PM cracks the whip on SOEs

17 June 2019 | Business

Prime Minister Saara Kuugongelwa-Amadhila says the state ownership of public enterprises should not be a justification for their perpetual dependency on national treasury.

She said even non-commercial state-owned enterprises (SOEs) are expected to strive for optimal management by promoting cost-efficiency and the optimal execution of their mandates. SOEs, though created to operate as independent, and in many instances on commercial principles, have become a huge financial burden on central government, which is perpetually called on to bail out these entities, often due to mismanagement. Kuugongelwa-Amadhila said while SOEs are sometimes capitalised by the state at inception, especially the commercial entities should strive to become self-sustaining and generate economic and financial returns for the shareholder and public.

“The current level of subsidies to public entities are unsustainable and crowd out other important programmes that can only be delivered under public service, while also posing a risk to national fiscal sustainability,” said Kuugongelwa-Amadhila. She said the high costs of services offered by SOEs also impose high costs on businesses and erode economic competitiveness and thus economic growth.



2% contributions

Addressing public enterprises minister Leon Jooste, SOE board members and executive managers on Friday, Kuugongelwa-Amadhila said SOEs should assist government's drought interventions “within their means”. She extended government's call for voluntary 2% salary contributions for one year by all income earners above a certain threshold to officials at SOEs.

“The proceeds will be ring-fenced to address funding for the drought. We have also extended the same appeal to the private sector and their employees,” she said.



Governance issues

Kuugongelwa-Amadhila said SOEs should embrace best international practices, adding that line ministers or Jooste are responsible for overseeing the observance of good governance through boards of the SOEs.

“Strong institutions are good for enhancing state formation, and public enterprises should take advantage of this to establish themselves concretely,” Kuugongelwa-Amadhila said.

She said SOEs must be accountable to the public, saying business and service motives remain at the core of these entities, which require financial prudence.

Kuugongelwa-Amadhila said it is unfortunate that SOEs are too often embroiled in governance fracases, usually due to a lack of cooperation between board members and executive management.

She also bemoaned the regular indefinite suspensions of SOE CEOs, which she said costs the state and public and detract from proper governance.



Performance

Kuugongelwa-Amadhila called on all SOEs to develop strategic plans that should clearly outline their contributions to national development goals, including the Harambee Prosperity Plan, the Fifth National Development Plan and Vision 2030.

She said it is regrettable that SOEs come into the spotlight for all the wrong reasons, either because they do not properly account or fail to provide affordable basic social services.

She said it is important not to suppress budgets for service delivery due to high administrative costs, especially personnel-related costs.

“While appreciating that remuneration is important to attract and retain skills, it is important that the remuneration tiers adopted for all public enterprises are adhered to. These remuneration tiers take into account the variable conditions of SOEs. Like in central government, where the personnel costs are high, there is also a need for the containment of remuneration costs in public enterprises,” she said.



Staff Reporter