FINANCE BY DAVID WALKER ACCOUNTANT & DATABASE EXPERT
Now that the PM’s Recovery Committee has started its work, I appreciate that they have a great deal on their plate, unfortunately, we have not been advised of their terms of reference. We have been given a broad description of their remit instead. Graciously, we have been invited to submit our thoughts to help guide their deliberations.
That is like asking your friends to assist with repairing your house after a storm but not telling them exactly what repairs you plan to do. How effective will that be? How much time and effort will be wasted by friends bringing cement and sand when what you want might be roofing and plumbing? How much more helpful could they be if they were told, even in broad terms, the categories of work, materials and labour that you need?
Now that I got that little gripe out of the way, I still wish to offer what little help that I can, having been deeply involved in corporate recoveries in the past. The vision required for a successful turnaround post COVID-19 must be based on a thorough assessment of the state of the economy and our social, health and other infrastructure in the months and years ahead.
Some of that requires real time data gathering of a quality that has not hitherto been available locally. That must be fixed at two levels. Firstly, there must be a program that will deliver as much data as is possible in the shortest time. This is a discreet and identifiable task to be allocated to a specialist in the field of data capture and management. Without it they will assuredly fail.
In parallel, we must undertake another data gathering exercise. This is a more comprehensive effort that will take a deep dive into the functioning of every agency that is funded out of the public purse. As a minimum this will include audited and management accounts for all such bodies. Projections and progress reports including variance analyses must be obtained for all such bodies and projects.
Since these and other management reports have never been regularly provided with few exceptions, the committee should address the provision of such under its own heading. Perhaps a sub-committee could be empowered to consider what sanctions could be applied to recalcitrant directors etc. where there continues to exist manifest failings in the provision of such reports even when they are clearly mandated in law or under their own operational guidelines or regulations. While this will clearly assist the committee in its work, it also resets the bar for what is demanded of State funded bodies under the New Normal after COVID-19.
Matters of extreme urgency
These are the most fundamental things that I believe should be on the agenda of the committee in its early days. They simply cannot be expected to deliver best advice in the absence of such information. Just as with your house, the result would be so much better if you first conducted an assessment of the nature and extent of the damage that you wish to repair. It is really no different in principle with recovering from any aspect of the COVID-19 trauma. Data and knowledge of the damage and assessment of the starting points are absolutely necessary.
Apart from that general point I want to reflect on two other issues. The first is that there are some matters of extreme urgency. They need to be addressed immediately even before all the data that we seek is available. If necessary, we must make best use of the limited data presently available and adjust our plans as we go along while closely monitoring the results of the actions we take.
This includes decisions about assistance for citizens hard hit by the virus and the necessary containment actions that the country has undertaken. This category will include financial, health, education, social and other impacts as determined by the committee. I would suggest that the committee commit to delineating all money spent under each heading with some numbers or narrative of intended outcome. This should be followed by a rolling assessment of results with regular reviews and adjustments to programs as appropriate.
These items of urgent expenditure will go beyond assistance to citizens. Given for example, that no airline in the world is able to survive this crisis without outside intervention and support, what we are to do about Caribbean Airlines (CAL). I dearly hope that we have not taken a default position that it will be business as usual.
The challenges with CAL merit separate exploration in future but it is clear that the future is bleak and there will be tough decisions to be made. It is an urgent decision not least because CAL will be losing vast sums daily, sums that might be better used elsewhere. I have said in the past that we need to review the raison d’etre for ALL of our State-owned Enterprises. CAL should be reviewed immediately and all options explored for its future. CAL is not the only one deserving of this treatment but I use it to make the point as it is one which most of us will understand.
Finally, in reviewing CAL, other State Enterprises and various projects, there is an important principle that our leaders routinely get wrong at great expense to the country. You may recall both the current administration and the previous one dealing with reduced revenue and having to review anticipated project expenditure. In both cases ministerial statements at the time were to the effect that priority was to be given to projects already underway. That is what was implemented to disastrous effect, as I shall now illustrate. What’s more, it will almost always result in less than optimal decisions.
Lesson to be learnt
Take the wasted Petrotrin expenditure of 12 billion dollars as a prime example. My figures will not be deadly accurate but they’re close enough to make the point. When the PP administration sought to reduce expenditure, the cost of the Petrotrin investment was around 3 billion dollars. It was never seriously considered for termination because it was decided that we couldn’t afford to lose all that money. Similarly, the incoming PNM administration had to tighten the nation’s belt after they had invested about 8 billion dollars. Of course, it again wasn’t considered for termination because we couldn’t afford to lose all that money.
The lesson we absolutely MUST learn is that money spent to date is already lost if a project is not worthy. We have to stop falling into this trap where we continue spending on lost causes simply because we have already invested, whatever the amount. In the case of Petrotrin, we could and should have saved almost 9 billion dollars. Part of the challenge is that whoever made that correct decision would have been vilified for wasting 3 billion dollars for the rest of their careers.
To reinforce the point let me draw a mundane analogy. You’re driving your car when you suffer a puncture. You change to the spare and set off to Simple Type Shop five miles due south of where you are. After driving for three miles your son, who is in the car with you gets the type shop on the phone only to discover they closed half an hour ago. Do you say that I’ve already driven three miles and I can’t let that go to waste and continue? Of course not, you would change direction and leave it for another day or head west for a further six miles to Johnny’s Type Shop which is still open. You would review and change your decision based on this new information.
Our leaders thus far, refuse to do that. They started driving to Simple Tyre Shop and they will continue until they get there regardless of whether the outcome is the one that they seek. It is a fundamental flaw in management thinking that is repeated by most of our leaders. If we feel that we can afford more Petrotrins then we can continue in that vein. I hope that this committee has the fortitude to make the correct decisions regardless of the amount spent on a project at the time that each decision is made.
I live in hope.