SOE cost-cutting plan under way

Public enterprises minister Leon Jooste says the days of overly optimistic business plans or half-baked turnaround strategies at parastatals are over.

It appears that the boards of some state-owned enterprises are presenting half-baked turnaround strategies and business plans, a situation Jooste says cannot be allowed to continue.

Also tied into that, it will now be a requirement for SOE bosses to be willing to match remuneration to performance and success of the turnaround strategies, Jooste told Namibian Sun last week.

The remarks follow a statement by Roads Contractor Company acting CEO Tino !Hanabeb that there was nothing untoward about a request for N$5 billion to strengthen the balance sheet of the RCC.

Refusing to bow to pressure, Jooste said boards and CEOs couldn't just haphazardly submit strategies to him without being clear on the intended outcomes.

“The matter of the recurring 'turnaround strategies' has been a problem for government for some time and we intend to solve this. The first thing we did was to analyse why this phenomenon has taken place over the years and then to identify suitable solutions to remedy the situation,” said Jooste.

He said his ministry would carefully scrutinise proposed strategies before giving approval.

“New business plans or turnaround strategies are now being thoroughly scrutinised by the ministry of public enterprises to ensure that they are feasible before they are approved.

“We have discovered that some of the submitted plans are not feasible and we will refuse to approve these before the required adjustments are made,” Jooste said.

He admitted that some executives and board members were coming up short in drawing up strategies to grow business. “Some of the previous business plans have basically been funding requests and have failed to include certain key aspects which should form part of any business plan,” he said.

“We also have to acknowledge that we are currently operating in a complicated economic environment where we have to prioritise and invest state funds extremely wisely so as not to affect the efficient delivery of services and products through the government and the state-owned enterprises.”

Explaining the rationale behind the introduction of performance agreements, he said these would ensure that new strategies would not be implemented willy-nilly.

“Performance agreements are now also being aligned to ensure that executives and board members do not just implement turnaround strategies for the sake of, but that their remuneration would be tied into the success or failure in turning around ailing state-owned entities.

“After new business plans are approved we will ensure that the performance agreements are aligned to the new business plans and the actual key performance indicators will be drawn from the business plans.

“This will then force the boards and CEOs to 'own' the business plan and to be accountable for the outcome thereof.

“On top of that, our new remuneration guidelines will be incentivised and remuneration will be determined by the achievement of reaching the key performance indicators as per business plan,” he added.

According to Jooste, the final and most important element required is to ensure that there are right people in the right positions to execute these plans.

“We need boards with the appropriate skills mix with specific emphasis on sector specific skills to ensure that we achieve a skills balance between the board and the executive of the entities.

“We then equally need highly qualified CEOs and senior managers to implement the strategic direction provided by the board of directors,” he said.

Economist Klaus Schade welcomed the initiative and said it was a move in the right direction.

“I believe this is a move in the right direction. We have heard so much about continuous turnaround strategies that have apparently not achieved the desired results.

“We need experts to scrutinise the strategies in order to ensure they can lead to the envisaged outcome,” Schade said of the development. Of the requirement to match performance to pay packages, he said it made absolute sense.

“Linking the performance contracts to the strategies makes sense, since it will ensure that board and management are fully behind the implementation, and necessary adjustments if need be, of the strategies,” said Schade.

“Board members should be appointed on merits and bring the expected expertise to the company. They are there to add value.”

Simonis Storm head of research Purvance Heuer echoed Schade's sentiments.

“This is a positive development, assuming that they can follow through on that requirement,” Heuer said.

“It is important that SOEs deliver on the plans that they submit and that their performance is assessed against that. This will thereby lead to improved service delivery.”

OGONE TLHAGE