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Purposeful finance for state-owned enterprises to fill development gaps

Purposeful finance for state-owned enterprises to fill development gaps

By Jerome Mutumba
DBN Head of Marketing and Corporate Communication.

State-owned enterprises (SOEs) can benefit from purposeful finance to enable them to fulfill their mandates to develop Namibia using corporate finance.

The primary role of the SOE is to fill gaps in the environment that are not filled by the private sector, either due to the complexity of the operations, or the high capital cost of replicating operations. Although some aspects of large-scale SOE operations are being transferred to the private sector through public private partnerships (PPPs), the need for SOEs is still evident.

In addition to the ability of the SOE to achieve sustainability through revenue streams derived from public services, a well-governed SOE can contain costs for delivery of those services.

The presence of an SOE should have twin development impacts through social and enterprise development. In terms of social development, factors such as delivery of water, electricity, roads, transport, serviced land and housing are examples. Those same factors will be broadly applicable to private sector enterprises, albeit that the private sector enterprise will require serviced land on which to erect commercial premises.

In addition, the SOE can also strengthen the enterprise ecosystem by being an offtaker of private sector goods and services, and spawning PPPs. The ministerial role is to deliver non-divisible services where it is difficult to establish revenue streams, or revenue streams cannot be fully recovered due to outright poverty and/or the need for subsidization. On the other hand, the SOE can, through revenue streams, sustain operations and maintain infrastructure, and develop new infrastructure and provide dividends to the government or reinvest them.

Typical investments that qualify for finance are development of new infrastructure, and maintenance and upgrading of existing infrastructure. On the prudence of financing SOEs, note that although the SOE environment is perceived to be characterized by governance and management failures, it is important to balance this view with consideration of numerous, underreported SOE success stories.

The Development Bank of Namibia is offering finance to SOEs on the basis of successes and reform that indicates clear sustainability going ahead. The Bank has a clear responsibility to balance its own sustainability with development impact, so it views provision of finance to successful SOEs as a matter of importance. The mutual opportunity for the Bank and the SOE lies in infrastructure maintenance and upgrading, and development of new infrastructure to enhance development impact.

Erongo RED is a prime example of the successes that development finance can achieve. Through its finance, DBN has enabled Erongo RED to upgrade its existing infrastructure and put in place new infrastructure. This has enabled expansion of electricity provision to Erongo enterprises, provision of electricity for new neighbourhoods for affordable housing, as well as securing the supply of electricity to smaller Erongo towns.

The bank is seeking to expand its support to SOEs in the interests of development, and its doors are open to business. With sound finance provision for SOEs, a further gap in the economy and its development is closed. We want to add to the successes of those that are already successful in their contribution to Namibia.


 

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