Rethinking Ownership and Control of State-Owned Enterprises in Lesotho

Abstract

States actively participate in their respective economies for a variety of reasons. Common among these are; the need to protect key and sensitive aspects of the domestic economy from foreign control; the need to venture into arears that are largely capital intensive and shunned by the private sector; and the need to establish monopolies around public goods like energy, water, infrastructure and others. One cannot help but emphasise the fact that state-owned enterprises (SOEs) form one of the largest sectors of the economy in most African countries and are important contributors to national development. A number of states participate in the development and growth of their economy through state SOEs. SOEs are enterprises or institutions that are directly or partly controlled by state and providing public services such as water, electricity, communications and transport amongst others. Thus a strong, transparent and accountable governance is central to such course. SOEs are potentially powerful tools in state’s hands that can be used for attainment of the state’s developmental goals. The manner in which they operate has a considerable effect on the wider business community and investment climate. Globally, SOEs account for approximately twenty percent of investment and five percent of employment creation. In Africa, SOEs produce approximately fifteen percent of GDP, eight percent in Asia and six percent in Latin America while in Central and Eastern Europe. It follows, therefore, that the SOE sector remains significant at twenty to forty percent. Although constituted by public resources and, therefore, embodying some element of public interest, most SOEs in Lesotho are incorporated. Therefore, SOEs may face governance challenges as their private sector counterparts. The key corporate governance differentiator between SOEs and their counterparts in the private sector is their proximity to the state power. SOEs are in a unique position of having their shareholder as the same entity that is ultimately responsible for the legal and regulatory environment and being under the direct influence of politicians rather than career businesspeople. This implies that the scope of favouritism and conflict of interest is wide. A conventional view is that corporate governance is motivated by the drive to access finance, however, SOEs tend to be less affected by this because in most cases governments are willing to back SOEs. The above background highlights at least four problematic areas that require critical investigation. The poor performance of SOEs has often raised a question of their relevance in the modern developing economy such as Lesotho. Thus the first problem that this thesis seeks to unpack is the desirability of state ownership and whether such ownership is in a way synonymous with poor corporate governance. This calls for a need to reconsider the privatisation debate i.e. whether SOEs should be fully privatised such that the private sector becomes the only role player in the economy. Secondly, the governance related role of political principals or shareholder ministries in SOEs requires some attention as well. Thirdly, the issue of ownership and control of SOEs also requires examination. Lastly, the need and/or v mechanisms to protect the government as a minority shareholder should also be explored. This thesis proposes kharetsa model of SOEs ownership and control as a response to these and probably many more other problems facing SOEs in Lesotho and elsewhere in the world.