Helmut Angula, who is the country’s second finance minister, a founding member of the National Assembly and the current Swapo Secretary for information and Mobilisation, will be sharing his wealth of understanding on the history and future of Namibia’s State-owned enterprises (SOEs), to give our readers an insight into the unfolding conundrum around these entities. This is part one of a series of articles that Confidente will be publishing over the following weeks.
By Helmut Angula
NAMIBIA has a plethora of State-owned enterprises, operating in different sectors of the economy.
These entities have different mandates and objectives, having been established for specifically identified needs, and in term of developmental goals of the State.
Over the years, these entities have performed to varying degrees of achievement. There are high flyers, while others have been much less so.
Many factors can explain the degree of performance of Namibian SOEs and the degree to which they have or have not fulfilled their respective mandates.
How did we get here?
At independence, the Namibian government inherited a civil service of over 42 000 people, which highly fragmented along ethnic lines and totally imbalanced, as almost all management positions were occupied by white males. The restructuring process which followed, involved the creation of thousands of new posts, increasing the number of civil servants to about 70 000.
This has resulted in huge expenditure on personnel, as a proportion of total government current expenditure, and a widely held perception that the Namibian public service is bloated and over-subscribed.
Namibia’s First National Development Plan (NDP1) suggested that the government reconsider its role as a provider of basic services, and that it allow the private sector to play more of a role in service provision.
A similar set of policy proposals came from the 1995 Wage and Salary Commission (WASCOM), which recommended that government deliver existing services, within reduced budgets. Building on a 1994 Cabinet decision that “areas and functions within the public service need to be commercialised, privatised or deregulated”, WASCOM recommended that such restructuring be done “as soon as administratively possible, subject to approval by Cabinet in each case” (Wage and Salary Commission Report, 1995).
It recommended the “contracting out of a number of services provided by the civil service”. This is in line with its recommendation that, following the 1995/96 budget, government expenditure on personnel should decrease by 2 percent per year. While the WASCOM recommendations on restructuring did not receive immediate attention, an important development has been the establishment of the Efficiency and Charter Unit, which is developing the outsourcing policy and implementing WASCOM’s recommendations, concerning the improvement of efficiency and delivery in the public service.
Based on these policies, the Namibian government set out the following key objectives for public sector restructuring (Murray, 2000):
Downsizing the public service – This is perhaps the central objective behind the restructuring process. During the 1990s, a commonly held perception within government was that the optimum size of the public service is 30 000, which meant then that the public service had to be reduced or downsized by not less than 50 percent. The principal strategies to attain downsizing are outsourcing and commercialisation. This results in employees of public institutions being transferred to newly formed, but government-owned entities, on terms and conditions of employment that are not worse than what they held in government.
Reduce fiscal deficit – In theory sourcing out functions and activities to the newly established commercialised entities would enable government to direct public resources to activities which are regarded as necessary for macro-economic growth.
Improve efficiency – SOEs are expected to operate on commercial principles and thereby realise greater efficiencies in terms of productivity and service delivery.
Improve service delivery – Government believes that outsourcing and commercialisation will improve the delivery of basic services.
This two-part essay unpacks the conundrum confronting Namibia’s SOEs, with respect to the rationale for their establishment and the unfortunate situations that SOEs confront in their operations, leading to retrenchments. In order to do justice to the topic and provide the required insight, the essay is structured as follows: (1) Definition of SOEs, (2) Rationale for the Establishment and Existence of SOEs, (3) Retrenchment in Namibian Law, (4) The Position of SWAPO on Retrenchments by SOEs, (5) Proposed Alternatives to Retrenchment by SOEs and (6) The Way Forward.
(1)Definition of the Concept
State-owned enterprises exist in most, if not all, countries around the world. They are known by many names, such as government corporations, government business enterprises, government-linked companies, parastatals, public enterprises, public sector units or public sector enterprises, and so on. In Namibia, during the first few years, up until the 2000s, the term parastatal had gained currency and was widely used to refer to State-owned enterprises in the country. However, following the commercialisation of the departments of the former Ministry of Works, Transport and Communication, under the MWTC2000 initiative, which gave birth to the Roads Authority (RA), Roads Contractor Company (RCC), Road Fund Administration (RFA), Namibia Airports Company (NAC) and Namport, the term State-owned enterprises emerged as more preferable.
