The Vanguards of the Paradigm Shift against their Intellectual Progenies—Part 3

By Musa Sanneh

Nay, Africa, but most veritably The Gambia cannot afford endless ideological battle in the search for the appropriate economic model. The era for ideological whining is passé. Ideological battle lines have utterly tumbled in 1992. What is important now is precision. Precision not just about what kind of economic model to develop in real terms but how the model, backed by algorithmically verifiable data, should be developed.  A mere compendium of platitudes and critique of what obtains presently will not do it. The idea that solutions to economic woes derived from narrow private sector tax base is to be found only in the establishment of more subsidized public or state-owned enterprises cannot pass a smell test.  That is to say, as in the case of The Gambia, there is no empirical evidence for it. As for answers, we must interrogate history.

As documented in Part 2 of this series, The Gambia had only four pubic or state-owned enterprises at independence. The first of the four public enterprises established in 1922, was called The Gambia Savings Bank—commonly known as the Post Office Savings Bank. In 1948, The Gambia Produce Marketing Board, also formerly called The Gambia Oil Seeds Marketing Board, was formed. Next to be established in 1955 was The Gambia Central Cooperative Banking and Marketing Union Ltd., before it morphed into what later became The Gambia Cooperative Union.  Both The Gambia Ports Authority and The Gambia Utilities Corporation were not categorized as public enterprises as such but were functional Departments under Ministry of Works and Communication—formally Ministry of Works and Services. The fourth public enterprise was the National Trading Corporation (NTC) which until it was taken over by the government was a foreign-owned business entity called the United Africa Corporation (UAC).

As discussed earlier, with only four public enterprises at independence and until the economic gains were colossally eviscerated due largely to the prolonged Sahelian drought and the collapse in the world market price for agricultural commodities and the oil shock of the 1970s, The Gambia had registered a robust macroeconomic performance. The GPMB alone had average annual reserves of D7.8 Million by the end of the first decade after independence and as documented by Hook, et al., its “operations were larger in absolute terms than those of the government itself.” Food import as a percentage of gross domestic product (GDP) amounted to only 7.1, and budget deficit as a percentage of GDP was at 2.6. The current account deficit as a percentage of GDP was 8.3 which was adequately covered by capital inflow into the country. And by 1975, the accumulated foreign reserves were adequate to cover, among others, an equivalent of ten months of imports of all goods and services into the country.

Fast forward to the end of the second decade after independence, The Gambia had twenty public or state-owned enterprises. The rationale for the creation of more public enterprises then, as is now, was to expand the productive base of the economy by accelerating economic growth to spur industrial development thereby expand employment to address other social and economic needs of the country. By 1985, the following were the public enterprises in The Gambia and the shares of government ownership in them:

The question therefore is with twenty public or state-owned enterprises, has The Gambia succeeded in expanding its productive base to generate revenues as expected?

The answer without a doubt is that establishment of more public or state-owned enterprises has not helped The Gambia to expand the productive base of the economy. On the contrary, establishment of more public enterprises left both the government and The Gambia worst off in so many ways.

For example, between 1979 and 1982 according to reports compiled by World Bank, the public enterprises made total net losses of D112 million—effectively reducing them to liabilities and by implication, on balance, became financial burden on the economy. Due to the poor performances of most public enterprises, valuable government resources that could have been effectively utilized to improve the health, education, infrastructure and other vital public goods for the country were diverted to absorb the economic inefficiencies the state-owned, and public enterprises generated. A typical example of this could be found in financial transactions involving The Gambia Commercial and Development Bank, and The Gambia Cooperative Union. In 1988, D53 million of the total outstanding loans of The Gambia Commercial and Development Bank were owed by The Gambia Cooperative Union. When the bill came due, The Gambia Cooperative Union was only able to repay less than 5 percent of the D53 million it owed. The remaining balance had to be picked up by the government—essentially as an off-budget transfer payment. The combined effects of this and many other similar circumstances, undoubtedly, finally led to the insolvency of The Gambia Commercial and Development Bank. 

Secondly, proliferation of the public enterprises in The Gambia did not only lead to widespread inefficiencies in the public sector, but it also effectively crowded out the private sector. The private sector capital that was available for investment across the different sectors of the economy fallowed to waste. Consequently, private commercial banks opted for buying treasury bills and other commercial securities from the Central Bank than took risk with their capital. For example, by mid-1980s the international Bank for Commerce and Industry (BICI) held less than 5 percent of total loans and advances nationally. Standard Chartered Bank on the other hand serviced only selected customers on specified terms and conditions.

More broadly, to microscopically determine the macroeconomic impact of the public or state-owned enterprises in The Gambia, a comparative review of the basic economic data of The Gambia during the first and second decades—the period in which most of the public or state-owned enterprises were created would be very instructive.

Basic Economic and Agricultural Data of The Gambia

Evidently, a substantive review of the data above shows the fact that not only the creation of more public enterprises have failed to positively impact The Gambia’s economy but have also proven beyond the proverbial shadow of doubt that increasing the number of public enterprises was a negative drag on the overall performance of The Gambia’s economy.

Let’s review the evidence. In 1975, food imports as a percentage of GDP was in the single digits of 7 percent. By 1986, however, the food importation increased by over a 100 percent as a percentage of GDP–notwithstanding the establishment of more food and food processing enterprises. Evidently, this disproves the paradox of the utopian thinking that more public enterprises lead to more economic prosperity.

Furthermore, by 1975, annual government excess payments over government receipts (budget deficit) as a percentage of GDP was also in the low-single digits of 2.60. However, by 1986, the annual budget deficit ballooned to a whopping 13.20 as a percentage of GDP. Clearly, if the thinking, again, is that more public enterprise would lead to an expansion of the productive base of the economy and hence more revenue for the government, then undoubtedly, given the overwhelming evidence, such proposition would make sense only to Gambians who are captives of a theoretical vanity than reality.

Additionally, the claim that establishing more public or state-owned enterprises would result in external economies of scale and thus promote efficiency by reducing the cost of production for the various public enterprises turned out to be more ideological than reality. Consequently, the value of goods and services exported relative to the value of goods and services imported (balance of payment account) as a percentage of GDP worsened from a low-single digit of 8.30 percent during the first decade after independence to a monstrous 15.90 percent during the second decade after independence. This is a 92 percent increase in the balance of payment account of the country in a single decade. Not surprising therefore, the foreign exchange reserves that was equivalent to cover ten months of imports at the end of the first decade after independence depleted to equivalent of only a week of imports. The GPMB, which had accumulated reserves of $54.6 million in 1978, ended up with an accumulated debt of about $37 million by 1983.

Thus, given the data and the underlying facts presented here among others, I hold the humble view that what The Gambia needs is neither an ideological battle nor re-inventing the wheels. On the contrary, what The Gambia needs is a thorough and comprehensive review of the government holdings in the various public enterprises. The aim of such comprehensive review shall be to identify entities that are central (core) and those entities that are not so central (peripheral) to strategic and national security interest of the country. Core entities should be redesigned, repurposed and retained by the government. The peripheral entities, without delay, be sold to the private sector. The Gambia must not let ideology to get in the way of pragmatism.