Parliament should be more actively involved in solving the inefficiency of state-owned enterprises

For three decades now, inefficiency in the management of state-owned enterprises has remained an unresolved problem. Under all governments, most state-owned enterprises remain unprofitable, often financed by the state budget, and unable to play their important role in the development of the country’s economy. In light of the above problems, there is constantly a suspicion that state-owned companies are used to employ henchman of ruling political party by every government and they have no real purpose in economic processes.

Despite the existent policies of privatization and liquidation of state-owned enterprises for years, hundreds of inefficient and budget-funded state-owned enterprises are still owned by state and municipality. According to the financial risk analysis document submitted to the Parliament by the Ministry of Finance, the loss of state-owned enterprises in the last seven years has exceeded a total of 3 billion GEL. In 2019, state-owned companies lost 380 million GEL.

In June 2019, the Sector Economy and Economic Policy Committee of the Parliament launched a thematic inquiry on the effectiveness of state-owned enterprises, which was aimed an in-depth investigation of inefficiency problem in the management of state-owned enterprises and development of recommendations for all relevant agencies.

The problems identified by the Thematic Inquiry Group confirm that the inefficiency of state-owned enterprises is caused by issues existing at all levels of management, both in terms of defining the state policy and strategy and real management by partners/shareholders of state enterprises, as well as internal management, transparency and prevention of corruption in such enterprises. In particular, among many other problems, the group identified the following major problems:

- There is no written document describing the procedure for the establishment and liquidation of state-owned enterprises;

- There is no written long-term or short-term plan or strategic vision, that would allow potential investors to make forecasts concerning the privatization process and view of state about state-owned enterprises;

- There is no research about the state-owned enterprises affecting the business environment in different fields and whether their existence contributes to the creation of a competitive environment in the market;

- In most cases, heads of state-owned enterprises do not have experience of working in the private sector, which negatively impacts the efficiency of the management of state-owned enterprises;

- There are no criteria or standards for measuring the efficiency of management of state-owned enterprises, which ultimately affects their condition;

- It is not clear what principles and criteria are used to determine the governing body performing the authority of partners, the actual decision-makers are not identified, it is unclear based on what principles the decisions of partners are made or the monitoring of their implementation is executed;

- There are no criteria for selecting and appointing directors. The position of director is mainly held by public officials who have no experience in managing a private company;

- There are no criteria and an assessment system for evaluating the performance of directors;

- Access to information in state-owned enterprises is very low, which reduces the degree of transparency of state-owned enterprises.

In response to these problems, the report of the Thematic Inquiry Group provides a number of recommendations to the Government and suggests establishing a Coordinating Council to eliminate all deficiencies or problems and preparing strategies and other documents by the executive government.

Although the Thematic Inquiry Group has identified significant issues in terms of inefficiency in the management of state-owned enterprises, it is not sufficient to instruct only the government to take all necessary measures to address the problems:

- The Parliament should develop state policy and strategy concerning the management of state-owned enterprises;

- Based on the results of the thematic inquiry, the Committee has not instructed the government to draft and initiate all necessary legislative amendments;

- Within ten months after the end of the work of the Thematic Inquiry Group, the Parliament did not initiate even a single bill.

The Sector Economy and Economic Policy Committee of the Parliament should ensure that recommendations are developed to address the issues identified by the Thematic Inquiry Group, which will be adequate and sufficient to deal with the long-standing problem of inefficient management of state-owned enterprises.