The Unidade de Acompanhamento do Setor Empresarial do Estado (UASE) in Cape Verde was established in 2016 as a unit of the Ministry of Finance to oversee the operations of state-owned enterprises (SOEs), the privatization process, and public-private partnerships (PPPs). In 2022, the Unit published an Annual Consolidated SOE Performance Report[1], and started releasing quarterly performance reports, that incorporate much additional information on SOEs.
This important achievement is the first step of an ambitious reform agenda, led by the UASE, aiming to modernize the management and accountability of SOEs, the identification and mitigation of fiscal risks, and the mobilization of external partnerships. This reform agenda comprises three pillars:
Reform of the SOE sector and independent regulatory entities; an enhanced governance framework; a review of the legal framework; and an agenda for privatizing SOEs.
Strengthening the human resources and technical capacity of the UASE; and the digitalization of processes for overseeing the performance of SOEs.
Transforming the UASE into a holding company in which SOE shares would be held and managed.
During the COVID-19 pandemic, the UASE and the government took measures to ensure the continuity of SOEs’ business activities, thus safeguarding employment and income for families and companies:
Many SOEs, which represent overall around two-thirds of Cape Verde’s GDP were hit hard by the crisis, especially in sectors such as tourism and transport. The closure of borders forced some SOEs to reduce or terminate their operations.
Overall, SOEs recorded a 26 percent decrease in turnover between 2019 and 2020, interrupting a sustained period of growth.
To mitigate rising macro-fiscal risks, there was an immediate need to consolidate and analyze financial information on the portfolio of wholly owned SOEs, as well as companies in which the government has a minority shareholding. Taking advantage of technical support from the IMF, UASE utilized the Fund’s SOE Health Check Tool[2] to assess the financial position and performance of SOEs, and the associated fiscal risks. This tool is used to standardize the calculation of financial ratios and risk ratings and provide data that can be incorporated in financial reports for the use of the finance ministry and external stakeholders.
On the legal and institutional front, the UASE worked with the Minister of Finance to issue Executive Order n.48/2021[3], which establishes a transparent framework for the annual and quarterly financial reporting and fiscal risk control of SOEs. This regulation stipulates the deadlines for and periodicity of financial reports and their alignment with the government’s national accounting standards and International Financial Reporting Standards – IFRS.
The table below illustrates the fiscal risk analysis that was included in the 2022 Annual Consolidated SOE Performance Report for the six largest SOEs. This analysis provides the government with a more analytical and proactive approach to mitigating fiscal risks.
Table – Expected end-2022 risk ratings for the six largest SOEs
Source: UASE/MoF – 2022 Annual Consolidated SOE Performance Report.
Looking ahead, the government is planning further reforms that will strengthen the UASE’s role and, more importantly, leverage the SOE sector in fulfilling its mission more efficiently.
In this context, the elaboration of a Strategic Plan for the Governance of the SOE sector (PEGSEE) will define organizational structures for SOEs and opportunities for digitalizing their business processes and operations in line with good international practices. Within this framework, the UASE is implementing a collaborative IT platform that will allow for the monitoring and evaluation of the sector's performance by automating data collection, processing, and analysis, and include analytical tools for the reporting of key performance information. These tools, which include dashboards of financial and non-financial indicators, will provide information on both individual companies and an aggregated view of the SOE sector.
[1] https://www.mf.gov.cv/web/mf/divulgacao-de-relatorios
[2] This tool assesses the financial vulnerability and risks emerging from SOEs. It allows governments to identify and monitor high-risk SOEs and helps inform early and targeted interventions where necessary. The tool provides a starting point for an SOE vulnerability assessment and can be complemented by more in-depth analysis of the underlying drivers of financial performance (https://www.imf.org/en/Topics/fiscal-policies/Fiscal-Risks/Fiscal-Risks-Toolkit/Fiscal-Risks-Toolkit-SOE-HCT).
[3] https://kiosk.incv.cv/2.1.100.3943/
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