Unravelling the meaning, purpose and role of SOEs in Namibia (Part 1)

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The debate about and the search for a clearer and more appropriate definition and model for the management of the nation’s resources – human, natural and material – are as old as the existence of the nation state. The need for a clear understanding of what a state is on the one hand and the role of the state in the control, management and stewardship of available resources, on the other, is an ongoing reality, which changes with time and circumstances. Part of the difficulty and uncertainty about the purpose and function of state owned enterprises (SOEs) in the context of Namibia starts with the lack of clarity on the side of both the policy-makers as well as the citizenry about what the state is vis-à-vis the government and the governing party in the life of the nation.

This conundrum manifests itself more painfully in the lack of clarity about the relationship between the governance of the nation and the interests of the political party in power. Most people in Namibia cannot differentiate between the party in power on the one hand and the government and state on the other.

In fact, the general perception is that the governing party is bigger than the government and bigger than the state! It is therefore important to begin with an understanding of what the state is in a constitutional democracy like Namibia.

The state, or the nation state in Political Science terminology, the Rechstaat, is the governance of a territory with borders and citizens, based upon justice, human rights and obligations with integrity, within a constitutional framework in which the exercise of government power is derived from the consent of the citizens and constrained by the rule of law.

A fundamental precept of the rule of law is no citizen is above the law and that all are equal before the law. In a Rechstaat, the power of the state is limited in the compact the government has with the citizens who are protected from arbitrary exercise of authority. This is the context within which Namibia is grappling with the definitions, purpose and functions of the state on the one hand and that of SOEs on the other.

In 2006 the Government of the Republic of Namibia passed the State Owned Enterprises Act and ever since the government has been wrestling with the issues not only of definition and function of SOEs but also the types of appropriate responses expected from SOEs to the implicit and explicit mandates placed upon them by the government, which in turn acts in the name of the state.

What is a State Owned Enterprise (SOE)? An SOE, also known as a state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, government-owned corporation, commercial government agency, public sector undertaking, or parastatal is a legal entity that undertakes commercial activities on behalf of an owner government. The legal status of SOEs varies from being a part of the government to being stock companies with the state as a regular stockholder. The defining characteristics of SOEs are that they have a distinct legal form and are established to operate in commercial affairs on behalf of the government that acts in the name of the state. While SOEs may have public policy objectives, SOEs are differentiated from other forms of government agencies or state entities established to pursue purely non-financial objectives. This is the case with institutions that offer tertiary education in our context, such as Unam and Poly and to a degree the Namibia Training Authority and the Namibia Qualifications Authority. These entities are there not to make profit such as the likes of TransNamib, NamWater and NamPower, to mention but a few. The Namibia Institute for Public Administration and Management (NIPAM) is in this context a case totally apart from other SOEs as it has a very specific mandate of training the Namibian public service for purposes of transformation towards better and more effective service delivery to Namibian citizens.

There are government-owned corporations that are very specific in their nature and design and which are treated differently depending upon the circumstances of and the nature of the state. This phenomenon is common with natural monopolies and infrastructure such as railways and telecommunications, strategic goods and services like post offices and weapons manufacturing. This can also be the case with certain natural resources and energy utilities that are politically sensitive businesses in nature, broadcasting, demerit goods (alcohol), and merit goods in healthcare services. SOEs can be fully or partially owned by government.

There are also what is called ‘government-linked companies’ (GLCs) that can be  used to refer to corporate entities that may be private or public, but listed on a stock exchange with the government  owning a stake through the use of a holding company. This could be in the case where a company is classified as a GLC a government owns an effective controlling interest of over 50% of the company. The other possibility is when a corporate entity that has a government as a shareholder is a GLC. In the Commonwealth traditions, such as the United Kingdom, Australia, Canada, and New Zealand, big national SOEs refer to themselves as “Crown corporations”, or “Crown entities”. The cases in point are the Canadian Broadcasting Corporation and Air Canada before the latter went through a comprehensive privatization process. In these cases the Cabinets control the share portfolios and distributions in such public corporations.

Western  and Eastern Europe experienced a massive nationalization process throughout the 20th century, especially after the Second World War with the rapid expansion and influence of the Soviet Union style of government predicated upon Marxism-Leninism. The communist system encouraged the usurpation of the national economic sectors such as telecommunications, power, petroleum, railways, airports, airlines, public transport, health care, postal services and sometimes banks. Many large industrial corporations were also nationalized or created as government corporations including, among many, British Steel, Statoil and Irish Sugar. Starting in the late 1970s and accelerating through the 1980s and 1990s many of these corporations were privatized, though many still remain wholly or partially owned by the respective governments.

A distinction must also be drawn between a state-run enterprise and an ordinary limited liability corporation that is owned by the state. A good example is Finland, where state-run enterprises are governed by a separate Act. This means that even though the entities as such are responsible for running their own finances, they cannot be declared bankrupt as the state answers for the liabilities. The stocks of such corporation are not sold on the stock exchange and their loans have to be approved by government which in turn bears the liabilities. A state-run enterprise is technically not always a corporation, but could even be a separate state entity, or simply a government agency that may act and conduct its business as an enterprise. The state can also directly fund unprofitable business, such as railway services to remote areas, regardless of whether the operator is a private corporation.

With the dawn of democracy in Namibia in 1990, the new and first legitimate national government of the Republic of Namibia had to respond to and deal with a plethora of issues and challenges relating to taking the country out of a colonial (foreign ruled) country into an entity that was in charge of its own affairs and to determine its own direction socially, politically, economically and as a player in international affairs. Part of the colonial legacy was the manner in which the economy was run, including how natural and human resources were regulated and targeted.

Before national independence there were several economic and financial institutions that were created for purposes other than the medium and long-term development of the country and its people. The country was seen and treated as an outpost of other nations’ interests and whatever planning took place was predicated upon the philosophy that Namibia was and her resources were to benefit the outside world and to a lesser extent service the local economy from which it drew immediate resources.

As the new government was coming to grips with its governance responsibilities, and on the recommendation of the Wage and Salary Commission in 1995, it began to commercialize a number of government departments through the establishment of state owned enterprises or parastatals. Part of this exercise entailed the transformation of financial and economic entities that existed prior to independence but which had to be brought in line with the new government philosophy of One Namibia one nation.

The entities that existed before independence were such as SWAWEK, (now NamPower), Bantu Investment Corporation (BIC) commonly known as BBK (Bantoe Beleggings Korporasie), the Post Office and the like. The new ones are such as the Road Fund Administration, the Roads Authority, NamWater, and the Electricity Control Board, some of which were once departments in various government ministries/departments.

On 25 October 2001, the Cabinet of the Republic of Namibia adopted a Report on a Governance Policy Framework for State Owned Enterprises in Namibia. The following were identified as worrying trends that characterize the existing SOEs:

• State expenditure on and lending to SOEs has increased rapidly in recent years, with a rising proportion of the disbursement going to current expenditure like salaries and wages rather than capital expenditure;

• Some SOEs in monopoly or near monopoly situations generate financial returns at levels raising more questions than answers about the reasonability of their price structures;

• Capital intensity continues to increase among SOEs, without accompanying evidence of their productivity of capital;

• Debt levels persist at dismaying levels in a number of SOEs;

• Taxes recovered from a growing number of SOEs are unsatisfactory.

The spirit to establish SOEs in post-independence Namibia derives its logic along: (a) periods of their existence; (b) the purpose for which they were created; and (c) the mandate for their establishment. This state of affairs is likely to remain the same with the ongoing restructuring of SOEs under the aegis of the most welcome development of a new Ministry for Public Enterprises. (To Be Continued)

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