s administration, we may expect privatization, dissolution, or selling of several SOEs. Some of these SOEs, such as TTCL, were advised to consider sticking with one business channel. Throughout this process, TANESCO’s success will likely serve as a benchmark for evaluating the performance of other SOEs.

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