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

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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.

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