Uncovering hidden treasure: How asset maps can transform public financial management in MENA

Governments around the world, especially those in the MENA region, own assets of immense economic value— largely real estate—without realizing their potential. What’s out of sight is out of mind and out of budget. So, this vast wealth is often excluded from the calculus of government financial decision-making. It is a failure of government accounting and financial management that these assets are systematically ignored or understated on public sector balance sheets and in the budget process. A direct, and very worrying, consequence is that there is no “accountability” for how well the assets are managed and no orientation towards delivering results: with little effort this can be turned around.

Public real estate assets are vast and often grossly undervalued. Even in the US where the public sector is relatively small, public real estate holdings in urban areas are substantial, often more than half the value of the total real estate market. A simple asset mapping exercise, in Pittsburgh took two weeks to complete and cost around $20,000. It demonstrated, quickly and cheaply that the total value of the city’s real estate portfolio was 70 times its book value. If professionally managed, the real estate portfolio could generate additional income well beyond what the city raises in taxes.  This article offers suggestions on how effective governance on public commercial asset management.

An asset map can be compiled quickly. In 1085, William the Conqueror commissioned a survey of his kingdom of England. The goal was to establish a full inventory of the assets of the Crown, and to understand what these assets should be able to generate in revenue to their holders, based upon their yields under the old regime. work was called the Domesday Book or an Asset Map in today’s language. It is important to remember that even with 11th century technology, the Domesday Book took only a year to complete!

Moving to accrual accounting is an important step. Governments should include all assets (especially property) on the books at their fair market value, rather than historic or zero cost.  This exercise will provide not just an accurate assessment of the total resources being employed by governments, but also the detailed back-up information necessary for effective management of these portfolios. It also means conducting regular assessments of government net worth, provides a powerful tool for measuring whether government is building, or destroying national wealth and whether future generations are being treated fairly.

Public wealth funds can improve public asset management. A PWF set up as an independent holding company can manage public assets to deliver sustained economically efficient performance and direct financial dividends to governments. Using the same tools of financial management as the private sector, a PWF makes it possible for the government to maintain ownership and manage assets professionally, while interacting with the private sector on equal terms. European countries have long experimented with managing public wealth for various purposes. Solidium, Finland’s National Wealth Fund, has generated a total return on equity of 8% per annum, and the value of its equity holdings has increased from €5.5 billion to €5.7 billion since 2008, while €5.9 billion was paid as a dividend to the state during the same period.

Overcoming political opposition. Given that hurdles to adoption, and the political will to act even on the vast gains generated by such system change, has historically been lacking in most countries, there is a need for two-step approach. The first step is a pilot that does not threaten the system. This is where the Asset Map comes in. Importantly, this is not the detailed valuation of every individual asset, for accounting purposes. That comes in the second stage, when consolidated inside a holding company. The Asset Map works like a feasibility study. It provides an indicative understanding of the potential value, yield and structure of a certain portfolio, if professionally managed.  The study should be carried out swiftly, or risk being delayed by additional demands and stakeholder resistance. And as we have seen, there are good reasons to expect that in many jurisdictions, the opportunities could be compelling.