Optimizing the Governance and Performance of Public Enterprises In Cameroon

By Steve Tametong, Ph.D, (Download Pdf Version)

Optimizing The Governance And Performance Of Public Enterprises In Cameroon: a Pressing Need

Introduction

Defined as economic units with legal and financial autonomy carrying out industrial and commercial activities and whose share capital is wholly or mainly held by a legal person under public law, public enterprises occupy a major place in the economic development policy of the State in Cameroon. The many reforms that have taken place in this key sector have, for the most part, been directed towards the search for performance and the promotion of sound corporate governance.

However, this double objective remained a real challenge under the empire of law n°99/016 of December 22, 1999 on the general status of public establishments and public and semi-public sector companies, which had repealed order n°95/003 of August 17, 1995 governing public and semi-public sector companies. To echo this, the Technical Commission for the Rehabilitation (CTR) of public and parapublic sector companies revealed in its 2019 Report that the 50 public entities whose performance was analysed showed a 15.7% drop in turnover compared to the 2018 financial year, and an overall net result of CFAF -59.5 billion, down by -6.4% compared to 2018. Also, the biggest losses were recorded in the combined sectors of “hydrocarbons, water and electricity” and “industry and commerce“. Moreover, out of a target of 53 billion in 2019 for contributions from public enterprises to the state budget, only 12 billion had been paid out by the end of the year, i.e. an achievement rate of 21.94%. These under-performances are the result of an extraverted governance whose causes are not exclusively managerial. According to Professor Henri Modi Koko Bebey, “political and administrative burdens also explain, at least in part, the poor results obtained so far”.. Therefore, the link between governance and the performance of public enterprises is inseparable.

This policy brief is intended to be a plea for strengthening the performance-oriented governance of public enterprises. To achieve this, it first outlines the renovated legal framework and highlights the classification of public enterprises (I); then, it questions, based on a few illustrative cases, the governance of public enterprises and its impact on their performance (II); finally, it makes recommendations for better governance to improve the performance of public enterprises in Cameroon (III).

I. The renovated legal framework and the classification of public enterprises

The reform of the legal framework of public enterprises through Law n°2017/011 of 12 July 2017 seems to be a response to the governance crisis affecting the performance of public enterprises in Cameroon. From the outset, this law innovates by its title. It makes the legal regime of public enterprises autonomous, which for a long time was attached to that of public establishments through Law n°99/016 of December 22, 1999 on the general status of public establishments and enterprises in the public and semi-public sector. Beyond the identification of the company with public capital and the semi-public company as public companies, the law permeates the functioning of public companies with the market logic of the private sector. The concepts of “profitability”, “profitability”, “programme budget”, “performance report”, “audit” and “management control” clearly reflect this new managerial philosophy oriented towards the search for performance. To this system, we can add Law n°2018/011 of 11 July 2018 on the code of transparency and good governance, Law n°2018/012 of July 11, 2018 on the financial regime of the State and other public entities and Decree n°2018/355 setting the common rules applicable to the contracts of public enterprises.

Beyond this legislative base, several regulatory texts complete the legal framework of public enterprises in Cameroon. These are the:

• Decree n°2019/320 of June 19, 2019 specifying the modalities of application of certain provisions of laws n°2017/010 and 2017/011 of July 12, 2017 on the general status of public establishments and public enterprises;
• Decree n°2019/321 of 19 June 2019 to lay down the categories of companies, the remuneration, allowances and benefits of their managers;
• Order n°00000201/MINFI of 04 May 2020 to classify public enterprises in Cameroon.

With regard to the classification of public enterprises, a combined reading of Decree No. 2019/321 of 19 June 2019 to determine the categories of enterprises, remuneration, indemnities and benefits of their managers and Order No. 00000201/MINFI of 4 May 2020 to classify public enterprises in Cameroon allows us to say that the criterion for classifying public enterprises is turnover, i.e. the “amount of sales during a given period in a given geographical area”.. If this criterion is not contestable, we must agree with Professor Anoukaha François that the criterion based on the company’s net result would have been more decisive because it takes into account the exact competitiveness and profitability of the company.. But on closer inspection, a combination of the dual criterion of turnover and net profit proves more effective in classifying public enterprises.

