An Analysis of the Performance of State- Owned Enterprises in Namibia: Case Studies in the Transport Sector by Cedric Mwanota Limbo Dissertation presented for the degree of Doctor of Philosophy in the School of Public Leadership, Faculty of Economic and Management Sciences at Stellenbosch University Supervisor: Prof Erwin Schwella Co-supervisor: Dr Dirk Brand April 2019 Stellenbosch University https://scholar.sun.ac.za STATEMENT/DECLARATION By submitting this dissertation electronically, I declare that the entirety of the work contained therein is my own, original work, that I am the owner of the copyright thereof (unless to the extent explicitly otherwise stated) and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Date: April 2019 Copyright © 2019 Stellenbosch University All rights reserved ii Stellenbosch University https://scholar.sun.ac.za ABSTRACT The classical view of state-owned enterprises (SOEs) has typically been framed around dimensions of efficiency, productivity and administrative bureaucracy (Cuervo-Cazurra, Inkpen & Musacchio, 2014). A number of theoretical perspectives, namely the property rights school, the public choice tradition, the neoclassical approach, the behavioural approach and the budget-maximising approach, have been used to model SOEs (Lawson, 1994). Despite a long theoretical interest in modelling SOEs, and their large impact on the global economy, challenges still exist to develop a comprehensive theory of SOEs (Peng, Bruton, Stan & Huang, 2016). It is generally argued that SOEs have the potential for good governance, efficiency and better service delivery through enhanced performance. However, most SOEs do not reach these ideals. This situation justifies the need to study and carefully appraise options for injecting higher performance into SOEs if they are to play a meaningful role in achieving Vision 2030 – the vision of Namibia to become an industrialised country by 2030. The primary objective of this dissertation was to analyse the performance of SOEs in the transport sector and to identify factors that have contributed to the high or low performance of these SOEs. Several arguments have been made about the inefficiency and poor service delivery of SOEs. According to Steytler (2009:19), “[t]he poor financial performance of state owned enterprises have [sic] often been attributed to weak management practices of the CEOs of these institutions”. The ‘bureaucrats in business’ thesis by the World Bank (1995) advances a contrary view, i.e. that bureaucrats who run state-owned enterprises should not be blamed for all the ills of these companies since they are not necessarily incompetent but rather have to deal with contradictory goals and perverse incentives. Although the study confirmed most of the foregoing arguments, further analysis of the performance of SOEs in Namibia revealed that SOEs do not necessarily underperform simply because they are state-owned but because of the way that they are managed. With this revelation in mind, the study developed a model that could be helpful to address this situation, namely the performance of SOEs. Without going into the merits and demerits of the different methodologies, this study opted to use a mixed methods (pragmatic) approach. This allowed the researcher to adopt the best-suited approach to the research problem without getting caught up in the philosophical debates about which one is the best approach. iii Stellenbosch University https://scholar.sun.ac.za OPSOMMING Die klassieke siening van ondernemings in staatsbesit (SOE's) het tipies is opgestel om dimensies van doeltreffendheid, produktiwiteit en administratiewe burokrasie (Cuervo-Cazurra, Inkpen & Musacchio, 2014). '’n Aantal teoretiese perspektiewe, naamlik die eiendomsreg skool, die openbare keuse tradisie, die neo-klassieke benadering, die gedragsbenadering en die begroting maksimalisering benadering, is gebruik om ondernemings in staatsbesit (Lawson, 1994) se model. Ten spyte van 'n lang teoretiese belangstelling in modellering SOE's, en hul groot impak op die globale ekonomie, uitdagings bestaan steeds 'n omvattende teorie van SOE's (Peng, Bruton, Stan & Huang, 2016) ontwikkel. Dit is oor die algemeen aangevoer dat SOE's het die potensiaal vir goeie bestuur, doeltreffendheid en beter dienslewering deur verbeterde prestasie. Maar die meeste ondernemings in staatsbesit nie hierdie ideale te bereik. Hierdie situasie regverdig die behoefte om te studeer en versigtig beoordeel opsies vir die spuit van hoër prestasie in SOE's as hulle na 'n betekenisvolle rol in die bereiking van Visie 2030 te speel - die visie van Namibië na 'n geïndustrialiseerde land geword in 2030. Die primêre doel van hierdie verhandeling was om analiseer die prestasie van ondernemings in staatsbesit in die vervoersektor en om faktore wat bygedra het tot die hoë of lae prestasie van hierdie SOE's te identifiseer. Verskeie argumente gemaak oor die ondoeltreffendheid en swak dienslewering van SOE's. Volgens