On moral hazard, ‘Cofit’ entrepreneurs and the unintended consequences

Author: Samuel Sejjaaka. PHOTO/FILE.

What you need to know:

Those public officials and ‘Cofit’ entrepreneurs do not have to pay the costs for their decisions.   

I do not know how many times I have written about moral hazard in this space. For any student of economics, moral hazard is one of those things you will keep on encountering as you learn how public policy decisions are made and why they end up being completely suboptimal or failed. In a lay terms, moral hazard is a situation in which one party engages in risky behaviour or fails to act in good faith because it knows the other party bears the economic consequences of their behaviour.

Moral hazard is a dominant theme in the public sector because the costs arising from decisions of public bureaucrats (risky behaviour) are paid for by taxpayers. Just this week, you heard some government officials requesting to be exempt from toll fees on the Kampala-Entebbe Expressway. But it is the same officials who made the decision to borrow money and construct a toll road! Or take the way government drivers treat vehicles (public assets) entrusted to their care. Would they treat those public assets in a similar manner if they had paid for them personally? The answer is obviously no. But we have been down this slippery road before with the vehicle co-ownership scheme and dismantling of public housing schemes.

It is in the context of moral hazard then that our policymakers have gone about managing the Covid-19 pandemic for the last two years. They decreed and legislated lockdowns, mask mandates and all sorts of other regulations that a poor economy like ours could ill afford. The results are there for us to see. Economic growth slowed to about three percent, businesses folded and many livelihoods were lost – a comparatively higher cost to pay considering the loss of 3,500 lives in two years. Perhaps some of the biggest shocks, which will only bare themselves in the future, will be the drop out from education of up to 4.5 million learners, according to the National Planning Authority.

The truth of the matter is not that we’re supposed to do nothing. It was imperative that we take steps to protect ourselves from the pandemic. But how objective were those steps, considering the economic and social realities of our population? The war on the on pandemic soon turned farcical – what has now become the ‘great Cofit swindle’. Tenders were given to cronies to supply food, masks and protective equipment. Private donations were diverted to buying pick-up trucks and we have seen all manner of ridiculous schemes obtaining government approval and ‘licence’ in the name of fighting Covid-19.

In a word, the pandemic has become a money making venture for connected persons, even if they had no track record in the areas where they have ‘won’ tenders. But the cows usually come home, and it is in the area of PCR screening for travellers that the biggest scams have unfolded. The introduction of compulsory testing at the borders, especially Entebbe airport seems to have become a lucrative money machine. It was extended to Malaba border unilaterally without again taking into account the objective economic realities. Cargo drivers with valid PCR tests found that they had to be retested for the profit and pleasure of some cartels. They revolted and this resulted in a shortfall in supplies of fuel and other industrial inputs.

In a word, the pursuit of profit by some Covid-19 entrepreneurs has created unintended economic consequences for the rest of the economy. Note, as I have said before, those public officials and ‘Cofit’ entrepreneurs do not have to pay the costs for their decisions.

That is the unfortunate nature of managing public resources and any society that forgets itself will arrive at this point sooner or later. Again economists, given their proclivity for big words, have named this scenario aptly. It is, ladies and gentlemen, called the ‘tragedy of the commons’ or ‘state capture’. To what extent will we put the pursuit of personal profits before the common good?

Prof Sejjaaka is country team leader at Mat Abacus Business School.

[email protected]@samuelsejjaaka


You're all set to enjoy unlimited Prime content.