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Editorial: Seprod share-sale conundrum

Published:Friday | April 1, 2016 | 4:00 AM

It is a firmly held principle of this newspaper that the business of government is not the ownership or management of businesses. Rather, it is its responsibility to create the economic and regulatory environment in which the private risk-takers have a good chance of doing so successfully.

That is why we often encourage and support the efforts of Jamaica's government to divest itself of ownership of firms, or other commercial undertakings, that have little direct bearing on the functioning of the State.

Apart from a commitment to private enterprise, there are other good reasons why we don't like government running businesses. Mostly, they are no good at it. Indeed, Jamaica's state firms have a history of running up huge losses, contributing to the country's huge fiscal deficit, then dipping into the pockets of taxpayers to cover the gaps.

However, when governments decide to sell, they must ensure fairness and equity and that the assets they intend to divest is theirs rather than other people's, which we fear may be about to happen with the Government's proposed sale of three-quarters of Coconut Industry Board's 30 per cent stake in listed commodity manufacturer Seprod Limited.

First, we appreciate and have some sympathy for the dilemma faced by the Jamaican Government as it continues with the project to modernise the economy in the context of the inherited agreement with the International Monetary Fund. That projects the restructuring of commodity boards like Coconut Industry Board to prevent them being a drag on public finances and to provide greater operating leeway to private firms.

But in the case of the Coconut Industry Board, the Government has another strong incentive to get into the organisation and control its assets. It is one of the few commodity regulatory bodies that, rather than bleeding red ink, has valuable assets and a healthy annual surplus, thanks primarily to its Seprod holdings, from which, in 2014, it received a dividend of J$283.4 million.

 

NEARLY J$2 BILLION

 

The 163.42 million shares owned by the board, at current market value, are worth more than J$2.6 billion. A sale of 75 per cent of the stocks at that price would give the hard-pressed Government J$1.96 billion to shore up its budget. Except that the Government appears to be on questionable moral and legal grounds in asserting a right to those assets.

Indeed, the Coconut Industry Board is a creature of an act of Parliament aimed at regulating the industry and it, from time to time, receives support from the Government. But the board also comprises members of the coconut industry - including nearly 800 people who grow coconuts on approximately 16,000 hectares of land.

It is farmers like these, as well as other industry players, whose capital, via the Coconut Industry Board, was invested in the formation of Seprod in 1940 - a move largely dictated by regulatory policy, aimed at creating economies of scale in Jamaica's oil and fats business. Seprod, at the time, displaced perhaps half a dozen independent copra processors.

Before Seprod was listed in the mid-1980s, revenue from the divestment of a portion of the company was for capital injection, not flows to the Consolidated Fund.

Members of the Coconut Industry Board did not somehow forfeit their remaining holdings in Seprod. In any event, it would be interesting to understand by what formula the Government arrived at its 75 per cent ownership of shares held by the board and on what authority it has decided on their sale.