Govt must learn from SOE losses – analysts reflect on 2017

Analysts who spoke to The Villager this week said Government should learn from the losses in 2017 with the collapse of the SME Bank which put at least 200 employees out of work, as well as other troubled state-owned enterprises such as Roads Contractor Company by prioritising effective governance and qualified boards.

Speaking to The Villager Newspaper, economic analyst James Cumming said effective governance should be a priority of the state as well as the appointment of qualified boards to steer state-owned enterprises in the right direction.

“If there were good and effective governance then the nation would never have witnessed failed SOEs. One needs to have strong corporate governance to avoid failing. Also, the boards must be qualified enough for the positions they are given to run at SOEs. 

"The boards that do not have the necessary skills to guide the company are leading to failure of SOEs. The SOEs cannot always depend on the government to bail them out, they have to be self-funding, and I think that a lot of SOEs have missed the point of self-funding,” Cumming said.

Cumming added that the communication between the SOEs and the line ministry is one of the steps that should be taken to save failing SOEs. 

“The line ministry is doing very little regarding looking after and looking into the performance of the SOEs. If they were on top of every little detail of what was happening in SME Bank then the problem would have been detected on time and steps could have been taken to save the SME Bank,” he said. 

Institute of Public Policy and Research’s Max Weylandt also expressed disappointment in the manner in which SOEs are operated, saying that there is little known about the cause of failure at SOEs.

“We do not know enough about the details of the SME Bank and RCC to analyse where exactly things went wrong, but in general, the government has to do a better job of continuously monitoring SOEs, so that it can catch problems before they spiral out of control. In the past, it has happened that ministries did not know how bad the situation was at public enterprises until they got news that a bailout was needed. 

"If government continuously stays involved in monitoring performance and does a good job of this it can prevent mistakes from becoming death sentences for these public enterprises,” Weylandt said. 

He added that government needs to implement its new Hybrid Governance System finally.

He also lamented that the line ministry still does not have the full powers to oversee the public enterprises which it is supposed to monitor and IPPR does not have any indication of the effectiveness of the new system. 

Furthermore, political analyst Ndumba Kamwanyah said that the biggest lesson to learn from failed SOEs is in whom to employ and to be proactive before any SOEs fails. 

“I think that the biggest lesson to be learned is the boards that are appointed. One can see that signs where there that the RCC was going down and we knew that the board did not perform so well and we let them keep sitting on the boards. 

The state needs to learn from what happened and start acting once there are signs that an SOE is about to fail entirely and act before it does fail. 

"It is not a bad thing to let a person that does not perform go and to let in a person that is qualified for the job and if they do not perform than just find a suitable person that can do the job instead of waiting for the SOE to be closed down completely,” he said. 

He added that the state has failed the nation by not acting early while all the signs indicated that there was no hope for these SOEs, saying that information on the performance of SOEs must be shared with the general public at least twice in a year in order to determine the direction to take in case an SOE is failing. 

Kamwanyah added that the direction the state can take is to make sure the board members are capable of work they are offered.  

“It does not matter how qualified the board is but what matters is the performance. You can have all the necessary qualifications, but if you are unable to do the job then it is so,” he said.

Political analyst Hoze Riruako also concurred that good governance should be learned from failed SOEs.

“It is all about good governance and accountability. Why are some failing and some not? We need to look at who we employ as the government and who we give the power to run things within these entities. One of the reasons why SME bank failed is simply good governance. I believe that there was no hope for SME Bank but what has led to its failure is poor governance,” he said. 

He also cautioned government from allowing the same faces to sit on different boards as it leads to corruption and later to the failure of SOEs.

“The right direction to take will be to employ a qualified person that understands the day to day operation of respective SOE,” he said.