Increasing accountability of public services

Data collection and monitoring systems which provide reliable and prompt information on the operation of state-owned enterprises improve the accountability of their managers. Such systems need to be complemented by efforts to give managers incentives for efficiency, for example through performance contracts or evaluation systems that include agreements on pricing, subsidies, loan and equity financing and investment programmes. State-owned enterprises in any country may cover a large number of sectors - utilities, manufacturing enterprises, transport companies, marketing boards, and financial institutions. It is hard to achieve the necessary balance between autonomy and accountability that will improve SOE performance when there are many SOEs and parent ministries, since monitoring such a range requires managerial skills and resources that are scarce in most developing countries. Governments lack the personnel to monitor SOEs effectively since, where expertise exists, it is usually captured by the enterprises themselves. They thus often depend on the SOEs themselves for technical evaluation.

Incentive systems introduced by some developing countries are partly based on indicators of financial performance. An evaluation system in Pakistan which provides managers and employees with bonuses based on performance has led to better cost control. Six major SOEs in Senegal signed government contracts that established objectives and performance indicators and set out reciprocal obligations of the enterprises and the government. During the first three years of the experiment these enterprises had greater sales growth and lower personnel costs than those not having signed such contracts. The effectiveness of such experiments is reduced by restrictions on SOE managers and by government's inability to honour financial commitments, but similar experiments have been implemented in other developing countries.