26 July 2011 . State-owned Enterprises representatives from Pacific countries including Tonga, attended the Leader's Retreat that was held in Nadi, Fiji earlier in the year, to discuss the key findings and recommendations of the Asian Development Bank's (ADB) recent study entitled, Finding Balance 2011: Benchmarking the Performance of State-Owned Enterprises in Fiji, Marshall Islands, Samoa, Solomon Islands, and Tonga.
The ADB launched its study on comparative performance of state-owned enterprises (SOEs) in the Pacific. The recently released Finding Balance study is the second commissioned by ADB under the Pacific Private Sector Development Initiative (PSDI), which is co financed by the Australian Agency for International Development.
The first study, published in 2009, covered Fiji, Samoa, and Tonga. The second study includes not only two additional countries, the Republic of the Marshall Islands (RMI) and Solomon Islands, but also data on the performance of the SOEs over a longer time period, from 2002 to 2009.
The study has shown that SOEs continue to drag economic growth in all five countries, as the substantial capital invested in SOEs provides very low returns.
While Tonga's SOEs achieved the highest returns among the five countries, generating an average return on equity of 6% over 7 years, this is still well below the 10% target set by the Government of Tonga. The average return achieved by Fiji's SOEs was only 0.7%, while Samoa achieved 0.2%; RMI, -13%; and Solomon Islands, -14%.
For every dollar invested in SOEs, the contribution to gross domestic product (GDP) was only $0.19 in Fiji, $0.04 in RMI, $0.13 in Samoa, -$0.07 in Solomon Islands, and $0.27 in Tonga. And since SOEs in these countries contribute so little to GDP, the private sector will need to bear a much heavier burden if these economies are to achieve any reasonable and sustainable growth.
The Honorable Richard Prebble, former Minister for State Owned Enterprises in New Zealand, shared insights from his experience in implementing one of the most far-reaching SOE reform programs ever attempted in the region-a process that brought profound and positive changes to the New Zealand economy.
Participants endorsed the study's key findings and agreed on certain action points to support ongoing SOE reform within their own countries as well as the region. One such initiative is the development of a community of practice (CoP) to share knowledge on and experiences with SOE reform. A website (www.pacificsoeforum.com) has been created to support this CoP, where participants can access SOE legislation, director development and training materials, good practice community service obligation policies and procedures, a regional register of SOE directors, a discussion forum, and other information useful to SOE managers and policy makers.
Reform is challenging, but the respective governments of Fiji, RMI, Samoa, Solomon Islands, and Tonga have all recognized that it is essential and are engaged in reform at various levels. The Government of the Republic of the Marshall Islands has adopted seven good practice principles for its SOEs to give them a more commercial orientation. Fiji has recently restructured two SOEs and is looking to update its SOE legislation. Samoa has appointed an independent selection committee to select and recommend SOE directors for appointment. Solomon Islands has recently privatized two SOEs and has adopted a new SOE Act and regulations, as well as a skills-based director selection process, while Tonga has privatized two SOEs, has adopted a new best practice SOE Act, and now publishes the results of its SOEs in local newspapers.
PSDI continues to assist each of these countries with various aspects of their SOE reforms.
The key to success of ongoing SOE reform will be to place SOEs on a fully commercial footing, with independence from inappropriate political directives, boards comprising private sector directors-selected based on their skills- hard budget constraints, full compensation for CSOs, exposure to competition, and full accountability. This will both reduce the strain that SOEs currently place on the budget and the economy, and create incentives for improved service delivery.
The success of New Zealand in the late 1980s and Tonga over the past several years illustrates the power of such reforms. Tonga's SOEs have performed comparatively better than those of other Pacific countries because their governance structures generally allow them to operate independently of the political process, with fewer unfunded CSOs. While the Finding Balance study demonstrates the drivers and consequences of poor SOE performance, more importantly, it also provides answers and guidelines to assist politicians, SOE managers, and policy makers in developing and implementing policies and practices that will result in improved SOE performance and reform outcomes.
Following the Nadi Leaders' Retreat, presentations and workshops on the study's findings have been held in Solomon Islands and Tonga. In both countries, workshop participants included SOE directors and senior managers, members of the SOE monitoring units, and key stakeholders. Tonga was represented by its Director for Public Enterprises. Mr. ‘Inoke Vala.
The respective SOE ministers opened the workshops and emphasized the importance of the study and the need for ongoing SOE reform. The workshops, ministers' messages, and the study itself received significant media attention in both countries as well as in the region. ADB intends to hold similar workshops in other Pacific countries throughout 2011.
Issued by the: Ministry of Information and Communications, Nuku'alofa, 2011. Adapted from the ADB Pacific Sector Development Quarterly Bulletin June 2011.