(a) State five reasons for governments participation in business (b) Explain five problems encountered by government businesses.

Answer Details

(a) Five reasons for government participation in business

1. To provide essential services: Government invests in services such as water, electricity, health and transport that are vital to citizens but may be unprofitable for private firms.
2. To prevent exploitation and monopoly: By running key industries, government stops private monopolies from charging excessive prices and exploiting consumers.
3. To generate revenue and employment: Public enterprises create jobs for citizens and provide additional income for the government.
4. To control strategic and sensitive industries: Industries connected with security and the economy, such as defence, mints and refineries, are kept under government to protect national interest.
5. To provide capital-intensive projects: Government undertakes projects requiring huge capital, such as railways, ports and dams, which private investors cannot easily finance.

(Also acceptable: to ensure even development of all regions and to check foreign domination of the economy.)

(b) Five problems encountered by government businesses

1. Inadequate capital: Government enterprises often depend on budget allocations that are insufficient and irregular, limiting their operations.
2. Poor management and inefficiency: Managers are often appointed on political grounds rather than merit, leading to low productivity and waste.
3. Bureaucracy and red tape: Decision-making is slow because of the many official channels and procedures that must be followed.
4. Corruption and mismanagement of funds: Public funds are frequently misappropriated, which leads to heavy losses.
5. Political interference: Frequent changes in government policy and undue interference by politicians disrupt planning and continuity of management.