Steytler (2009: 19), "[t] hy swak finansiële prestasie van ondernemings in staatsbesit het [sic] dikwels toegeskryf aan swak bestuurspraktyke van die uitvoerende hoofde van hierdie instellings". Die "burokrate in besigheid 'n tesis deur die Wêreldbank (1995) bevorder 'n teenoorgestelde mening, naamlik dat burokrate wat ondernemings in staatsbesit loop nie moet die skuld vir al die euwels van hierdie maatskappye omdat hulle nie noodwendig onbevoeg maar eerder te doen het met teenstrydige doelwitte en verdraaide aansporings. Alhoewel die studie bevestig die meeste van die voorafgaande argumente, verdere ontleding van die prestasie van ondernemings in staatsbesit in Namibië aan die lig gebring dat SOE's nie noodwendig net onderpresteer omdat hulle in staatsbesit, maar as gevolg van die manier waarop hulle bestuur word. Met hierdie openbaring in gedagte, die studie ontwikkel 'n model wat nuttig om hierdie situasie, naamlik die prestasie van ondernemings in staatsbesit aan te spreek kan wees. Sonder om in die meriete en nadele van die verskillende metodes, hierdie studie gekies om 'n gemengde metodes (pragmatiese) benadering gebruik. Dit het die navorser tot die beste geskik benadering tot die navorsingsprobleem aan te neem sonder om gevang in die filosofiese debatte oor watter een is die beste benadering. iv Stellenbosch University https://scholar.sun.ac.za ACKNOWLEDGEMENTS I have many people to thank for their contributions to the successful completion of this dissertation. I am especially grateful to: ● Firstly, my wife Ntelamo and our children (Miyano, Charmaine, Lumba, Notulu and Mwilima) for their support and understanding during the taxing time of my studies. ● Secondly, my mom (Mrs Ester Limbo) and dad (Mr Patrick Limbo) for their continuous encouragement throughout my studies. ● Thirdly, my supervisors, Dr Dirk Brand and Prof. Erwin Schwella, for guiding me and sharing their invaluable insights and knowledge with me. ● Lastly, my fellow PhD Athenaeum members for many stimulating and thought-provoking discussions during our block meetings. My appreciation goes out to you all for the important roles that you have played in what I now call my success. God bless your efforts and contribution to my achievement. v Stellenbosch University https://scholar.sun.ac.za TABLE OF CONTENTS STATEMENT/DECLARATION ii ABSTRACT iii ACKNOWLEDGEMENTS v LIST OF FIGURES xi LIST OF TABLES xiii ANNEXURES xiv CHAPTER ONE: ORIENTATION AND OVERVIEW 1 1.1 Introduction 1 1.2 Study Background 2 1.3 Namibian SOEs 3 1.4 Research Problem 7 1.5 Research Aim 8 1.6 Research Objectives 9 1.7 Research Questions 9 1.8 Research Design and Methodology 9 1.9 Significance of the Study 13 1.10 Scope of the Study 14 1.11 Outline of the Study 14 CHAPTER TWO: STATE-OWNED ENTERPRISES IN NAMIBIA – CONTEXT AND CHALLENGES 17 2.1 Introduction 17 2.2 A Historical Overview of SOEs in Namibia 18 2.3 Challenges of SOEs in Namibia 22 2.3.1 Mismanagement 25 2.3.2 Problems with bureaucracy 27 2.3.3 Lack of transparency 28 2.3.4 Administrative and institutional arrangements 29 2.3.5 Problematic monopolies 30 2.3.6 Whether or not to privatise 31 vi Stellenbosch University https://scholar.sun.ac.za CHAPTER THREE: THE PERFORMANCE OF STATE-OWNED ENTERPRISES AS GOVERNANCE AND SERVICE DELIVERY INSTRUMENTS: A LITERATURE REVIEW 34 3.1 Introduction 34 3.2 SOEs: What are they and why do they exist? 34 3.3 SOEs: Theoretical Perspectives 35 3.4 Managerial Control vs Autonomy 36 3.5 Recent Extensions to Theories on SOEs 37 3.6 The Concept of Corporate Governance in SOEs 40 3.7 Principles of the Governance of SOEs 41 3.8 The Seven Pillars of Good Corporate Governance 44 3.8.1 Discipline and shareholder activism 44 3.8.2 Transparency 47 3.8.3 Independence 48 3.8.4 Accountability 49 3.8.5 Responsibility 50 3.8.6 Fairness 51 3.8.7 Corporate social responsibility 51 3.9 Governance Principles, Models and Theories 53 3.9.1 Artificial personality theory 54 3.9.2 The agency theory 58 3.9.3 The stewardship theory 59 3.9.4 The stakeholder theory 62 3.9.5 Political theory 65 3.9.6 Resource dependency theory 66 3.9.7 Transaction cost theory 67 3.10 The Overarching Responsibility of the Board of Directors 68 3.11 State Ownership and Corporate Governance 71 3.12 Chapter Summary and Conclusion 73 CHAPTER FOUR: TRANSPORT-ORIENTED STATE-OWNED ENTERPRISES IN NAMIBIA: A POLICY, LEGISLATIVE AND INSTITUTIONAL CURRENT REALITY PERSPECTIVE 75 4.1 Introduction 75 4.2 Policy Framework Governing SOEs in Namibia 76 vii Stellenbosch University https://scholar.sun.ac.za 4.3 The Legal Framework of SOEs in Namibia 78 4.3.1 The constitutional framework 78 4.3.2 Governing acts and institutional arrangements 80 4.3.2.1 The Public Enterprises Governance Act No. 2 of 2006 (as amended) 80 4.3.2.2 The SOE Council 80 4.3.2.3 Disclosure and related corporate governance rules 85 4.3.2.4 Governance agreements 87 4.4 Legislation of Specific Transport Sector SOEs 88 4.4.1 National Transport Services Holding Company Act (No.