By Heinrich Mihe Gaomab II
THE state sector has always been an important element of many economies, including the most advanced ones. There are legitimate economic and non-economic reasons for state ownership and views on the role of government in the economy may differ across countries and political systems.
Governments establish State Owned Enterprises (SOEs) that carry out business or render services on their behalf. The term “state-owned enterprises” refers to business entities established by central and local governments, and whose supervisory officials are from the government.
An SOE is defined as a state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, government-owned corporation, commercial government agency, public sector undertaking, or parastatal which its form is a legal entity that undertakes commercial, productive, regulatory and service oriented activities on behalf of the Government who acts as shareholder, stockholder, regulator and operator to the SOEs. The legal and operational definitions of SOEs may also extend widely including public utilities, commercial firms, as well as universities, regulatory bodies, government agencies, and various funds.
The necessity for SOEs in any economy rests on the premise that they should deal with the implementation of government projects in terms of infrastructure development and to start promoting industrialisation process in an economy. As in many developing economies, governments influences markets, either through direct participation (as a market maker or as a buyer or supplier of goods and services), or through indirect participation in private markets (through regulation, subsidies or taxation).
The premise for the vision to establish SOEs should also have an overriding objective of the means to contribute to an improvement in the standard of living for the people by creating sustainable economic and social benefits. An immediate need is for infrastructure and services to be provided at the lowest cost and highest quality, with access being extended to all participants in the economy. Most importantly, to ensure a healthy system in the infrastructure sectors such as in communication, finance, energy, transport, health, water and logistics etc.
Infrastructure remains and is always a key driver for any economy and anecdotal evidence shows that reliable infrastructure is critical for high and sustained economic growth and development.
Most developing countries are determined to shape the role of the key sectors of their economies. In that way the SOEs’ roles in advancing industrialisation and resultant economic transformation are strengthened by creation of value add to the transformation of products and services that the economy produces and/or consumed. SOEs definitively play a crucial role in industrialisation and in driving economic growth and development in all economies.
The current role of SOEs cannot be understood without looking at their founding mandates wherein the primary role of SOEs is enshrined towards industrialisation. SOEs should assist to development by acting as conduit for economic stimulus and should operate in key strategic sectors of the economy where there is definite public interest for need for public sector involvement and associated market failures perpetuated by the private sector.
SOEs should enhance service delivery on the provision of public goods such as, water, sanitation, housing, roads, energy, etc. SOEs should act as economic agents to industrialisation by providing social and economic infrastructure through small business development, micro finance, agriculture, industry, services and commerce etc. SOEs should crowd in private sector investments through Public Private Partnerships (PPPs) through co-financing mechanisms and enhance industrial capacity building programs that aid in poverty eradication, job creation and entrepreneurial participation. SOEs should also exercise competitive neutrality by not distorting the market conduct but competitively produce an outcome that is not only pro-competitive but pro-industrial.
Hence SOEs can play a pivotal role in facilitating economic transformation by carrying out their mandates and respond directly to the realignment of their purpose by effectively utilising a Nation’s infrastructure towards industrialisation. These they can do simply by enhancing their economic efficiency or structures (production, geo-spatial, market concentration, business services etc.) towards responding to developmental state objectives by generating financial and social returns on their investment to the government while creating strategic value towards industrialisation.
Heinrich Mihe Gaomab is the President of the Namibian Economic Society
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