David Salmon | More transparency needed before UDC’s yard sale
Prime Minister Andrew Holness has often spoken about his desire to socialise wealth by allowing Jamaicans to own a piece of the country’s assets through the stock exchange. His administration has maintained its commitment to divest state assets, including those owned by the Urban Development Corporation (UDC).
I, for one, support this administration’s mission to expand the ownership base of Jamaicans. However, upon further investigation, there are some lingering concerns that exist about the Government’s long-term policy objectives of divesting UDC’s assets. These concerns, if unmitigated, may continue to threaten the organisation’s long-term viability.
Up to six years ago, the UDC held a wide portfolio of assets in the form of land and buildings that valued approximately J$41 billion dollars. Despite the enormous amount of resources it manages, there is a shroud of secrecy that surrounds the organisation’s operations.
Quite frankly, this lack of published documents has become the modus operandi of many public-sector entities. For instance, the last annual report published on the UDC’s website was for the period 2015-2016. This instance of public-sector opaqueness was noted by the Auditor General’s Department, which on July 6, 2020, announced on its website the suspension of its performance audit of the UDC. The reason given was the “outstanding information from the UDC, related to audited financial statements, annual reports, valuation reports, as well as the transfer of lands to the Jamaica North South Highway Company”.
Thus, limited information is known about the gamut of the properties it owns, the value of these resources, their profitability, what it disposes of annually, and the quality of their operations. This raises further questions, especially since the last time the auditor general performed a comprehensive performance audit of the UDC was a full eight years ago in 2012. Therefore, the findings of the current audit should be interesting, whenever it is completed, as it would determine what steps have been taken to improve UDC’s operational efficiency.
Interestingly, the Urban Development Corporation Act (1968) provides a framework for the efficient management of the organisation, including mandating that frequent audits should be conducted. Section 11 Subsection 1 states, “The corporation shall keep accounts of its transactions to the satisfaction of the minister and such accounts shall be audited annually by the auditor general.”
Subsection 2 explains that access to the corporation’s books, documents, and other files must be given upon request by the auditor general. Hence, the lack of frequent audits violates UDC’s own law and highlights the great divide between what is printed on paper and what is the reality of the situation.
Unfortunately, this seeming lack of transparency is not surprising to former Member of Parliament the Rev Ronald Thwaites. In our discussion, he explained, “The lack of published audits doesn’t surprise me. It indicates the scope of the problem that vast billions of taxpayers’ money is expended year after year after year, and nobody is really sure of where it goes. And one other factor that I think needs to be addressed is that many of the boards for these institutions, because they were appointed by ministers, feel like their only obligation is to their appointing ministry and not to Parliament.”
Bearing this in mind is important as this is the organisation that is currently divesting some of its assets to the public. Potential investors must now ask themselves, why should I trust the official evaluation of the organisation when it lacks transparency, accountability, and, by the Auditor General’s Department’s own revelation, is in violation of good corporate governance?
If the 2019 audit of alleged fraud at the Dunn’s River Falls and Park (DRFP) is to be an indicator of the quality of administration being provided, then there are some major issues that must be addressed. Commissioned to investigate allegations of corruption, the audit found, “The UDC and St Ann Development Company (SADCo) information technology systems are not configured in a manner to support transparency, accuracy, and completeness of financial data.”
Even more alarming is the process by which assets were identified to be divested. A Gleaner article published on October 31, 2018, revealed that the Government of Jamaica was recruiting a consultant to select assets held by the UDC to transfer to a holding company. The procurement document stated, “The consultant will provide transaction advisory support and guidance to the UDC/GOJ on the most appropriate transaction structure and timelines to list the special purpose vehicle.”
THREATS TO LONG-TERM VIABILITY
In UDC’s own SWOT analysis, published in its Corporate Strategic Plan and Budget 2020-2024, a chief threat it identified was its continued land divestment without strategic acquisition. This was coupled with the progressive impairment of its land bank and excessive political interference. Hence, questions remain about the long-term sustainability of the organisation and whether these factors have been considered in the identification of assets to be sold.
Going forward, receiving the answers to the following questions are essential. What assets have been selected, and on what basis? Will these properties include public beaches? Why is this sale being pushed before a comprehensive audit? How does this sale improve UDC’s profitability? Who was the consultant selected? Are there any conflicts of interests? Does he even exist? No one knows.
What we do know is that if this sale is completed without knowing the reasons why an asset may underperform, then the root cause of the issue has not been addressed. The fact is that you cannot have a yard sale without knowing the cost of what is in the garage. These are some valid questions that I assume have an answer. The public needs to be reassured of that as well.
David Salmon is a second-year public policy and management student at The University of the West Indies. To send feedback, he may be contacted at email@example.com or on Twitter @DavidSalmonJA.