The white elephant in state-run entities

James Kaphale

On Sunday, Malawians commemorated Kamuzu Day—the day the country’s first native president, Hastings Kamuzu Banda, was born.

People who might have lived long enough can tell that Dr Banda, as he was fondly called, had a special touch on running government affairs, including management of State-Owned Enterprises (SOEs).

They would say: “in those days, the government would ensure quality in agricultural output by empowering extension workers, always” or “Admarc was readily available to buy from farmers or sell to communities at all time.”


But today, most SOEs are not in a state to admire.

Just the other day, Malawians woke up to the news that in the past year, SOEs made an aggregate loss of K14 billion.

This is on top of numerous situations where SOEs such as Admarc, Malawi Post Corporation (MPC) and Escom have asked the government for bailouts in injection of massive amounts of capital.


Generally, most of these SOEs were established by the majority shareholder, the government, to improve social services delivery at a profit.

It is sad to say that corporate governance dictates seem to be ignored in most SOEs.

In corporate governance, the Board of Directors are the implementing agents of the shareholders policy and in the case of SOEs, they have a duty to promote the success of the companies which they oversee by among others making sure that they act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

Success in this context means long term increase in value where commercial companies are concerned. However, the situation on the ground is different as these companies continue making losses meaning corporate governance is not being adhered to fully.

At the news, Minister of Finance and Economic Development Sosten Gwengwe retorted: “Concerned institutions do not serve the interests of the general public as per the mandate for which they were created. This is not acceptable and I will not allow it to continue.”

What is not acceptable is making political statements while allowing things to remain the same over time.

To this day, well-meaning Malawians agree that the curse of non-performing SOEs begins with appointments in the Boards of these companies in that people who lack skills are appointed to run them.

Furthermore, there is a lack of adherence to strategic plans by SOEs as a reform area. Most of the SOEs have strategic plans but they leave them to gather dust in their offices without implementing them.

Governance and Corporate Law expert James Kaphale believes there are a number of factors that can be attributed to poor performance of SOEs but largely it boils down to lack of implementation of public reforms and lack of adherence to corporate governance tenets.

“If both the boards of directors and management of these SOEs were to adhere to implementation of public sector reforms and perform their statutory duties with care, skill and diligence honestly, in good faith and in the best interest of the companies they run as stipulated in their statutes, we would not have SOEs who are continually making losses but it appears there is a lackadaisical approach which is different from how private companies are run,” Kaphale said.

Another corporate governance expert Pharisson Chiphinga Mwale weighs in, saying separation between ownership and management is the biggest dilemma facing SOEs as they lack the balance between commercial and policy objectives.

He said failure to separate government and ruling party business leads to abuse of authority over SOEs in favour of political interests and that political affiliation on the part of employees take precedence.

“Interventions include ensuring Legal separation of SOEs from government through incorporation under corporate law, centralisation of government’s ownership function, increasing specificity and disclosure of ownership objectives, clearer segmentation of SOEs and greater clarity and limits on intervention rights are ideal,” Mwale said.

It is high time the leadership stops playing the political card in dealing with performance of SOEs and simply does the right thing.

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