The government, while taxing businesses and imposing other levies on them, should not be actively competing in the market – they should be engaged in ensuring food security and a positive consumer experience above posting 'record' profits.
Source - Mohamed Sharuhaan
"It was the early 1960's and the nation's socioeconomic outlook was not a very promising one. The population was a mere 100,000. The only communication with the outside world was the Morse code and the ham radio. The only airstrip was the one laid by the British RAF and the mode of transport between islands was limited to traditional sailing Dhoni. The only resource available was tuna. Consumers were at the mercy of importers. Even the most basic food items were expensive. The country had no banking service. Development was slow with no available funds for major investments and no commercial industry."
It was within this reality that the government established the State Trading Organisation (STO) in 1964, then known as the Athireemaafannu Trading Account (ATA), for the sole purpose of strengthening national food security.
From these humble beginnings, the company has expanded immensely, trading in commodity items, construction materials, home appliances and consumer goods. Its current stated mission includes 'expansion of existing businesses, diversification, exploring new possibilities and entering into new ventures,' as well as exploring beyond the Maldives' borders to establish as 'an international player.' Its original objective of 'assurance to the public of uninterrupted provision and affordability of essential goods and services' comes third in its mission statement, indicating where its current priorities lie.
On 27 January 2022, the company issued its report for the 4th quarter of 2021. It posted total revenues of MVR3.3 billion and MVR131 million net profit in Q4 2021 compared to total revenues of MVR1.8 billion and MVR91 million in profits in Q4 2020.
In annual terms, this means that STO will post a net profit of MVR479 million for 2021, compared to MVR383 million in 2019, pre-pandemic, and MVR180 million loss in 2018. For a majority state-owned enterprise to post such returns, especially during a pandemic, and for the growth it has shown compared to 2018, is truly remarkable.
STO's efforts in 2021 to approach food security in alternative ways than just focusing on ensuring steady imports were notable, with the company establishing an agricenter in AA. Thoddoo. The purchase, through its subsidiary, Maldives State Shipping, of MV.MSS Galena, which made its maiden call at Malé Commercial Harbour on 23 November, will also contribute to ensuring steady access to shipping, and alleviate the need somewhat of having to depend on other shipping lines for the supply of essential foods to the country. Although these steps may be minute for now, it is a step in the right direction and significant.
According to the company's 2020 Annual Report, the sectors contributing to its revenue were fuel and lubricants (46 percent), trading (36 percent), gas (3 percent), insurance (2 percent) and fisheries (12 percent). The three major sectors contributing to STO's bottom line, fuel and lubricants, trading, and fisheries, however, are highly vulnerable to external factors.
In 2020, STO reported net revenues of MVR3.9 billion from fuel and lubricants, whereas in 2019, revenue from this sector was almost double, at MVR6.4 billion. The reasons behind this vast fluctuation were the decrease in global fuel prices as well as the low demand for fuel due to the downturn in tourism due to the pandemic, in 2020. Although segment level numbers have not yet been shared by STO for 2021, it is likely that revenue increased for the year due to higher fuel prices on the back of an uptick in the travel industry.
In terms of the trading segment, which includes construction materials, the supply of medical equipment, and subsidized staples and other goods sold through People's Choice, STO supplied a large proportion of the government's health sector equipment and material needs in its preparations for coping with the COVID-19 pandemic in late 2019 and in 2020. It also has revenues guaranteed through its supply of staple foods, which is subsidized through the government. It is almost certain that STO continued to benefit from the government's health sector procurement in 2021 as well as other government-sourced procurement.
While STO's recent results deliver high shareholder returns – STO is 82 percent owned by the government – it is also perhaps an opportune time to question whether such expansion, and profits, is not an encroachment into the role and benefits to be accrued from private sector involvement in industry. What should the role of the state be, and where does this role end and the private sector begin.
True, for a small island nation like the Maldives, an argument could be made for having a state-owned enterprise to guarantee food and fuel security, as was demonstrated during this ongoing pandemic. However, with the said public company making net profits of close to MVR500 million for the year, what is the case for the government to pay it out of taxpayer funds to subsidise the supply of staple food for the country. Is it time for the STO to go back to its roots and focus purely on its initial objectives, rather than carving out space for itself as an internationally recognized company, on par with global conglomerates?
