- However, SOCs underwent numerous reforms around the world towards the end of the 20th century.
- A wave of neoliberal ideas and free market capitalist policies have called for their mass privatization, allegedly to improve quality, efficiency and financial performance.
- The privatization process was also seen as an opportunity to free control of poorly managed SOCs from the grip of corrupt bureaucrats, and provide many developing countries with much-needed funds.
Many governments around the world have stakes in companies operating in various industries and business sectors, such as agriculture, hospitality, manufacturing and transportation, to name a few.
Crown corporations (SOCs), as they are often referred to, can either involve 100% government control over a company’s governance and operations, or part of it can be in the hands of the government. ‘private sector investors and their appointed directors.
There are several legitimate reasons for SOCs. Some operations are critical to national security, such as the manufacture of defense equipment and the maintenance of key infrastructure (eg bridges, airports). Governments also control companies that provide essential goods and services that might otherwise be less attractive to deliver nationwide, or too expensive if left to the private sector, e.g. basic health care, public transport and postal services. Governments can also own businesses with the intention of generating profits to contribute to the public purse.
However, SOCs underwent numerous reforms around the world towards the end of the 20th century. A wave of neoliberal ideas and free market capitalist policies have called for their mass privatization, allegedly to improve financial quality, efficiency and performance. The privatization process was also seen as an opportunity to free control of poorly managed SOCs from the grip of corrupt bureaucrats and provide many developing countries with much-needed funds during times of liquidity constraints. often at the request of Western advisers.
In Kenya, the World Bank and the IMF encouraged the government to divest several SOCs, resulting in more than 100 privatization deals. It has been argued that SOCs have turned into a financial sinkhole that continually drained public resources due to inefficiencies, poor budget habits and embezzlement. These problems were associated with poor corporate governance practices, including crony appointments of senior management, corruption, lack of effective oversight and outright impunity.
At the time of publishing this article, the State Corporations Inspectorate website, last updated in 2018, indicates that there are currently 220 SOCs operating in Kenya. Still, reliable sources estimate that number could reach 300. Still, it’s no secret that the performance of many SOCs has always been below average. Several entities are facing bankruptcy while others have already been placed in receivership.
Kenya, however, is not unique in this regard. In many parts of the world, weak corporate governance practices have long been attributed to the challenges facing SOCs. Often their senior leaders, including the board of directors, are appointed on the basis of crony relationships as opposed to meritocracy. Many appointees also lack appropriate management skills, while others ignore corporate governance rules with impunity. While privatization can help overcome such challenges, it removes the privileges associated with SOCs.
More research is needed to understand if there are better performing SOCs that we could learn from, before considering privatization as a last resort.
If these and other shortcomings in the corporate governance framework for Kenyan SOCs can be addressed effectively, these entities can play a major role as engines of economic growth, noting in particular concerns that flows aid and investment to African countries could be significantly affected by the ongoing COVID. -19 pandemic.
For example, SOCs can serve as job creators and catalysts for development in marginalized regions of the country, which might be less attractive to private companies. The government can also use SOCs to demonstrate how the rest of the business sector can contribute to climate change mitigation and other sustainability efforts.
In addition to fulfilling a national agenda, SOCs can also pursue cross-border investments in neighboring countries or other foreign countries, thus increasing government revenues and helping to build Kenya’s soft power through corporate diplomacy. . The presence of many Chinese SOCs in Africa, including Kenya, is a classic example of how state entities can internationalize and achieve such goals.
Well-governed SOCs can also be formidable competitors for often too narrowly profit-driven private companies, whose operations raise social and environmental concerns around the world.
Kimani and Soobaroyen are lecturers and professors at the University of Essex, UK.