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Transparency and Accountability: Two Critical Factors for the Success of State-Owned Enterprises in Nigeria

December 7, 2021

Vahyala Kwaga, Senior Research and Policy Analyst, BudgIT

Governments have various reasons for establishing State-Owned Enterprises. They range from ensuring that the extraction, management and sale of precious minerals and resources are done prudently and purposefully to ensuring that important public goods (for example, energy and railways) are provided equitably, effectively and efficiently, in a way the market would not. In fact, some are of the view that State-Owned Enterprises (SOEs) serve socially strategic functions, provide indispensable infrastructure and (depending on the sector) can provide much-needed certainty during times of instability along critical value chains (for instance, with health equipment and resources). In addition, there are perceived management frameworks that lead to better performance where the entity is a business corporation and publicly listed, as opposed to a government commission, agency or department. This means that though the government may have different objectives and goals for creating the entity-all the different decisions on what to do are all part of government policy. However, where SOEs are created principally for profit and revenue creation, others might be designed more to ensure equality of access for public goods that serve more social purposes, for example, education. 

BudgIT Foundation takes the following definition of SOEs as: “A corporate entity established by federal law as an enterprise in which the state exercises ownership (this could include joint-stock companies, limited liability companies and partnerships limited by shares) and where its purpose and activities (in full or in part) are of a largely economic nature (OECD, 2015)”. This means that SOEs refer to “A government business and not to state entities that serve a policy or regulatory function” (Khoza & Adam, 2008). A similar definition by the Corporate Finance Institute defines SOEs to be: “A body formed by the government through legal means so that it can take part in activities of a commercial nature, on behalf of the government”. If one were to expand the definition of SOEs in Nigeria, to include those that have a primarily regulatory and/or policy function, they would well be over 140. 

Yet, because SOEs are owned and managed by the government through its officials, their performance may come along with inefficiency relatively common in government. What is more, SOE managers may not be held accountable for infractions or even to improve performance. More specifically, in the case of Nigerian SOEs involved in the extraction of critical mineral resources, the transparency and accountability that ought to follow their management is often absent. This is manifested in the reporting of key financial information (budgets, procurement, general contracting and especially audit), where SOEs tend to fall short. It can be argued that despite clear government intentions in setting up SOEs (and the existing corporate governance codes that serve as guidelines) in Nigeria, they are subject to political forces that keep them opaque and non-transparent. The absence of necessary inter-governmental monitoring and sanctions means that citizen monitoring and media attention is indispensable. The latter is non-trivial, as it has been argued that: “SOE operational losses create budgetary pressure and contribute to the country’s increasing fiscal deficits … financing SOE losses causes the diversion of resources from essential public tasks. It leads to overall misallocation of scarce resources … harming the country’s growth potential and its development goals”. For countries like Nigeria that are struggling with a massive government deficit, this should sound a note of warning. Better managed SOEs do not only improve the quality of governance and service delivery but also can lead to increased savings. 

Transparency and accountability are fundamental aspects of governance: their absence weakens the citizen-government relationship and the required monitoring of government activities (leading to a government being unresponsive to citizens). By way of reminder, transparency is the duty of government officials to act visibly, predictably and understandably to promote participation and accountability. Broadly speaking, this involves making information on government actions available but it does not end there. The information should be relevant and accessible (meaning it should be in understandable language, formats particular to different audiences and disaggregated-allowing for simple and easy analysis by the public) and it should be timely and accurate (meaning it should be available promptly in order to allow consequential input, especially before a government decision is made). Accountability is the duty of government officials to not only be answerable for their actions but also sanction where they do not meet their obligations and duties. The kind of accountability best suited for engagement with SOEs is referred to by some, as diagonal accountability. Perhaps, we could then say that fiscal transparency and accountability create an openness toward the general public on the structure, roles, financial and treasury intentions and operations and public accounts of the government. The foregoing is with the intent that citizens, entrepreneurs, investors and financial markets can precisely gauge the government’s economic position and the actual value (or worth) of government activities and business, taking into consideration current and potential economic and social implications. These, more than any other elements, can bring about a level of perceived stability to the government and the economy, without which no country can expect to develop sustainably.

Where SOEs are actively engaged by Civil Society and the government itself, improved management of resources can result, better performance happens and the government-citizen bond is strengthened. But this engagement is optimized when it involves not just non-governmental organisations and thematic groups but the media as well. The media is well positioned, as an institution and collaborator in the dissemination of information, and structured (in terms of having dedicated formats and methodologies for reaching a wide range of audiences) to play the role of keeping government transparent. Put differently, the combined monitoring and engagement by Civil Society and the media, of SOE activity, has the potential to elicit better behavioural responses from the government (all those within the government involved in administration or oversight). Ordinarily, government agencies may not have the incentive to provide a timely audit of their own finances, accounts and profits and losses, among other things. Yet, pressure from CSOs and the media-through various legal and innovative means can positively influence the disclosure of fundamental information, that reinforces the social contract and enhances information for the purpose of national and international investors. SOEs, when properly positioned, can play an important role in improving the economic profile of the country within which it operates. However, this is not possible, without the active involvement of CSOs and the media.

SOEs can be engine-rooms for development and national progress, but this would have to come with various conditions. For starters, the management and administration of the day-to-day operations must be carried out with the highest levels of probity, efficiency and transparency. While CSOs and the media may not be able to influence SOE efficiency directly, their collective work can lead to increased transparency and potentially more accountability (where the Executive exercises a heightened sense of political will in bringing offenders to book).