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Tuesday 22 January 2019
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To make a profit or not

The difficulty in understanding SOEs in Namibia, or developing countries in general, could be a problem of identity construction and purpose ambiguity. Put differently, it might partly have to do with the lack of a broad-based philosophical clarity, purpose and reason for existence of SOEs. For instance, within a space of two weeks, from 08 – 16 August 2017 to be precise, a scenario played out where two high-profile ministers issued seemingly contradictory statements on the desired organisational outcomes of commercial public enterprises in Namibia. For the record, the statements that were made in this regard are reproduced underneath:
“Public enterprises do not exist primarily to make a profit” (Minister 1, The Namibian, 09 August 2017, p.13)
“But we have a (commercial) public entity that sits on a nice spot, but makes losses. How is that possible if a small private lodge is making profits?” (Minister 2, The Namibian, 15 August 2017, p.11)
In an apparent attempt to clarify the first statement, Minister 1 issued the following statement few days later:
“The profit motive may not necessarily be overriding. The national economic and social interests should also be considered in the company’s strategy, as compared to pure profit maximisation” (Minister 1, The Namibian, 16 August 2017, p.14)

Do commercial public enterprises exist to make a profit?
To answer whether commercial public enterprises’ contribution and significance resides in showing profits, or otherwise, is a function of assessing the definition, purpose and reason for existence of public enterprises. In other words, the purpose and reason for existence of the commercial public enterprises, as captured in their definition and mandates as per their establishing acts, should indicate their significance, contribution and expected outcomes. What is referred to as commercial public enterprises are currently defined as those that “provide a product or render a service in the best interest of the public and [have] the potential to generate a sustainable profit while promoting economic growth and fulfilling its mandate” (IPPR, 2016: 9). The foundational Public Enterprises Governance Amendment Act, 2015 (Act No.8 of 2015) defines a public enterprise as “a State-owned enterprise or State-owned Company or any other entity established under any law or in terms of any other instrument, and the purpose of which is to advance any interest of the public”. The highlighted phrases in the definition (bold print) are indicative of what appears to be the underlying bases for the purpose and reason for existence of commercial public enterprises.
Attention should be drawn to how many times the phrase interest of the public is used in the above-highlighted definitions, which signifies the apparent weight of importance accorded to this aspect. However, the questions that emerge are these: what, or when, is it in the interest of the public? Is it when the entity makes profits and pay dividends that are used by the state to finance its developmental agenda (schools, hospitals, roads, houses etc.)? Is best interest of the public when goods and services are affordable to the majority of population? Is best interest of the public when nobody is left out of the Namibian House? What, really, is best interest of the public?
The reference in the definition to the SOEs fulfilling their mandate makes it even more problematic because the purpose and reasons for the existence of various commercial enterprises as per their establishing acts are multi-faceted and divergent. Therefore, they cannot be lumped into one and proclaimed that all of them have one core outcome – to make a profit. By its own admission, the Ministry of Public Enterprises’ Strategic Plan 2016/17 – 2020/21 acknowledged the identity problem of SOEs in Namibia as follows:
“Furthermore, different Acts and policy documents of various PE’s [public enterprises] prescribe different governance structures which create overlaps in effecting provisions of the PEG Act, e.g. the Companies Act differs from the PEG Act and from PEs’ constituent Acts in terms of; risk, liability and fiduciary responsibility which it (Companies Act) places with the Boards while the latter leave it to line Ministers. Sometimes, the multiplicity of ‘bosses’ and conflicting policy instruments lead to clashes between Management, Boards and Ministers due to differing interpretations of company vision, mission and responsibility, hence, resulting into ‘blame games’, suspensions, low morale and low productivity” (MOPE Strategic Plan 2016/17 – 2020/21, 2015: 9.

Clarity on purpose and reason for existence might avoid many problems
If profitability is the overriding motif of public enterprises, then the SOEs foundation, i.e., their constituent and establishing acts, should urgently be revised to read as such like their cousins in the private sector whose core purpose is to “maximise shareholder’s wealth”. This means that all commercial enterprises should have one generic act that is written premised on one outcome in mind, namely, the profit motive. One cannot have both the profit motive and best interest of the public as philosophical underpinnings. Currently, the private sector and public sector companies seems to depart from two different philosophical lenses. One is to maximise shareholder’s wealth, the other to advance interest of the public. If their intended purpose is to advance any interest of the public, how can public enterprises be solely run on private sector principles, which are rooted in maximisation of wealth principles? Based on definitions in the above-quoted acts, public enterprises seems at present to incline towards inclusivity and human fulfillment of social needs of the majority of citizens which, amongst other, entails access to modern and effective basic services like electricity, water, telecommunications, tourism, transport, health, education and training for all people.

What should be done with commercial enterprises in Namibia?
More work still needs to be done by the Ministry of Public Enterprises, in particular, to galvanise support so as to reach a broad consensus on the core philosophy (identity and purpose) that should underpin commercial enterprises in Namibia. If profitability is the superseding objective, then consistently rework as such in all the relevant legislations, including amending the establishing acts of all commercial public enterprises. If the social view (interest of the public) is the overriding motif, then consistently state as such in all appropriate legislative framework on commercial public enterprises.
One has to admire the work that went into the conceptualisation and crafting of the Companies Act (Act No. 28 of 2004) as far as defining and clarifying the pertinent aspects related to the governance structure of companies in Namibia is concerned. Unlike in the case of the commercial public enterprises, almost all possible answers related to the functioning and governance of companies are contained in the Companies Act (Act No. 28 of 2004). This might be the reason why private companies find it easier to adhere to and manifest a uniformal governance structure and organisational behaviour (culture) because detail went into an instrument (Companies Act (Act No. 28 of 2004) that directs the conduct and behaviour of companies. From this point of view, a single act, like the Companies Act (Act No. 28 of 2004), needs to be conceptualised and crafted that will shape the identity, purpose and reason for existence of all the commercial public enterprises in Namibia.
The situation where SOE x and SOE y have different methods and criteria for appointing board members as per their establishing acts, for instance, needs to be avoided. Within the foregoing, Chapter 8 of the Companies Act (Act No. 28 of 2004), the whole sections from 216-222, comprehensively defines and clarifies all possible aspects related to board of directors in companies. To the contrary, board of directors as an agreed-upon significant aspect in the good governance of a company is left to the mercy of unharmonised constituent acts of the different SOEs. Yet we wonder why SOEs manifest a particular type of organisational behaviour (culture) that appears divergent from private enterprises.
It might be due to a particular governance framework that plays like a broken tape (unharmonised establishing acts) instead of smooth and harmonised music (a single act like the Companies Act (Act No. 28 of 2004) for commercial public enterprises).
Of course, implanting a single harmonised act for commercial public enterprises requires hard work. However, this could be the way to go in entrenching a core philosophy of being and mind-set (organisational culture) that underpins commercial public enterprises in Namibia.

About the Author
The author, Matthias M. Ngwangwama, originally hails from the Kavango East Region. He matriculated in 1988 at Rundu Senior Secondary School. His educational qualifications include National Diploma in Accounting, a Bachelor of Technology in Accounting and Finance and MBA.




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