Wednesday, February 19, 2020

Botswana’s privatisation drive: Same wine, different bottle

Botswana is hoping to finally streamline its ever-growing state-owned enterprises (SOEs) which have been responsible for some of the country’s wastage. The focus will be on the new administration to see if it will finally implement the nearly two-decade privatisation policy that has been gathering dust after past administrations went against its recommendations.

The government came up with a privatisation policy in 2000 to cut down on its number of SOEs which were starting to be a burden on the government, often piling on debts and relying on the government to bail them out. To implement privatisation, the government established the Public Enterprise Evaluation and Privatisation Agency (PEEPA). The agency later carried out a major review of the operations and activities of SOE, and the exercise also included the examination of opportunities for private sector participation. The end result of the review was the development a Privatisation Master Plan (PMP) in 2005, whose purpose was to identify all public enterprises suitable for privatisation.

However, the government has not only failed to implement its privatisation policy, but it has also increased the number of SOEs. Of some enterprises targeted for privatisation, the country only managed to partially unbundle Botswana Telecommunications Limited in 2016 when it listed on the Botswana Stock Exchange. With increased number of SOEs, and many of them straining government’s revenues through subventions, Botswana’s finance ministry says it is giving privatisation another round.

Dr Thapelo Matsheka, minister of Finance and Economic Development, on Monday during the budget speech said there are currently over 60 SOEs in the country, ranging from regulatory through academic to commercial ones, adding that to transform the economy, the role of these SOEs will have to be revisited in order to align them to the transformation agenda, which calls for private sector led growth.

The minister explained that the state agencies which were created to undertake some of government’s services through an efficient delivery system akin to the private sector appear to have veered off course and have become a burden to the state.

“However, the performance of some of these organisations indicate that either this original assumption was wrong, or there has been some creep in their mandates over time. Whatever the case may be, there is need to revisit most of the mandates and founding statutes of these organisations to address the governance and performance of some of them, and more importantly, align them to the transformation agenda,” Matsheka said.

He disclosed that will head a subcommittee of cabinet which will undertake a comprehensive review of the parastatals’ landscape. Ironically, the subcommittee review spans the mandates, governance, and performance of these organisations, with a view to proposing specific recommendations to government on the relevance of some of these organisations and their financial sustainability. Ironically, the review appears to be a repeat of an exercise concluded by the 2005 privatisation master plan.

Indeed, some of the SOEs singled out by Dr Matsheka as being problematic, are the same institutions that were long selected for privatisation. Besides perennial loss makers such as Air Botswana and National Development Bank (NDB), the net has now extended to Botswana Meat Commission (BMC) and Botswana Railways (BR).

“Government spends substantial resources on parastatal organisations in the form of subventions or grants. For instance, an amount of P4.9 billion is proposed as subventions to various state-owned enterprises for the Financial Year 2020/2021. It is, therefore, important that these resources be used efficiently to contribute to the transformation agenda,” said Matsheka.

According to the new finance minister, who has served both in public and private sector, the subcommittee will review the role of the many SOEs, with intentions to reduce the number by merging the ones that have similar mandates, while privatising others that have proved to be a constant headache for government.

He further added that government will take bold decisions on the reform of the state-owned enterprises during the course of the next financial year, following the recommendations of the cabinet subcommittee. But for the two SOEs – BMC and NDB – immediate decisions must be taken. Matsheka, who is also the Lobatse legislator, said the situation at BMC has worsened after the beef exporter became technically insolvent on the back of mounting liabilities despite government’s recent capital injections of close to a billion Pula.

In a new revelation that took many by surprise, Matsheka said the Lobatse headquartered BMC will be handed to an undisclosed management company, to try to save the organisation from complete collapse before it could be privatised.

As for the loss making NDB, it has been given two years to implement recommendations from African Development Bank which had pinpointed the state-owned bank’s deficiencies. NDB has been long earmarked for privatisation as far as 2011.

The bank last made profit in 2014, netting P86.3 million, and from there on it has been string of losses: recording a loss of P37.2 million in 2015, followed by another loss of P21.2 million. Faced with mounting losses, the bank in 2016 received a capital injection of P400 million from the government – with P100 million as equity and the remaining P300 million as a loan.

However, that did not improve the bank’s performance, instead things even got worse. In 2017, NDB made its largest loss of P168.2 million and followed again in 2018 with another huge loss of P152.8 million. The bank’s dismal performance has been down to poor collections strategy, compounded by weak risk management that have seen impairments rising in the last reporting period.

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