In any case, it appears that public enterprises are classified into five (5) categories:

• First (1st) category companies whose average turnover for the last three (03) fiscal years is over CFA francs one hundred (100) billion; ;
• Second category companies whose average turnover for the last three (3) fiscal years is greater than CFA francs fifty (50) billion and less than or equal to CFA francs one hundred (100) billion; ;
• Third (3rd) category companies whose average turnover for the last three (3) fiscal years is greater than CFA francs ten (10) billion and less than or equal to CFA francs fifty (50) billion ;
• Fourth (4th) category companies whose average turnover for the last three (03) fiscal years is greater than five (5) billion CFA francs and less than or equal to ten (10) billion CFA francs; ;
• Fifth (5th) category companies whose average turnover for the last three (03) fiscal years is less than or equal to five (5) billion CFA francs.

Although the renovation of the legal framework and the classification of public enterprises have led to significant progress, poor governance remains a factor in their underperformance.

II. Poor governance, a factor in the poor performance of public enterprises

Public enterprises can promote or hinder economic and social development depending on whether or not they operate according to the rules of good governance. In accordance with the Guidelines of the Organisation for Economic Co-operation and Development (OECD), the governance of public enterprises is based on a set of requirements including, among others, the clarity of the legal regime applicable to public enterprises, the determination of the competences of each management body (General Assembly, Board of Directors, General Management) the precise delimitation of the role and mandate of corporate officers, transparency in management, the definition of measurable and achievable performance objectives, the collaborative participation of all stakeholders, the rendering of accounts, the operationalisation of controls, the bringing into play of the responsibility of corporate officers, and the sanctioning of the latter in the event of management misconduct..

The performance deficit of public enterprises in Cameroon is the result of poor or even calamitous governance. This is due, firstly, to the fact that public enterprises are subject to a dual legal regime under both OHADA law and national law. According to Article 10 of the 2017/011 law, “public enterprises are constituted in the form of a public limited company and operate in accordance with the provisions of the OHADA Uniform Act on the law of commercial companies and economic interest groups as well as the provisions of this law”. If the objective sought by the operationalisation of this dual legal regime was to promote better governance and performance of public enterprises, it must be clearly admitted that this is a source of permanent confusion and ambiguity, “because according to the situation or interests of the moment, enterprises can be considered as public entities with all the consequences that this implies for their legal regime. Conversely, the same public companies will revert to being legal persons under private law each time they have to justify their commercial activities..

Clearly, the solution does not lie in the removal of public companies from the law of commercial companies, which “amply embodies the requirements of good governance“.. Despite the public financing of the capital of these companies, it would be advisable to rigorously supervise the very often untimely interventions of the State in this sector. For example, the President of the Republic should be deprived of the power to appoint all the leaders of the social organs (CEO, DDG, Chairman, administrators) of certain public companies and a rational choice of these should be made based on proven competence and moral probity.

Downstream, poor governance is essentially due to the unlimited exercise of mandates by company directors, the absence of accountability, a plethoric and non-productive human resource, opacity in management, overlapping competences of bodies (the minister in charge presides over the board of directors), paralysing supervision, and an abysmal and unvirtuous debt. To be convinced of this, it is sufficient to look at the governance of a few public companies as an example.

Born on the ashes of the defunct Cameroon Airlines (CAMAIR), CAMAIRCO was created in 2006. The poor governance of this company is due to several factors. The first determinant is the very rapid turnover of the social directors.. Indeed, it appears that in the space of ten (10) years, seven (7) general managers have succeeded each other at the head of this company.. If this permanent upheaval of the top management (CEO and Chairman) does not allow for the implementation of a sound policy for the long-term growth of the company, the combination of the functions of supervisor and Chairman is an open door to underperformance. The second determinant is the mismatch between the company’s profitability and the wage bill.. The third driver is the lack of a company-owned fleet.. This has inevitable consequences on the performance of this public company, which is deeply indebted and artificially kept alive thanks to “financial perfusions” from the State.

