ADB report notes improvement in our SOE performanec
Cautions ongoing reforms still required to ensure the SOE’s contribution to economic growth matches their relative size
The Asian Development Bank (ADB) has noted the financial performance of Fiji’s state-owned enterprises has improved significantly in recent years. It has noted that average return on equity has gone from -9.7 per cent in 2010 to five per cent in 2014. This has been highlighted in ADB’s Finding Balance 2016 which is the latest edition of ADB’s landmark assessment of Pacific state-owned enterprise’s performance.
This report, which will be officially launched in August, was shared yesterday at the Pacific Update Conference at the University of South Pacific. ADB’s Pacific Private Sector Development Initiative SOE Reform Team leader Fiji’s SOE Portfolio, Laure Darcy, however, cautioned ongoing reforms are still required.
She said this is to ensure the SOE’s contribution to economic growth matches their relative size. ADB’s concern is SOEs continue to constrain the Pacific island economies by absorbing large amounts of scarce capital yet delivering low productivity and often limited service coverage.
It believes reforming the SOE sector is vital for private sector development, creating opportunities for private investment, reducing business costs, and improving service delivery. The ADB noted in its report that Fiji is currently undergoing a broad based reform programme.
This is to strengthen the SOE legislative framework, improve governance and monitoring, and facilitate the use of public private partnerships.
Pacific observation
Meanwhile, the report finds SOE portfolios in the eight Pacific countries examined contributed only 1.8 per cent to 12 per cent to gross domestic product.
This was despite their very large asset base, ongoing government cash transfers, and monopoly market positions.
It also finds productivity levels of the SOEs tend to be well below developed country benchmarks. “Low SOE returns are not unique to the Pacific but are common throughout the developing and developed world,” said Christopher Russell, SOE Expert with ADB’s Pacific Private Sector Development Initiative (PSDI), which produced the report. “They reveal a fundamental flaw in the SOE model: it is not an effective long-term ownership structure as politicians will avoid commercial decisions that may have short-term political costs.” Drawing on the experiences of New Zealand and Singapore, the report concludes that increased private sector ownership and operation of SOEs is the only way to lock in reform gains.
ADB’s concern is SOEs continue to constrain the Pacific island economies by absorbing large amounts of scarce capital yet delivering low productivity and often limited service coverage.