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The role of SOEs- do we dare move from an ‘alohomora’ model to one more akin to Temasek?

Ibrahim Athif Shakoor

Dec 7, 2022

State owned enterprises- SOEs, what function do they serve in the local economy today? Do they exist to prevent market failure, augment state revenue, or as an all-purpose tool to prop up the government in power? Or are they being used on a mix and match basis?


State Involvement in commerce and trade- a modest scan

Traditional economic thinking advocates that the state should not engage in commerce but should instead act as facilitator and mediator for private actors to engage freely in commerce and ensure that markets reach equilibrium. State should, in this mode, only be involved in commerce and trade only in case of markets failure.

However, all of today’s economies, in subtle or significant measures, directly or indirectly, interrupt and influence the natural flow of goods and services in the national and even in the international arena.


These mechanisms of state assistance range the spectrum from huge farm subsidies of EU, UK and US to assistance to specific industrial and economic activities like semi-conductor technology, car manufacturing with the latest being ‘green’ technologies to indirect tax holidays.


Depending on the state of the nation in play, the degree of state involvement in the economy often varies with time. Covid 19 pandemic and the resulting lockdowns, saw all countries, regardless of their much-touted economic stance, offer all manner of aid and assistance to people and industries in need. As the Asian Tigers started their march towards industrialization, the effort was energized and assisted by large subsidies and state sanctioned loans. As Korea and Japan industrialized much of the state assistance to corporate entities were slowly curtailed and made more indirect and informal.  However, Singapore, quite openly and successfully continue direct state ownership and management of major commercial activities through the corporate umbrella of Temasek.


Meanwhile, in China- the fastest growing economy, and the 2nd biggest economy of the world, some of the biggest corporate entities continue to be state owned. These include 4 of the world’s biggest banks and 3 of the world’s biggest contracting companies. Even when the shares are not officially held by the Chinese state, the Chinese system allow for a myriad of influence and the authority of the state in corporate affairs.


Hence, as is evident, that there is no ‘golden law’ with regard to the state’s involvement in the economy, which can be applied uniformly across all countries and relevant to all time periods. The degree and type of state involvement take into account the governance system, national realities and political and cultural institutions in play.


The local economy of today

The Maldives is today officially acknowledged as a ‘developing economy’ and is one of the fastest recovering economies, post pandemic. While there are concerns about the level of debt, it is an economy that is recognized as the best performer in the region and doing well globally.


A functioning retirement pension scheme, a universal health scheme, the introduction of minimum wage, legislated consumer protection; although all with admitted limitations- much like other economies, mean that some of the last gaps of a mature economy are being roofed in. Meanwhile the legislative effort to introduce collective bargaining and the World Bank assisted project to introduce a stable and hardy ‘unemployment benefits’ scheme will fill up some of the remaining gaps essential for a mature capitalist-oriented democracy of today.


The introduction of SOE’s

There have been state managed commercial activities in the economy from time past.   But perhaps the first official SOE, was the creation in 1942 of ‘Bodu Store’- literally the ‘Big Store’. It was formed under special legislation to ensure adequate import of food, medicine and other essential items and to purchase the main export item, ‘dried Maldive fish’ for export to Sri Lanka.


The importance of state involvement, and indeed state control of vital national trade garnered national significance from the 1950’s onwards as local trade and commerce were, at that time dominated by traders from the western shores of India, called voara’ or ‘boara’ traders. First allowed to be resident traders in 1857, from small beginnings, commerce was slowly brought under the control of the ‘voara’ traders and their influence slowly and inevitably crept into local politics. The resulting asphyxia of depriving local traders from local commerce, together with the tension in the body politic had injurious effects on the economy, at times erupting out of political chambers into destructive acts like the ‘bodu hulhu’- literally ‘big fire’ and riots in the capital.


Therefore, when the ‘voara’ traders were finally evicted in 1962, after a century of choke-hold over local commerce, it was seen as critical that commerce and trade be brought back into the control of national actors and that such actions be led and assisted by state actors.


Bodu Store was later renamed at Maldives Government Bodu Store (MGBS) and expanded their business into import and retail of other goods including hardware, textile, stationaries and other non-staple but essential goods through several retail outlets of MGBS. Today’s State Trading Organization (STO) was incorporated in 1979 to expand and strengthen trading activities of the state.


From august beginnings the network of SOE’s has today blossomed out into a veritable feast of a variety of SOE’s with differing flavors, tastes and aromas to satisfy the appetite of the most demanding glutton.


The role of state companies today

The so called ‘democratic era’ – from 2008 onwards, has seen a rapid increase of SOE’s, with the numbers increasing and the composition changing with each change in government. During this space SOEs the mandates of SOEs expanded with the only common factor being ‘facilitator’ for the government to undertake some of its ‘obligations’,. Maldives Ports Authority invested and managed a bus service in the capital city Male’, Stelco- the power company, managed water projects, and MWSC, the water company opened a sea front restaurant. Focusing on core activities and enhancing the balance sheet, seem at times to be accidental and burdensome afterthoughts.


During this period SOE’s have been created, dissolved, re-formed, merged, de-merged, and even submerged.


