Will lease-out of mills revitalise jute sector?

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Shahiduzzaman Khan
In a well-thought-out decision, the government is going to lease out eight state-owned jute mills to the private sector. According to a report published in the FE last week, the decision was taken by the cabinet committee on economic affairs in order to revitalise the ailing jute sector and save the public sector jute mills from accumulated losses of Tk 47.70 billion until 2006.
The government decision is expected to inject fresh dynamism into country's one of the vital export-earning sectors. About 6000 employees became jobless due to recent closure of four state-owned jute mills. These retrenched officers and employees will be absorbed in the same mills again. The government has also planned to adjust the liabilities of the closed-down jute mills with the lease money. The concerned banks have already been advised not to charge interest on the outstanding loans that the jute mills owe them. Of the eight mills ready for lease-out, four have been already closed down while the rest four are in operation until now.
The criteria of the to-be leased-out of the mills have not been charted out as yet. However, it is likely that tender will be floated for the leased-out of the mills and the highest bidders will be permitted to run the mills for five years. After successful expiry of the contract, the entrepreneurs can run the mills for another five years. Lease agreement may stipulate that the lessees will keep the existing manpower of the running mills, but they can appoint necessary officers and workers. If certain criteria are set, all matters relating to the lease-out process are expected to be solved.
In fact, the jute sector is on the verge of a complete collapse because of the government's policy failure. The policy has pushed most of the nationalised jute mills to the brink of closure. The flawed policy of, and non-cooperation by, successive governments was blamed for the dismal condition of the jute sector. The nationalisation of jute mills brought havoc to the sector. Most of the nationalised jute mills went out of production for lack of jute. According to an estimate, 30 per cent loss of the jute sector is caused by power shortage and another 30 per cent is attributed to interest charges. Jute sector itself is responsible only for another 30 per cent of the losses.
In order to have a balanced jute policy, public sector mills need to be leased out or privatised. This will eliminate the loss of the government. There is no chance of improving the operational efficiency of public sector mills. The government can adopt a uniform policy for the private sector if all the jute mills are in the private sector. Adamjee area has been converted into an Export Processing Zone (EPZ) and a number of industrial units are already under implementation. New jobs are expected to be created in the Adamjee area. If the government is convinced about revival of the jute sector, then only they should make this allocation.
The wage of jute mill workers in India is almost double the amount of pay of jute mill workers in Bangladesh, although Bangladesh produces superior quality jute. India is also smuggling jute from Bangladesh at a high cost. Even then the jute industry in India is flourishing and our jute industry is dying. This means we are not producing jute goods at a competitive price. Reports say that many private sector mill owners are not running their mills efficiently. The people who bought these mills are not interested to run the mills. They are selling the property of the mills. They blame the government for discriminatory policy. Private sector owners can not maintain these mills with losses. But they can not also pass on the loss to the government. Supporters of jute sector are pressing the government for allocation. Such an allocation must not be made without a rational policy.
However, leaders of private sector jute industries operators believe the attitude of the successive governments to their mills are 'step-motherly' which has created an uneven level playing field between the nationalised sector and the private ones. They said the government should not discriminate the private mills owners for the sake of the industrial and economic development of Bangladesh and that the government should rather concentrate more in sectoral development irrespective of the ownership of the mills.
Jute production is labour intensive. The sector gave some respite to the country's large rural underemployment problem. As the wage rates in Bangladesh have been lower than in other jute-producing countries and because Bangladesh has the ideal growing conditions for jute, the country has benefited from encouraging its production even when world price and demand projections have offered bleak prospects.
The World Bank has estimated that Bangladesh's share could rise to 84 per cent for raw jute and 55 per cent for manufactures. Jute production appeared in the late 1980s to be an essential part of the long-term development plan because, for all the troubles and struggles associated with its planting and marketing, no alternative activity offered any promise of being more profitable.
Many economists believe the key to preservation of the viability of jute as an international commodity lies in maintaining price and supply stability. That has proved a difficult task. Of 30 major primary commodities traded internationally, only about six have as much price and supply instability as jute. Demand is highly sensitive to price increases, but not nearly as sensitive to decreases; once a portion of the market is lost to synthetics, it is very difficult to win it back through price competition.
The government has a responsibility to monitor the jute situation, to intervene when necessary, and to preserve the economic viability of the commodity responsible for one-third of the nation's foreign trade earnings.