17 July 2016

Findings from upcoming assessment of Pacific state-owned enterprises performance presented in Fiji

PSDI SOE Reform Expert Chris Russel presents the key results from Finding
Balance 2016
 at the Pacific Update Conference in Suva, Fiji.
State-owned enterprises (SOEs) are a significant drain on Pacific island economies, with the returns from most countries’ SOE portfolios not even meeting their capital costs, according to an upcoming PSDI report.

Advance copies of Finding Balance 2016, the latest edition of ADB’s landmark assessment of Pacific SOEs’ performance, were shared at the Pacific Update Conference at the University of South Pacific, Fiji today.

The report finds SOE portfolios in the eight Pacific countries examined contributed only 1.8% to 12% to gross domestic product, despite their very large asset base, ongoing government cash transfers, and monopoly market positions. It also finds productivity levels of the SOEs tend to be well below developed country benchmarks.

“Low SOE returns are not unique to the Pacific but are common throughout the developing and developed world,” said Christopher Russell, PSDI SOE Expert. “They reveal a fundamental flaw in the SOE model: it is not an effective long-term ownership structure as politicians will avoid commercial decisions that may have short-term political costs.”

Fiji-related results from Finding Balance 2016.
The report assesses the performance of SOEs in Fiji, Kiribati, Marshall Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu, as well as Jamaica and Mauritius. It finds many countries have made significant progress through commercially-oriented reforms. Solomon Islands’ SOE portfolio’s return on equity jumped from -11% in 2002-2009 to 10% in 2010-2014. In Tonga, portfolio returns have increased to 6% from a low of 0% in 2009. Overall, seven of the 10 countries examined had seen improved SOE profitability since 2010.

The report also highlights that, while improvements had been achieved, sustaining them has proven impossible in most countries, both developed and developing. Drawing on the experiences of New Zealand and Singapore, the report concludes that increased private sector ownership and operation of SOEs is the only way to lock in reform gains.  

Finding Balance 2016: Benchmarking the Performance of State Owned Enterprises in Island Countries will be published in August. It will be the fifth report in the Finding Balance series, which identifies strategies to guide reforms of SOEs, highlighting the importance of finding the right balance between public and private sector roles.