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What to do with our state-owned enterprises

  • Published at 10:09 pm May 28th, 2019
Should the government be in business?

Will these institutions ever see profits?

You ask any of our ministers or policy planners, and they all will say: “The private sector is the growth engine of our economy. We want to do everything possible to facilitate the private sector in the country, including improving the ease of doing business index.” 

On the other hand, you also get to see sections of them trying to keep these SOEs floating for the so-called greater interest of the country. 

SOEs can be a critical part of the development story of a countrySouth Korea’s government has operated its enterprises in line with their broad strategic visions and objectives, and subsequently transformed the very economic picture of the nation. 

However, Bangladesh’s state-owned enterprises mostly depict a different picture, and have not been profitable most of the time. During the fiscal year 2008-09, the losses of these institutions amounted to Tk325 crore, and in FY2017-18, this stood at a staggering Tk1851 crore. 

There is a very low likelihood that these institutions will ever see profits. As a result, the volume of losses and burden on the national balance sheet will persistently increase. Analysts estimate that losses will increase to Tk2,000 crore by next year.

Bangladesh Chemical Industries Corporation (BCIC), Bangladesh Sugar and Food Industries Corporation (BSFIC), and Bangladesh Steel and Engineering Corporation (BSEC) were instituted under the Ministry of Industries. Meanwhile, Bangladesh Jute Mills Corporation (BJMC) and Bangladesh Textile Mills Corporation (BTMC) were instituted under the Ministry of Textile and Jute. 

When these corporations were initially instituted, it was the private sector that was falling behind. As of recently, however, sugar, jute products, cement, yarn, and paper are all areas where the private sector is increasingly competitive, while the public sector corporations are not performing. 

According to the annual report of BCIC, in FY2017-18, 10 out of their 12 factories suffered losses. The total losses stood at Tk622 crore. Among the 18 mills under BSFIC, only two were profitable. The losses for BTMC, however, were relatively low and have been decreasing. 

In FY2017-18, losses stood at Tk5 crore 28 lakh. In the preceding year, this was higher at Tk8 crore. There were 58 factories under BTMC that have since been sold or liquidated. 

The underlying reasons for their under-performance include limited working capital, problems related to electricity supply, outdated factories, the absence of BMRE (balancing, modernization, rehabilitation, and expansion), capable senior management, and scarcity of high-quality raw materials.

Each of these corporations should have a targeted plan specific to them. It might be appropriate to institute a committee or engage international consultants, and implement changes based on the insights and advice produced. 

Watching our neighbour

There are almost 300 CPSEs (central public sector enterprises) in India. A notable success story of a state-owned enterprise is that of the ONGC. ONGC was developed as a public sector enterprise in the late 1950s and 1960s, and has been central to India’s energy security. 

However, back in FY02 and FY03, ONGC had incurred losses of Rs 900 crore. The ONGC has since taken strategic initiatives, including its initiation of the special economic zone (SEZ) project at Mangalore. Despite the global decline of production from matured fields, ONGC has sustained its production due to investments in various IOR (improved oil and recovery) and EOR (enhanced oil recovery) schemes. 

Restructuring SOEs to increase their efficiency will require a two-pronged approach. In the short-run, losses may be curbed by closing units that are not competitive. In the longer run, strategic changes and policy changes may be necessary. To be able to undertake such strategic initiatives in a dynamic market, governance of SOEs needs to be transparent and independent, without being clouded by political motivations. The government must also be willing to expose public sector enterprises to competitive pressures by cutting back on protectionist policies. 

Should government be in business?

The big question remains to be answered -- should the government be in business? Should they be competing with our private sector? How can government sector entities draw a balance in the market price of the commodities?

Our experience shows, market intervention by Trading Corporation of Bangladesh (TCB) or Sugar and Food Industries Corporation (BSFIC) could in no way influence the terms of trade in favour of the common people, or help bring down prices. 

However, in the pursuit of doing so, the state coffer lost a huge amount of money and only encouraged inefficiency and corruption. On the other hand, these episodic efforts sent the wrong message to the private sector.

Drawing a balance between state and the market had been a historically tough exercise, and most of the state efforts have failed. The state has not been able to ensure accountability of the private sector, nor run a profitable yet responsible public sector.

Mamun Rashid is a leading economic analyst.

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