State Owned Enterprises Success or Failure?
October 14, 2024 3:47 am | Posted in Features | Share now TwitterFacebook
The Vanuatu Government invests in both commercial and non-commercial enterprises. These organizations function outside the normal fiscal operation of the government and generally manage their own funds. The interests held by the Vanuatu Government varies from being 100% shareholders to minority interests.
The failure and Liquidation of the National Airline, Air Vanuatu in 2024 has place a spotlight on these state owned enterprises. In 2023, the Ministry of Finance and Economic Management commissioned a report to look in to State Owned Enterprises. The extensive report was publish in March 2024.
The report covered 30 state owned Enterprises. 20 of these were commercial enterprises. Of the commercial enterprises 11 were majority owned, and 9 minority owned. 9 of these bodies were non-commercial statutory bodies and 1 was a mutual fund.
Governance
The report was extremely critical of the overall management and governance of State Owned enterprises covering the period 2016 – 2021.
- Of those enterprises that were required to submit
financial reports, the average time by which submission
dates exceeded the statutory time limit was 248 days. - Eight Operating entities had also failed to produce any
financial statements from the period 2016 – 2021.
These were The Assets Management Unit ( AMU)
Metenesal Estates Ltd ( MEL), The National Housing
Corporation ( NHC), National Management of Vanuatu
Limited ( NMVL), Vanfly Corporation Ltd, Vanuatu
Livestock Development Corporation, Vanuatu National
Sports Commission ( VNSC) and Vanuatu Primary
Producers Authority
Many of the state owned enterprises are responsible for asset holdings owned by the people of Vanuatu in the hundreds of millions of vatu and have failed to produce any financial reports as to how these assets have been managed. The report was also very critical on the lack of oversight by the authorities. Including the Vanuatu Financial Services Commission, and the Minisry of Finance who were responsible to enforce compliance despite the continued breach of their fundamental obligations under the Companies Act 2012
( section 55 and section 125) and the Public Finance and Economic Management Act 2019.
Out of all state owned enterprises, only three entities were able to produce financial statements within their statutory timeframe. These were the National Bank of Vanuatu (NBV), Northern Islands Stevedoring Company Ltd ( NISCOL) and Vanuatu Rural Development Bank( VRDB)
The below table lists all the enterprises and the years that Financial Statements were submitted.
In the Director Generals forward, he stated,
“ It is clear that there has been a significant failure in leadership and management in relation to all these commercial entities, and analysis of the performance of these entities has been constrained by the lateness of their financial statements.”
Financial Performance
Over the five years from 2017 to 2021, the return on equity ( ROI) on the portfolio of business entities for which financial statements have been received averaged 0.54%, compared to -1.39% in the period from 2013 to 2017. These returns are clearly disappointing, but show a trend of improvement.
There was a stark difference between the performances of Majority and Minority owned enterprises. Businesses that were owned by the Vanuatu Government as a majority owner performed much worse than those where it was a minority shareholder. This clearly lays the blame at the feet of the political masters in continued board appointments whenever there is a change in Government and the use of
these enterprises as tools for political ends. The question emerges as to why the portfolio of government majority-owned commercial entities tends to perform worse, at least financially, than other government investment portfolios, including minority-owned commercial entities, regulatory agencies, and promotional agencies. It is evident that the government has less control over board appointments in minority-owned entities. Additionally, the boards of regulatory and promotional agencies are selected based on technical qualifications and experience rather than political considerations.
