State-Owned Enterprises Contribute Poorly To Growth Despite Huge Assets
Despite total assets worth almost a quarter of Gross Domestic product (GDP) Fiji’s state-owned enterprises contribute around 3% to annual economic growth over the past 10 years.
This is based on a newly published report on state-owned enterprises from the Asian Development Bank.
“The portfolio’s overall contribution to GDP averaged 3.7% over the 2010 - 2020 period, substantially lower than the estimated 16%-22% of gross fixed investment in the economy controlled by state-owned enterprises in 2020,” it said.
Titled: “Finding Balance 2023”, the report compared the performance of state-owned enterprises in Fiji and eight other Pacific island countries, and argued the case for enterprises commercialisation through privatisation in order to improve financial performance and service delivery.
Fiji’s portfolio comprised of 19 state-owned enterprises in which the Government has majority shares.
“We looked at the numbers from 2020 and around 16 - 20% of total fixed capital in the economy is in the state-owned enterprises. So we want them to contribute close to that amount in GDP, but yet they’re contributing only 3%. So that’s a drain on the overall economy if you have that much capital and are not productive. That’s why that figure is important,” said ADB stateowned enterprises expert and coauthor Laure Darcy.
There is room, she said, for improvement by encouraging private sector participation in the delivery of services that state-owned enterprises provide.
“Private power generation for example. That would allow the private sector to invest and have strong incentives to be productive. There are a number of sectors of the economy where the private sector hasn’t really been able to invest in or get involved,” Darcy said.
Co-author Christopher Russell said privatisation can unlock huge potentials still untapped in stateowned enterprises
“Even by selling just 49 percent of an SOE and the government retaining 51 percent, which is control, you can still free up a lot of capital because of the proceeds of the sale,” he said.
“With the introduction of private sector management discipline, you get improvement in performance. “When you have an increase in dividend, you can have an increase in tax revenue and you get potentially improved service because you now have an SOE that’s operating in a tighter private sector commercial focus.
“So all of these things will be beneficial and they all add up together and support economic growth.
“If you have the political commitment, you can achieve significant reform gains in three years. It’s basic commercial discipline.” State-owned enterprises contribution to GDP was at a historic low in 2010 due to write offs at the Fiji Sugar Corporation, but improved to an average of 4.1 per cent between 2015 and 2020 despite ongoing losses at FSC and the economic contraction in 2020.