SOLOMON Islands is considering a significant reform to its State-Owned Enterprises (SOE) Act, proposing to consolidate control of SOEs under the Minister of Finance and Treasury. This shift would replace the current system where multiple ministers oversee various SOEs. The proposal has sparked debate, with organizations such as Transparency International voicing concerns. However, this reform has strong potential to revitalize Solomon Islands’ SOEs, transforming them from loss-making entities into financially sustainable operations.
I’m providing this critique to shed light on what the reform could do for SOEs and make a case for consolidating control of SOEs’ under the Minister of Finance. The views expressed against the proposed reform are not informed especially on the economics of why the proposed reform could strengthen demand for SOE services and lead to economies of scale.
At present, most of Solomon Islands’ SOEs are struggling financially, operating at a loss. While these enterprises are fulfilling essential social obligations, they are not functioning as profitable businesses. Their weak financial performance is unsustainable and undermines both the SOEs’ capacity to fulfill their social mandates and the broader national economy. The chronic underperformance of these enterprises can be attributed to several factors, including mismanagement, lack of financial discipline, and fragmented oversight. Multiple ministers overseeing different SOEs has led to inconsistent governance, a lack of accountability, and fragmented decision-making, which hinders efforts to turn these entities into profitable operations.
Benefits of Centralized Control Under the Minister of Finance and Treasury
The proposed reform to place SOEs under the exclusive control of the Minister of Finance and Treasury is a critical step toward improving the financial health of these enterprises. Below are several strong points that demonstrate why this move can strengthen SOEs and provide a clear path to profitability:
1. Enhanced Financial Discipline and Accountability
Centralizing control under the Minister of Finance and Treasury would introduce a more streamlined governance structure, focused on financial oversight. Currently, SOEs report to multiple ministers, creating ambiguity in decision-making and leading to inefficiencies. A single ministry—especially one responsible for national finances—will bring in stricter financial oversight and fiscal discipline. This would ensure that financial reporting, budgeting, and performance monitoring are handled with a higher level of scrutiny and accountability.
By aligning SOEs under the Ministry of Finance, the government can set uniform performance benchmarks and enforce strict financial protocols, ensuring SOEs are held accountable for their operational outcomes. Improved financial discipline would force SOEs to adopt business practices geared towards cost-efficiency, reducing waste and unnecessary expenditure.
2. Strategic Focus on Profitability
One of the most significant advantages of placing SOEs under the Ministry of Finance is that it shifts the focus from fulfilling primarily social obligations to creating financially sustainable enterprises. While the social mandate of SOEs is essential, profitability and self-sustainability are equally critical for their long-term success.
Under the Ministry of Finance, SOEs can be driven to focus on improving their revenue streams, enhancing operational efficiency, and reducing reliance on government subsidies. This shift can help transform SOEs into viable, self-sustaining businesses that can meet both social obligations and profitability targets. A financially sustainable SOE is better equipped to expand its services and invest in growth opportunities that can benefit the economy as a whole.
3. Improved Governance and Professionalism
with a centralized management framework, governance across all SOEs would be more standardized and professionalized. the minister of finance and treasury, with its focus on economic policy, has the expertise to implement corporate governance best practices that are often lacking under multi-ministerial control. this consolidation would facilitate the recruitment of qualified professionals to SOE boards, and the implementation of clearer performance-based metrics.
Centralized control allows for greater coordination, avoiding the inefficiencies caused by different ministries applying varying priorities and policies. With a unified governance approach, the Ministry of Finance can ensure that SOEs adhere to corporate governance standards that promote transparency, accountability, and ethical business practices.
4. Economies of Scale
Managing SOEs under a single ministry would allow for better resource allocation and economies of scale across the board. Centralized control will enable the Ministry of Finance to identify synergies between SOEs, fostering collaboration and shared services that can reduce costs. For example, bulk procurement of goods and services, centralized training programs, or shared technology platforms can create significant savings, improving the overall financial health of these entities.
Additionally, strategic investments in infrastructure or capital projects could be more effectively coordinated, allowing SOEs to achieve greater efficiencies that can boost productivity and revenue generation.
5. Better Access to Financing
SOEs under the oversight of the Ministry of Finance are likely to have better access to financial resources. The Ministry, being the custodian of the national budget and public debt management, is well-positioned to negotiate favorable loan terms or secure grants for SOE development projects. This could provide SOEs with much-needed capital for infrastructure improvements, expansion, or modernization—investments that can help improve operational efficiency and profitability.
Additionally, the Ministry’s stronger oversight could help to rebuild trust with external financiers and investors, attracting much-needed private sector investment to complement government funding.
6. Streamlined Decision-Making
A major issue with the current multi-ministry oversight of SOEs is the slow and often conflicting decision-making process. Different ministers may have differing priorities or political agendas, which can delay necessary reforms, investment decisions, or operational changes within SOEs. By consolidating decision-making within the Ministry of Finance, this reform would eliminate bureaucratic red tape, enabling faster and more consistent strategic decisions that prioritize financial viability and operational efficiency.
This streamlined decision-making process would empower SOEs to respond more quickly to market conditions, implement cost-saving measures, and adjust their business models to enhance profitability.
7. Supporting Long-Term Economic Growth
Turning loss-making SOEs into profitable enterprises would not only benefit the SOEs themselves but also have positive ripple effects across the national economy. Financially sustainable SOEs can contribute to job creation, infrastructure development, and increased tax revenues, all of which are crucial for Solomon Islands’ long-term economic growth. With the Ministry of Finance driving SOE reform, there is greater potential for aligning SOE performance with broader national economic goals.
Conclusion: A Business Case for Reform
Consolidating SOE control under the Ministry of Finance and Treasury presents a clear business case for reforming the governance and financial management of Solomon Islands’ State-Owned Enterprises. This proposal would create a more coherent and efficient framework for oversight, improve financial accountability, and refocus SOEs on profitability without neglecting their social obligations.
In the current setup, the financial underperformance of SOEs is undermining their ability to fulfill both their social and business mandates. The proposed reform offers a practical pathway to address these challenges by centralizing decision-making, improving governance, achieving cost efficiencies, and enhancing the financial discipline of SOEs. The Ministry of Finance and Treasury has the expertise and capacity to turn SOEs into profitable, sustainable operations that contribute meaningfully to the country’s economic development.
By implementing this reform, Solomon Islands can ensure that its SOEs evolve from loss-making entities to dynamic contributors to the nation’s growth and prosperity.
Peter Forau
Honiara