State-owned enterprises have been urged to develop achievable targets to ensure sustainability and profitability.
Despite the trend toward privatization over the past 20 years, state-owned enterprises (SOEs) are still significant economic players.
Globally, SOEs account for 20 percent of investment, 5 percent of employment, and up to 40 percent of output in some countries. They continue to deliver critical services in important economic sectors such as utilities, finance, and natural resources.
According to World Bank, unlike in the past, however, SOEs today are “under strong pressure to improve their performance”.
“These pressures come various sources, including the need to enhance their competitiveness and that of the economy as a whole, especially in countries where SOEs are major players; to provide essential infrastructure, financial, and other services to businesses and consumers more efficiently and cost effectively; to reduce their fiscal burden and fiscal risk; and to enhance the transparency and accountability of the use of scarce public funds. Increasing globalization, deregulation of markets, and budgetary discipline are also driving efforts to improve performance”.
A long history of efforts at reform shows that the key to better SOE performance is better governance. Demand for good governance has led to a growing body of knowledge and analytical work.
Professor Peter Quartey, an Economist, had earlier tasked Joseph Cudjoe, Minister for Public Enterprises designate, to develop targets for the SOEs that are directly linked to their profitability.
“State-Owned Enterprises (SOE) are supposed to be profitable but some have become a drain on the government and therefore there’s a need to restructure. They should also be given targets and monitored to ensure that they achieve their targets”.
“In as much as they will be given space to operate, they should be held accountable to whatever they do to ensure that they achieve their targets and that they make those institutions profitable. Otherwise, they will continue to draw salaries, continue to depend on government for budgetary support, and yet they do not provide the needed revenue that will help enhance development”.
Citing some challenges faced by SOEs, World Bank asserts that, although publicly owned, many SOEs often have weak internal controls and processes, inadequate accounting and auditing practices, and weak compliance procedures, with low levels of financial and non-financial disclosure and few if any requirements to publicly report their accounts or other information.
“Many of these problems stem from the lack of a clear performance- monitoring system to ensure accountability and responsibility for performance, particularly of the board and the chief executive officer. Moreover, where such systems exist, they are often rudimentary, and aggregate reporting may not be carried out. A lack of transparency and disclosure can undermine SOE performance monitoring, limit accountability at all levels, conceal debt that can damage the financial system, and create conditions that increase the likelihood of corruption. Sectors such as extractive industries, natural resources, and infrastructure may be particularly prone to corruption risks”.
It further disclosed that achieving higher levels of economic activity will therefore require substantial improvements in the productivity and performance of existing infrastructure SOEs along with private sector investments and public-private partnerships.
