Parastatals must run like businesses to tick

In the 23rd edition of the Malawi Economic Monitor (MEM) unveiled in Lilongwe last week, the World Bank highlighted a sobering reality: most of the country’s State-owned enterprises (SOEs) remain financially weak and dangerously dependent on State support.

These parastatals suffer from weak cash flows, poor debt-ser vicing capacity and declining dividend contributions to their sole shareholder, the Malawi Government.

Presenting these findings in a special analytical chapter titled ‘Reforming State-owned enterprises for better services’, the World Bank noted that hidden costs arise from quasi-fiscal activities as the public enterprises routinely provide goods and services below cost-recovery levels, triggering debt accumulation, deferred investment and a sharp decline in service quality.

I must say that there is nothing inherently new in these findings. The exact same problems and solutions are outlined year in and year out in the Malawi Government Annual Economic Report alongside national budget documents. The issue has been debated across multiple platforms, including the Malawi Public Sector Reforms Programme.

Perhaps the only difference this time is that the World Bank is holding up the mirror. As poet Felix ‘Njonjonjo’ Katsoka famously recited, attention may finally be given because “tikudikira mzungu kuti ndiye azatiuze chochita”, loosely translated to mean that we tend to act only when ‘a European’ tells us the obvious.

Reading the Business News cover story titled ‘State firms’ hidden costs up to K640 billion’ on Monday, one is left shell-shocked. This massive loss is equivalent to two percent of our gross domestic product (GDP).

These bleeding vulnerabilities come in the form of heavy subsidies that expose growing fiscal risks. Ironically, the SOEs sector has expanded significantly, with total assets rising from 14 percent of GDP in 2019 to 26 percent in 2024. Yet, this expansion has produced zero corresponding improvements in performance.

An analys is of the government’s 2025 Consolidated SOEs Report shows that commercial entities swallowed K292.17 billion in government grants between 2022 and 2025 alone. Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha conceded that SOEs remain financially weak and operationally inefficient, but argued that reforms must recognise the social functions some public enterprises perform.

Granted, SOEs in the water and energy sectors provide utility services that carry a heavy social component. This mandate has turned them into quasi-monopolies, yet they still struggle to stay afloat. ‘

But social obligations alone cannot excuse financial bankruptcy. The World Bank correctly notes those technical losses, overstaffing, weak revenue collection and deeply entrenched governance flaws are the true drivers of this decay.

Until we address these underlying structural issues, it will remain the “shame old story”. Our “sick babies” will forever languish on life-support. Meanwhile, the only star performers will remain regulatory parastatals whose revenue streams rely on mandatory license fees and statutory levies.

The biggest culprit behind this underper formance is political interference. Furthermore, the Malawi Government is a hypocritical shareholder ; its own ministries, departments, and agencies (MDAs) owe utility parastatals colossal, unpaid bills.

As I argued in my previous article, ‘Corporate governance in the reforms era’, political interference completely compromises executive recruitment . Merit must strictly inform the appointment of chief executive officers and boards.

They must be given rigid performance targets if we are to move forward. Finance and corporate strategy professor James Kamwachale Khomba similarly attributes this systemic underperformance directly to deficient leadership styles.

Instead, handpicking top executives like cherries has become the order of the day and merit is relegated to the dustbin. Stage-managed recruitment interviews pass as meritocracy while politically-connected individuals emerge as “successful” candidates.

Transforming SOEs into profit-making entities that pay dividends requires an absolute embrace of best practices in corporate governance.

A colleague who transitioned from senior management in the private sector to a parastatal recently summed up the malaise perfectly: “There is too much political influence and patronage. There are no performance targets. The main qualification here is political loyalty.”

SOEs will continue to be a severe fiscal burden rather than a national asset as long as we maintain this business-as-usual conduct while expecting a different result. Doing the same thing repeatedly and expecting success is the literal definition of insanity

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