Can Akufo-Addo revamp State-owned Enterprises in Ghana?

Nana Akufo Addo
Nana Akufo Addo

The performance of the State-owned Enterprises (SOEs) in Ghana for the past decade has never been the best, causing economists and experts to wonder whether the glorious days of the SOEs sector are over.

SOES  are legal entities which are created by the government in order to partake in commercial activities on the government’s behalf. They are common worldwide. In Ghana, Volta River Authority, Ghana Water Company Ltd, Electricity Company of Ghana, Ghana National Gas Company Ltd, Ghana Railway Company, Produce Buying Company and Ghana Airport Company are few examples of SOEs.

When Ghana achieved independence from the British in 1957, there were inadequate infrastructure in the major cities, while the small towns and others had no infrastructure at all. So, the government at time thought it prudent to embark on industrialisation that led to the continuation of the SOEs handed over to the young country. Subsequently, many SOEs were added to the fold to achieve the government’s agenda.

The state has operated these SOEs in various sectors of the Ghanaian economy. The establishment of SOEs peaked in the 1960s when the government at the time to set up corporate entities to operate various types of businesses in all sectors.

Thankfully, by an act of Parliament or Legislative Instruments, many such businesses sprung up in the agricultural value chain, social and commercial services, utilities, banking and financial services, education, manufacturing, transport and infrastructure, telecoms and lately oil and gas.

Their establishment, according to analysts have helped a great deal in providing a functioning economy and infrastructural base which propelled economic development in the country.

Till date, the SOEs provide vital services and products as well as providing employment and capacity building. Successful SOEs will put Ghana at a competitive advantage.

Although, some of these SOEs are still in existence, many were divested or sold under the country’s Divestiture Implementation Committee as part of reforms influenced by the West and its Breton Woods intuitions to liberalise the economy.

In that regard, subsidies which used to cushion these corporations were removed making it difficult for them to compete with similar corporations both locally and globally.

Furthermore, others took cover under the ambit  of the Statutory Corporations (Conversion to Companies) Act, 1993 (Act 461) to convert to limited liability companies, with profit-making motives.

After enjoying many years of government guarantees and subsidies, many of the surviving SOEs are unable to fend for themselves independently.

If the government had not been strategic national assets, the likes of Volta River Authority, Ghana Water Company Ltd, Electricity Company of Ghana, state media houses, Produce Buying Company and the Ghana Railway Company would have gone the way of the Abosso Glass Factory, Wenchi Tomato Cannery, Nsawam Cannery, Bolga Meat Factory, Ghana Cotton Company,  Bonsa Tyres, Kumasi Jute Factory and the Ejura Farms.

These enjoyed tremendous government pampering through subsidies and could no longer stand on their feet when the subsidies were withdrawn. For some, the raw material base was a challenge as others suffered the debilitating consequences of mismanagement, among many other difficulties.

However, for the few SOEs left, the government still provides them with sovereign guarantees to enable them to secure credit from local and international finance institutions to prosecute projects.

Although the guarantees sit on the government’s books and form part of the public sector debt, the guarantor has no choice because it is also exposed to the SOEs in a number of unmet obligations, such as dishonoured subsidies and arrears in releases towards goods, services and investments.

In addition to the huge number of civil servants on the government’s wage roll, public sector workers from these SOEs further bloat the size of public expenditure. The huge wage bill, which forms about 55 per cent of domestic revenues, means the state has very little fiscal space to support goods, services and investments.

This has forced every government since the late 1970s to borrow from the domestic short end market to finance recurrent and capital expenditure. Development partners also lend to the government. The phenomenon can only set the economy in a spiral of fiscal conundrum.

In bid to manage the public debts,  the government has spelt out a number of measures which have been sanctioned by the International Monetary Fund (IMF) from which the country is currently receiving technical assistance and current account support to stabilise the economy.

The so-called ‘home-grown’ policies has a comprehensive provision for debt management which includes a move to the longer end of the debt market, where five to 10-year bonds will be issued to replace the 91-day to two-year government treasuries.

The government has also served notice to SOEs that it won’t issue any sovereign guarantees to them any longer.

The new Minister of Finance, Ken Ofori-Atta in his 2017 budget added: “The Ministry initiated the creation of a Single Entity for the management of the assets and liabilities of SOEs, and collaborated with SOEs to implement a number of measures to improve their performance”.

