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Business model or the people: Why are Public Enterprises failing?

The National Development Bank (NDB) has joined the bandwagon of the underperforming in retrenching its staff, with scores of the bank staff, save the Chief Executive Officer (CEO) having been told that no one is guaranteed survival of the imminent chop from the country oldest parastatal. Staff Writer ALFRED MASOKOLA examines underlying factors that have rendered State Owned Enterprises (SOEs) inefficient, unprofitable and unsustainable. 

State Owned Enterprises (SOEs), Public Enterprises or simply parastatals as it is the case here, are government owned or controlled institutions which were created with a clear mandate to engage in commercial activities. According to a report titled; “State-Owned Enterprises Catalysts for public value creation?” published by international auditing firm, PCW, public enterprises have been rising in influence in the global economy over the past decade. 

For instance, the proportion of SOEs among the Fortune Global 500 has grown from 9 percent in 2005 to 23 percent in 2014, including a greater presence in the top rankings.  China has been a model of what influence public enterprises can have in the economy, with corporation like Sinopec Group, China National Petroleum and State Grid having consistently made the top ten of Fortune 500.  

SOEs have become tools for some countries to better position themselves for the future in the global economy given increased global competition for finance, talent, and resources. However, in Botswana, parastatals have become a burden in the economy in recent years, with government have to come to rescue on several occasions to bail them out. Botswana Meat Commission (BMC), National Development Bank (NDB), Botswana Power Corporation (BPC) and Air Botswana being some of the institutions that have knocked on doors of government seeking financial rescue. 

Three of the above-mentioned institutions are monopolies, which even complicates matters on whether the problem with public enterprises their business models or the talent leading them. The BMC, WUC and Botswana BPC are among vital public enterprises that have been experiencing perennial losses for the past decade. In 2006, WUC, BMC and BPC made a combined net profit of P371.9 million while, in the latest budget speech, Finance Minister, Kenneth Matambo indicated that the three entities recorded a worrisome combined loss of P507. 5 million.

Duncan Majinda, Chief Executive Officer (CEO) of Botswana Accountancy Oversight Authority (BAOA), an institution with mandate to audit public enterprises tried to offer diagnosis on the matter. “A new area in our mandate was recently introduced in corporate governance and financial reporting monitoring. The initial results reflect that private and listed companies, and banks perform significantly better than state-owned enterprises,” Majinda told WeekendPost recently.  

“In order to explain the reasons for differential performance, it is appropriate to use an analogy. The engine of a car is the most important component of the car without which it cannot operate. By the same token, in an organisation, the Board and executive management is the engine of the entity. Poorly constituted boards without the requisite balance of knowledge, skills and expertise are the main problems of poorly performing entities.”

Majinda contended that private and listed companies have very strong boards constituted along best international practice through corporate governance codes like King III and IV. “Parastatals on the other hand are dominated by pre-determines ex-officio appointments so that if there is such a balance, it is by coincidence rather than design. Committees such as renumeration, Nomination, Risk are not common with parastatals,” he argued. 

Majinda however said there is obvious need to conscious of the nature of the mandates of these different entities as some are commercially oriented while others are geared towards providing a public good or service where commercial initiatives are constrained through, for example, controlled prices and levies. “That notwithstanding, good corporate governance can be applied right across industries and sectors, public or private, profit making or non-profit making, to ensure efficiency, effectiveness and economy in doing business. Good strong boards produce good and robust strategies that result in good strategic decisions,” he said. 

Following a litany of calls from various quarters, including legislators and the business community over the need to merge some ministries in a bid to improve efficiency and profitability, Ministry of Investment, Trade and Industry have given in. “It has been observed that the mandates of some of the parastatals are converging resulting in some overlaps and duplications,” Minister of Trade, Bogolo Kenewendo, indicate in her first media briefing as minister.

“A rationalisation exercise is ongoing in that regard, and the exercise will go a long way in eliminating duplication of efforts across the ministry’s parastatals where existent, culminating in improved service quality.” While a backbencher, Kenewendo had made her believes known that a number of parastatals do have overlapping mandates therefore requiring a rationalisation that would produce efficiency.

With the rationalisation process likely to affect mostly the funding institutions under the supervision of trade ministry such as Citizen Entrepreneurial Development Agency (CEDA), Botswana Development Corporation (BDC), Local Enterprise Authority (LEA) and possibly NDB, CEDA CEO, Thabo Thamane has cautioned government about the possibility of misdiagnosing the problem bedevilling public enterprises.

