Breathing life in State enterprises
Earlier this week, The Nation published a front page story under the headline Taxpayers Set To Bleed More. Based on an analysis in the Malawi Government Annual Economic Report 2018, the story highlighted the poor state of most parastatals or State-owned enterprises in the year under review.
Many of the parastatals are saddled with debts, leaving them with no option but to seek bailouts from their shareholder, the Malawi Government. According to the report, out of the 21 parastatals analysed, nine representing 43 percent, have debt equity ratios that threaten to push them into insolvency.
Financial analysts generally agree that while the ideal debt equity ratio depends on the industry a company operates in and on individual business circumstances, a debt ratio of more than 75 percent points to a company on its way to bankruptcy.
The poor performance of parastatals is not unique to the just ended 2017/18 financial year. Year in and year out, the Annual Economic Report outlines the performance of statutory corporations or parastatals. Unfortunately, the performance leaves a lot to be desired as many of them are on the sick bed, making losses and surviving on Treasury bailouts.
I recall a commentary by corporate strategy expert James Kamwachale Khomba, a professor of finance and corporate strategy at University of Malawi’s the Polytechnic. He attributed the underperformance of parastatals to leadership and management style.
In one previous article, I also discussed why some statutory corporations continue to make losses and burdening the taxpayer. I mentioned political interference in the appointment of executive management, the boards of directors and general operations as some factors. Poor or lack of corporate governance is yet another factor.
It is ironic that the State enterprises make losses even in sectors where they do not have competition and are monopolies, such as water supply. Why do State enterprises struggle? That has been the question.
One reader, who has worked in senior managerial positions in the private sector and is now working for a parastatal, wrote: “There is also too much political influence and patronage in parastatals. There are no performance targets. The main qualification is political loyalty.”
Yet another reader shared the view that the appointment of board members who are ‘connected’ to the powers that be was not helping the parastatals at all as most of the appointees do not really understand their roles in the various board committees and usually are used as a rubber stamp to whatever ideas the chief executive officers (CEOs) brings to them.
The Malawi Government, as a shareholder, is also to blame for the financial mess the parastatals have found themselves in today. There is evident interference in the operations of State enterprises, from recruitment of executive management and boards of directors to influencing award of contracts to cronies and associates of politicians in power.
The government is also choking the water and electricity utilities through non-payment of bills by some of its ministries, departments and agencies (MDAs). Everytime some MDAs are disconnected for non-payment, they are swiftly reconnected based on “gentlemen’s agreement” usually brokered by Treasury. This is out of order. MDAs should learn to pay for the services they get.
It is possible to turn around most of the non-performing parastatals. Through the Public Service Reforms Programme, State enterprises should embrace corporate governance. They should also be given performance targets so that they stop relying on subventions and bail-outs. n
