UNPACKING THE JOOSTE HYBRID MODEL

By Tiri Masawi
NOVEMBER 2016
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The Ministry of Public Enterprises has taken a herculean task of cleaning up the mess in most parastatals which for many years have been operating without making profit and surviving on perennial bailouts from Government.
The Minister of Public Enterprises Leon Jooste (LJ) has set his sights on improving profitability efficiency and service delivery in all parastatals under his watch.

 Cognisant that the task at hand is not walk in the park, Prime Focus Magazine Managing Editor Tiri Masawi, TM sits with Minister Jooste to get a glimpse of the Jooste Hybrid model meant to stimulate productivity in SOEs. The following is a full interview with the minister on his plans for the future,

TM:  The Ministry has just taken over the mandate of overseeing operations of parastatals in the country coming from an era of non-profitability and perennial financial problems, what is your plan in making sure that corporate governance policies are the hall mark of SOE operations in Namibia?
 
LJ: SOEs are the primary enablers to stimulate growth and unlock economic opportunities in our economy. At the end of the day, it’s all about the people and we therefore need to appoint the most capable, skilled Namibians to serve on these Boards and they then need to appoint the best executives to execute the strategic objectives. If we get this right, we will have solved many problems.

TM: What do you think has been the major stumbling block in creating a vibrant and profitable SOE sector and how do you want to deal with it in the short, medium and long term future?

LJ: There are many reasons for failing SOEs globally and Namibia is not a unique case at all. We have identified two primary reasons for failing SOEs in Namibia namely the fact that we have attempted to govern our SOEs in flawed governance models and the fact that the State as shareholder has not managed to equip itself with the required skills to play the role of a professional, responsible shareholder.

TM: How are you coping so far with setting up a ministry from scratch and also making sure that your responsibility with SOEs kicks off on a promising note?

LJ: This is extremely complex and more so due to high expectations from the public. I often plead for patience because we need to follow a particular sequence of events and resist the urge to take uninformed rushed decisions which may often have long-term negative consequences. We only take decisions guided by facts and these facts take time to be generated. It is impossible to change a quarter of a century of poor performance overnight; we need time, focus and resources.

TM: Do you think the model now used to monitor SOEs will bring in the best results?

LJ: The Hybrid Governance Model is a vast improvement over the previous dual-governance model and will provide the institutional and governance infrastructure to improve SOE monitoring which will enable the Shareholder to take appropriate remedial action.

TM: Since coming on aboard as Minister of SOEs, has there been training to all SOEs, including their boards of directors as part of the drive towards improved competency?

LJ: All newly appointed Boards are now receiving an induction course which include corporate governance training. Various other courses are also offered through NIPAM and we are definitely seeing improvement as a result.

TM: SOEs have been known to be overstaffed, are there efforts being made to reduce the number of employees?

LJ: This is unfortunately true and in some cases creating an unsustainable situation which simply has to be rectified. Politically, this is very difficult for us to deal with, as you can imagine, but we have to take some of these uncomfortable political decisions if we are serious about changing the status quo. The affected SOEs are reviewing their business plans and strategies that will then guide us towards the ultimate structures required to implement the strategies. We will work very intimately with the Unions when any rightsizing is required.

TM: President Hage Geingob while still PM noted that, “SOEs have been exposed to huge debts, poor leadership at both board and management levels and that remuneration for executives was not linked to productivity and the ability to carry the expenditure burden.”  Has there been an audit carried out to bring to light any financial irregularities within SOEs?

LJ: All the SOEs are being audited and the results will expose irregularities which may then inspire us to conduct further forensic audits where required.

TM: A 2013 report indicates that of the 72 SOEs, 43 had failed to submit any documentation on their operations for audit purposes. SOEs were failing to submit their annual reports to the SOEGC on time as well as to parliament and thus they interfered with the effectiveness of the statutory functions of these institutions, have you found a solution to compel them to submit their financials?

