The cash-strapped Keith Mitchell-led New National Party (NNP) government has been advised to sell three heavily loss-making state-owned enterprises – Gravel Concrete & Emulsion Production Corporation, Grenada Marketing & National Importing Board (MNIB) and the Housing Authority of Grenada (HAG).
The recommendation was made by a group known as CARTAC which is an arm of the Washington-based International Monetary Fund (IMF) that is currently helping to supervise the Structural Adjustment Programme (SAP) initiated by the two-year old Mitchell administration.
Over the years, CARTAC has been used by the fund to work almost exclusively in the English-speaking Caribbean with heavy concentration on the territories of the Organisation of Eastern Caribbean States (OECS).
The Mitchell government had invited the consultancy grouping to undertake a review of the financial performance of the state bodies from April to May 2014 and to come up with recommendations for their restructuring.
According to the report that was submitted, CARTAC concluded that Gravel & Concrete was “a loss making” venture with what it described as “a high fixed cost structure”.
It said that the corporation was surviving as a “monopoly” due to the provision of gravel products but had defaulted on existing debts and that although it has valuable assets the state entity was not “earning commercial returns”.
CARTAC concluded that, “Gravel and Concrete is under significant financial stress, and its ability to compete with private operators is questionable. Its current survival depends on inefficient monopolies. There is limited rationale for continuing government ownership and government should strongly consider selling the business.
“Options will be needed that prevent a private monopoly in aggregates being created. This could be achieved by splitting assets, or granting concessions to develop new quarry sites”, it concluded.
In the case of MNIB, the IMF-regulated Consultancy Group noted that although the financial performance of the board in 2013 resulted in a turn around from years of losses there is no guarantee that this projection will continue.
MNIB was set up by the 1979-83 People’s Revolutionary Government (PRG) of late Marxist leader and enjoys a monopoly on the importation of sugar, rice and milk to sustain profitability.
CARTAC notes that MNIB’s legacy is one of EC$9 million of accumulated losses and EC$14.5 million in guaranteed debts from government, adding that as recent asset sale of EC$5 million and a debt restructuring will seek to resolve outstanding debt.
The group of Consultants said that, “the logic of government ownership of MNIB is its support of domestic farmer supplies. While MNIB is profitable, this is possibly justifiable: when MNIB is losing money it is not. The profitability depends on maintaining import monopolies on key staples, suggesting the price of these would drop if the monopolies were removed.
“Current management seems to be turning around performance, but there is no guarantee of sustained profitability. The sale of the business should be contemplated, particularly if performance returns to previous losses”.
CARTAC also painted a bleak picture of the outlook for the Housing Authority which it said was affected by “ongoing losses” and suggested that it “should be wound up, with its low income housing programs taken up by government”.
According to the report, HAG is saddled with a large debt of EC$20 million to the Government of Grenada that falls into the category of “not recoverable”, as well as other debts of EC$6 million to the National Insurance Scheme (NIS) which needed to be restructured.
The Consultants said that HAG’s on-going losses are being funded by “repayment of old loan book”, and that consideration should be given to the wind up of the authority and the sale of lands under its control.
The report notes the following: “The Housing Authority has no recent history of making profits and little prospect of doing so in the future. It has funded its operations from the repayment of its existing loan book, but this is not sustainable. It poses a significant risk of requiring future support, from Government, either through cash or assets. It is largely involved in housing development that could be delivered by the private sector”.
Overall CARTAC pointed out that the state-owned enterprises in Grenada, numbering about twenty-six, face a number of financial and operational challenges and their financial positions can be described as “very weak”.
The review by the Consultants revealed that in 2012, only four state-owned statutory bodies recorded a profit and not one of them made dividend payments to the Government Treasury.
The state bodies, according to the report are plagued by ills such as “high and inflexible cost structures, overly leveraged balance sheets, aging assets, stagnant revenues, and a lack of access to capital to successfully invest and innovate to meet changing market dynamics”.
CARTAC cited the biggest challenge facing the Statutory bodies as “their employment practices” because when it is compared with the traditional public sector, “the total level of wages and the individual salary levels are high”.
The report said: “Pension schemes in some SOEs (Statutory bodies) are overly generous and there are significant unfunded pension liabilities. In addition, the conditions of employment are inflexible, meaning SOEs cannot vary their wage cost base in response to changes in market conditions. In summary, the SOEs seem to have private sector pay levels with public sector conditions of service. Reform of the employment practices in SOEs must be a fundamental component of any future restructuring plans”.