As stated elsewhere, Governments have shown a tendency to create brand new SOE’s out of thin air, much like a Quantum Fluctuation creating energetic particles out of empty vacuum. For my fellow nerds that is of course, allowed, but only briefly by Heisenberg’s Uncertainty Principle. The Works Cooperation and its sister particle the infamous Road Cooperation of the not distant past are such entities created out of nothing to cater for, what was then thought, to be an essential need. However, as also required by the First Law of Thermodynamics, such entities also need to take themselves out existence and the same have happened, not just once, for the Road Cooperation and the Works Cooperation.

Athif Shakoor, 2019


A scan of table 9.5 (SOE’s and their structure) of the papers released by Finance Ministry, as part of the 2022 budget, shows 33 companies fully owned by the state. While they include mainstay companies like MTCC, STO, Dhiraagu and BML, the list also includes such giants in their chosen industry like the Maldives Sports Corporation and Kahdhoo Airport Company.


There are 39 joint venture companies mostly with 5% share with the maximum being 10% state share and another 9 companies called ‘Paper Companies’. 19 companies under the heading ‘Companies in the process of being Dissolved’ include MNSL whose board approved its closure in June 2011 and once much touted companies like Khazaana Maldives. The protracted time for dissolving SOEs underscores how difficult it is to fully dissolve a state company once a legal entity is created and the Director’s scramble to borrow, create debt and liabilities and enter into all manner of MOUs with other legal entities.


Whither the SOEs of the country?

Unfortunately, a majority of SOEs are increasingly being seen as tools to prop up the government in power with the entity expanding its organizational structure, employee strength, and even its core business activities towards election cycles. Quite co-incidentally, of late, SOEs manifest several geographically concentrated activities in the very specific constituent where by-elections are held.


In order of importance, therefore, today, the main objectives of SOEs seem to be

1. As a means of employment for protégés of the political elite presently in power.

Because the numbers, qualifications, attendance and disciplinary issues of the Civil Service are governed separately under specific legislation, SOEs are increasingly being used by the governments to by-pass such unwieldy and obstructive restrictions.

2. As a means to deploy unbudgeted resources in times of political need.

When unbudgeted pledges are made, especially during by-elections, SOEs are the one-stop-solution to deploy resources, even if it is to just to start projects, some of which have later proved to be environmentally unsound.  

3. The amenable route to manage unsustainable and uneconomical projects promised as part of the political rhetoric.

SOEs are the easiest and perhaps the only option to handle wild election promises like guaranteed fixed income for farmers and fishermen, the promise to purchase the full harvest of the fishermen even during the high season, or to invest in and operate the ever-increasing small regional airports. It is believed that such expenses are best cordoned off within the balance sheet of SOEs which are not easily accessible to commentators.

4. As a means for revenue generation

Let us not forget additional revenue generation, even if it is very much an optional extra.  


The last IMF statement on Maldives issued on 26th July makes specific mention of the vulnerabilities of SOEs stating ‘In addition, a swift implementation of the authorities’ intention to reform subsidies and reduce the dependence of SOEs on the central government’ budget would help reduce fiscal vulnerabilities.’


The model of Temasek or Alohomara?

In 1974 Singapore incorporated Temasek to manage its SOEs which entity today owns close to 300 billion US $ of portfolio investments in Singapore and around the world. Temasek owns and manages world class companies include Singapore Airlines (55% share), SMRT(100% share), Mediacorp(100% share), and CapitalLand(100% share). The vast and diversified portfolio of Temasek also includes a 29% in holding in DBS; the eminent banking group and a 40% holding in SATS.


Temasek which describes itself as ‘an active investor, forward looking institution and trusted steward’ describes its purpose to ‘aspire to help every generation thrive by empowering the well-being of our people…’ The bold and clearly laid out purpose and ‘hands off’ stance of the government, has allowed Temasek to flourish.  


However, the Temasek model can only work, when the intentions of the state are honorable, genuine, authentic and constant over time.


There is no doubt that the vast resources- civil, human and technological, of SOEs if mobilized in a clear, synergetic effort, it will have the potential of finally creating the always elusive national reserves and over time even finally lead to the creation of a wealth fund.


However, for the observer it looks that our local SOEs have been used to unlock and clear the path of all manner of political obstructions much like the charm ‘Alohomora’ in the Harry Potter universe.  At this stage of our political development, all governments have opted to use the network of SOEs to create off-the-books employment to curry political favor, and expend off-budget expenses to create expensive and often unsustainable projects in the hope of gaining public support.


However, repeatedly at general elections, the public has shown that they are wise to the game and have voted the incumbent out of office.


Today, the government is heading towards a ‘perfect storm’ arising from a multitude of factors, -some outside their control, but some decidedly of their own making. These include but are not limited to genuine difficulties that arose out of the pandemic, coupled with loose fiscal discipline, rising inflation, rampant corruption at a grand scale with unmitigated nepotism, exhibiting manifest geo-political bias often bordering on subservience, unable or unwilling to deliver core election promises, loss of law and order on the streets, all fanned by religious rhetoric. These and more have left the populace disillusioned, dismayed, and disappointed.


Only a wise and forward-looking government would dare emulate the Singapore Temasek model during such political headwinds. Such a move would decidedly be a ‘courageous move’, à la the legendary ‘Yes Prime Minister’ series- something a wise politician will never attempt.  Therefore, in all probability, SOEs would continue to be used in the default mode, as a medicine for all ills.


So more of ‘Alohomora’ it looks to be. Yet, until the time that SOEs are brought under a Temasek model, SOEs will continue to act with political expediency as their primary objective and the optimum advantage of the vast resources of our SOEs will continue to elude us.

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