Reform State-Owned Enterprises in Ghana

Feature Article Minister for Public Enterprises, Joseph Cudjoe
FEB 16, 2023 LISTEN
Minister for Public Enterprises, Joseph Cudjoe

Ghana’s State-Owned Enterprises (SOEs) should have long been reformed to meet global standards and practice. The Business and Financial Times (B&FT Online) reported April last year that “Ten State-Owned Enterprises (SOEs) operating in the energy space recorded cumulative losses of Ghc9 billion within three years: these losses were made in 2018, 2019 and 2020.

Most of these SOEs are burdened with high operational costs, lack of investment, weak governance structures, and inadequate regulatory frameworks. As a result, many of the SOEs operate inefficiently, fail to generate profits, and depend on government subsidies to stay afloat. This situation not only put a strain on government finances but also limits the ability of these enterprises to contribute to economic growth and development.

The Director General of the State Interests and Governance Authority (SIGA), told the Ghana News Agency that SOEs in Ghana, last year (2022), contributed 21 per cent of the country’s Gross Domestic Product (GDP). But in practical terms these enterprises are a financial burden to the state. Many of them are struggling to remain profitable and deliver quality services to the public. As such, reforming Ghana's State-Owned Enterprises has become a pressing issue for the government. The President of Ghana is reported to have said “Jump-starting our economy begins with you (heads of SOEs), you should be the major drivers of the economy, rather than being a financial burden.” The President could not understand why State-Owned Enterprises contribute less than 5 percent of Ghana’s Gross Domestic Product (GDP).

The OECD (2010) as cited in a policy brief by the ADB Institute (Asian Development Bank Institute) indicates “SOEs account for about 30% of Gross Domestic Product (GDP) in the People’s Republic of China, 38% in Viet Nam, 25% in India and Thailand, and about 15% in Malaysia and Singapore.” The World Bank Group (2014 a) as reported by the same policy brief asserts that “in 2005, they (SOEs) accounted for more than 50% of GDP in Tajikistan, Turkmenistan, and Uzbekistan and 20% -40% in other Central Asian Countries respectively.” The State Interests and Governance Authority (SIGA) has projected that “the State-Owned Enterprises in Ghana will contribute 25 % of the country’s Gross Domestic Product (GDP) in 2023.” But the Ministry of Finance has charged the Authority to ensure that SOEs become economically viable and contribute at least 30 per cent of the country’s GDP. A projection of 30 per cent contribution of the SOEs in Ghana to GDP is acceptable if it can eventually be achieved considering the performance of SOEs globally.

The country should have seriously examined the causes of the poor performance of the SOEs in Ghana some three years ago amid the losses recorded by them and the increased in their spending. The purpose for establishing SOEs in Ghana is not being met: these institutions are not just expected to make profits in order to contribute significantly to revenue mobilisation, they are equally tasked to deliver quality and essential public goods or goods at affordable prices or rates.

State-Owned Enterprises in Ghana like the Ghana Water Company Limited (GWCL), The Electricity Company of Ghana or the Volta River Authority etc. are supposed to provide clean water, electricity and other goods and services at subsidized rates to the population. Yet these goods and services are provided at overpriced rates, some of which are poorly-delivered. These enterprises increase the rates of their services frequently whenever the cost of production is expected to increase. They however make losses at the end of each financial year.

It is appropriate to take suitable steps to reform them for their efficient functioning. The government needs to introduce corporate governance rules and procedures to the running of SOEs. The government needs to realign a set of rules and principles that are needed to achieve the purpose of public entities, which is satisfying public needs. The following are useful in reforming State-Owned Enterprises in Ghana:

Accountability: CEOs and Board Chairs of the State-Owned Enterprises in Ghana must be accountable for their decisions and actions as well as submit themselves to whatever scrutiny available and appropriate to the offices they lead. CEOs of the State-Owned Enterprises in Ghana do not account for the corporate decisions they make. The use of internal and external auditing procedures has not been beneficial to the state over the years. Internal Auditors are manipulated at the expense of the state, while an external auditor like the Auditor-General cannot be relied on to apply available laws to ensure proper and effective accountability. There must be strict accountability rules for the heads of all the SOEs and their Boards. They must account for the use of all resources provided to them within a fiscal year.

This requires the CEOs to be open in their decisions. Public officials should be as open as possible about all their decisions and actions towards public law and public money. The state needs to evaluate the statutes that regulate the management of State-Owned Enterprises in Ghana. It seems there are no adequate laws that confine the corporate decisions of CEOs of State-Owned Enterprises in Ghana. The CEOs have the luxury to act negligently under political protection.

Performance Contracts: The use of performance contracts has been commended as an effective and promising means of improving the performance of public enterprises as well as public departments and agencies. The successful use of performance contracts in countries like France, Pakistan, South Korea, Malaysia, India, and Kenya has sparked a great deal of interest in the use of the policy around the world. A large number of governments and international institutions are executing policies via this strategy to improve the performance of public enterprises in their countries. It is a state-of-the-art and an essential tool for enhancing good governance and accountability for great output in the public sector.

To reduce a further drain of the financial resources of Ghana, the salaries and emoluments of the CEOs of State-Owned Enterprises must be tied to their performance. The performance of the Chief Executive Officers and Board Chairs of the SOEs in Ghana is not commensurate with their salaries. This explains why some people in Ghana demand a cut in the salaries and emoluments of these officers.

Cut Government Support or Subventions to Non-Performing SOEs: Many State-Owned Enterprises in Ghana depend heavily on government subsidies to stay afloat. This situation does not only put a strain on government finances but also limits the ability of these enterprises to contribute to economic growth and development. Some of these firms do not strictly adhere to the reporting requirements specified in the Public Financial Management Act. It is appropriate to cut government support to these institutions. Government must not continue to fund the operations of inefficient enterprises, some of which fail to meet reporting requirements imposed on them by law.

Surcharge and Prosecute Officers: The Auditor-General, as an external auditor, needs to find feasible solutions to the inefficiencies associated with the operation of State-Owned Enterprises in Ghana by surcharging those who misapply public funds. Officials who are found culpable of misappropriation must be referred to the Special Prosecutor for prosecution.

Financial management must efficiently be strengthened through regular audits. To improve the financial viability of SOEs in Ghana, the government needs to introduce measures that promote financial sustainability. These measures may include regular audits, publishing financial reports, establishing clear reporting requirements, and promoting cost efficiency. The Deputy Finance Minister disclosed, in 2022, that some of the State-Owned Enterprises have been reluctant in submitting their annual accounts since 2017 (as reported by the Ghana Financial Market, 2022).

Financial sustainability can only be achieved by reducing political interference in the management of SOEs: the government needs to establish independent boards and avoid appointing politically affiliated individuals to key management positions. This will ensure that SOEs operate based on merit and not political patronage.

State-Owned Enterprises are critical public development agencies globally: they are critical to improving Ghana’s economic growth and development. Addressing the challenges facing these enterprises will stimulate and lead to greater financial sustainability, increased efficiency, and improved service delivery to the people of Ghana.

BY Emmanuel Kwabena Wucharey
Economics Tutor, Advocate and Religion Enthusiast