Gov’t proposes tougher rules for State-Owned Enterprises

The government is running out of patience with underperforming state-owned enterprises, signaling a tougher era of active ownership as poor returns, repeated bailouts and weak value creation continue to strain the public purse.

For years, the state has served as a critical financial lifeline for several state-owned enterprises, providing subventions and other forms of support even as returns on public capital remained low. The proposed State-Owned Enterprises Ownership Policy marks a sharp departure from that approach: The government wants its enterprises to deliver measurable public and economic value rather than depend indefinitely on taxpayer support.

Dr. Gape Kaboyakgosi, Permanent Secretary in the Office of the Vice President, presented the policy for stakeholder consultation on Thursday. It proposes a sweeping overhaul of how Botswana establishes, owns, governs and finances state-owned enterprises – and, when necessary, withdraws from them.

The framework would apply to a portfolio of 67 enterprises and comes as the country’s fiscal room has narrowed considerably. The government argues that the deterioration has made chronic underperformance increasingly difficult to absorb.

Kaboyakgosi said the central question was not simply whether the state should own enterprises, but whether the institutional, legal, economic and governance arrangements surrounding public ownership were strong enough to justify it and safeguard the public interest.

The policy seeks to replace what the government considers a fragmented ownership model with a system of active, professional state ownership. It calls for clearer expectations, stronger oversight and tangible consequences for persistent underperformance.

Under the proposed framework, the government would impose tighter limits on when an SOE may be established or retained. Where no compelling public or strategic rationale exists, continued state ownership could be reconsidered. Creating new enterprises would also become more difficult.

Before establishing an SOE, the government would be required to identify the public problem the enterprise is meant to address and demonstrate why state ownership is necessary. Officials would then assess whether the same function could be performed by an existing SOE, a government department or another delivery mechanism.

One of the most consequential proposals is a hybrid governance model intended to separate the state’s sometimes conflicting roles.

Line ministries would continue to set sector policy, exercise ownership rights, nominate board members and approve major strategic decisions. Sector regulators, by contrast, would operate independently and apply the same rules to public and private businesses.

A proposed central Oversight Authority would serve as an intermediary between the state, in its capacity as owner, and the broader SOE portfolio. It would establish common governance standards, approve board nominees, monitor performance and enforce compliance.

The government says that a clearer division of responsibilities would help curb conflicts of interest, political interference and unequal treatment of public and private operators.

The Oversight Authority would consolidate expertise now dispersed across several institutions. These include functions associated with PEEPA, the Botswana Accountancy Oversight Authority and the Enterprise Development Policy Unit, as well as relevant responsibilities within the Ministry of Finance.

The aim is to pool institutional expertise and create a single, portfolio-wide view of governance, financial performance and risk. Linked to the Presidency, the authority would oversee common standards, board-nominee approvals, portfolio monitoring, regulatory compliance and SOE rationalization.

The policy envisions eventually granting the authority statutory powers, including the ability to enforce performance requirements and impose consequences when enterprises fail to meet their obligations.

Board quality and independence are also central to the proposed ownership policy.

Appointments would be based on merit, relevant expertise, integrity and fit-and-proper requirements. Boards and individual directors would undergo annual evaluations, supported by skills matrices intended to identify deficiencies in expertise and institutional capacity. Specialist committees responsible for audit, nominations, remuneration and integrity would also be strengthened.

Kaboyakgosi argued that the effectiveness of the corporate governance system depends, at its core, on the people entrusted with overseeing public enterprises.

The proposed model would extend beyond an assessment of professional qualifications and experience. It would also examine whether prospective directors are equipped to fulfill fiduciary and oversight responsibilities involving public assets.

Another major proposal concerns public-service obligations. When the government directs a commercial SOE to undertake an activity for social or public-policy purposes, that obligation would have to be identified separately, properly costed and explicitly funded.

The framework also seeks to impose greater discipline on requests for additional capital and government assistance. New capital injections would require detailed business cases and cost-benefit analyses, while information about SOE debt, government guarantees and contingent liabilities would be made more transparent.

The policy proposes a “no-automatic-bailout” principle, signaling that government assistance should no longer be treated as an assured source of financing for enterprises in distress.

Four principal instruments would underpin the proposed accountability system.

A Letter of Expectations would set out the government’s priorities before the start of each financial year. A Shareholder Compact would establish annual commitments among an SOE, its responsible ministry and the Oversight Authority.

A Statement of Corporate Intent, covering a rolling three-year period, would outline strategy, key performance indicators, risks and dividend expectations. An annual Aggregate Performance Report would provide a consolidated assessment of the entire SOE portfolio.

The policy proposes that key accountability documents and performance information eventually be subject to parliamentary scrutiny and public disclosure.

Each enterprise would be assessed to determine whether it continues to serve a legitimate public purpose and whether its existing institutional structure remains appropriate. The proposal is not confined to improving the performance of current SOEs; it also acknowledges that some enterprises may no longer have sufficient justification to remain in the government’s portfolio.

The policy is expected to be followed by an extensive legislative program.

A new SOE Ownership and Governance Act would establish the central ownership framework, including the Oversight Authority, ownership rights, board appointments, accountability instruments, sanctions and fiscal controls.

A separate Public Bodies Governance Act would set governance and accountability standards for statutory bodies and regulators. The government is also considering a later State Holdings Act that could establish an arm’s-length holding structure for suitable commercial assets.

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