A senior lawyer Justice Sremi-Sai attributed the failures of Ghana’s SOEs to political influence, anti-state movement and Structural  Adjustment Programme which the country embarked on in the 1980s.

“One great evil that afflicts SOEs is political influence; I mean misguided political influence. The evil becomes even greater when the polity within which the SOEs operate lacks stability and is much worse when competent, skilled and public-spirited management and strong capital market institutions are lacking. Ghana bore all these elements in abundance after the middle of 1960. Thus, by the close of the 1970s, most of the public corporations had been run down”, he stated in his article.

“The country was heavily engrossed in debt owed to the countries and institutions of the industrialised West. Inflation rate was swinging above 100 per cent; GDP per capita had fallen from US$ 1,007 in 1960 to barely US$ 700 in 1983; and unemployment hit an all time high. Our countrymen had embarked on a desperate search for greener pastures outside the country”.

At this point, one could hardly dismiss the concerns of the Ghana anti-State movement. From these facts, they have all the evidence to support their claims that state ownership or control of companies is a waste of public money and everyone’s time; that state ownership only promotes monopoly, rent-seeking, corruption, cronyism, nepotism, political interference, etc. all of which lead to the failure of SOEs; and, that this sad outcome is not peculiar to Ghana, not even to Africa, according to Mr Sremi-Sai.

These observations, thus, inform and are at the heart of the wholesale condemnation of everything state, he stressed.

“This vivid body of evidence also readily fed into the neo-liberal rhetoric, on whose back the western side of the Cold War rode to glory. It also formed the basis for the World Bank’s privatisation programmes that swept across Africa, Europe and Latin America, starting from the 1970s. It is recorded that the World Bank, between 1988 and 1993, saw some 2,655 SOEs privatised in the world, valuing over US$ 270 billion”.

“The mismanagement of SOEs in the late 1960s and the debt crisis of the 1970s went into a full-blown manifestation in the early 1980. By 1983, the World Bank and IMF had happily secured the reluctant invitation of the PNDC military government. They came with the Structural Adjustment Programmes (SAPs). Ghana’s version of the SAPs was christened the Economic Recovery Programme (ERP). The ERP contained a series of prescriptions – trade liberalisation, price deregulation in industry and agriculture, currency devaluation, drastic cutbacks on government expenditure on health, education, etc, financial liberalisation, and privatisation/divestiture, etc”.

Of relevance to us here, however, is the divestiture programme which was intended to shrink the public sector and to improve the performance of enterprises by mobilising private sector management and capital. The programme, thus, comprises privatisation – that prescription which requires the government to offload its interest in SOEs to the public, according to Mr Sremi-Sai.

” It also consists of liquidation of SOEs. In 1987, the State Enterprise Commission was established under State Enterprises Commission Law (PNDC LAW 170) to supervise the SOE reform programme. The divestiture programme, however, formally took off in 1988 under the State-owned Enterprise Reform Programme, which in itself was a part of the broad ERP.

The record shows that there were more than 350 SOEs when the reform programme took off. By 1993, the first round of the programme had seen some 55 SOEs privatised. Then came the second round which was implemented by another government agency, the Divestiture Implementation Committee (DIC). The DIC was established by the Divestiture of State Interests (Implementation) Act, 1993. Just into the second year of work, the DIC saw some 195 more SOEs privatised”.

However, with the election of Nana Addo Dankwa Akufo-Addo as the President of the Republic , many say he is going to revamp the dying SOEs in the country. Though, it is too earlier to gauge his performance on the SOEs sector, pragmatic measures are yet to be effected into the SOEs.

Recently, the Founder of the Chief Executives Network Ghana, Ernest De-Graft Egyir,  called for the privatise all SOEs in the country to make them more efficient and profitable.

He argued that undertaking economic activities for profit is not the role of the government. Mr Egyir therefore insisted that the government should offload its shares in these enterprises.

The role of any government in any part of the world is to provide an enabling environment for businesses created by individuals and other corporate bodies to thrive.

Experts say key to better company performance is good corporate governance that provides the regulatory framework for acceptable practice, strategic direction and sound business judgement.

As SOEs are primarily owned and led by Government, government departments, agencies and boards of companies are partners in providing corporate governance to ensure their success. But this is missing in most SOEs operating in the country.

Source: Masahudu Ankiilu Kunateh|| African Eye Report

Leave a Reply

Your email address will not be published. Required fields are marked *

*