…Towards understanding the new age in Namibia’s parastatals
By Hilary Mare
PARASTATALS are deeply implicated in most fiscal problems of African governments because of their inefficiency, losses, budgetary burdens, and provision of poor products and services. Occasionally, they achieve some non-commercial objectives, which are used to justify their poor economic performance.
It is thus laudable that all parastatals will now effectively resort under the Ministry of Public Enterprises after Cabinet approved a hybrid Governance Model for Namibian Public Enterprises.
Last Tuesday’s Cabinet session, chaired by Vice President Dr Nickey Iyambo abandoned the dual governance model for State-owned enterprises and adopted a new hybrid centralised governance model, which classifies public enterprises as commercial, non-commercial and financial.
In this model, commercial public enterprises will be fully centralised under the Ministry of Public Enterprise whilst non-commercial enterprises will reside under designated line ministries and financial enterprises will be placed under the Ministry of Finance. Namibia’s adoption of a centralised model for its commercial public enterprises can help to overcome many of the problems that affect the State Owned Enterprises (SOEs) and offer a chance to profoundly rethink the SOE sector. Upon consideration of moving to a centralised management model, a unique opportunity arises to analyse its structure, size, and sectors and to decide whether or not all of its elements make sense, in which sectors the public sector is seeking to act, to what extent, and this can be done as soon as the decision-making capacity is concentrated and the commercial SOE sector is under the same leadership. Imperatively this model makes political interference more difficult, because there are more intermediate levels while shielding political power from the negative impacts of the SOEs. In short, a centralised model is known best to limit political infiltration. One of the major advantages of centralised models, especially when an autonomous entity, agency, or holding company exercises property rights, resides in the separation of these rights from regulatory functions or from public policy.
When the centralised management designs the policies adequately and links incentives to results, then the responsibility is limited; therefore, there is a much lower risk that governments are affected by inappropriate behaviour or a lack of efficiency in pursuit of the objectives designed for the SOE, because the responsibilities are distributed ex ante in a transparent way, and the responsible individuals are clearly identified. In a decentralised or the recently abandoned dual system, those ultimately responsible are always ministers at the head of the owner ministries. The existence of more intermediate levels likewise permits greater protection from political power for SOE activities. In centralised management models, the entity that exercises the ownership functions is responsible for designing a common strategy— with peculiarities adapted to each enterprise (growth, characteristics, industry)—that can be applied throughout the entire group under the same management. This fosters financial discipline, avoids unfairness, and allows the board of directors some discretionality, although they must always justify their decisions. Notably the new model enables a uniform legal and regulatory framework to be established. Grouping SOEs under the same umbrella makes it easier to homogenise legal formulations. In the same way, accounting and financial rules that affect the entire group and enable a transparent view of its situation can also be established, thereby facilitating comparability and decision making.
In essence the model further facilitates a uniform corporate governance policy in both substance and over time. Centralised models enable the same level of corporate governance to be established in all commercial SOEs and facilitate harmonisation of guidelines. Moreover, in cases where the centralised model adopts an entrepreneurial form, a second corporate level is created, which is the central unit’s board of directors.
This model may analyse SOEs from a joint perspective, unifying areas that need reviewing and that, as they are cross-cutting and/or common to all, enable an approach that has greater economic impact and longer duration. The fact that commercial SOEs are under the same umbrella means that better knowledge can be gained about the behaviour of the group and its effects, its needs, and the available resources. SOEs can therefore be managed in a more uniform and coordinated manner, since they are all subject to the same rules and directives, while enabling comprehensive investment prioritisation. Importantly also, the model encourages specialisation and competition. Centralised models are capable of attracting staff that are more adept at business functions than civil servants. Governing executives usually have better technical and management training and are not restrained by budgetary limits, which can favour the attraction of talent. At the same time, transparency in setting goals and responsibilities means that, on the one hand, the public can be informed regarding how public money is being spent and, on the other; all personnel understand what is expected of them. This will lead to an appropriate, efficient, realistic, and motivating incentive policy
The newly found model may facilitate the definition of objectives, the implementation of incentives, and the allocation of responsibilities. The fact that the functions of owner and public policymaker can be separated and that there are no multiple owners following disjointed strategies facilitates management policy design and the identification of objectives and responsible individuals. Identifying the objectives and the people in charge will lead to better monitoring and help establish in detail the reasons for failure to achieve goals, should this happen. Further, the model may lead to better information and greater transparency. The obligation to disclose, through reporting, is more advantageous or appropriate in the case of centralised models. These models enable all necessary and relevant data to be gathered and standardised, which leads to better decision making. It also facilitates both the individual and the collective view, enabling data comparability and combination. All of this contributes to greater transparency. This helps shareholders to monitor their evolution and performance and to evaluate their behaviour and management teams. Imperatively it will offer commercial SOEs better monitoring, evaluation, and oversight systems. As a consequence of clearly defining responsibilities and yielding better quality information, centralised models promote better measurement and evaluation of both financial and nonfinancial aspects. Monitoring and evaluation systems must be transparent, demanding, enforceable, and efficient, establishing information channels and the necessary requirements, including internal and external auditing. Again, the centralised model plays a part in unifying policies and processes.
Lastly and more crucially the centralised governance model will enable Namibia to harmonise operational policies. This is imperative bearing in mind that setting standards in certain operational areas of SOEs, such as investments, dividends, treasury, human resources, procurement, contracting, and auditing, brings efficiency, transparency, and agility.
Confidente. Lifting the Lid. Copyright © 2015