Namibia: Transparency Leads to Better SOE Performance

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STATE-OWNED enterprises tend to perform better and profitably when their dealings are conducted in a transparent manner, and when there is a strong accountability culture from stakeholders.

This is disclosed in the recently released paper by the International Monetary Fund (IMF), titled ‘Governance and State-Owned Enterprises: How Costly is Corruption?’.

“More transparency allows for greater accountability, and contributes to better performance by state-owned enterprises,” read the paper, released last Friday.

The authors said while it is true that public enterprises provide important goods and services in core sectors of the economy, which are in most cases expensive, such goods and services can be provided at a reasonable cost, and in an efficient way too.

However, these state-owned enterprises are also vulnerable to the influence of corrupt politicians or civil servants. But the presence of the ills within the SOEs is only present when there is little transparency and sluggish accountability.

“It is easier for corrupt politicians to intervene in public-owned firms – especially when transparency and accountability are weak – and they have an incentive to do so as they will benefit from the rents without bearing the cost,” the paper said.

It further stated that corruption affects economic growth as instead of focusing on being the most efficient, firms may put their efforts, including by paying bribes, to get privileged access to public contracts, public services or infrastructure (e.g. to obtain licences), relaxing regulatory oversight, and avoid paying taxes.

This is said to be true, especially where an economy has vast politically connected firms.

Namibia’s economy has a private sector largely reliant on government spending, the IMF said, which has led to a mushrooming of many politically connected private companies, “with political capital at play”.

Corruption is likely to have a deeper impact on how state-owned enterprises operate, given the close relationship between the state (bureaucrats, politicians) and the company.

The authors said while state-owned enterprises are often created to help address market failures and achieve economic and social policies at reasonable costs, they tend to become inefficient, a considerable burden to taxpayers, and ultimately fail to achieve set objectives.

“These problems are likely exacerbated in an environment of weak local or national governance, and when there is undue political influence. For example, corrupt politicians or civil servants can use political influence and favouritism to influence the choice of management and hiring policies.

“A lack of effective monitoring by the government and weak reporting by the SOE can also undermine accountability,” read the paper.

The authors added that public access to key financial documents of the central government, including budgetary analysis of the audit institutions, the holding of public hearings to gain citizen input into the formulation of the annual budget, functioning of right-to-information laws, and the quality and timeliness of public budget reports, can resolve the corruption plague, improve transparency, and ultimately performance.

The full report is available on the IMF website.

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