Government has just introduced a new Performance Contract agreement with three giant SOEs namely GNPC, GPA and SSHFC. Is this going to be a panacea for the failing state enterprises or will it be confined to history’s failed SOE reform strategies that keeps repeating itself.
The challenges facing the State-Owned Enterprises (SOEs) today predate the present government. However, due to the perennial lack of functional SOE monitoring unit at the Ministry of Finance, the problems have now exacerbated to alarming proportions. With the setting up of a dedicated SOE unit to provide meaningful and effective oversight for the state enterprises, the strategic reforms needed to strengthen the fiscal, operational and governance activities of those affected SOEs could soon be realized.
Some of the problems facing the public enterprises over the past years has had a negative impact on public finances and economic growth. Some compounded by the unrestricted government directives, lack of strategic perspective, ineffective oversight as well as a plethora operational inefficiency. The situation has been made worse by systemic corruption, widespread mismanagement and weak policy regulatory environment with structural deficiencies.
Historically, this is not the first time that government entered into performance contract system to improve the financial and operational performance of the state enterprises. The first phase performance contract was entered on a trial basis for three months between January to June 1987 with three Public Enterprises (PEs) – Gambia Ports Authority (GPA), Gambia Produce Marketing Board (GPMB), and Gambia Utilities Corporation (GUC).
After a successful trial period, the Performance Contracts were actually formalized in July 1987 for a period of three years. One of the major setbacks from these contracts was the sidelining of the board chairs during the signing process not to take ownership at the governance level. Instead, the contracts were signed by the former President Jawara on behalf of the Government, and the Managing Directors on behalf of management of the enterprises excluding the board of directors who are usually charge with SOE governance.
The agreement that was produced created over-powerful managing directors who unusually were running those enterprises with minimum consultations or directions from the boards, an aberration from corporate governance norms that was regretfully replicated by the succeeding government in the second republic and set the stage for massive corruption as well as significant mismanagement of the state enterprises. I will elaborate on this later on!
At that time, the monitoring of performance targets were the responsibilities of the National Investment Board (NIB), a quasi-government agency as well as the Policy Analysis Unit (PAU) at the Office of the President. Those structural oversight arrangements were expected to provide effective quality monitoring of SOEs financial and operational performance in an objective and independent manner.
Although, the performance of public enterprises substantially improved during the period of implementation as most PEs consistently over-shot their quantitative as well qualitative targets, it was later discovered during the commissions of enquiries looking into the activities of the PEs in 1996/98 that most of the NIB and some government officials those who were supposed to monitor the PEs on behalf of the government were in fact receiving compensation in the form of bonuses from the PEs.
The bonus scheme was part of the inducement mechanism built in the contracts to reward management of the PEs for achieving their targets. It was never meant for those advising the government at the oversight institutions. As they say, ‘you cannot be a referee and a player at the same time’. Those people were supposed to provide independent, objective and professional assessment of the performances of those enterprises on behalf of government at the end of every year. No doubt there was serious qualms about the entire process in the periods leading to the abandonment of the performance contracting system.
In the years when the state enterprises were operating without a performance contract during the era of Yaya Jammeh, huge SOEs resources were mismanaged, there was lack of effective oversight following the repeal of the Gambia Divestiture Agency (GDA) in 2009, millions and millions of dalasi were spent on quasi fiscal activities based on directives from the Office of the President (OP) that were totally unconnected with the activities of those institutions.
Through written or verbal Executive Directives, GPA was ordered to pay over $300,000.00 to purchase air tickets for 1800 beauty contestants from the USA. SSHFC was directed to provide a sum of $500,000.00 to Dr. Basirat Niasse in cash for the compensation of the Ghanaians killed in the Gambia, and another $500,000.00 was paid to Gambia Animal Feed and Rice Project to name a few. These were payments that have nothing to do with the Social Security.
Other examples of quasi fiscal activities included a verbal directive from the OP to SSHFC to provide a loan of D10 million and another D15 million making a total of D25 million within a year to the erstwhile president for the purchase of Tobaski Rams for KGI which was not in line with the Corporation’s objectives. OP made similar interventions during the reign of Jammeh to other SOEs without adequate justifications. There is no doubt that substantial amount of SOE resources was squandered beyond expectation which contributed significantly to the major causes of the poor performance of the state enterprises necessitating a special audit to be commissioned by the new government in 2019.
The forensic audit carried out by Ernst & Young LLP highlighted significant gaps in the availability of source documents to trace transactions in the accounting cycles which resulted their failure to provide meaningful financial statements to be audited. Without adequate documentation to support the transactions, questions were raised by the auditors about the accuracy and reliability of the accounts of the 7 state enterprises that were audited.
This audit set the stage for the SOE reform process culminating into the signing of a new three-year performance contract for SSHFC, GPA, and GNPC in February 2023. The strategic objectives outlined in the new performance contract documents are strikingly similar to the ones that was signed over 35 years ago.
The main differences then were (1) the abuse of the bonus scheme with much emphasis placed on the rewards to the management rather than ensuring government receiving dividends from its various investments, and (2) to identify which public enterprises should be privatized or liquidated and prepare a rehabilitation plan for those to be retained. Hence in the succeeding years a Divestiture Agency was set up to handle the privatization of the sick and dying ones.
If the new performance contract is to be successful, any roadmap for reforming the SOEs should take into account the following imperatives:
First, a clear ownership policy that defines the overall rationale for state ownership, the state role in corporate governance of SOEs, and how the government will implement its ownership policy, needs to be in place.
Second, there should be constant monitoring and evaluation of these entities, with focus on both the manner of their operations, how they deploy capital, and their development effectiveness.
Third, SOEs should justify themselves before the rationale of value-creation for the public, and with clear development impact. Where there is no developmental value yielded, such enterprises should be allowed to die rather than be on expensive life support.
Fourth, at the minimum, the SOEs should abide by existing provisions in the yet-to-be ratified SOE Act and ensure strict adherence to the Codes of Good Corporate Governance. For this to be possible, boards should be selected on a merit-based system and made up of individuals known for their integrity and grasp of ethics.
Fifth, all government investments in these SOEs should be adequately assessed and a sound Dividend Policy developed requiring each and every SOE to be making regular contributions in the form of dividends to the government annual budgets.
Finally, government should start the process of rationalizing the activities of the Gambia Transport Services Corporation (GTSC) and the Gambia Ferry Service for inclusion in the SOEs list to be monitored. The activities of GTSC can’t continue to be under the MOFEA as its line ministry when the Ministry of Works responsible for the transport sector should be its line ministry.
The new performance contract system if managed properly cannot be panacea for the sick and dying state enterprises instead it would turn out to be the lifeline for their survival providing a good strategic framework for accountability and an effective monitoring tool to enhance performance and service delivery of these important enterprises.
About the author: Dr. Alieu O. Faal is currently a Subject Matter Specialist at the National Assembly. He is a former Resident Senior Adviser on SOE Matters at the Ministry of Finance and economic Affairs. He has worked with many SOEs as Head of Finance and as Private Consultant.
This is a brilliant article, it proffered wonderful suggestions. I only hope they are listening.