A New Dawn: The Adoption of the NMB Bank Ownership Model for State-Owned Enterprises
State-owned enterprises (SOEs) have long been seen as critical drivers of economic growth, balancing commercial and public policy objectives. However, the need for enhanced performance and efficiency among SOEs is becoming increasingly pressing. In response, the government has revealed its intention to adopt the NMB Bank ownership model for SOEs. The NMB Bank model has been successful, demonstrating operational efficiency and impressive management, and stands as an example to other public entities.
The NMB Bank has major shareholders including the government and Arise BV. The bank has made headlines for its high profitability, efficiency, and significant tax contributions. Furthermore, it has been resourceful in raising funds from capital markets to finance operations and make investments, particularly through the NMB Jamii Bond. This approach is distinctive in its focus on green and social impact projects and is seen as an opportunity to activate the stock market.
Exploring SOE Ownership Models: From Centralised to Decentralised
Ownership models and management arrangements for SOEs can be classified into several forms. These models vary in terms of centralisation or decentralisation, the number of responsible owners and management agencies involved, and their respective processes and procedures. The common goal of these models is to address political, financial, regulatory, and managerial challenges associated with SOE operations. The impact on SOE performance and market outcomes, however, can vary significantly depending on additional factors.
The effectiveness of SOE governance and policies that promote market discipline and a fair competitive environment are pivotal. International good practices indicate a growing inclination towards centralisation of the state ownership function. In a centralised ownership model, a single decision-making entity assumes the role of the shareholder for all companies and organisations controlled or owned directly or indirectly by the State.
Centralised Ownership: A Growing Global Trend
Several countries, such as Chile, China, Colombia, Peru, Russia, and South Africa, have adopted the centralised ownership model as part of their SOE governance framework. Some countries have even transferred a portfolio of large or strategically important SOEs to a state holding company or sovereign wealth fund. These entities subject their portfolio of enterprises to more rigorous performance expectations, often emphasizing purely commercial considerations.
Research points to the positive impact of centralised ownership. For example, when SOEs in China were placed under the control of the state holding company, SASAC, there was a notable improvement in their performance. Similarly, in Latin America, the establishment of central monitoring agencies reduced both cash flow and contingent liability risks in SOEs.
Other types of ownership models exist with different mandates. For instance, a coordinating agency can act in an advisory capacity to shareholding ministries on technical and operational issues, in addition to being responsible for SOE performance monitoring. Countries like Bulgaria, Costa Rica, India, Morocco, and the Philippines adopt this model.
In a dispersed ownership model, many government ministries or high-level public institutions exercise ownership rights over SOEs, in the absence of a coordinating agency. This model can lead to regulatory capture, endangering the principles of competitive neutrality.
Centralisation: A Promising Approach
While various models offer their own strengths, centralisation has emerged as a promising approach for several reasons. At the political level, it can help separate state ownership and regulatory functions. At the regulatory level, it can facilitate a uniform corporate governance policy. At the management level, it facilitates the definition of objectives, the implementation of incentives, the allocation of responsibilities, and the harmonisation of operational policies. At the financial level, centralisation creates economies of scale and promotes greater efficiency within public administration.
It is clear that for any ownership model to succeed in delivering the SOE objectives, the Government should play a key role in creating the right environment. This involves market discipline for SOEs to fulfill their economic and social policy objectives, focusing resources on areas with the highest social and financial impact, considering divestment options in the case of underperforming SOEs, and adopting holistic SOE governance and market reforms to ensure competitive neutrality.
The adoption of the NMB Bank model for SOEs is a step in the right direction, with the potential to drive economic growth and enhance the performance of public entities. As the government moves forward with this new approach, it is hoped that this will mark a new era of efficiency and profitability for SOEs.
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