“I know what CEDA does, I have been here for the past 15 years; I know what LEA does, and I know what other financiers do. What is very critical is that we must be every carefully when making this analysis of merging public enterprises because their mandates were very specific,” he warned.

“It is one thing as for an institution that is not performing as per its mandate. If it does not perform, you do not just say you merge it. You basically say; why is it not performing? Is it the people or is it the mandate? So that is the starting point; If it is the people, you then put the right people so that they can make it perform; if it is the mandate, then review the mandate and then merge it with other institutions.”

Thamane contended that the last thing that government needs is to create a monster of an institution, because the bigger the institution, the bigger the process. “We welcome this idea of a possible review of the institutions, and where possible some will be merged. If they decide CEDA merges with other institution, I will take it, “he said.

BUSINESS MODEL FAILER: NDB CASE 

NDB has found the going tough in recent years, with the bank riddled with perennial losses amid a funding model that has been ruled out as not sustainable. This year, the bank has found itself in dire crisis as it had only P10 million to disburse for loans. The situation has forced the bank to retrench employees, with P31 million budgeted for the exercise. In May this year, the bank’s executives approached Parliamentary Committee on Public Enterprises and Statutory Bodies to lobby for recaptialisation. 

WeekendPost has established that NDB’s problems and bottlenecks are deeper than simply the matter of recapitalisation. The structure and sources of funding mean that they have an unfavourable cost structure which paralyses their competitiveness. “It is almost a chicken and eggs situation that for them to lower their cost of funding, they need to be deposit taking, that is through banking license, but it appears they need to capitalise a bit more to prepare for qualification as a deposit taking institution,” the committee member observed.

NDB has been sourcing its funds from BIFM Capital, Barclays Bank and First National Bank Botswana (FNBB) at an interest rate of 8.5 percent, and 9.5 percent for BIFM capital. This, according to the bank, is brought about by the verity that government has stopped issuing bonds to the bank, forcing it to find alternative funding avenues. It has merged that most of committee members are sympathetic to NDB and are determined to make a case in their favour before parliament. Parliament has the authority to authorise government spending and has in the past approved bailing out of several public enterprises which were struggling financially. 

Though NDB was at one point making profit, it does not get subvention from government on annual basis despite the bank being a development bank. In 2016, NDB requested government to inject capital amounting to about P1 billion in the next three years in order to transform the bank and prepare it for commercialisation.  Last year, it was offered P400 million by government, P100 million of it being a grant while the remaining P300 million was a loan.

As per Chief Executive Officer of the Bank, Lorato Morapedi’s statement before the parliamentary committee on Statutory Bodies and Enterprises in 2016, NDB wanted government to inject P400 million in the next financial year [2017], followed by two government guaranteed loans of P165 million and P250 million in subsequent years.

NDB is one of the quasi-government institutions that have been put up for privatisation, with Botswana Telecommunication Corporation (BTC) having successfully gone through the process. It is expected that, like the BTC, government will retain 51 percent shareholding in the company, while 5 percent is offered to employees, with the rest of the shareholding being offered to the public.

 However, there has been debate both within and outside NDB with regard to whether the bank is in a state to be commercialised. Some school of thought is that in its current state, government would be either giving it away or nobody will show interest in its stock, hence the need to recapitalise the bank.

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DPP halts JSC, Judge’s back to work plan

25th January 2021
Kebonang

The Directorate of Public Prosecutions (DPP)’s decision to reject and appeal the High Court’s verdict on a case involving High Court Judge, Dr Zein Kebonang has frustrated the Judicial Service Commission (JSC) and Judge Kebonang’s back to work discussions.

JSC and Kebonang have been in constant discussions over the latter’s return to work following a ruling by a High Court panel of judges clearing him of any wrong doing in the National Petroleum Fund criminal case filed by the DPP. However the finalization of the matter has been hanged on whether the DPP will appeal the matter or not – the prosecution body has since appealed.

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BDP rejects Saleshando payment proposal

25th January 2021
MP saleshando

Botswana Democratic Party (BDP) top brass has declined a request by Umbrella for Democratic Change (UDC) to negotiate the legal fees occasioned by 2019 general elections petition in which the latter disputed in court the outcome of the elections.

