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Public companies in K119 billion debt

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The number of loss-making state-owned entities remains relatively on the rise.

A 2019-2020 consolidated fiscal performance report by the Ministry of Finance has presented a gloomy picture for the state-owned enterprises (SOEs) as 46 percent of them registered losses.

The report says the majority of the SOEs are surviving on external financing that includes bank loans and overdraft.

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According to the report, the number of loss-making trading SOEs increased from 5 in 2019 to 10 in the year 2020, and they include water boards, Nocma, Escom and Egenco.

In 2020 alone, the energy sector accounted for almost K23.6 billion in losses in the three energy SOEs (Escom, Egenco, Nocma).

The report has also not spared the financially struggling Agricultural Development and Marketing Corporation (Admarc). According to the report, Admarc has been heavily dependent on external financing for its ongoing operations rather than its own generated resources.

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In the 2019-2020 financial year, Admarc was the most highly indebted SOE at 188 percent as such, most of Admarc operations were financed by debt.

According to the report, Admarc’s weak financial performance was largely because all revenues for all commodities were below budget as the state grain trader did not achieve the export sales that were budgeted for legumes.

Also swimming in troubled waters is the National Food Reserve

 

Agency (NFRA) which performed poorly in the 2019-20 with a net loss of K317.9 million.

According to the report, Blantyre Water Board continues to face serious challenges to finance its operations as monthly operating expenses continue to increase, with 60 percent of the operating expenses committed to settling electricity bills averaging K952 million per month, among others.

Among other contributing factors, the report has singled out weak SOE oversight function, social obligation requirement of the SOEs, increasing appetite for loans to service non-productive areas and government arrears to SOEs.

Overall, the report says SOE guaranteed debt increased from K16.8 billion in 2017 to K 51.7 billion in 2020 representing a 32 per cent increase.

On the other hand, the report says government arrears to SOEs steadily increased from K 4.2 billion to K19 billion during the same period.

Executive Director for Centre for Social Accountability and Transparency (Csat) Willy Kambwandira said SOE finances remain opaque and prone to abuse, especially by politicians, and SOEs appetite for loans is unmanageable.

“The oversight functions of SOEs are deliberately compromised to create a fertile ground for abuse. Generally, SOEs have become vehicles for political party financing, and financing lifestyles of our politicians.

“Unfortunately, there is no genuine political will to reform these SOEs. Unless we stop our politicians from deep-rooted meddling with operations of SOEs, the companies will continue making losses. Government has to rise above the challenges and reform the SOEs,” he added.

The report has called on government to clearly separate the commercial functions of SOEs from the Public Sector Obligations (PSO) that they undertake on behalf of government to avoid stifling the operations of the enterprises.

Scotland-based Malawian economic analyst Villi Nyirongo said most of the institutions that are not making profits provide essential services like water, electricity, fuel and communication.

If nothing is done the life standard of everyone in Malawi would go down, he said.

“Even investors will shy away from choosing Malawi as a preferred investment destination. What needs to be done is a complete change of the model,” said Nyirongo

He said corporate governance needs to be strengthened, and poor ethics and nepotism need not be tolerated when it comes to parastatals.

Minister of Finance Sosten Gwengwe said the government bodies have been challenged to reform and improve on efficiency.

“The only way they can do better is for them to be creative and provide better public service delivery as this will be the basis for that cost recovery pricing,” said Gwengwe.

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