East African governments have stepped up efforts to cut out inefficient and loss-making state-owned corporations in a move seen as relieving taxpayers of unnecessary burdens.
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Governments are keen on parastatal reforms to avert financial bleeding, a plan backed by the International Monetary Fund (IMF).
In Tanzania, President Samia Suluhu’s administration is working on a public sector streamlining plan that involves scrapping some loss-making parastatals and merging others to boost operational efficiency and profitability.
And in Kenya, the government has amended the privatisation law by giving more powers to the National Treasury to sell state-owned enterprises without approval of parliament. The new law gives the Cabinet Secretary for the National Treasury powers, in consultation with the Privatisation Authority, to determine which state assets should be sold and how they will be sold.
Uganda’s move was prompted by political concerns surrounding the rising cost of maintenance of various state agencies, which was deemed unbearable for the country’s coffers in light of surging public administration costs.
Under the plan, Kampala has identified more than 50 state agencies for disbandment in 2017 in an exercise that could yield total savings worth Ush800 billion ($213.5 million) per year, according to data compiled by the Ministry of Public Service.
In Rwanda, President Paul Kagame underscored the sale of inefficient state enterprises following the creation of the Ministry of Public Investments and Privatisation in July 2022, urging the new ministry to urgently work towards putting some of the state corporations into private hands.
President Kagame said the government’s responsibility is not to engage in profit-oriented business but to facilitate the private sector to thrive and in turn boost the economy.
Tanzania’s parastatal reform plan announced by Treasury Registrar Nehemiah Mchechu last week is designed to bolster the government’s domestic revenues and cut down on external borrowing starting from the current fiscal year.
Mchechu told top state officials at a working session in Arusha that under the plan, several entities would also be given full autonomy to run operations without undue interference from parent ministries and political circles.
These may include the Tanzania Petroleum Development Corporation and State Mining Company.
There are currently 248 public enterprises in Tanzania that are fully owned by the government and 56 others where the government holds minority stake.
Mchechu said the drive is to increase the contribution of parastatals to the state’s non-tax revenue through dividends, from three to 10 percent within five years. This would translate into an extra income of more than Tsh4 trillion ($1.66 billion) a year.
The Treasury Registrar’s office itself will be upgraded to a Public Capital Investment Authority to speed up the process but details of which entities are targeted for possible mergers, restructuring, downsizing or complete shutdown remain under wraps.
President Suluhu said public entities needed to stop the “culture” of relying on government subsidies and bailouts for sustainability.
Those that survive the upcoming purge should adopt more profit-oriented strategies such as expanding operations to foreign countries and selling shares via the stock market, she said.
She pledged to personally oversee the elimination of political patronage from their operations, a factor that has for years proven hampered public sector efficiency in Tanzania.
Latest Controller and Auditor General (CAG)’s report singles out 45 public entities that have been making losses for two consecutive years, 14 of which are commercial firms that were supposed to be reporting profits.
These include the national carrier Air Tanzania, the Tanzania Railways Corporation, National Development Corporation, TIB Development Bank and the National Health Insurance Fund.
Some of the companies singled out for endemic financial reporting discrepancies include the Tanzania Telecommunications Corporation, Tanzania Electric Supply Company, the Medical Stores Department, Muhimbili National Hospital, Tanzania National Park Authority and the Rural Energy Agency.
Kenya’s Parliamentary Budget Office says the privatisation programme could lead to proceeds worth Ksh30 billion ($208.33 million) annually for the government.
“Given the current constrained fiscal environment, privatisation may provide deficit financing for government,” the Budget Options report for 2023/2024.
“It also has the potential to create savings by substituting government expenditure for private capital and unlocking the potential of state-owned enterprises (SOEs) to increase their efficiency and long-term productivity.”
The report titled ‘Fiscal Consolidation in the Midst of a Global Recession: What is the Magic?’ notes that privatisation proceeds should be earmarked for capital projects that have potential to generate future revenues or be used to retire expensive public debt.
Kenya has 248 state corporations, and the privatisation programme will primarily target commercial enterprises that account for 19 percent of these.
The sale of state corporations could raise between 0.5 percent and one percent of GDP, with proceeds of between Ksh60 billion ($416.66 million) and Ksh110 billion ($763.88 million) spread out over the medium.
In 2021/2022, the Kenya government’s exposure on distressed parastatals amounted to Ksh1.3 trillion ($9.02 billion) in form of on-lent loans and potential bailouts.
At least 10 state owned enterprises would be listed on the Nairobi Securities Exchange in 12 months to reinvigorate activities on the bourse.
Some of the affected agencies in Uganda include the Uganda Free Zones Authority, Uganda Investment Authority, Uganda Export Promotion Board, Uganda Warehouse Receipt System Authority, Capital Markets Authority, Gaming and Lotteries Board and the Electricity Regulatory Authority.
In contrast, state agencies that bear sensitive international commitments were excluded from the rationalisation agenda.
These include the Financial Intelligence Authority, Uganda Civil Aviation Authority and the National Social Security Fund.
The overall cost of public administration of Uganda’s state-owned corporations accounts for more than 10 percent of government budget, according to civil society organisations in Uganda.
Operations of affected agencies will be absorbed by line ministries or departments in an arrangement that caters for retention of some critical staff.
But unresolved technical and political questions related to the status of some agencies have stalled progress of the programme that was scheduled to start in 2022.
For example, donor grievances about the likely shutdown of the Uganda National Roads Authority and a fallout of over existing loans offered by foreign lenders have raised doubts over the success of thereform programme.
While the government plans to reignite the agency rationalisation agenda during the current financial year, fresh challenges pegged to looming budget cuts are likely to generate further uncertainty towards the programme.
Rwanda’s Auditor General of State Finances report for the year ended June 30, 2022, shows 10 public entities and projects were not able to pay taxes amounting to Rwf58.86 billion ($29.21 million). These entities include the Energy Development Corporation Ltd and the Rwanda Transport Development Agency.
Rwanda’s new ministry was to be charged with developing national policies, laws, strategies and programmes on profit-oriented public investments and privatisation as well as identifying and analysing strategic opportunities for profit-oriented public investments leading to the economic growth of the country.
This is in addition to monitoring the performance of profit-oriented public investments to ensure their financial and economic viability.
However, last week, the Ministry was dissolved and its responsibilities moved to the Ministry of Finance and Economic Planning.
“The government took a decision to rationalise its agencies, but the Ministry of Public Service has the final say on this matter. We may be asked to provide funds for this exercise, but we remain on the receiving end in this process,” said Jim Mugunga, a Spokesperson for Uganda’s Finance Ministry.
“There are some discussions that are going on regarding which agencies to scrap or retain based on changing technical considerations, but the Public Service Ministry carries the lead role in this matter,” he added.