Government corporations, government business enterprises, government-linked companies, parastatals, public enterprises, public sector units or enterprises are generally termed State Owned Enterprises (SOEs) as they are mainly set up to provide commercial or essential services to citizens. SOEs have always been part of a country’s economic landscape, but became more prominent in recent times.
In 2000, there were 27 SOEs in Fortune Global 500 (FG500). It increased to 102 in 2017. Asia, Europe, North America, Central and South America had public corporations on the list. Only the African continent was missing from the $6.1 trillion economy managed by global SOEs on FG500. This is majorly influenced by African’s mixed economy model, ruled by the private sector which generates more revenue and has a positive track record of outperforming the public sector.
A PwC CEO’s Survey concludes that government ownership of companies furthers social outcomes, provides physical infrastructure and creates stability in times of crisis within and across supply chains, but these public enterprises are still plagued by inefficiency, corruption, bribery and maladministration which overshadows its performance when compared to private enterprises. A succinct example is the Nigerian ports; despite enjoying the advantages listed on the CEO’s survey, its performance was limited by corruption and maladministration, until the concession of the port terminals led to efficiency and better maritime business operations.
The combination of inefficiency, corruption, bribery and maladministration are not the only reasons that make public enterprises less efficient as private enterprises in Africa. Not minding the sector, banes of public corporations also cover the following angles.
Orientation of business
The original dichotomy between public and private enterprises has the latter being profit-oriented while the former basically provides social services. However, the line separating both enterprises has become blurry as you could be providing essential services and profiting from it whether as a public or private company. Unfortunately, many African countries still use the original dichotomy which is why many government corporations like Nigeria’s national refineries, railway corporations, water corporations, airlines and others still have deficit budgets or perform below par. But African government reforms of public enterprises is why we now have privatization of government corporations and public-private partnerships which gives hope of better performance and better services delivery.
Political Instability and Bureaucracy
Among the 30 most fragile states in 2019, 21 of them are African countries, this situation does not bode well for government corporations that have to operate within political or bureaucratic lines. Nearly 90% of African countries have experienced political instability within the past fifty years which affected national industries and enterprises, some went defunct like Ghana International Airways, Nigeria Airways while others like Nigeria’s Ajaokuta Steel Company are still struggling to become relevant.
In the midst of these instability issues, conflict entrepreneurs or private investors emerged and funded enterprises with management and administrative structures unaffected by change of government or political gatekeepers.
Funding of enterprise
Many public enterprises have funding issues, most have been removed from the national budget and encouraged to become ‘profit-oriented’. Also, some public corporations have resorted to loans and grants from international donors with stringent clauses in order to perform their functions of providing public goods. But private enterprises have a streamline source of funding which includes money from investors, share prices, crowdsourcing for funds and the only clause is that they make profit which drives maximum performance within the business enterprise.
Many private enterprises are tech-based which endears them to users of their services. Concessionaires in government enterprises have overhauled and become software-based or use phone-based application to render their services. But many government enterprises in Africa are still stuck at paper pushing, even those that have adapted website and computer software have limited performance as these technologies they have adapted are not home-grown or tailored to meet services rendered, which is why many government web portals shut down or malfunction during applications or inquiries.
All the aforementioned issues contribute to the performance of public enterprises, and government policies such as increased taxation and strict regulations of private businesses in order to improve the chances of public enterprises have become counterproductive and analysed as a potent suffocation of Africa’s positive economic outlook.
This article conveys the views of the author(s) and not necessarily that of the trustees, staff or members of Ominira Initiative.