Invention Journal of Research Technology in Engineering & Management (IJRTEM) ISSN: 2455-3689 www.ijrtem.com Volume 1 Issue 3 ǁ May. 2016 ǁ PP 12-19
State-Invested Enterprises (SIEs) in Mongolia and corporate governance: Implications for economic development and growth. Ernest Nweke(ACA, ACTI, CPA), Prof. Enkhtuya Bavuudorj(PhD) Royal International University (RIU), Ulaanbaatar, Mongolia. SoBAH, Mongolian University of Science & Technology, Ulaanbaatar, Mongolia. ABSTRACT: Globalization, the rapid development and expansion of the Mongolian economy has made the enhancement of corporate governance mechanisms in Mongolia’s state-invested companies imperative. Although Mongolian government has made giant strides in promoting private ownership, a good percentage of listed companies are still state owned having significant influence on the country’s GDP and total market capitalization. While it is a known fact that adherence to the basic principles of good corporate governance are essential for economic growth and development, they are not usually upheld in government owned enterprises. Transparency, accountability, rule of law and stable investment climate are vital in Mongolia’s quest for economic growth and transition to free market. Moreover, in today’s internationalized capital markets, only reputable local companies that meet high environmental, health, safety and corporate governance standards are able to attract foreign capital. This makes it even more of a necessity than choice for good corporate governance standards to be maintained in all Mongolian companies; state-invested or privately held. This paper is an attempt at x-raying the transformative efforts of Mongolian government in promoting economic development and growth through improved corporate governance in state-invested enterprises in Mongolia. Key words: Economic development, economic growth, corporate governance, enterprises, Mongolia.
1. Introduction State invested enterprises are companies or corporations in which the state has stakes either wholly or partially. State ownership has its merits and demerits. Merits of state ownership are not farfetched; inability of capital markets to provide financing for large firms to carry out socially beneficial projects, strategic industry argument, national pride, defense argument and unattractiveness of some sectors to private funding are all justifications for state ownership. Its unintended consequences include the potential for firm mismanagement, corruption, lax in control, supervisions and content of regulations. The most potent argument against state ownership arises out of the conflict of interest associated with duality of state’s role as shareholder and corporate governance regulator. Private ownership on the other hand implies the absence of state investment in companies. It is a proven harbinger of efficiency, good corporate governance, profitability and economic growth. It should be noted that good corporate governance practice fosters economic development through transparency, disclosure equitable treatment of stakeholder and improved investor confidence. What then is corporate governance? “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders” [1] Good corporate governance provides proper incentives for the boards of companies and management to pursue objectives that are in the best interests of the company and its shareholders and should facilitate effective monitoring. The International Finance Corporation (IFC), an arm of the World Bank agrees with these views; “….good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital” [2] The organization for economic cooperation and development (OECD) enunciated the linkage between good corporate practices and economic development in the following statement; “the presence of an effective corporate governance system, within an individual company and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy. As a result, the cost of capital is lower and firms are encouraged to use resources more efficiently, thereby underpinning growth” [3]. It is therefore clear that the degree to which companies adhere to fundamental principles of good corporate governance is an increasingly important element for investment decisions and has implications for economic growth. If countries are to reap the full benefits of the global capital market, and if they are to attract long-term “patient” capital, corporate governance mechanisms must be credible, well understood across borders and adhere to internationally accepted principles. Mongolia’s soviet era economy was dominated by state ownership, wide spread inefficiencies resulting in poor investor confidence. This is the reason why Mongolian government has placed serious emphasis on privatization to turn the economy around. This paper highlights the efforts of the government in strengthening corporate governance practices in SIEs through outright sale and in some cases reduction in state interests.
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