Editorial: Why Government should use IPOs
It's not the first time, as he did last week, that Finance Minister Dr Peter Phillips has signalled the administration's intention to use to the Jamaica Stock Exchange (JSE) to divest some of the companies the Jamaican Government has in its for-sale portfolio. We now look forward to the Government getting on with it - for reasons both practical and psychological.
First, this newspaper believes that Jamaica's, and other governments, should stick, so far as is possible, to their core business of managing those few critical sectors necessary for the functioning of the State - like security, public infrastructure and some areas of social welfare for the society's most vulnerable.
They have little, and preferably no business, running commercial enterprises. When they do, they usually get it wrong, with heavy costs to taxpayers in terms of accumulated losses and debt, as those in Jamaica know only too well. That they occasionally get it right is no vindication.
We like the idea of the Government off-loading some of its enterprises by way of initial public offerings (IPOs) for the reasons highlighted by Dr Phillips in his speech at the JSE capital market conference, beyond the market being a vehicle for mobilizing investment capital.
"This provides a diverse opportunity to broaden the shareholding of these entities as well as encourage all Jamaicans to participate in our stock exchange," said the finance minister.
In others words, the stock market is a potential shortcut in the creation/expansion of a shareholding class. This has latent value beyond the dividends and capital gains that may be earned by those who own shares.
If people are invested in the performance of firms and the relationship between risk and reward, they are likely to concern themselves about the kinds of environment in which businesses prosper and how these are affected by government policy.
Government, ultimately, will be under pressure to do the things that engender investment, job creation and economic growth.
Creatively handled, the Government, this newspaper feels, could extract additional value from its proposed IPOs. Half a decade ago, when the former administration was promising to the International Monetary Fund that it would sell off state enterprises, we then, too, suggested some of this be done via the JSE and that stocks in listed firms be used, in lieu of cash, to clear salary arrears to public-sector employees. Back then, J$7 billion was owed to teachers. The IPOs didn't happen.
NEW WAGE NEGOTIATIONS
The Government, however, will soon find itself in a new round of wage negotiations with public-sector employees while it accelerates reform of its operations. These may demand paying talented staff more competitive wages, even as staff that no longer fit into the new requirements of Government is separated.
Any such policy moves will carry costs, including, perhaps, redundancy payments, some of which may possibly be paid with equity in firms.
In the circumstance, though, broadening public share ownership should not be tokenism and entrepreneurial gerrymandering that market critics sometimes claim to underpin some listings, and should be avoided in any divestment via the stock market undertaken by the Jamaican Government.
Stakeholders, therefore, must ensure that the spirit, as much as the letter, of listing rules are adhered to and adjusted if, or where, necessary. Share ownership must be real to the new owners of stocks.