Maldives Industrial Fisheries Company (MIFCO), the wholly state-owned enterprise (SOE) set up to support the local fisheries industry by purchasing, processing and exporting as well as marketing, fish and fishery products of Maldivian origin, has four options to relieve itself of the nearly MVR 2.5 billion debt, according to the World Bank.

MIFCO, which had been spun off into its own separate entity from the state’s main trading SOE, State Trading Organization (STO), has been consistently in debt, and receiving funding via the national budget, because the company has to buy fish at margins which do no reconcile with global market prices even as local fishing vessels continue to receive government fuel subsidies.

The World Bank’s ‘Maldives Country Environmental Analysis – Towards a More Sustainable and Resilient Economy’ noted that there have always been concerns about MIFCO’s financial viability as an SOE.

Although it has the potential to become a profitable company, MIFCO is in debt due to falling global fish prices, rising fuel prices, and high interest rates on their loans, the publication noted. The administration is responsible for paying the debt and thus far the changes, across multiple administrations, to make MIFCO profitable have not been successful, the publication states.

MIFCO’s financial standing has not improved since the Mohamed Nasheed administration initially split up the company’s factories and facilities into separate companies under STO. The World Bank said MIFCO’s financial standing has worsened due to the increase in fish prices and high operating costs at the expense of protect the interests of fishermen.

Despite the expansion of MIFCO’s facilities aimed at increasing fish exports, management inefficiencies have made it difficult for MIFCO to make a profit while the company selling to intermediaries instead of direct to markets also eats into profitability.

The World Bank proposed four solutions for MIFCO to make it out of the red and achieve profitability.

One option is to maintain MIFCO under STO with ‘enhanced capacities’ which would have MIFCO remain a subsidiary of STO, with a focus on expanding its value addition capabilities. According to the World Bank, such an approach would seek to increase revenue 30 percent by having the company reduce exporting fresh and frozen fish products while increasing canned fish production.

Challenges to implementing such policies include the high operating costs of MIFCO and the lack of access to sell to European and American markets. Privately held fisheries companies in the Maldives sell to such markets but this might not immediately translate to MIFCO being able to increase sales similar to these companies, the World Bank noted.

Another option is to privatise MIFCO and introduce direct subsidies to fishermen, the international financial organisation said.

Based on its history and experience, the World Bank says privatisation requires several important considerations; including whether MIFCO can be privatised as a whole or as three or more separate companies, or whether the company should go public, by offering shares publicly, and thereby injecting added value.

The company, after privatisation, should additionally continue to purchase fish with a minimum rate set by the administration, the World Bank advised, adding that the privatisation of MIFCO will relieve the company’s financial burden and overcome the difficulties faced by the government in paying its debts.

However, likelihood is high that privatisation would also drive down the purchase price of fish which would mean the government would have to subsidise fishermen directly.

A further option is to turn MIFCO into an operationally independent public limited company, the World Bank suggested.

MIFCO would then be listed on the stock market and thus structured to operate under considerable autonomy and independent management. The main focus would be on strengthening the company’s operations and reducing costs after which the company could gradually offer increased shares to private investors, the World Bank suggested.

The institution, however, recognised the possibility that such a move may be politically difficult but also pointed out that it would enable MIFCO to buy fish from fishermen at a fair price without government intervention.

This approach could go on to discourage private companies from investing in the fishing industry, the World Bank noted as a potential drawback.

Yet another, final, option proposed by the World Bank is the separation of the fish purchasing operation from the other more commercial operations; one portion would provide cold storage services, while another portion would process, market, and sell the fish.

This would divorce MIFCO’s social responsibilities from its profitability considerations and allow fishermen to receive a larger share of the industry’s profits, the World Bank said.

The buying entity will then become a monopoly and work for the entity which packages, promotes and sells, the World Bank suggested, highlighting that government projects to increase cold storages will, as such, reduce cost and waste.

Each of the proposals should be carefully studied and decisions should factor in not just financial implications, but should also account for social impact, the World Bank said.