Governments around the world get ripped off all the time by private sector vendors. From their point of view, all business deals are about maximizing profits.
However, ‘buyer beware’ is the slogan that government finance directorates approving rental payments in Namibia should have on plaques nailed to their desks.
We all must ask: who is checking to be sure that the rental rates being charged to the government are reasonable?
Price reasonableness ensures that funds are expended most cost-effectively and conserves limited resources. A price that is excessive or unreasonable fails to accomplish this important goal. (www.cmu.edu/finance)
Businessman Knowledge Katti is reported to be receiving N$50,000 per month from the Ministry of Health and Social Services for the rental of property in Kombat, the rural and unmaintained former mining town that he owns. This information can be interpreted to mean that the rental price charged is not in line with average property values in such a remote section of the Otjozondjupa region.
There have been reports that the Ohangwena education directorate is spending N$400,000 a month in rental fees for offices at the small northern town of Eenhana and that the Home Affairs ministry spends over N$30 million in rent per year.
A 2015 report claimed that the Office of the Prime Minister is paying N$7 million in annual rent and in that same year, the government reportedly spent over N$360 million to rent office space.
There have been other reports about the high monthly rental costs for extra office space incurred by the Ministry of Finance before the opening of their new building. Parliament (particularly when the expensive expansion happened and the new members needed office space) and other agencies are also reportedly dishing out significant funds for monthly rent.
My concerns are about whether the rental amounts are checked against other leases paid in the same area for the same square meter value, evaluation of the accessibility of the location of the property and whether that particular space is more suitable to the ministry’s work compared to similar rental properties available.
Are there some brass knuckles negotiations happening? In these tough economic times, there are few comparable deep pocket lessors other than the government. Unless I miss my bet, the company that would initially offer N$400,000 per month in this economy for a rental rate, will likely accept N$300,000 (or else nothing) if they are pushed. Were they pushed?
Are the previously advantaged landed aristocracy that has owned prime real estate generationally, laughing all the way to the bank alongside the 10-percenters and ‘connected’ tenderpreneurs as they enjoy their huge monthly rental payments? Is the ‘fix’ in on these contracts where open bidding has not taken place before awards are made and no price reasonableness evaluations are being done?
I fear that given our faulty track record when we sign agreements that have not been well-researched, ‘someone knew someone’ to get their rental rates accepted verbatim. Then, that figure was sent up the paper chase ladder until the paymasters with the myopic job of processing payments, pass it through without blinking.
My sentiments seem to match those echoed by Finance Minister, Calle Schlettwein when he was quoted a few years back as saying that, “the government should be shrewd negotiators when it comes to rents to avoid paying over the odds.”
I must keep it real by adding that property rental prices cannot be accurately judged in a vacuum. We should be careful to not immediately assume that N$50,000 per month (for example) is excessive. To make a more informed conclusion, we’d need to know the size of the space rented, whether that space is somehow unique for the ministry and if a competitive space is available (supply and demand always applies). We cannot listen to one end of the phone conversation and say definitively what the call was all about.
When cash flow is a challenge, it may be attractive to rent rather than buy or build. However, someone has to do the math to quantitatively make this point. Paying a usury level rental rate that lines the profiteering pockets of the lessor, must be juxtaposed against the cost of building or buying a similar space.
The Namibian ship has severe leaks and we all need to bail water until we leave rough waters and find a safe harbour to make repairs. Those on the inside of ministries that are processing payments must be brave and bold and change how they do things. Officials at all levels must begin to ask the hard questions about ‘routine’ purchases for high amounts. Is this invoice reasonable based on what is being paid for?
We all need to do our parts to protect the little that remains in our national treasury. Finance departments - don’t just fill in the forms and blindly payout state funds, insist that it makes SENSE – make sure the price is reasonable.