Botswana’s parastatals which have the responsibility to ensure that crucial services are provided to enable the critical functioning of the economy, are failing and their future is uncertain in the face of dwindling government revenues – it has emerged this week.
The Botswana Accountancy Oversight Authority (BAOA) is anticipating challenges as government, saddled with declining revenues tries to keep loss-making parastatals afloat through bail-outs against the tide of weak corporate governance practices and ineffective control mechanisms.
According to the BAOA report tabled before the Committee on Statutory Bodies and State Enterprises, the Botswana Power Corporation (BPC) needs “significant” government bail out to continue operating. The BAOA report reveals that the BPC crisis is symptomatic of broad corporate governance failures within Botswana’s state-owned enterprises.
“The concerns were the recoverability of its debtors, low liquidity, high gearing and significant accumulated losses. The seemingly profitable position for the two years is a result of Government grant paid to partially offset the operating losses under the consumer tariff subsidy program. The gearing remains high,” the report says. It notes that “The question is whether under declining revenues of Government, it will continue with its consumer tariff subsidy. Significant financial support is therefore required for the corporation to continue to operate in the foreseeable future.”
According to the report that was tabled by BAOA Chief Executive Officer Duncan Majinda, while Air Botswana was compliant with the requirements of financial reporting standards, “we were uncomfortable with its significant accumulated losses which stood at P727.8 million as at March 2019. This could have going concern implications if funding by the Government is not maintained.”
The report states that when BAOA performed its review in 2018, Botswana Meat Commission (BMC) was unsatisfactory in financial reporting compliance and it was partly compliant in corporate governance. “In fact, the financial statements of the Commission were materially misstated and the auditors of the entity consequently had an unsatisfactory review result. This is an entity whose financial sustainability remains uncertain and that coupled with the significant accumulated losses makes BMC a must watch entity,” the report says.
And these are not the worst performing state-owned enterprises. That honor goes to Botswana Public Procurement and Asset Disposal Board (PPADB).
Presenting before the committee, Majinda described the PPADB as “the worst scenario of poor corporate governance in the world.”
“PPADB was compliant in all material respects in financial reporting but the unusual significant corporate governance weakness such as a majority of executive directors in the Board and combining the role of chairperson of the Board with being an executive director is perhaps one of the strangest weaknesses of all corporate governance findings in all SOEs (State Owned Enterprises),” the report stated.
BAOA reported that Botswana Railways “was one of the worst entities in terms of compliance with both financial reporting and corporate governance at the time of our review in 2018.” However, the report notes, “Soon after our reviews, our interactions with the entity revealed a notable improvement in its skills set, particularly in the accounting department and with management in general.”
The BAOA report also raised red flags about the state of affairs at Botswana Savings Bank (BSB). “The Bank has been recently reviewed and it failed both financial reporting and corporate governance. Although the Bank is profitable, we are concerned about accountability at the Bank with poor corporate governance and failure to comply with International Financial Reporting Standards (IFRS),” the report says.
The report shows that the Botswana Public Officers Pension Fund (BPOPF) was another poor performer when the BAOA reviewed them in 2018. “The entity has struggled to release the latest audited financial statements on time. There have been significant movements at Board and executive management levels and the auditors have also changed. This entity is therefore definitely an entity to keep on the radar screen,” the report says. It further notes that “the negative publicity and activity in the litigation front is not making things any easier for the entity.”
Botswana Tourism Organisation (BTO) was recently reviewed by the Authority and it performed badly in both financial reporting and corporate governance. According to the report, the organisation delayed the finalization of its audited financial statements and the entity is still behind with audited financial statements for the last two years. “The auditors also raised issues a generally poor internal control environment for recording revenues from subsidiaries. The liquidity situation was also poor. The entity requires both close monitoring and continued financial assistance,” the report says. It says with an 85 percent government subvention as a percentage of total revenues, accountability ought to be much better and that can simply not be achieved without financial statements.
The report shows that National Development Bank continues to be a cause for concern with the release of the latest audited financial statements delayed yet again. While the bank was compliant in the area of financial reporting in 2019, the report says “With the new standard applied for calculating impairment provisions, there is likely to be significant losses which are not exactly operational or avoidable but losses are a result of the application of new financial reporting standards.”
It says Local Enterprises Authority (LEA), University of Botswana and Botswana University of Science and Technology (BIUST) were compliant in financial reporting standards.
The report says that “Our general comment on compliance with best practices in corporate governance in Botswana is that there is a poor compliance across board, covering not only State Enterprises but all entities regulated by the Botswana Stock Exchange, Non-Bank Financial Institutions Regulatory Authority and other significant entities.”
This laxity in compliance, the report says, has been a result of offenders knowing that King III, the currently applicable Code of corporate governance in Botswana, cannot be legally enforceable in courts of law since King III originates in South Africa. BAOA therefore recommended that Botswana must enacts its own code of corporate governance.
