We need profitable and sustainable SOEs

Recently, the Ministry of Public Enterprises launched a league table to rank the performance of state-owned enterprises (SOEs) to engender competition among them.

Dubbed the Public Enterprises League Table (PELT), it is a collaboration between the Ministries of Public Enterprises and Finance and the State Interest and Governance Authority (SIGA), which is the regulatory body for the SOEs.

The initiative, the first of its kind in the public enterprises space, is meant to honour state companies that are doing well for them to become the best and encourage non-performing ones to be better and return to profitability.

It is also a performance management tool to enhance efficiency, productivity and the profitability of these public entities. The ranking will be based on how the public enterprises have performed in relation to the contract they signed with SIGA.

The Daily Graphic welcomes this initiative as one big step towards reversing the fortunes of most of the SOEs which have been consistently reporting losses and have become a drain on the economy.

We cannot discount the role of these enterprises which play an important role in economic growth and the delivery of critical public services such as health, education, water and energy.

Therefore their underperformance can lead to significant challenges in overall national growth and competitiveness and pose a fiscal risk to the government.

Consequently, improving the performance of SOEs remains an important issue for policy makers and development practitioners. More recently, efforts to strengthen corporate governance have been gaining momentum as a means to improve their performance.

With a dominant role in network industries, SOEs provide key inputs to business and contribute to capital formation. However, the deterioration in their operational and financial performance over time and the increasing burden they pose on the budget point to the urgent need to reduce their large footprint in the economy and address their weak performance.

Both are major obstacles to economic efficiency and competitiveness and to the growth of productive private sector firms. Reform options include undertaking a comprehensive inventory of existing SOEs to decide whether to divest, liquidate or keep them after they have been restructured. SOEs that are retained should have clearly defined mandates, strong governance and strict oversight structures to operate in competitive markets with autonomy.

We need an effective reform of the SOE sector and such a reform will require strong political commitment, sustained over political cycles.

One obvious issue that needs to be given some attention in this direction is the need to put in place measures to improve the governance of SOEs: the lack of good corporate governance is a fundamental issue facing the SOE sector.

Such problems are not limited to multiple, often conflicting objectives; a lack of financial and fiscal discipline, weak boards and management, political interference in the day-to-day decision-making, and low levels of transparency and disclosure.

These governance weaknesses cascade into operational inefficiencies and poor service delivery.

We are also not oblivious of some steps the government has taken to ensure all state companies are managed very well and are profitable to contribute at least 30 per cent to the country's Gross Domestic Product and create more fiscal space.

For instance, the promulgation of the SIGA Act 990 and the appointment of a Minister of Public Enterprises to oversee the growth and expansion of the SOEs to become avenues for job creation is one such effort.

We know that SIGA has been implementing good corporate governance practices and making recommendations for restructuring and turnarounds, and strengthening the existing performance contract management regime that had been there in the past but did not deliver the desired results.

We need our enterprises to be financially profitable and sustainable and that starts with the performance league which successful execution requires the collaboration of all stakeholders.