Political interference and weak corporate governance have turned Kenya’s state-owned enterprises (SOEs) into hubs of inefficiency, forcing them to rely on taxpayer money, and creating an environment where, warns the World Bank, “these firms are shielded from market rules that apply to other players.”
In the latest Kenya Economic Update report, the World Bank describes these SOE as outfits often steered by short-term political priorities and ministerial interests.
The international lender has also criticised performance-contracting system for SOEs saying it lacks real discipline.
Although the National Treasury sets KPIs (key performance indicators) and targets, these targets are not aligned with private-sector standards and therefore do not impose meaningful financial pressure on SOEs.
The World Bank says there is virtually no accountability for failure: “While performance bonuses for directors and executives are contingent upon meeting KPI targets, failure to do so is not generally considered grounds for removal."
The multilateral lender warns of extensive conflict of interest with ministries responsible for setting policy in a sector being the very same institutions that sit on the boards of the SOEs operating in that sector.
“Line ministries act both as policymakers for the whole sector and shareholders of selected companies,” added the World Bank.
For example, Kenya Airways has a board member representing the Ministry of Roads and Transport, with the Principal Secretary for Aviation serving as a director. Similarly, Kenya Power Company and KenGen have a board representative from the Ministry of Energy & Petroleum.
Now, the World Bank wants the government to enhance governance of SOEs to enhance competitiveness.
“Kenya should ensure that subsidies and grants to SOEs are tied to clear public policy objectives and measurable outcomes,” said the World Bank.
The International lender has also criticised Kenya’s performance-contracting system for SOEs saying it lacks real discipline.
Although the National Treasury sets KPIs (key performance indicators) and targets, these targets are not aligned with private-sector standards and therefore do not impose meaningful financial pressure on SOEs.
The World Bank says there is virtually no accountability for failure and while executives and board members can earn bonuses for meeting targets, they face almost no consequences when they fall short.
Poor performance is not treated as grounds for removal, and leadership rarely changes even when results are consistently weak.
“Kenya’s National Treasury entered into performance contracts with SOEs based on key performance indicators (KPI) and related targets…However, there is no systematic guidance that financial targets commensurate with private sector benchmarks be achieved,” said the World Bank.
The World Bank says that the government ministries responsible for setting policy in a sector are the very same institutions that sit on the boards of the SOEs operating in that sector resulting in a conflict of interest.
“Kenyan SOEs’ governance structures may cause conflict of interest between policy, political and commercial objectives since line ministries act both as policymakers for the whole sector and shareholders of selected companies,” added the World Bank.
The World Bank has called for the government to enhance governance of SOEs in a bid to also enhance competitiveness in various industries.
“Enhancing governance of SOEs to establish competitive neutrality: Kenya should ensure that subsidies and grants to SOEs are tied to clear public policy objectives and measurable outcomes,” said the World Bank.
