2024 CAG Report is Out: Colossal Losses Still Haunt Us!

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One thing is certain when CAG presents his annual report: we have become accustomed to resign to massive losses not profits to be reported. We seem to have run out of ideas and incentives to plug losses and generate profits. There is a yawning gap between promising rhetoric and performance. More alarmingly, losses keep metastasizing, and there is no let-up. CAG told us that three parastatals have incurred combined losses of Tshs 441 Bill with the national debt closing in to Tshs 100 Trill. ATCL, TRC and TTCL have hollowed us out with that staggering loss! Bad news never stops knocking on the door; it looks like all the public sector reforms since the 1990s have not brought us any relief. Why do colossal losses keep stalking us? This is my take.

CAG says TRC has inflicted us with a loss of Tshs 224 billion in comparison to the Tshs 102 billion losses incurred last year. There has been an incredible 54. 46% jump in losses when this year’s loss is compared to last year’s loss. Moreover, TRC losses are 50.76 % of the combined loss of the three parastatals that have caused most losses, namely, TRC, ATCL, and TTCL.

The CAG continues by claiming that had the government not given the subvention to the TRC, the losses would have been Tshs 253 billion. I have a problem with the accounting method adopted by the CAG, where he treats government subsidies as income, while such a type of computation obscures the auditing statement. Income must be obtained from the operations of the company and shouldn’t include sources of income divorced from the operations of a company.

Therefore, considering this, I will adjust the earlier financial analysis as follows. TRC loss was Tshs 253 bill which is 59. 68% increase in the losses incurred last year. The proportion of the losses incurred by TRC is 57. 37% of the total losses of the three leading parastatals. The CAG attributed those losses to the scarcity of train engines and persistent rainfall for 4 months. Essentially, what the CAG is telling us is that TRC has been hampered by underinvestment. We haven’t equipped TRC with the infrastructure to ensure that rail tracks are all weather passable and furnished it with train engines needed for smooth operations. Sadly, these are not new challenges. We have been talking about them for decades, but we seem resigned to repeat them year after year. Can this be the last time we talk about them?

These deficiencies are within our grasp, but don’t be surprised next year to hear the losses keep spiking and the reasons behind those losses are more or less the same reported in previous reports. The president has promised to resolve the bottlenecks, but it is an echo of last year’s promises. Promises must have meaning and value. They cannot be issued in vain! Therefore, there is little encouragement that anything will change for the better. The CAG didn’t look at the massive leakage in revenue collection and the impact power cuts have on the operations of the TRC. TRC has yet to tell us why backup batteries are not installed in the train engines to buffer operations from power cuts. Earlier promises to do the same were quietly shelved for reasons we don’t know.

While TRC’s losses may be attributed to its dedication to boosting its budget to purchase more train engines and elevate rail tracks in areas notorious for seasonal flooding, that cannot be said of ATCL. ATCL is bedevilled by factors that some are beyond her capacity. Most decisions to procure jumbos didn’t seek technical advice from ATCL. As a result, the jumbos bought have been bleeding the parastatal. ATCL’s initial goals were to solve air travel locally, but during the fifth phase of president Magufuli, we shifted to catering to elusive foreign tourists. Competing with established foreign airlines was a bad idea. We have fewer resources, and the scales are tipped against us.

We boasted we were capable of paying cash for the jumbos, yet established airlines never pay more than they should. This is what North American market researchers call the black inferiority complex, where you pay more to get attention that you are doing artificially well. You may be surprised to learn that there is a markup profit of about 20% for blacks in the car sales market in North America. Researchers have found out blacks are more willing to pay more for a car just to erase the racial inhibitions. Therefore, the salespeople just charge them more, ramping up profits while beefing up black, malnourished egos.

Most established airlines just pay the down payment and procure the planes. The advantage of that is that it permits them to buy more and begin making money without financial commitment. The other advantage is avoiding taking bank loans. The plane makers give loans to their purchasers. Still, Tanzania pays in full, depriving us of options available like getting loans at zero interest payments and having leverage if planes underperform. ATCL planes ran into engine problems soon after arrivals, with European planes heading the list. What we do not say is that had we just coughed up the down-payment, we could have had leverage when those engine maintenance problems reared their ugly heads. But without having future payments to clear the transactions, we were forced to pay more for the costs of the repairs and storage.

What the CAG report was conveniently silent was the whole bizarre business of procurement involving ATCL and TRC. At one time a Washington Post reporter enquired from the now sacked BOEING chief executive why poor countries buy planes through third parties. The then BOEING chief executive conceded the main reason was simplifying avenues of kickbacks but BOEING policy was not to force clients to buy planes directly from it.

The involvement of third parties in procurement transactions spikes the cost of doing business. Most of these third parties’ decisions are imposed on the parastatals, but when losses are recorded as a result of over invoicing, the blame settles on the recipient parastatals! CAG is napping on his job when he doesn’t analyze the sources of the losses on a more microscopic level. It is not enough to point out the amount of the losses and potential sources without assaying the third parties’ role in racking up those losses.

CAG should also report government subsidies as borrowed money because without doing that, parastatals will not account for government input. It distorts the true financial picture and erodes financial accountability. ATCL losses were Tshs 91.8 bill which was 62% increase from the last year. CAG didn’t include government capital investment as loans, which alone made the ATCL operations appear rosier than they should have. ATCL losses were 20.77% of the major losses making parastatals. Had all the inputs been woven in, I have no doubt ATCL should have been the country’s largest loss-making parastatal. CAG says when government subsidies are incorporated into the equation the losses were Tshs 191. 6 bill. We cannot have two types of losses. Government subsidies are loans to be repaid, they are not freebies.

The issue of TTCL is a bit confusing. TTCL losses were attributed to acquisitions of optic fibre and data centres. What stopped TTCL from making money from those acquisitions is a lacuna in the CAG report. The reason why TTCL is not aggressively promoting fibre optic could have to do with the investment needed to branch out to individual homes. While the user costs are friendly, reaching many homes has been slow due to the initial capital investment. The world is already shifting away from optic fibre technology to satellite Internet connectivity, which resolves most of the notable hindrances of optical fibre. TTCL will never be profitable with fibre optic technology. Embracing satellite internet technology and its accompanying phones will address most of the incumbrances we face today.

The national debt is now posing a serious threat to the government budget. The national debt now stands at Tshs 99 Trill and counting. The servicing of that debt is constraining our budget to do many things. The problem we have is that bureaucrats and politicians keep lying to us that the national debt is bearable! Well, it isn’t. They should stop lying to us. A debtor is a surety of a creditor, and nothing will change from that scriptural wisdom. The proportion of the recurrent budget apportioned to service the debt ought to be made abundantly clear. The CAG report didn’t bring attention to that beyond showing the aggregate sum of the debt. That kind of information is useless unless linked to how much of the recurrent budget is spent to service the debt. CAG needs to point out the ceiling of the national debt. We cannot continue to leave to rudderless politicians and civil servants to entice us to keep up borrowing recklessly. There must be a limit to that unless we want a recurrent budget that is razed to service interest costs of those debts. The cost of domestic debt is more beneficial when compared with foreign debt. CAG ought to advise us accordingly in that area.

In totality, CAG reports have been inadequate because they don’t provide guidance on how to fix a myriad of challenges in the government budget. Still, without arming us with the counsel on how to fix those challenges the CAG expects us to figure out by ourselves. Such a laissez-faire attitude has also been unhelpful knowing the government has no motive to change her profligate ways.