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Reviewing state-owned enterprises

Many economies bank on state-owned enterprises (SOE). They are important to those seeking economic development.

The SOEs have become a topic of discussions in recent times. It is good that we are having a discourse on an important issue. We need more.

The government has formed a task force to relook into the role of the SOEs. Based on the findings, they will redefine and streamline their role. Some, it seems will lose their status, as the government is mulling to privatise them.

The whole exercise is to boost private sector growth, which in the words of the Prime Minister is suppressed by the big state enterprises. While there is pressure on the private sector of not doing enough to create jobs or contribute to the economy, the sector believes that government policies are not attuned to their needs.

Some in the private sector see the government as regulator, enforcer of its own regulations, owner and competitor. The presence of state enterprise is identified as one, as it leaves room for possibility of favourable treatment. Treatment can be in subsidies, preferential regulatory treatment and even state-backed guarantees.

Priorities of government change. At least six new state-owned enterprises were created in the last five years. Creation of some raised eyebrows, as established protocol was not followed in rushing to create these new bodies. The new SOEs, in a central bank review, cost the government coffer huge, through capital and current expenditure, grants and subsidies.

Given the state-owned enterprise’s role in governance, government is taking the lead in thinking through what state-owned enterprises should do.

Not all SOEs are the same. Some have social mandate that will not interest the private sector. But we are holding onto enterprises that are a financial burden to the state. Why should the government get into the trading business when there are traders? Why should there be two SOEs with the same mandate. It is duplication at the cost of the national exchequer. Public transport needs an overhaul. The private sector is ready to take it over if the government lets it go.

Meanwhile, state-owned enterprises should not be a political tool. It cannot be created to accommodate some party supporters in the name of growth or be privatised for the sake of change. It should not be seen as useful pawns in government plans, but as important national assets.

Initiatives like the corporate governance guidelines, rules of procedure for the board, management and chief executive officers are welcomed to ensure competitiveness, transparency and accountability.  It is a bold decision.

Another bold decision the government could take lead is in convincing the big private businesses to divest. This, financial analysts, say will improve the capital market. Such an initiative besides creating capital and providing avenues for investment, could help the government’s pledge on tax reforms.

This is evident from the dividend listed companies pay to the government. Nineteen listed companies paid more taxes than 35,000 private entities.

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