Madagascar - Competition from State-Owned EnterprisesMadagascar - Competition

The state has shares in fifty-three companies in a wide range of sectors to include: tourism, downstream petroleum distribution, telecommunications, agribusiness, insurance, fisheries, transportation, real estate, mining, and energy. Of these, ten enterprises are wholly owned by the government, including the managing company of the country’s largest port and the monopoly electric and water utility. An additional ten enterprises have majority share-holding by the state, including the national airline, with 89 percent state ownership. The total capitalization of the ten wholly-owned enterprises was estimated at $70.5 billion in 2014, including $52 billion for the electric and water utility. Complete figures on numbers of people employed by state-owned enterprises (SOE) were not available. The Directorate General of the Treasury within the Ministry of Finance maintains a list of companies with state share-holding on its website: http://www.tresorpublic.mg/?page_id=214&content=temp&type=statistique.

State-owned enterprises purchase from and supply goods and services to the private sector. There are no reports of discrimination in favor of SOEs in regards to government contracts, taxation, or material advantage. However, certain SOEs maintain monopolies and are regularly subsidized by the state, namely the national airline and water and electric utility. In theory, SOEs are subject to hard budget constraints under the annual budget and finance law approved by the national parliament. In practice, the major SOEs, in particular the national airline and electric and water utility, are a consistent drain on the national budget as the state is repeatedly forced to absorb their losses. The percentage of funds allocated to research and development by the major SOEs is generally insignificant to non-existent.

OECD Guidelines on Corporate Governance of SOEs

In September 2014, Law 2014-014 on State Participation in Commercial Enterprises was enacted, and a subsequent implementation decree was adopted by the Cabinet in May 2015. This legislation and accompanying regulations stipulate that enterprises with whole or majority state shareholding are to be managed by: a General Assembly, the deliberative body composed of shareholders; an Administrative Board, the leadership element with seats allocated proportionally according to shareholding; and a General Directorate, the executive element. The state’s participation as a shareholder in these enterprises is to be managed solely by the Director General of Treasury, under instructions from the Minister of Finance, and no other government representatives are allowed to participate on the Administrative Boards. In companies where the state is sole or majority shareholder, the Treasury is to recruit senior leadership to serve on the General Directorate. Line ministries, according to this reform, are limited to overseeing the General Policy of the State within the respective sectors and are prohibited from direct interference in the management of the SOEs.

The goal of the above reform was to limit the role of the state in SOEs to that of shareholder, while minimizing political interference in the operations of these enterprises, which has historically been rife. Previously, line ministries appointed senior leadership through government decree, and allocation of seats on the Administrative Boards was subject to political and other considerations. Although some progress has been made since enactment of the reform, with some SOEs making efforts to reorganize their corporate governance structures to suit the provisions of the law, the reform is far from complete. Line ministries continue to exert considerable influence over the management of these companies. Improving the governance of SOEs has long been a condition of multilateral donor institutions such as the World Bank and the International Monetary Fund.

Sovereign Wealth Funds

No sovereign wealth fund or asset management bureau exists in the country, though a Privatization Trust Fund was established in 1996. The sole function of this trust fund is to manage the state's minority shares in privatized enterprises in preparation for their auction to the local private sector. The trust fund currently manages $20 million in assets.

All of the Privatization Trust Fund's investments are domestic, given that the shares it holds are the remaining minority shares of the state resulting from the privatization of earlier state-owned companies. The fund adopts a passive role as a portfolio investor, and does not take an active role in the management of the assets in which it holds shares.