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Sunday, April 14, 2024

Separate ministry for state-owned enterprises

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Government can no longer treat affiliated SOEs as departments under line ministries.
The establishment of a dedicated ministry responsible for SOEs is the way forward

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By Dr Alieu O Faal

We have recently been witnessing newly appointed cabinet ministers and presidential advisers on familiarisation tour of departments and state enterprises without members of the board of directors of the state-owned enterprises (SOEs) or those of the newly set up SOE Commission as part of the entourage. This could have consequences of undermining the established governance, management and operational procedures of the commercial enterprises. Empirical studies have shown that disjointed corporate governance is identified as one of the major factors in virtually all known instances of poor SOE performance in The Gambia.

Corporate governance of SOEs is the responsibility of the board in which the sector ministry is usually represented by the permanent secretary from the line ministry. Corporatising the state enterprises as commercial entities give the board and management the autonomy to run the SOEs akin to the efficient management and prudency in financial discipline of profit-driven private companies. Under this arrangement, administrative or institutional controls from government are minimised and most SOEs have now signed or are on the verge of signing a performance contract with government through the newly established SOE Commission.

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Conducting familiarisation visits to SOEs by cabinet ministers or presidential advisers without involving the board members or even the directorate responsible for SOEs at the Ministry of Finance is a serious procedural lapse with existential threat of exacerbating the challenges of role conflicts, lack of management autonomy with multiple institutional oversight responsibilities contributing to the poor performance of the SOEs in The Gambia. To date, significant resources have been utilised in reforming the state enterprises and the results are still not satisfactory. Some underperforming ones are now slated for privatisation. A case in point is Gamcel, 60 percent of which is to be put on sale to the private sector this year.

Among the challenges public enterprises have been facing in the past had to do with the complexities in the distribution of oversight functions among the various stakeholders. The previously existing tripartite oversight functions performed by the line ministries, the Ministry of Finance (MoFEA) and Office of the President (OP) all have consequences for failing to improve the performances of the public enterprises as follows: 

The line ministry, as the parent ministry, nominates board members for appointment by the president, provides guidance on sectoral policy, technical and operational matters as well as monitoring non-financial matters including the implementation of policy directives needed to secure achievement of overall government objectives. There are six SOE line ministries responsible for five different sectors in the economy.

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MoFEA as the ministry responsible for all investments of the government provides guidance on budget preparation, monitoring and approval by the president. Part of its fiduciary role is overseeing the SSHFC and reviewing in-year financial performance and progress in the performance contracts KPIs.

Office of the President as the apex oversight body, is responsible for appointing board directors and managing directors, signing of performance contracts and budgets, receiving periodic financial performance reports from MoFEA on SOE performance; and issuing directives to sector ministries and SOEs.

Finally, there is the nation’s legislature whose legislative oversight is focused on reviewing past financial and activity performances of the state enterprises on behalf of the people as their representatives.

There is no doubt that these conflicting bureaucratic arrangements which existed in the past- a total of 6 government line ministries exercising sectoral oversight over 13 SOEs – did pose a serious challenge for the efficient management of the public corporations thus compounding the difficult management of the interface between government and the board of public enterprises. Having a separate ministry for SOEs would eliminate the conflicting possibilities of mixed governance mandate and reducing the probable misuse and abuse of enterprise resources to increase efficiency and boost profits.

This sensible proposal will not sit well with those ministries with sectoral SOE responsibilities for obvious reasons. The government had a long history of reforming the state enterprises with little success. The creation of the SOE Commission as a regulatory body to address the thorny governance and operational issues facing the performance of SOEs, is one of the outcomes of the reform processes. In the 2024 Budget, the finance minister highlighted the intention of government to free up fiscal space by addressing fiscal risks emanating from underperforming SOEs which is expected to take effect this year.

The principal reasons for the establishment of the Commission are to improve the governance of SOEs and ensure public enterprises they operate in a manner that is efficient, profitable, and serving the interests of the public. The Commission is also mandated to establish a profile of potential board members to be appointed with the requisite skills and knowledge to steer the affairs of the SOEs, but recently many board members are being appointed without passing through the commission. This is a grave concern as most of these appointments are political in nature and have not been strictly based on merit.

Consequently, government must be committed to give its undiluted support to the proper functioning of the SOE Commission to achieve its mandate successfully so as to provide quality leadership especially in the SOE sector especially in the monitoring of the KPIs set out in the signed performance contracts with some of the state enterprises. The ministry of Finance, which is responsible for the commission, is heavily overloaded with competing national priorities. Having eleven directorates each with pressing national policies to carry out, major issues affecting the SOEs will be deprioritised.

Therefore, the creation of a separate ministry responsible for SOE matters consistent with modern international practices will place matters of significant importance affecting the state enterprises prominently in the cabinet agenda with regularity. As state enterprises continue to contribute increasingly in employment creation, generating massive revenues in taxes and making huge dividend payments to the annual budgets of the government, the public enterprises important role in the economy – contributing almost 50 per cent of GDP -can no longer be ignored.  Expanding the SOE reforms to include the establishment of a separate ministry for the SOEs should be made a reality.

Dr Faal is currently a subject matter specialist at the National Assembly. He is a former resident senior adviser (SOE Matters) at the Ministry of Finance and Economic Affairs. He was a former key expert at WYG International, a UK consulting firm, and has worked with many SOEs as head of finance and as a private consultant.

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