As regards the cotton development company (SODECOTON), beyond the absence of a real policy of competitive profitability, this company has long been marked by the “acute entrenchment” of the managing director.. This is also the case at the national hydrocarbons company (SNH) where the general manager has been in office for more than 25 years. The same is true of the National Investment Company (SNI), where the director general has presided over the company’s destiny since 2002. It is by a decree of 06 December 2019 that the President of the Republic has proceeded to replace the Director General of the National Centre for Studies and Experimentation of Agricultural Machinery (CENEEMA) in office since 1974, or 45 years.

This tendency towards the “fossilisation of general managers”, coupled with the lack of transparency in management, is a factor in the underperformance of public enterprises, performance being understood as “the capacity to carry out an action to obtain results, in accordance with previously set objectives, while minimising the costs of resources and implementation processes”.. According to the report of the Technical Commission for the Rehabilitation of Public and Para-public Sector Enterprises (CTR) published in 2020, the overall net performance deficit of 50 public entities analysed is minus CFAF 59.5 billion. It is important to point out that the performance of these entities is hampered by the overly expensive remuneration of the managers of public enterprises. Far from proceeding to a “rationalisation decrease“, one is tempted to think with Théophile Nguimfack that the decree of 19 June 2019 fixing the categories of public enterprises, the remuneration, allowances and benefits of their managers has rather proceeded to a revalorisation of the salary of these managers. It is now necessary to promote virtuous governance in public companies to ensure performance.

III. Towards a governance that enhances the performance of public companies

In a report published in May 2021, the International Monetary Fund (IMF) formulated a set of recommendations aimed at strengthening the monitoring, governance and control of budgetary risks in the management of public enterprises in Cameroon. While some of these recommendations have already been taken into account in the National Development Strategy (NDS30), such as the gradual privatisation of companies operating in highly competitive sectors or the preparation of programme budgets by public companies, other recommendations are difficult to implement due to certain contextual deviations.. These are mainly due to the political influence on the public enterprise sector. In other words, the performance of public enterprises is sometimes dependent on a set of decisions emanating from the highest authority of the State, namely the President of the Republic. One example is the decision to change the managers of public enterprises that have already exceeded the legal term limit. It is imperative that public companies, although they are part of the state’s patrimony, be freed from the excessive influence of politics.

But substantially, the performance of public enterprises depends on a series of initiatives to be taken by the State. These include:

• the clear development of a harmonised shareholder state policy;
• the precise determination and permanent updating of an exhaustive directory of public enterprises
• the identification of reciprocal claims and debts between the State and public enterprises and between public enterprises themselves
• redefining the role of boards of directors, which are considered to be places for rehousing or rewarding political allies;
• respecting the procedures for prior examination by the National Public Debt (CNDP) of any indebtedness or recourse to the state guarantee on the part of public companies public enterprises;
• the development of a roadmap and the assignment of clear performance targets to public enterprises;
• respect for term limits for the managers of public enterprises
• Rationalisation of the treatment of managers of public companies;
• strengthening the control and audit mechanisms of public enterprises;
• Controlling the risks associated with the excessive indebtedness of public companies;
• strengthening the coordination of technical and financial supervision;
• the prohibition of holding both the functions of supervisor and chairman of the board of directors at the same time;
• the periodic evaluation of the performance of companies on the basis of predetermined criteria;
• the sanctioning of managers of public enterprises who are found guilty of financial malpractice or misappropriation of the assets of the public enterprise.

Conclusion

Overall, the 2017 reform is still slow to improve the image of the public enterprise sector, which has long been tarnished by governance that is not very performance-oriented. Thus, some public enterprises are still slow to align their organisation chart with the law on commercial companies despite the expiry of the one-year deadline (12 July 2018) provided for by the 2017/011 law. Similarly, the appropriation of the management tools prescribed by the law remains limited (development of financial policy, performance report, framework for monitoring and evaluation of performance by the supervisory authority, dissemination of information via an updated website). In addition to qualified and competent human resources, the performance requirement that is now incumbent on public enterprises leads one to share the opinion of Viviane Ondoua Biwole according to which “we can no longer continue with a lax, lifeless, or even paternalistic management of public enterprises, make counterproductive choices and participate in the bankruptcy of public enterprises (…)”.. The time has come to change the “governance software” of public enterprises in Cameroon.