While literature shows that the definition of SOEs often varies from country to country, the Organisation for Economic Cooperation and Development (OECD) defines SOEs as “enterprises where the State has significant control through full, majority, or significant minority ownership”. In the Namibian context, this definition includes entities owned by the central government (Nampower, Namwater, Air Namibia), as well as those in which regional and local government institutions hold interests such as NORED, Cenored, and the like.
The legal forms that an SOE may take, is influenced by various considerations such as:
The level of government that owns the enterprise (central/federal, state/regional or local).
The way in which the enterprise was founded.
The position in the public administration hierarchy.
The purpose of the SOE, and
The status of the SOE, and if it is in the process of being privatised.
Other factors include:
Full, majority or minority ownership by the government.
Listing (or not) on a stock exchange.
Government shareholding through vehicles, such as government pension funds, asset management funds, restructuring corporations and development lenders.
State-enabled, as opposed to State-owned. An example in this regard is an enterprise, which has been granted exclusive rights by the State. Nampower, Namwater, and the Namibia Airports Company, with respect to the commodities they supply, or their respective mandates, may fall in this category.
The varying forms of SOEs may provide governments with flexibility. However, there are also some downsides. These include complications in ownership policies, lack of transparency and insulation of SOEs from legal provisions that are applicable to other companies, including competition laws, bankruptcy provisions or securities laws. In order to address these concerns, many countries have initiated reforms to harmonise the legal status of SOEs, with companies in the private sector. The aim is to facilitate a more systematic application and enforcement of corporate governance instruments. For instance, the International Public Sector Accounting Standards (IPSAS) Board is in the process of clarifying how SOEs should be governed. This in turn will impact on which financial reporting standards apply.
(2)Rationale for the Establishment and Existence of SOEs
During the 1990s, when public sector reform picked up steam in Namibia, following the implementation of the recommendations of the Wages and Salaries Commission (WASCOM), the establishment of State-owned enterprises was taking place against the backdrop of an unemployment rate of 35 to 40 percent, enormous levels of income inequality (a Gini coefficient of 0.70), widespread poverty (38 percent of Namibian households were considered poor) and slow economic growth (Hansohm et al, 1999; Nepru, 1999). It was, however, believed that the outsourcing of non-core government functions and services to newly established SOEs would increase efficiency, because their key focus is on increasing outputs and decreasing operational (and labour) costs.
The definition above, stated that SOEs are corporations, owned by the State at different levels – central, federal, regional or local. This definition begs the question why the State or State institutions would seek ownership of a business entity. The answer to the question is grounded in common motivations behind State ownership internationally. These include what governments see as imperatives of developing strategic sectors and boosting the national economy. They also include fiscal, political and social considerations. Some of the commonly stated reasons for State ownership include situations where SOEs might:
Provide public goods (e.g. electricity, water, national defence and public parks) and merit goods (e.g. public health and education – Unam, NUST, Namcol and VTCs),
Improve labour relations, particularly in ‘strategic’ sectors.
Limit private and foreign control in the domestic economy (Namdia).
Generate public funds, as the State could invest in certain sectors and control entry, in order to impose monopoly prices and then use the resulting SOE revenues as income (TransNamib, Namport).
Increase access to public services, as the State could enforce SOEs to sell certain goods and services at reduced prices to targeted groups, as a means of making certain services more affordable for the public good through cross-subsidisation (Namcor).
State-owned enterprises may also be established for reasons of:
Sustaining specific sectors, which are of special interest for the broader economy, and in particular, to preserve employment.
Launching new and emerging industries by channelling capital/investments into SOEs which are, or can become, large enough to achieve economies of scale in sectors where the start-up costs are otherwise significant (AgriBusDev).
Controlling the decline of sunset industries (Telecom Namibia, Nampost). A sunset industry is defined as an industry in decline; one that has passed its peak or boom periods. They also include existing industries, as they still provide important employment. They may benefit from protectionism policies, to slow down the decline, whilst sunrise industries develop (MTC, Namcor).
Often governments have created and invested in SOEs, because markets were imperfect or the existing businesses in the private sector are seen as unable to accomplish critical societal needs, such as effectively mobilising capital or building enabling infrastructure for economic development (DBN)
In the Namibian context, the establishment of SOEs was based on the following considerations/objectives:
To reduce the number of public servants;
Reduce public expenditure/fiscal deficit;
To create new employment opportunities, as SOEs grow and gain greater market share in their sectors of operation,
For government to withdraw from non-core activities that can be more efficiently performed by SOEs;
To establish entities that can render services on the principle of user charges or a full cost recovery basis; and
For SOEs to become financially self-reliant and be open to competition.
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