By: Nghiinomenwa-vali Erastus
Legalised monopolies operating as State Owned Enterprises have created anticompetitive effects, becoming barriers to the participation of efficient and transformative private players.
An assessment by the World Bank contained in a Private Sector Diagonastic report for Namibia released last month.
Namibia’s largely monopolistic market structure and dominant public sector create an uneven playing field for the private sector, the report read.
To top it off, most of them cannot even be self-sustaining. Taxpayers are constantly bailing them out instead of declaring dividends and softening the government fund issues.
The Bank of Namibia governor was quoted saying in order to maintain a competitive economy moving forward, other crucial changes include breaking up monopolies in significant economic sectors and advancing the SOE’s reform agenda.
The assessment by the World Bank researchers found that public enterprise or SOE sector dominance in a small economy such as Namibia creates anticompetitive effects.
Especially when SOEs operate in monopolistic and privileged positions in key sectors of the economy—as they do even in sectors where private participation could be more efficient and transformative.
There are 22 designated commercial SOEs in the country across at least 15 sectors (out of a total of 81 SOEs).
Despite having a much smaller market size than most Organisation for Economic Co-operation and Development (OECD) countries, Namibia has the same number of SOEs as the OECD average.
According to the assessment, SOEs have 90–100 per cent of the market share in electricity generation and import, fixed-line telecommunication services, postal services (other than couriers), and air operation infrastructure.
Moreover, they extend to maritime transport infrastructure, railway transportation, road infrastructure, water supply, and mobile telecommunication.
The issue with the various monopolies is their struggle with efficiency and innovation, constant mounting losses with the state coming to their rescue every financial year.
Over 82 per cent of all recorded SOE losses were due to Air Namibia, TransNamib, and the Roads Contractor Company.
Despite their struggle, the World Bank has indicated that ed that SOEs have key advantages over private firms.
SOEs enjoy several advantages that inhibit the entry and success of private participants.
SOEs have preferential access to sources of production such as finance and land, legislated monopolies in specific sectors, preference through policies and oversight practices of shareholders, and multiple roles that create conflict between regulatory functions and operations.
According to an assessment of 19 indicators of product market regulation, the restrictiveness of product markets is linked to several factors.
State involvement in business operations through SOEs; controls on certain prices that may increase costs for final consumers; barriers to entry, trade, and investment; and ineffective enforcement of the antimonopoly policy.
Thus, despite progress in developing a legal framework for competition, the effectiveness of competition policy and regulation remains limited.
When it comes to access to finance, SOEs have a competitive edge over private firms, given their access to subsidies, guarantees, and bailouts.
“The artificial propping up of public enterprises that are uncompetitive, through public subsidies and guarantees leads to inefficiencies and imposes a substantial fiscal burden on the government,” the researchers found.
In this regard, it is encouraging that the medium-term expenditure framework (2021/22 to 2023/24) intends to reduce these support mechanisms, the World Bank stated.
Public enterprises have also benefited from preferential treatment from commercial banks and development finance institutions.
The Namibia Wildlife Resorts is still servicing a 2006 loan from the Development Bank of Namibia and, for more than 10 years, has paid only the interest portion.
Some SOEs also enjoy preferential access to land, which is a significant constraint for the private sector.
The National Petroleum Corporation of Namibia (Namcor) was able to set up a public use fuel station within the boundaries of the Namibia Airports Company (NAC), despite the existence of a private fuel station just beyond the boundary.
Other examples include the expansion of the Namibia Port Authority (Namport) to the north of Walvis Bay and the Agricultural Business Development Agency’s access to irrigation farms.
Several SOEs have sectoral monopolies, including in transport, water, power, and tourism.
TransNamib, Namport, and the NAC are exclusive service providers in the subsectors of rail transport, seaport, and airport operations.
The Namibia Power Corporation Ltd. (NamPower) has exclusive rights to develop and maintain the country’s power transmission network and is currently fully in charge of national power generation.
This situation may change soon with the uptake of the Modified Single Buyer model, which will provide for direct offtake by bulk power consumers (private companies, municipalities, offices, ministries and agencies of government, and public enterprises) from the independent power producers.
Namibia Wildlife Resorts (NWR) is the only tourism operator in Namibia that may operate inside national parks.
Community-managed conservancies have been granted some park access rights but not the right to set up tourism lodge facilities inside the parks.
The Namibia Water Corporation Ltd. (NamWater) controls the full value chain for bulk water supply—generation, transmission, and distribution to bulk customers.
Private firms depend on these government-owned monopolies for key inputs and support services such as port operations, aviation and bulk rail transport services, electricity, water, and telecommunications.
The World Bank indicated that, without competition, SOEs are unlikely to deliver these inputs and services efficiently, as a result, undermining the core government objectives such as improving competitiveness, economic diversification, growth, and provision of affordable, reliable, and accessible basic services.
SOEs DO WHATEVER THEY WANT
The researchers have also revealed that SOEs and the private sector operate on an uneven playing field because they are not held to the same standards of accountability and compliance with the law.
As of June 2020, the World Bank found that several public enterprises were not in compliance with the provisions of the Public Enterprises Governance Act and the Companies Act.
A private company seeking financial support or banking services from a commercial bank must furnish audited annual financial statements.
But public enterprises do not publish such statements and, in some instances, still enjoy banking services and facilities despite this failure to comply with the Companies Act.
SOEs are also not held to the same requirements for value-added tax, corporate tax, or payroll-related obligations such as PAYE (pay as you earn), pension fund contributions, and employees’ benefit premiums.
Noncompliance can often make public enterprises appear more competitive than they are, the researchers found.
It has also been found that some SOEs lack a separation between operating and regulatory functions, providing incentives to keep competitors out.
According to international best practice, an SOE that is active in a sector of the economy should not have a simultaneous regulatory function for that sector.
Yet, Namibia legislation assigns regulatory and operational roles for several key SOEs.
Namcor was appointed as an advisor to the Ministry of Mines and Energy (MME) and has been assisting in regulating the upstream petroleum sector.
At the same time, Namcor is also involved in an upstream exploration licensing and is an active shareholder in a new oil exploration project led by the Canadian Reconnaissance Energy Africa Ltd.
According to the World Bank researchers, this creates a conflict of interest.
Downstream, Namcor is also managing the National Oil Storage Facility and putting up service stations across the country while also advising the MME on various regulatory issues, including fuel price, even though Namcor also receives a significant portion of the fuel levy.11
In November 2021, the Namibian government announced changes to the Ministry of Public Enterprises (MPE) over five years.
Based on the recommendation of a high-level panel on the Namibian economy, the MPE is envisaged to become a holding company under the Ministry of Finance (MOF).
The company would have direct oversight of public enterprises’ financial and operational performance and ensure that subsidies were more aligned to compliance and performance.
This would also enable the MOF to control and be directly involved in establishing the holding company.
The move is part of the government’s efforts to transform Namibia’s public enterprises and streamline the administration.
There are ongoing initiatives to improve SOE governance and efficiency through the SOE ownership policy and transformation plan.
According to the World Bank, if well implemented, these reforms can open new opportunities for the private sector, including small and medium enterprises (SMEs), and enhance overall economic competitiveness.
The researchers stated that given Namibia’s small market size, overall efficiency and productivity gains could be achieved by carefully delineating sectors able to benefit from private participation and sectors where existing SOE performance could be enhanced. Email: erastus@thevillager.com.na
