Deloitte: Public sector governance reform imminent in Middle EastDOWNLOAD
24 July, 2012 – With recent political and social developments, the upsurge of social media, tighter government budgets and new legislative regulations, there is increased demand for public sector accountability across the Middle East. Deloitte specialists have assessed the impact of the all these factors and the “Arab Spring” in the region, and suggest that reform of governance in the Middle East’s public sector is imminent, with many regulatory changes to come about.
“Public skepticism, combined with unprecedented transparency, is placing everyone under scrutiny like never before. The boundaries of social responsibility are rapidly expanding, challenging individuals in authority to consider the public and its agenda,” said Rami Wadie, Partner and Corporate Governance Leader Deloitte Middle East.
In light of the global financial crisis, corporate governance has been concentrated on the activity of organizations deemed ‘systemically’ important to the economy; advised Wadie in the Deloitte ME Point of View Spring 2012 publication. He added that relatively little discourse has been directed towards corporate governance in public sector organizations, which are found to have as much impact on society. In fact, state-owned enterprises account for nearly half of economic output in some MENA countries, studies find. The actions of government departments and public entities affect all citizens, therefore understanding how these choices and decisions are made is, a matter of significant public interest.
Shedding light on the importance of transparency and corruption in the region, the Organization for Economic Co-operation and Development (OECD) issued a report entitled ‘Towards New Arrangements for State Ownership in the Middle East and Africa’ in April 2012. Deloitte leaders including Wadie took part in the discussions leading up to this report, as well as the steps towards enhanced maturity of governance practices in the Middle East. The topics discussed included: listing of State-Owned Enterprises (SOE’s) and its impact on disclosure, reporting by majority state-owned enterprises, centralisation and aggregated reporting, non-financial reporting by SOEs, and reporting on non-commercial objectives of SOE’s. The report was formally launched during the Fourth Meeting of the OECD MENA Taskforce on Corporate Governance of SOE’s, held in Kuwait in April 2012. The report sought to analyze recent developments in the government of state-owned firms and address plans of action to reduce corruption, making them more efficient and boost growth.
However, instituting corporate governance within public sector firms has recently begun to receive increased attention across the Middle East, Wadie advised. This is particularly the case when countries are attempting to curb widespread corruption within the public sector, or when they are preparing public enterprises for privatization. In either scenario, sound corporate governance measures ensure that the public gets a fair return on its national assets.
Several GCC countries have already set up state auditing entities to combat any corruption or malpractice on a national scale. Examples include the United Arab Emirates State Auditing Court (SAC), Saudi Arabia’s National Commission against Corruption and Kuwait’s Public Authority for Integrity. In addition, contrary to the private sector, whereby shareholders are the main stakeholder group in terms of corporate governance, the public sector regards any specific user groups - those directly responsible for funding and the community at large - holding a greater importance as stakeholders.
“Good institutional governance should be instilled by the development of governance systems in ministries and authorities,” said Wadie. “The public sector now has the aim of focusing on enhancing the quality of public services consistent with citizen expectations, promoting compliance and conformance, with appropriate transparency and flexibility,” he added.
In the Deloitte ME Point of View Spring 2012 publication, Wadie outlined the following elements which good public governance should promote:
Deloitte Corporate Governance professionals reaffirm that good governance within the public sector increases participation, strengthens accountability mechanisms and opens channels of communication within, and across, organizations. Many changes in this realm are expected to unfold in the coming years to compelling Arab governments to pursue public sector reform.