This publication is made aware that UDC Vice President Dumelang Saleshando was left with an egg on his face after the BDP big wigs, comprising of party Chairman Slumber Tsogwane and Secretary General Mpho Balopi rejected his plea.

“He was told that this is a legal matter and therefore their (UDC) lawyer should engage ours (BDP) for negotiations because it is way far from our jurisdiction,” BDP Head of Communications, Kagelelo Kentse, told this publication.

This spelt doom for the main opposition party and Saleshando who seems not to have confidence and that the UDC lawyers have the dexterity to negotiate these kind of matters. It is not clear whether Saleshando requested UDC lawyer Boingotlo Toteng to sit at the table with Bogopa Manewe, Tobedza and Co, who are representing the BDP to strike a deal as per the BDP top echelons suggested.

“From my understanding, the matter is dealt with politically as the two parties are negotiating how to resolve it, but by far nothing has come to me on the matter. So I believe they are still substantively engaging each other,” Toteng said briefly in an interview on Thursday.

UDC petitioners saddled with costs after mounting an unprecedented legal suit before the court to try and overturn BDP’s October 2019 victory. The participants in the legal matter involves 15 parliamentary candidates’ and nine councillors. The UDC petitioned the court and contested the outcome of the elections citing “irregularities in some of the constituencies”.

In a brief ruling in January 2020, Judge President Ian Kirby on behalf of a five-member panel said: “We have no jurisdiction to entertain these appeals. These appeals must be struck out each with costs including costs of counsel”. This was a second blow to the UDC in about a month after their 2019 appeals were dismissed by the High Court a day before Christmas Day.

This week BDP attorneys decided to attach UDC petitioners’ property in a bid to settle the debts. UDC President Duma Boko is among those that will see their property being attached with 14 of his party members. “We have attached some and we are on course. So far, Dr. Mpho Pheko (who contested Gaborone Central) and that of Dr, Micus Chimbombi (who contested Kgalagadi South) will have their assets being sold on the 5th of February 2021,” BDP attorney Basimane Bogopa said.

Asked whether they met with UDC lawyers to try solve the matter, Bogopa said no and added. “Remember we are trying to raise the client’s funds, so after these two others will follow. Right now we are just prioritising those from Court of Appeal, as soon as the high court is done with taxation we will attach.”

Saleshando, when contacted about the outcomes of the meeting with the BDP, told WeekendPost that: “It would not be proper and procedural for me to tell you about the meeting outcomes before I share with UDC National Executive Committee (NEC), so I will have to brief them first.”

UDC NEC will meet on the 20th of next month to deal with a number of thorny issues including settling the legal fees. Negotiations with other opposition parties- Alliance for Progressives and Botswana Patriotic Front (BPF) are also on the agenda.

Currently, UDC has raised P44 238 of the P565 000 needed to cover bills from the Court of Appeal (CoA). This is the amount in a UDC trust account which is paltry funds equating 7.8 per cent of the overall required money. In the past despite the petitioners maintaining that there was promise to assist them to settle legal fees, UDC Spokesperson, Moeti Mohwasa then said the party has never agreed in no way to help them.

“We have just been put in debt by someone,” one of the petitioners told this publication in the past. “President’s (Duma Boko) message was clear at the beginning that money has been sourced somewhere to help with the whole process but now we are here there is nothing and we are just running around trying to make ends meet and pay,” added the petitioner in an interview
UDC NEC has in December last year directed all the 57 constituencies to each raise a minimum of P10, 000. The funds will be used to settle debts that are currently engulfing the petitioners with Sheriffs, who are already hovering around ready to attach their assets.

The petitioners, despite the party intervention, have every right to worry. “This is so because ‘the deadline for this initiative (P10, 000 per constituency) is the end of the first quarter of this year (2021),” a period in which the sheriffs would have long auctioned the properties.

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Boko-Khama axis viewed with suspicion

25th January 2021
boko-and-khama

President of the Umbrella for Democratic Change (UDC) Duma Boko’s alliance with former President Lt Gen Ian Khama continues to unsettle some quarters within the opposition collective, who believe the duo, if not managed, will once again result in an unsuccessful bid for government in 2024.

While Khama has denied that he has undeclared preference to have Boko remaining as leader of UDC, many believe that the two have a common programme, while other opposition leaders remain on the side-lines.

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