LJ: This is required by law and failure to comply should lead to consequences. We have embarked on a compliance project which will compel all SOEs to reach full compliance in the shortest time possible. Once compliance is reached, all SOE Boards and CEOs will have this item as one of the key performance indicators of performance agreements. CEOs failing to reach KPIs will not be entitled to any performance bonus.

TM: Two months ago government announced that   all the commercial state-owned businesses would be reporting to the public enterprises ministry, introducing what has been termed the “Jooste hybrid governance model” was it easy for you to come up with this strategy?

LJ: No, this was extremely complex and it is the outcome of thorough research and benchmarking. We find it very valuable to benchmark with other more developed economies to learn both from their failures as well as their successes. From failures we learn not to repeat the same ones knowing that they are likely to fail and from the successes we take the opportunity to test if these will be suitable to our own circumstances.

TM: You are now responsible for supervising at least 18 strategic profit-driven state-owned businesses which are involved in  electricity, road construction, petroleum, information technology, telecommunications and transport industries, how do you handle that?

LJ:The Ministry is the State’s shareholder representative for these entities. I find that people often misunderstand the role of the shareholder versus the role of the Board and the CEO/MD.

We have equipped ourselves to be a professional shareholder in the same way that a private sector holding company with diverse holdings would equip itself to do the same. We need financial, business and human capital expertise to take this responsibility while the particular technical skills should be found within the Boards and Executive leadership of the companies. We now have the skills to understand and analyse the business case of these entities while the strategic direction is provided by the Boards and executed by the executive.

We are also extremely fortunate to have access to the technical expertise within the various Line Ministries when required to provide more particular sector related information.

TM:Is there a likelihood of this strategy staying, and for how long?

LJ: This governance model is of an evolutionary nature and leaves room for further evolution when required. It was the “obvious next step” towards a more centralised governance model.

TM: After your tenure is over, do you see such a model that places power on one minister 18 commercial public enterprises being inherited?
LJ: Of course. I am a politician same as all my colleagues and whatever we do is always for the good of the collective and the country and should never be to favour any individual. I plan for my current 5-year tenure and I serve at the will of my President; if he should decide to re-deploy me, I will simply take on the new challenge with the same level of determination.

I will in fact be proud if I can leave an institution of excellence with a practical governance model and associated systems in place to whoever my successor will be. Ultimate success of this portfolio will be a Namibian success story because of a collective effort, not that of an individual.

TM: Namibia has currently been downgraded by Fitch while the Finance Minister is calling on a cut on spending, how does this affect the performance of SOEs?

LJ: This affects the performance of SOEs in that they now need to perform more than ever! A large part of the threat to the potential downgrade of South Africa is due to ill-performing SOEs and I will not be surprised if we hear the same thing in Namibia unless we manage to effect improvement.

TM: What are the short to long term benefits of this centralized monitoring system?

LJ: More defined and better executed ownership powers, centralised and standardised monitoring and performance management, cost effectiveness and a reduction of reporting layers enabling more informed, quicker decision-making.

TM: At the inception of the hybrid model, you announced that, “The Ministry of Public Enterprises has now consolidated its mandate, and this is a game changer. Changes will be made.” What other reforms are we likely to see on SOEs from your ministry?

LJ: We will investigate various other reforms which may include merging certain SOEs, certain SOEs being re-absorbed back into Line Ministries and strategic partnerships. An entirely new performance based governance system will be introduced with incentivised remuneration, performance agreements and performance evaluation.

TM: It is an open secret that some SOEs have been run on a political model rather than on a business model by leaders politically connected, is meritocracy something you have considered when it comes to appointments?

LJ: Meritocracy should become the fundamental principle when key individuals are appointed to SOEs (Boards and Management).

TM: Does innovation have a place in the hybrid model since it is a driver for competency in SOEs?

LJ: Innovation, creativity and agility are key principles for us and we will be putting pressure on the SOEs to address this vigorously. If anything, SOEs should be more innovative than the typical private sector companies because of the strategic position they occupy.