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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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Opposition Will Never Achieve Anything- Nkaigwa

8th April 2021
Haskins Nkaigwa

Former Umbrella for Democratic Change (UDC) Member of Parliament for Gaborone North, Haskins Nkaigwa has confirmed his departure from opposition fold to re-join the ruling Botswana Democratic Party (BDP).

Nkaigwa said opposition is extremely divided and the leadership not in talking terms.  “They are planning evil against each other. Nothing much will be achieved,” Nkaigwa told WeekendPost.

“I believe my time in the opposition has come to an end. It’s time to be of value to rebuilding our nation and economy of the country. Remember the BDP is where I started my political journey. It is home,” he said.

“Despite all challenges currently facing the world, President Masisi will be far with his promises to Batswana. A leader always have the interest of the people at heart despite how some decisions may look to be unpopular with the people.

“I have faith and full confidence in President Dr Masisi leadership. We shall overcome as party and nation the current challenges bedevilling nations. BDP will emerge stronger. President Masisi will always have my backing.”

Nkaigwa served as opposition legislator between 2014-2019 representing Botswana Movement for Democracy (BMD) under UDC banner.  He joined BMD in 2011 at the height public servant strike whilst Gaborone City Deputy Mayor. He eventually rose to become the mayor same year, after BDP lost majority in the GCC.

Nkaigwa had been a member of Botswana National Front (BNF), having joined from Alliance for Progressives (AP) in 2019.

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Botswana benefits over P100 million in grants from Japan

7th April 2021
Ambassador HOSHIYAMA

Botswana has received assistance worth over P100 million from Japanese government since 2019, making the latter of the largest donors to Botswana in recent years.

The assistance include relatively large-scale grant aid programmes such as the COVID-19 programme (to provide medical equipment; P34 million), the digital terrestrial television programme (to distribute receivers to the underprivileged, P17 million), the agriculture promotion programme (to provide agricultural machinery and equipment, P53million).

“As 2020 was a particularly difficult year, where COVID-19 hit Botswana’s economy and society hard, Japan felt the need to assist Botswana as our friend,” said Japan’s new Ambassador to Botswana, Hoshiyama Takashi.

“It is for this reason that grants of over P100 million were awarded to Botswana for the above mentioned projects.”

Japan is now the world’s fourth highest ranking donor country in terms of Official Development Assistance (ODA).

From 1991 to 2000, Japan continued as the top donor country in the world and contributed to Asia’s miracle economic development.

From 1993 onwards, the TICAD process commenced through Japan’s initiative as stated earlier. Japan’s main contribution has been in the form of Yen Loans, which are at a concessional rate, to suit large scale infrastructure construction.

“In Botswana, only a few projects have been implemented using the Yen Loan such as the Morupule “A” Power Station Rehabilitation and Pollution Abatement in 1986, the Railway Rolling Stock Increase Project in 1987, the Trans-Kalahari Road Construction Project in 1991, the North-South Carrier Water Project in 1995 and the Kazungula Bridge Construction Project in 2012,” said Ambassador Hoshiyama.

“In terms of grant aid and technical assistance, Japan has various aid schemes including development survey and master planning, expert dispatch to recipient countries, expert training in Japan, scholarships, small scale grass-roots program, culture-related assistance, aid through international organizations and so on.”

In 1993, Japan launched Tokyo International Conference on African Development (TICAD) to promote Africa’s development, peace and security, through the strengthening of relations in multilateral cooperation and partnership.

TICAD discuss development issues across Africa and, at the same time, present “aid menus” to African countries provided by Japan and the main aid-related international organizations, United Nations (UN), United Nations Development Programme (UNDP) and the World Bank.

“As TICAD provides vision and guidance, it is up to each African country to take ownership and to implement her own development following TICAD polices and make use of the programmes shown in the aid menus,” Ambassordor Hoshiyama noted.

“This would include using ODA loans for quality infrastructure, suited to the country’s own nation-building needs. It is my fervent hope that Botswana will take full advantage of the TICAD process.”

Since then, seven conferences where held, the latest, TICAD 7 being in 2019 at Yokohama. TICAD 7’s agenda on African development focused on three pillars, among them the first pillar being “Accelerating economic transformation and improving business environment through innovation and private sector engagement”.

“Yes, private investment is very important, while public investment through ODA (Official Development Assistance) still plays an indispensable role in development,” the Japanese Ambassador said.

“For further economic development in Africa, Japan recognizes that strengthening regional connectivity and integration through investment in quality infrastructure is key.”

Japan has emphasized the following; effective implementation of economic corridors such as the East Africa Northern Corridor, Nacala Corridor and West Africa Growth Ring; Quality infrastructure investment in line with the G20 Principles for Quality Infrastructure Investment should be promoted by co-financing or cooperation through the African Development Bank (AfDB) and Japan.

Japan also emphasized the establishment of mechanisms to encourage private investment and to improve the business environment.

According to the statistics issued by Japan’s Finance Ministry, Japan invested approximately 10 billion US dollars in Africa after TICAD 7 (2019) to year end 2020, but Japanese investment through third countries are not included in this figure.

“With the other points factored in, the figure isn’t established yet,” Ambassador Hoshiyama said.

The next conference, TICAD 8 will be held in Tunisia in 2022. This will be the second TICAD summit to be held on the African continent after TICAD 6 which was held in Nairobi, Kenya, in 2016.

According to Ambassador Hoshiyama, in preparation for TICAD 8, the TICAD ministerial meeting will be held in Tokyo this year. The agenda to be discussed during TICAD 8 has not yet been fully deliberated on amongst TICAD Co-organizers (Japan, UN, UNDP, the World Bank and AU).

“Though not officially concluded, given the world situation caused by COVID-19, I believe that TICAD 8 will highlight health and medical issues including the promotion of a Universal Health Coverage (UHC),” said Hoshiyama.

“As the African economy has seriously taken a knock by COVID-19, economic issues, including debt, could be an item for serious discussion.”

The promotion of business is expected to be one of the most important topics. Japan and its partners, together with the business sector, will work closely to help revitalize private investment in Africa.

 

“All in all, the follow-up of the various programs that were committed by the Co-Organizers during the Yokohama Plan of Actions 2019 will also be reviewed as an important item of the agenda,” Ambassador Hoshiyama said.

“I believe that this TICAD follow-up mechanism has secured transparency and accountability as well as effective implementation of agreed actions by all parties. The guiding principle of TICAD is African ownership and international partnership.”

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Magosi pushes for Cabinet reshuffle

6th April 2021
President Masisi

Directorate on Intelligence Services (DIS) Director General, Brigadier Peter Magosi is said to be hell-bent and pushing President Mokgweetsi Masisi to reshuffle his cabinet as a matter of urgency since a number of his ministers are conflicted.

The request by Magosi comes at a time when time is ticking on his contract which is awaiting renewal from Masisi.

This publication learns that Magosi is unshaken by the development and continues to wield power despite uncertainty hovering around his contractual renewal.

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