State owned firms draining Pacific economies

PACIFIC – State owned enterprises in the Pacific are a significant drain on island economies according to a new report from the Asian Development Bank.

The Finding Balance 2016 report said returns from SOEs in most countries are not even meeting their capital costs.

The SOE portfolios of nine Pacific island countries were assessed in the report as well as those for Jamaica and Mauritius. Of these only six registered returns above zero.

The best performing country was Solomon Islands with a 10 per cent return on equity in the period from 2010 to 2014 and the worst was the Marshall Islands with a negative 8.5 per cent return for the same period.

An ADB expert on SOEs, Christopher Russell, says broadbased reforms in the Solomon Islands have seen a dramatic turnaround for its SOEs which had registered a negative 11 per cent return prior to 2010.

On the other end of the scale he said the Marshall Islands is the only Pacific country which still has government ministers sitting on its SOE boards.

The ADB urged Pacific Island countries to operate their state owned enterprises along private sector guidelines.

Russell said most Pacific countries need to find the political will to bring about change.

“So you start off with strong political commitment for reform and then you need an effective framework to support that. Which is usually structured through legislation. Then you need competent governance structures, you need good boards. And then you need to support that with appropriate levels of transparency and accountability.”

Russell said for countries like the Solomon Islands that had achieved significant SOE refoms, the challenge was to lock in those gains.

He said this could be done by further privatisation or partial privatisation of the SOEs.

The countries assessed in the report were Fiji, Kiribati, Marshall Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu as well as Jamaica and Mauritius.

- RNZI