Namibia: Govt Urged to Scrap Redundant SOEs

20 September 2019

Economic experts have advised the government to consider closing redundant state-owned enterprises to avoid excessive spending.

The experts were reacting to public enterprises minister Leon Jooste's sentiments that state-owned enterprises (SOEs) were a burden to the government.

Jooste told a public enterprises conference at Swakopmund last week that although SOEs were created to generate funds through the provision of goods and services to the public, many of them have become a burden.

He was addressing about 200 participants, including public enterprises' board members, CEOs and managing directors of commercial and non-commercial enterprises. The conference was themed 'Performance monitoring: Unleashing public enterprises potential for growth'.

He said public enterprises should be catalysts for public value creation, but many have failed to optimally deliver on the mandate they were created for. Since independence, the government has created 81 public enterprises.

Last year, SOEs received subsidies of more than N$4 billion, with commercial entities which are meant to be profitable receiving N$1,41 billion of this amount.

Jooste stressed that the annual wage bill for the 17 464 public enterprises' employees has reached N$8,5 billion, translating into 28% of the total expenditure of N$30 billion per annum. This is beyond the average 27% for other African countries.

The minister, however, said the profitability of commercial SOEs improved from N$840 million to N$1,9 billion from 2016 to 2019, while that of financial institutions and extra-budgetary funds improved from N$633 million to N$760 million over the same period.

Non-commercial public enterprises showed an improvement of a negative profitability of minus N$1,56 billion to minus N$1,45 billion.

An analysis from the ministry revealed that the "core reasons for the failure of the enterprises "was inappropriate governance/ownership models, as well as an inappropriate legal framework, and not equipping line ministries with specialised skills to perform the functions of a professional shareholder."

Asked what the government should do to ease the burden of public enterprises, Namibian economist Mally Likukela told The Namibian on Tuesday that the core issues were poor governance and leadership.

"It is not the lack of resources, and there is no use continuing to pump millions into the failing enterprises. No amount of money is going to plug the big hole, which is leadership," he said.

He added that leadership should also not be based on "comradeship, but on competency".

Economist Robert McGregor of Cirrus Capital said there is a need to be more accountable with regards to the management and mismanagement of resources.

"We see a lot of mismanagement happening, but we don't really see how it ends; what happened; and who is responsible," he stated.

According to McGregor, the government should also ask itself if all the public enterprises are necessary as they need a lot of capital to run, and even more when having to be bailed out due to poor management.

He thus recommended more private sector participation in the products and services they offer.

Daniel Kavishe, the FirstRand Namibia Group economist, made reference to the recent International Monetary Fund report, which made recommendations on the management of SOEs in Namibia.

McGregor also made reference to this document, and said it also reflected the views of other local economists.

The IMF report includes feedback issued last Friday after a consultative meeting between the fund and various country leaders, including Namibia.

According to the report, public enterprises represent a significant burden for the budget (about 9,5% of GDP), and a source of fiscal risks for the government.

It noted that the government was aware of these challenges, and has begun reforming certain systems and adopting a new governance structure, while also planning to facilitate private sector participation in key industries through partial re-privatisation.

However, the report recommends additional efforts to enhance the efficiency of public services, and support private sector activity while contributing to fiscal adjustment.

The report furthermore states that reforms should focus on fast-tracking turnaround plans for key loss-making enterprises such as Air Namibia and TransNamib; to review the cost structure of all entities; and to enforce limits on fast-rising wage costs.

The government should likewise separate the commercial and social activities of public enterprises, limiting transfers to the latter, and reviewing service tariffs where needed, such as with NamWater; review the mandate of all entities and enterprises; retaining only those for which a rationale for public intervention exists; and enforcing a stronger accountability framework, the IMF said.

The objectives of the conference were to create a common understanding around performance management systems among all the SOEs in Namibia.

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