State-Owned Enterprise (SOE) is known by many names, including government corporations, government business enterprises, government-linked companies, parastatals, public enterprises, public sector units or enterprises. The term itself is defined as a legal entity that is created by a government in order to partake in commercial activities on the government’s behalf.
The motivations for state ownership can change over time, but SOEs appear to be an enduring feature of the economic landscape. There is no doubt that SOEs are an influential force globally, but how are they contributing to governmental strategy and the national, regional or local economy?
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OECD research suggested that there is a wide range of legal forms for SOEs, depending on the following factors:
While the varying forms of SOEs might provide governments with flexibility, these multiple forms might also serve to complicate ownership policy, make them less transparent and insulate SOEs from the legal framework applicable to other companies, including competition laws, bankruptcy provisions or securities laws.
There are some common motivations behind state ownership, such as developing strategic sectors and boosting the national economy, as well as fiscal, political and social considerations. But what makes SOEs different from private sector enterprises?
The OECD and World Bank have set out a range of commonly stated reasons for state ownership where SOEs might:
Often governments have created and invested in SOEs because markets were imperfect or unable to accomplish critical societal needs such as effectively mobilising capital or building enabling infrastructure for economic development e.g. a nationwide electricity grid or water system. Depending on the motivation, which often impacts the desired level of government control. These provide differing degrees of state ownership and influence and also a range of models which governments might choose on the path to private ownership where there is no longer value seen in maintaining state involvement.
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