Parastatals need radical reforms to perform
Performance of parastatals or statutory corporations dominated headlines recently after Minister of Finance and Economic Affairs Sosten Gwengwe made public rankings of 72 State-owned enterprises (SOEs) in the 2022/23 financial year.
Not much change, I must say. It is the “shame old story” as the “sick babies” are still on life-support while star performers remained the same, mostly those involved in regulation where revenue streams are licence fees and associated levies mandatory by law to be remitted by stakeholders.
The four poorest performers are Agricultural Development and Marketing Corporation (Admarc), National Economic Empowerment Fund (Neef), Tobacco Commission (TC) and Blantyre Water Board (BWB).
The rankings further show Electricity Generation Company of Malawi (Egenco) as the best performing SOE in the trading sector followed by Lilongwe Water Board (LWB) and Airport Development Limited (ADL) in that order while Malawi Communications Regulatory Authority (Macra) tops the regulators followed by Technical, Entrepreneurial, Vocational Education and Training Authority (Teveta) and National Construction Industry Council.
To those familiar with the Malawi Government Annual Economic Report, the rankings reflect the usual trend.
For years, reasons for the underperformance of most parastatals or SOEs have been varied. However, political interference from the State is one of the major contributors to the poor performance. Besides, the shareholder itself, the Malawi Government, is also a culprit as some of its ministries, departments and agencies (MDAs) owe parastatals, especially those in the utilities sector, colossal sums of money in unpaid bills.
Not long ago, Comptroller of Statutory Corporations Peter Simbani lamented that utility firms were struggling to remit dividends to the shareholder because they are owed billions of kwacha in unpaid bills.
In his brief to Parliament’s Pub l i c Accounts Committee (PAC) in Lilongwe, he said as of December 2022, Electricity Supply Corporation of Malawi (Escom) was owed about K40 billion by MDAs with BWB alone owing K34 billion.
Malawi Defence Force is one of the major culprits as it owed Southern Region Water Board K8.2 billion of the K11 billion MDAs owe the water supplier. MDF also owed Central Region Water Board K3.4 billion.
“When you are being owed K11 billion there is no way that you can declare a dividend because that money is being held by somebody,” Simbani is quoted as having told the committee. It is indeed a tall order to expect performance in the circumstances.
Resistance by the MDAs, especially the security agencies, to move to prepaid billing remains a challenge.
In an earlier article under the title ‘Corporate governance in the reforms era’, I raised the issue of political interference continues to be evident in the recruitment of the top brass, especially chief executive officers or directors general and their boards of directors. Merit should inform the recruitment of the top brass and they should be given targets and goals to achieve if we are to move forward.
Corporate strategy expert James Kamwachale Khomba, a professor of finance and corporate strategy, in one media interview also attributed the underperformance of some parastatals to leadership and management style.
Post- June 23 2020 Fresh Presidential Election period, we have seen some stage-managed recruitment interviews passing as merit where mostly politically–connected individuals have emerged as “successful” candidates.
Turning SOEs into profit-making entities that pay dividends to the shareholder will require embracing best practices in corporate governance.
Most of the struggling parastatals are saddled with debts, leaving them with no option, but to seek bailouts from their shareholder. 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, common among most SOEs, points to a company on its way to bankruptcy.
It is ironic that the State enterprises make losses even in sectors where they do not have competition and are monopolies, such as water and electricity supply.
Why do State enterprises struggle? That has been the question.
The other day one reader, who has worked in senior managerial positions in the private sector and is now working for a parastatal, summed it up: “There is also too much political influence and patronage in parastatals. There are no performance targets. The main qualification is political loyalty.”
The problem is compounded by the fact that we seem to be doing the same thing and expecting a different result, that is insanity as Albert Einstein put it.
Radical reforms will turn around the performance of most of the struggling parastatals. This should start with changes in the leadership and management styles.
