Why some State enterprises fail to tick

When it comes to doing business, many governments or the public sector have not been known to be good entrepreneurs.

This was one of the reasons private sector-based or led economic policy frameworks have been prescribed as keys to economic success.

Perhaps, that was one of the reasons Malawi, in the mid-1990s, embarked on a drive to dispose off State ownership of business. With privatisation in full gear, public investment was to focus on improving infrastructure such as power, transport and telecommunications to stimulate private sector investment. In other words, government’s business was to create a good environment for business to thrive.

However, there were and still exist some sensitive industries which government still needs its grip for the good of all and sundry. These are sectors that cannot simply be entrusted with individuals just like that. They include water supply and electricity generation which, at most, can fit into the public private partnership (PPP) arrangement better than wholesale privatisation.

Reading the Malawi Government Annual Economic Report, one sees that there are several State-owned enterprises or parastatals that perform poorly, posting losses in their business endeavours.

The poor performers include Blantyre Water Board (BWB), Central Region Water Board, Malawi Housing Corporation (MHC), Malawi Posts Corporation (MPC) and Agricultural Development and Marketing Corporation Limited (Admarc). On the other hand, some State businesses made profits or surpluses. They include Lilongwe Water Board (LWB), Northern Region Water Board (NRWB) and Malawi Energy Regulatory Authority (Mera).

Why is government or the State a bad entrepreneur? Why do State businesses fail or struggle to perform even in sectors where they have literally no known competition?

In an earlier article under the title Corporate Governance in the Reforms Era, I argued that there has been little or no talk about corporate governance related to public enterprises. Further, I said the situation is compounded by the apparent political interference by authorities in the running of the affairs of some public or State-owned businesses.

The political interference is evident, for example, in the recruitment of the top brass, especially chief executive officers (CEOs) and their boards. I argued for merit in recruitment of the top brass which should be given targets and goals to achieve if we are to move forward.

My thoughts were vindicated by corporate strategy expert James Kamwachale Khomba, a professor of finance and corporate strategy at University of Malawi’s the Polytechnic, who attributed the underperformance of parastatals to leadership and management style.

To turn around the ailing State enterprises, the Public Service Reforms Programme should stress and embrace corporate governance in the enterprises to realise their worth instead of carrying them on the shoulder through subventions and bail-outs. Take Agricultural Development and Marketing Corporation (Admarc) for example. Why should it make losses when everyone needs the food it sells? Is it run as a business?

If government advertises positions for CEOs for parastatals such as Electricity Supply Corporation of Malawi (Escom) and the five water boards, why should the same government, through the head of the Executive, the President, of course backed by some laws, hand-pick people to similar positions in other State-owned ventures?

Why the double standards? Executive management should be hired on merit and given performance-based contracts. Political appointees, despite having relevant qualifications, often see their role as first and foremost to please the appointing authority or weird decisions made by managers in some State institutions that leave one to wonder what they were high on to make such school-boy blunders. Without a change, I foresee continued losses and poor performance by government-owned businesses and progress will elude us.