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The Case with our Public Corporation: To privatize or not to privatize (Part II)
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The Case with our Public Corporation: To privatize or not to privatize (Part II)

(Apr 25, 2008) By: Andre Pope
Introduction

In Part I, we struggled to make the case for reform actions by government before any privatization can proceed. It is our hope this paper can shed some light on the issue of whether and when to privatize our public corporations, which to me is the single most important decision, just behind reunification, that confronts this generation. 

We would like to begin by calling for a period of pause in government actions regarding privatization. During this period, government through the Liberia Reconstruction Development Commission (LRDC) must engage policy makers, political, economic and social experts and the general public on a national debate about its master plan or blueprint for privatization. The LRDC’s plan must offer a broad strategy with scheduled activities and a timelines to monitor progress on an ongoing basis. Furthermore, the plan should take into consideration other support initiatives such as public corporation reforms, legislative changes, and privatization experiences of other countries with similar economies. The LRDC should solicit public support and understanding through consultation with civil society and seminars, workshops, and by seeking responses from expert Liberians. 

Additionally, government can use this period to reassess its commitment to the governance of public corporations since it is easy to see that we lack the necessary structures to provide management and financial oversight of public corporations. The last time I checked the national budget, the Bureau of State Enterprises (BSE), whose job it is to monitor and evaluate public corporations, had a budget of US$54,000. Government must have other oversight plans, because the budget allotment to BSE is insufficient to carry out this historic task. Whatever the plan, the fact remains; we need sweeping reform of our public corporations to be implemented timely, and in a very deliberate fashion. Because, our corporations are completely broken and inefficient, they lacked the technology, depend on inadequate accounting software such as QuickBooks and burdened with high costs, over-staffing, weak internal controls and processes and in a physically dilapidated state as a result of the looting during the war. 

Privatization vs. Reforms and Restructuring

In light of the above, our public corporations are failing and are heavily depended on public funds and other assistance to operate. The burden ratio of public corporations on the national budget is high with LTC & LEC accounting for about 2% or US$3.5M of the 2007/2008 budget. Besides, government subsidies to all public corporations, according to the national budgets, grew by 126% from one year ago or $3.4M in the 2006/2007 budget to $7.7M in the 2007/2008, and who knows what the increase would be in future budgets. 

But what is worth noting is the fact that our public corporations would not be able to survive without handouts from government. This will continue to be the case until a strong oversight body, that is free of political interference, can help guide a comprehensive reform program. Because, the financial condition of our country makes it imprudent for government to continue its handouts, call it subsidies if you want, to these loss-making and failing corporations. Continuation of past policies without reform is not an option because it is those failed policies that had resulted in bloated corporations, weak management, lack of internal controls and no clear strategy to thrive. 

So, it is understandable that government is turning to privatization as the panacea to prevent it continued support, which is unlikely to change the operational and financial states of these corporations. And, one can only imagine the fear that the president must have, if massive job losses, social turmoil and economic collapse resulted by inaction by her government to rescue this situation. 

In spite of the above, a rushed decision to privatization of our public corporation is not going to serve the country. We lack the laws, the environment and the institutions to successfully implement any kind of privatization effort. In the mean time, we need to begin assessing each public corporation to determine how viable they are and then develop a medium term plan to include providing some form of intervention to get them back on course and working for the people and the country. Public corporation reform is a vital issue that must be managed effectively if the Liberian economy is to thrive, and to meet or exceed the expectations of the ordinary people to live in a vibrant economy that generates jobs and wealth, and allows for the equitable involvement of all. 

Other countries had turned to reform actions and had been successful in turning public corporations into vital instrument of national development. According to a survey conducted in 2004 on a number of reforms and restructuring programs, “ 48 public enterprises in North and sub-Saharan Africa that had some form of reform or restructuring program,12 enterprises reported net profit margins in excess of 4 per cent while five enterprises reported net profit margins greater than 10 per cent. Then, ten of the 48 enterprises had returns on shareholders' equity of 25 per cent or higher” 

Additionally, other studies showed that privatization has been successful when some levels of competition in the market of the public enterprise exist; as in the case with the telecommunication sector. The study also found that “poor market conditions and abject poverty make privatization a bigger challenge”. And of course Liberia is a country that lingers in poverty. In fact, according to the European Community’s strategy paper on Liberia, “Poverty in Liberia over the last quarter of a century has spread and deepened, with thousands loosing their livelihoods and becoming displaced. It is estimated that 76% of the population live below US$1 a day (an increase from 55% in 1997) and 52% live in extreme poverty of under US$0.50 a day”. 

 These facts compel us to approach this privatization debate in a way that is transparent, takes the interest of the people into consideration and solicits ideas from across the spectrum. I am glad to add my voice to the number of Liberians who are anxious about privatization and for good reasons. 

Concluding Thoughts & Recommendations

Liberians are anxious about the idea of privatization, many don’t understand it, others don’t trust that it would fix any problems because the necessary competitive market conditions to ensure successful implementation of privatization efforts don’t exist, yet other think of it as selling the country. People are fearful of the prospects of major layoffs and the related impact it might have on the socioeconomic life of the country and some have even argued about the lack of appropriate regulatory frameworks and institutions for oversight of public utilities should that sector become privatized. 

That is why I believe that government must make a real effort to create an effective oversight body for public corporation’s reform. This body will be charged to improve operations, provide better financial visibility of public corporations; work with the Public Procurement and Concession Commission to develop procurement policies that extend beyond the competitive bidding and supplier qualifications processes; de-concentrating of authority; and develop multi-year strategic and operating plans.  

We must however thank the management of LPRC for taking some steps to make this corporation viable. We can say with some level of objectivity that LPRC is the best run public corporation today in the country. The LPRC and RIA were the two corporations that did not burden the 2007/2008 national budget. As a matter of fact, the LPRC contributed about $500,000 to government. But, the underlying point to make about this contribution is, even though it is a good thing that LPRC is adding to Government’s receipts, having the LPRC contribute to a social program like a free early learning program in the country, would be a better spent of public fund and a noble undertaking. 

 Yet, more has to be done to truly transform the operational workings at the LPRC. It must move away from QuickBooks as the accounting system to an ERP system that can link, for example, the procurement function with accounts payable and cash payments. This will help with transparency and accountability and drive productivity. Develop proper checks and balances by segregating responsibilities with conflicting or competing interests. 

 Finally, we would like to reiterate my call for a comprehensive reform program that will promote effective corporate governance, autonomy, and accountability. A strong oversight body to help corporations leverage their revenues in order to fund government expenditures, support some social programs of government and pay off public debt. 

 Let’s leave you with the words of a reputable poet who said, “Sometimes it isn’t that we don’t set high goals, but that we often set them too low and then achieve them”. 

ABOUT THE AUTHOR : Andre P. Pope is a concerned Liberian that works in financial planning and analysis and controllership in the Atlanta area. The author has taught economics at the University of Liberia and most recently served as an adjunct at the National American University teaching accounting and management. He lives with his family near Atlanta and can be reached at andrepopep@yahoo.com

 
 
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