Namibia’s SOEs and retrenchment: The conundrum (Part 1)

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WINDHOEK, 06 September 2014 - Former Cabinet Minister Helmut Angula directed the programme of the launch of the Swapo-Party Election Manifesto and Election Campaign at the Sam Nujoma Stadium in Katutura on Saturday. (Photo by: Joseph Nekaya) NAMPA

Helmut Angula

Introduction

Namibia has a plethora of state-owned enterprises, operating in different sectors of the economy.  These entities have different mandates and objectives, having been established for specific identified needs and developmental goals of the state. Over the years, these entities have performed to varying degrees of achievement.  There are high flyers, while others have been much less so.  Many factors can explain the degree of performance of Namibian SOEs and the degree to which they have or have not fulfilled their respective mandates. How did we get here?
At independence, the Namibian Government inherited a civil service of over 42,000 people, highly fragmented along ethnic lines and totally imbalanced (almost all management positions were occupied by white males). The restructuring process which followed involved the creation of thousands of new posts, increasing the number of civil servants to about 70,000. This has resulted in huge expenditure on personnel as a proportion of total government current expenditure and a widely held perception that the Namibian public service is bloated and over-subscribed. Namibia’s first National Development Plan (NDP 1) suggested that the government reconsider its role as provider of basic services and allow the private sector to play more of a role in service provision.

A similar set of policy proposals came from the 1995 Wage and Salary Commission (Wascom), which recommended that government deliver existing services within reduced budgets. Building on a 1994 Cabinet decision that “areas and functions within the public service need to be commercialized, privatized or deregulated”, Wascom recommended that such restructuring be done “as soon as administratively possible, subject to approval by Cabinet in each case” (Wage and Salary Commission Report, 1995). It recommended the “contracting out of a number of services provided by the civil service”. This is in line with its recommendation that, following the 1995/96 budget, government expenditure on personnel should decrease by 2% per year. While the Wascom recommendations on restructuring did not receive immediate attention, an important development has been the establishment of the Efficiency and Charter Unit, which is developing outsourcing policy and implementing Wascom’s recommendations concerning the improvement of efficiency and delivery in the public service.

Based on these policies, the Namibian government set out the following key objectives for public sector restructuring (Murray, 2000):

• Downsize the public service – This is perhaps the central objective behind the restructuring process. During the 1990s, a commonly held perception within government was that the optimum size of the public service is 30,000, which meant then that the public service had to be reduced or downsized by not less than 50%. The principal strategies to attain downsizing are outsourcing and commercialization. This results in employees of public institutions being transferred to newly formed, but government owned entities on terms and conditions of employment that are not worse than what they held in government.  

• Reduce fiscal deficit – in theory sourcing out functions and activities to the newly established commercialized entities would enable government to direct public resources to activities which are regarded as necessary for macro-economic growth.

• Improve efficiency – SOEs are expected to operate on commercial principles and thereby realize greater efficiencies in terms of productivity and service delivery.  

• Improve service delivery – Government believes that outsourcing and commercialization will improve the delivery
of basic services.

This two-part essay unpacks the conundrum confronting Namibia’s SOEs, with respect to the rationale for their establishment and the unfortunate situations that SOEs confront in their operations leading to retrenchments. In order to do justice to the topic and provide the required insight, the essay is structured as follows: (1) Definition of SOEs, (2) Rationale for the Establishment and Existence of SOEs, (3) Retrenchment in Namibian Law, (4) The Position of SWAPO on Retrenchments by SOEs, (5) Proposed Alternatives to Retrenchment by SOEs and (6) The Way Forward.   

Definition of the Concept   
State-owned enterprises exist in most, if not all countries around the world. They are known by many names such as government corporations, government business enterprises, government-linked companies, parastatals, public enterprises, public sector units or public sector enterprises and so on. In Namibia, during the first few years, up until the 2000s, the term parastatal had gained currency and was widely used to refer to state-owned enterprises in the country.  However, following the commercialization of the departments of the former Ministry of Works, Transport and Communication, under the MWTC2000 initiative, which gave birth to the Roads Authority (RA), Roads Contractor Company (RCC), Road Fund Administration (RFA), Namibia Airports Company (NAC) and NamPort, the term state-owned enterprises emerged more preferable.  

While literature shows that the definition of SOEs often varies from country to country, the Organisation for Economic Co-operation and Development (OECD) defines SOEs as “enterprises where the state has significant control through full, majority, or significant minority ownership”. In the Namibian context, this definition includes entities owned by the central government (NamPower, NamWater, Air Namibia), as well as those in which regional and local government institutions hold interests such as Nored, Cenored, and the like.
The legal forms which an SOE may take are influenced by various considerations such as: The level of government that owns the enterprise (central/federal, state/regional or local). The way in which the enterprise was founded. The position in the public administration hierarchy. The purpose of the SOE; and The status of the SOE if it is in the process of being privatized.
Other factors include:

Full, majority or minority ownership by the government.
Listing (or not) on a stock exchange.

Government shareholdings through vehicles such as government pension funds, asset management funds, restructuring corporations and development lenders.

State-enabled as opposed to state-owned. An example in this regard is an enterprise which has been granted exclusive rights by the state.  NamPower, NamWater, and Namibia Airports Company with respect to the commodities they supply or their respective mandates may fall in this category.   
The varying forms of SOEs may provide governments with flexibility. However, there are also some downsides. These include complications in ownership policies, lack of transparency and insulation of SOEs from legal provisions that are applicable to other companies, including competition laws, bankruptcy provisions or securities laws. In order to address these concerns, many countries have initiated reforms to harmonize the legal status of SOEs with companies in the private sector.

The aim is to facilitate a more systematic application and enforcement of corporate governance instruments.
For instance, the International Public Sector Accounting Standards (IPSAS) Board is in the process of clarifying how SOEs should be governed.

This in turn will impact which financial reporting standards apply.
• Helmut Angula is the SWAPO Secretary for Information and Mobilisation but submitted this opinion piece in his personal capacity.

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