The FINANCIAL — Solomon Islands’ new, commercially oriented state-owned enterprise (SOE) policy will help ensure the government’s public investments remain efficient and profitable, says the Asian Development Bank (ADB).
The SOE Ownership Policy, developed with the support of ADB’s Pacific Private Sector Development Initiative (PSDI), outlines the rationale for SOE ownership, performance expectations, privatization principles, and dividend requirements. Aligned with Solomon Islands’ SOE Act and National Development Strategy 2011–2020, it will guide government investment, oversight, and divestment of SOEs.
“SOEs perform better when they are given the independence to operate on a fully commercial basis, and held accountable for those results,” said ADB Pacific Liaison and Coordination Office Regional Director and Solomon Islands Country Director Ms. Emma Fan. “This policy will protect the commercial mandate of Solomon Islands’ SOEs, and establish a framework for further potential reforms, including public-private partnerships and privatizations.”
The Government of Solomon Islands currently owns 12 SOEs. In 2014, nine of these represented 13% of total fixed capital investment in the economy but contributed only 3% to the country’s gross domestic product (GDP). Although the overall SOE portfolio’s contribution to GDP is relatively low, it remains one of the most profitable in the Pacific. The portfolio’s return on equity went from an average of -11% from 2002–2009 to an average of 9.4% over 2010–2015, 15% in 2016, and 10% in 2017, and its return on assets recorded a similar turnaround.
“The policy outlines the rationale for government investment in SOEs, and the mechanisms through which further investments and/or divestments will be made. It encourages partnerships with the private sector and provides overall guidance on SOE capital structure and dividends. The principles outlined in the policy reflect our government’s commitment to ensuring that all investment in SOEs contributes to public welfare” – said Permanent Secretary of the Ministry of Finance and Treasury Mr. McKinnie Dentana.
“The Solomon Islands government has a responsibility to protect the value of these investments and ensure that they contribute to the overall welfare of all Solomon Islanders,” the policy says. “The performance of the SOE portfolio has a profound impact on the welfare of the Solomon Islands people, given their significance in the economy and their responsibility for delivering a range of essential services.”
PSDI supported the drafting, consultation, and finalization of the new policy, which was endorsed by the country’s cabinet on 15 November 2018. PSDI will continue supporting the Government of Solomon Islands’ efforts to implement the SOE policy through 2019.
PSDI is a regional technical assistance facility undertaken in partnership with the governments of Australia and New Zealand and ADB. PSDI supports ADB’s 14 Pacific developing member countries to improve the enabling environment for business to support inclusive, private sector-led economic growth.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region.