SOE bailouts milk N$3.5bn
The country's SOEs, which employ a whopping 17 564 staff members, have been hauled over the coals for continued government bailouts and not submitting audited financial reports.
27 February 2018 | Economics
This was revealed yesterday by public enterprises minister Leon Jooste, who said the cash-strapped government will not be able to continually bail out non-performing public enterprises, especially in the light of the financial constraints it currently faces.
He made these remarks at a CEO forum held with the heads of public enterprises, where it was also revealed that SOEs currently employ 17 564 staff members. “Most of our public enterprises have failed to deliver on the mandate for which they were created for. They have become a burden to the state by depending on annual government subsidies and guarantees to sustain their operations,” Jooste said.
According to him, the total debt of public enterprises stood at an astronomical N$43 billion, representing 25% of the country's Gross Domestic Product (GDP) as at 31 December 2017. This, Jooste said, was unsustainable situation. “Our current economic status, as highlighted by the finance minister, cannot allow for things to remain the same,” Jooste said.
He acknowledged that while public enterprises sat on significant assets, the returns generated were not sufficient. “The total asset value of the portfolio at the end of December 2017 stood at around N$91 billion, but the overall return on these assets is negative, meaning that there is a huge dependency on shareholder support for governance,” Jooste said. The current economic situation also meant that some public enterprises run the risk of not being bailed out by government.
“Some public enterprises will be unable to borrow their way out of their financial difficulties at a time where the ability of the shareholder to fund bailouts is constrained,” Jooste said.
“This is not political rhetoric but an entirely new approach to revive and safeguard these important institutions.”
The issue of unending bailouts would now be better addressed with the formulation of new business strategies to guide public entities, Jooste added.
“Some public enterprises have not managed to break even because they have refused to break away from existing business models. In our engagements we are now challenging those business models and associated business plans, to develop feasible business plans and strategies and new business models where required, to ensure that the entity can continue to exist but without an undue burden on the treasury.”
Jooste said that corporate governance structures were also not being adhered to. “Compliance statistics are not encouraging.”
According to him, public enterprises were not submitting audited financial results as was required under the Companies Act.
Only 50% of commercial enterprises submitted audited financial results, while an even smaller number of financial institutions and non-commercial public enterprises, at 36% and 11% respectively, had submitted theirs.
In total, only 27% of the over 300 public enterprises had submitted audited financial results, Jooste said.
Firing a salvo, the minister said there would be consequences for non-compliance. “We shall require firm commitments from the boards to reach full compliance levels within specified timeframes and we will see to it that these are captured as key performance indicators in performance agreements. Failure to reach compliance targets may lead to dismissal,” he said.
Jooste encouraged the heads of public enterprises to share solutions on how they will best address issues of non-compliance, particularly with regard to the issue of not submitting audited financial reports.
“Set up realistic targets to ensure boards are adhering, to ensure compliance. The first priority is compliance,” Jooste said.