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Page added on September 27, 2012
In his inauguration speech almost five years ago, President Ernest Bai Koroma boldly declared that he was going to run Sierra Leone like a business concern. Of course this was not surprising coming from someone who had spent a considerable part of his career in the business sector. While many found the president’s declaration an attempt to wage war on the widespread inefficiencies and management shortcomings in government, others received it “with a grain of salt”. This, coupled with the lack of an official blueprint at the time laying out the president’s business management agenda for what I would like to hypothetically call Sierra Leone, Inc., has now left many wondering after five years what the president really meant when he said he was going to run Sierra Leone like a business concern. Proponents of the president will quickly point to selected projects including the ongoing road construction-in-progress, alleged free healthcare program, claims about the completion of Bumbuna project, etc., as the Sierra Leone, Inc.’s achievement, while critics would argue that this business concern is nothing but a “ponzi scheme” set up to benefit the president, his family and friends, while the general standard of living continues in free fall. I will explore the merits of these opposing views in a subsequent piece. (Photo: Mustapha-S.-Wai, author)
In this piece, I will focus on addressing, both from a public policy and business management perspective, the question of whether it’s practical to run a sovereign government like a business concern. The fact is that there are fundamental differences in the organizational structure of a government and a business entity. These differences make it impractical to operate a government like a business. Generally, governments and businesses operate in different environments, have different goals and objectives, and rely on different sources for financing their operations. In fact, certain jargons perfectly acceptable in the business community raise eye brows when used in government. For example, in a video recorded BBC interview (below), the reporter asked President Koroma what he meant when he claims he was going to run Sierra Leone like a business concern.
In response, President Koroma stated, “We are going to make money” repeatedly and on each occasion, the reporter repeated after him in what appears to be a tone of disbelief. The president finally caught up and corrected himself by asserting that they were going to make money for the people of Sierra Leone.
Let me take a moment to examine in detail some of the unique characteristics that make these two entities different. While both government and business entities are established by legal means, the authoritative basis is explicitly different. Governments get their authority from their constitution, statutes, charters and ordinances, sources that are considered supreme authority of each sovereign state or local jurisdiction. While businesses derive their authority to operate in a given jurisdiction from the local government entity of that jurisdiction, the nature of their structure and operation—types of goods and services offered, offices and functions necessary, responsibilities of officers, methods of raising and spending money, etc., as outlined in their articles of organization, are determined solely by owners or management with oversight of the board of directors as applicable.
A second fundamental difference between government entities and businesses is their goals and objectives. One obvious difference is that governments are not formed to make money, i.e. the lack of a profit motive. On the other hand, the sole purpose of a business is to make money. In fact, the long term survival of any business depends on its ability to make profit. Most businesses will go to any lengths to ensure profit is derived, sometimes at the expense of their customers and the social environment they operate, a move that defeats the core objectives of any government. Some will even defraud their customers or cut corners just to make profit. As the popular saying goes in a typical MBA program, businesses exist primarily to “add shareholder value”. On the other hand, governments exist to provide services to their citizens or constituents consistent with their needs. Many governments establish goals and objectives through presidential management agendas, budgets, strategic plans and operating plans, with input from its citizens.
A third fundamental difference between government and business entities is the source of funding. Governments are authorized by law to raise money through taxes, user fees, penalties, fines, debts and grants. These revenues are derived from the citizens and business entities that operate in the government’s jurisdiction, while grants and debt financing are derived from citizens, businesses and other local organizations and external parties—Foreign donors, IMF and The World Bank in the case of Sierra Leone. Ignoring the effect of the limited donations for selected philanthropic ventures, businesses generally provide services to customers who pay for them, and pay dividends only to its owners. Governments on the other hand provide services to their constituencies and citizens regardless of the amount of taxes they pay to the government.
A fourth fundamental difference between a government and business entity is the use of budgets. Businesses use budgets as a mere benchmark for performance as well as management tool for planning purposes. In fact, allocation of funds in business budget process is purely an internal discretionary issue. On the other hand, since the source of funding for governments is mostly derived from taxes, allocating such funds become more critical. This makes the budget process an important aspect of a government’s operation. In fact, governments are legally bound by the budget, i.e. —the budget establishes spending authorizations, outlines programs and services to be provided, and defines the sources of funding that will be used to fund them, including restrictions on the source and use of funds. Adherence to the budget is in fact one way by which government demonstrates accountability, transparency and good governance. In this regard, it’s tempting to note that the several noted shortcomings in the 2012 budget of Sierra Leone, Inc. is in fact treated as an internal discretionary issue, hence the slashing of critical social programs in favor of non-value added bureaucratic spending. I will reserve other comments on this particular subject for my next piece.
A fifth fundamental difference between government and business entities is how they measure success. Businesses measure success by using several indicators such as market share, earnings per share, return on investment, dividend payout ratios and ”going concern”–ultimately staying in operation as a business entity indefinitely. In fact, most business owners, CEOs and board of directors serve in their capacities for indefinite terms. On the other hand, there is no single measure of success for a government entity. A cynic might want you to believe that the ultimate measure of success for government is winning re-election. This is not necessarily the case, particularly in the case of young democracies like that of Sierra Leone. Instead, the success of a government can be measured by the overall quality of life which can be determined by several indicators including the availability of basic public services such as roads and electricity; effective policies that ensure affordable basic necessities such as food, medicine, clothing and shelter; a safe public environment that guarantees human rights; independent legal systems that guarantee reasonable access to justice; and an environment for free speech and association.
Given the fundamental differences described above, it’s unarguably clear that running a country like a business concern is not only impractical but counter-productive. While such declaration appears to be rhetoric for good political sound bite, there are clear legal and organizational limitations that make it impossible for anyone to run a sovereign government like a business concern. So, five years after the declaration by President Ernest Bai Koroma that he was going to run Sierra Leone like a business concern, I still wonder who the shareholders are; what is included in the articles of organization—the officers, goods and services offered, source and use of funding; who owns what amounts of ownership interest; what are the profits reported; who got what in dividends; and more importantly what it means for the stakeholders in general and the citizens in particular five years later.
In my next piece, I will seek to answer some of the above questions to determine how well CEO, President Ernest Bai Koroma has done in running Sierra Leone like a business concern over the past five years.
By Mustapha S. Wai, M.Sc., CPA, CGMA
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