Though belated, the issue of extremely poor rate of return on its equity investment in as many 135 establishments has come to the notice of the country's single largest investor -- the government.
The government, according to a report published in a contemporary, has equity investment worth Tk 1.28 trillion (One lakh 28 thousand crore) in 135 state owned establishments. The average annual return it reportedly gets on such a large investment is a paltry amount of Tk 10 billion, which is less than 1.0 per cent of its aggregate investment.
True, the government is a different type of investor and its equity participation is not always guided by profit motive. At times, it puts the taxpayers' money in different state owned entities to meet objectives that are beyond the financial ones.
The situation is altogether different in the case of a private investor who is always at liberty to withdraw his/her investment anytime if he or she finds the same is not giving a satisfactory rate of return.
It is expected of the government that it would make efforts to ensure a reasonable level of return on its investment. But it is hard to tell that the officials concerned have ever looked at the issue seriously and tried to persuade the state-owned establishments, particularly the ones that have been earning handsome profits, to pay to the government the fair amount of return on its equity investments.
A good number of state owned entities, having government's equity participation, are perennially loss-incurring and those, instead of giving any dividend, often seek help from the latter to tide over their financial crisis.
The objective on the part of the government should be to withdraw its investments from this type of establishments through their divestment. Unfortunately, divestment of loss-making state entities is an issue that is abhorred most in the official circles. They are found to be more interested to continue their control over such institutions.
Interestingly, many profit-making state entities with substantial equity holdings do not pay to the government the right amount of profit. Some of those, reportedly, skip payment of any dividend under various pretexts. And the ministry of finance has never been serious about getting its due share of the profit either. Some listed largely state-owned enterprises that usually earn handsome profits have been paying the right amount of dividends to the private sector shareholders but, allegedly, not to the government which has substantial stakes in terms of equity holdings.
For instance, more than 21 per cent (Tk 268.8 billion) of the government's total equity investment is with the state-owned banks and financial institutions. What the government received as the aggregate return on its investments in the sector in 2013 was Tk 320 million.
Why should the government, which is very often compelled to avoid undertaking many essential development works and meeting other obligations for lack of resources, behave like an indifferent investor? Why is not the government forcing the profit-making state establishments to pay the due amount of dividend to it? If such organisations are clueless about the ways to improve their financial performance and ensure better rate of return on investments, the government can help them in preparing comprehensive and effective business and operational plans.
There is no denying that the issue of very poor rate of return on such a huge amount of government's investment in state-owned enterprises should have been dealt with, seriously a long ago. But it is better late than never. The ministry of finance in the middle part of the current month discussed the issue and decided to prepare a policy guideline that would ensure payment of, at least, 20 per cent of the net profits earned by the state-owned enterprises (SoEs) to the government every year.
The move, of implemented at all finally, is unlikely to fetch any handsome rate of return on its equity investment in SoEs since the number of profit-making SoEs is very few.
The situation demands a comprehensive reform plan for the SoEs. The first job under such a plan should be to get back as much as possible of the funds invested through the full divestment of the loss-making SoEs. The second priority job should be to make the management of the profit-making SoEs more dynamic and visionary so that they fetch a better rate of return on investments.
Is the government ready to push through such measures even in the face of possible resistance coming from the quarters having vested interests? If yes, there is a chance of getting a handsome rate of return on its equity investments in SoEs. Otherwise, it might see further erosion in the meagre return it is getting now at the end of every fiscal.
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