Performance, independence, keys to organisational reform

In every budget speech, the Minister of Finance, regardless of political dispensation, speaks glowingly of the importance of foreign direct investment as though it were the only tool available to leverage national economic growth.

But as every businessman knows, investors seek to not only recover their capital but also seek a substantial return — the higher the risk, the bigger the potential return.

Large inflows of direct investment are a double-edged sword; it is necessary as long as it adds net positive benefits. But it also has to be repaid.

This begs the question of how we reinvest the profits from the national enterprises (NP, NGC and Petrotrin) and whether they are operating and compete according to international standards.

The NGC chairman is on record as boasting about the high level of profits enjoyed by the firm. This in part explains why the budget deficit has been kept moderate.

The dividends have been used by the state to mitigate the expenditure deficit. This is what the IMF has referred to in the 2014 Article IV consultation as “ad hoc measures” whilst complaining that there has been no “sustainable medium-term strategy” to adjust the persistent national budget deficit.

This approach is short-term and unsustainable from an investment perspective. Gas shortages abound, and the deadline date to alleviating this situation has shifted from 2015 to 2018 as the next best guess.

In the meantime, Petrotrin and NP cannot compete at the international level, and some products do not meet even the Trinidad and Tobago Bureau of Standards’ requirements on a consistent basis.

Petrotrin is unprofitable and burdened with the cash-flow demands of meeting the government’s subsidy requirements, which is repaid in a haphazard manner, if at all.

South Korea and many of the Asian tigers started off with the same impediments that we did. Today, South Korea is a leader in engineering capacity.

Where a fishing village stood 50 years ago, a modern shipbuilding facility now stands, building the largest offshore gas-producing LNG plant known to man. Yet after 100 years of involvement in the energy sector, Trinidad and Tobago is not known as a leader in any energy sector technology.

Now we need a different level of strategic thinking and a different approach.

In general, state enterprises have been cursed by poor direction and decision-making, weak administrations and inadequately framed policy.

Directors have generally been recruited from amongst the party faithful as a “reward,” rather than being tasked with improving the companies’ operations, and the policy guidelines have been weak.

Infrequently, some institutions have been lucky to have had competent chairmen who have some understanding of business strategy and who know how to run a business.

Similarly, some organisations have had skilled management, notwithstanding the poor pay scales compared to their private-sector counterparts. These have been the exceptions.

Whatever the intention, the Ministry of Finance has not been structured to ensure either the commercial success of its investments or to ensure that they can be managed sustainably.

What do we need to do?

First, there must be no political influence or interference. To achieve this, there should be a buffer between the state-owned enterprises and the ministries.

State-owned enterprises that are meant to operate commercially should be run under the umbrella of a holding company in accordance with international best practices.

The task of the Ministry of Finance is to set the guidelines and policy direction in keeping with the country’s broad national objectives and should keep its fingers out of the management.  

Second, starting with the energy-sector companies, they must operate at world-class standards and achieve world-class results.

To do this, we must recruit the best and pay them at rates which are not constrained by the public-service pay scales.

This pay scale has to be matched by performance levels and incentives. Where the performance is not up to the required standard, managers should be shown the door.

Third, we need similar changes in competence, training and recruitment among key ministries which are meant to be part of this change process.

Whilst Petrobras in Brazil has been able to achieve international standards and develop world-class competencies, recent events have shown that it was not able to withstand political interference and greed.

The relevant example to follow, rigorously, and improved upon where possible, is the Singapore model (Temasek Holdings), where meritocracy remains its cornerstone.

This approach should be followed across other state enterprises. There is nothing that says that state enterprises should be non-performers.

For example, TTBizLink was developed in conjunction with Crimson Logic, a Singaporean software development company that has achieved competence and an international reputation based on its role in Singapore’s transformation process.

It did not get there overnight. It started by being part of the rollout of a technology vision for the country and continued to develop over time.

Where this possibility cannot be envisioned with other state enterprises, the minimum requirement should be that we change the governing law and follow the model of New Zealand, where the role of the enterprise is clearly articulated and the power of the minister is clearly defined by omnibus legislation.

We owe it to ourselves to move away from our current model, which is bankrupt. The time to start is now.