Privatisation will benefit the national economy
Ahmed Showkat Masud | Saturday, 14 June 2008
A large number of state-owned enterprises (SoEs) have been operating in our country. Globalisation has been influencing the domestic markets of all countries around the world which have followed the path of socio-economic policy changes by their the governments for embracing the competitive market-oriented economy. The SoEs like Bangladesh Railway, Power Development Board (PDB), Water and Sewerage Authority (WASA) and others are many in Bangladesh. But their performances are not up to the mark. It is evident from the 'poor' level of their services. Poor services mean being uncompetitive and, in most cases, the enterprises are dependent on government's subsidies. This situation calls for their restructuring and privatisation.
Through privatisation of these heavily-subsidised SoEs, the hard-earned revenues that are collected from both direct and indirect tax-payers can be used for infrastructural development which is a must for our accelerated economic development. In the recent past, Padma Oil and Jamuna Oil companies have been listed with the country's stock exchange. The Bangladesh Biman is also expected to off-load its shares sooner or later to the capital market.
As far as the operational performance of the SoEs is concerned, the case of the state-owned telephone operator may be cited here. It is lagging far behind the private telephone service providers in a competitive turf. The Bangladesh Post Office has lost its image to the public as well as to foreign countries.
Therefore, restructuring of these SoEs and turning these enterprises into public limited companies (PLCs) are now considered one of the preferred ways to make them competitive in a market-oriented economy. This will help their growth as well as the sustainable development of the national economy. The top defaulting enterprises in the lists of state-owned banks, in terms of loan servicing, are the SoEs.
On its part, the government has already corporatised the state owned banks through appropriate legal steps. This will hopefully pave the way for enhancing their competitiveness.
Generally, the SoEs are overstaffed. The presence of trade unions which fond to operate by muscle-flexing and under patronage of the vested interest groups hampers the normal activities of the SoEs. This lowers their productivity and increases dependence on government subsidies. When the need for investments for infrastructural development has been increasing day by day because of industrialisation, urbanisation and growing demand for agro-based economic activities, the government is not in a position to meet such need as it has to spend more and more on subsidies and all other kinds of supports to keep the ailing SoEs afloat.
This situation has adversely affected the ability of the government to fund properly the investment programme owing to resource constraints. But the need is now stronger for expanding the base of agro-based economic activities. Meeting this need will demand more investments in storage facilities along with easy transportation of agri-products to the urban markets and many other supportive measures by the government.
In this context, the rationale for deploying public resources through a large amount of subsidies for operations and maintenance of the perennially loss-making SoEs remains certainly questionable on many counts. This situation can not last for a longer period. The conversion of the heavily subsidised SoEs into public limited companies for their privatisation under market-driven conditions following the standard rules of the game, will facilitate their restructuring. This will help to bring about changes in management structure of such enterprises. Private investors will then become stake-holders in the businesses where the government is now wrongly involved. The capital market will also get a new momentum then for its further growth and development as well as for its increased operational depth.
At the beginning, privatisation of the existing major SoEs may reduce many existing employment opportunities in the public sector because of tougher management practices. But many such existing jobs have no links with productivity. Job-shedding in such areas will ultimately benefit the economy. The overall level of unemployment in the country can be reduced by creating opportunities for jobs elsewhere by more efficient uses and reallocations of resources.
Meanwhile, privatisation of the SoEs will increase the number of the listed companies in the market. The market capitalisation of the listed issues will then be manifold, much higher than that of the existing level. This will, in the process thereof, create the demand for higher standards of accounting and financial disclosures that are needed for transparency and more openness in the country's corporate sector for sustained growth of the capital market.
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The writer works at ONE Bank Ltd., Khatunganj Branch, Chittagong
Through privatisation of these heavily-subsidised SoEs, the hard-earned revenues that are collected from both direct and indirect tax-payers can be used for infrastructural development which is a must for our accelerated economic development. In the recent past, Padma Oil and Jamuna Oil companies have been listed with the country's stock exchange. The Bangladesh Biman is also expected to off-load its shares sooner or later to the capital market.
As far as the operational performance of the SoEs is concerned, the case of the state-owned telephone operator may be cited here. It is lagging far behind the private telephone service providers in a competitive turf. The Bangladesh Post Office has lost its image to the public as well as to foreign countries.
Therefore, restructuring of these SoEs and turning these enterprises into public limited companies (PLCs) are now considered one of the preferred ways to make them competitive in a market-oriented economy. This will help their growth as well as the sustainable development of the national economy. The top defaulting enterprises in the lists of state-owned banks, in terms of loan servicing, are the SoEs.
On its part, the government has already corporatised the state owned banks through appropriate legal steps. This will hopefully pave the way for enhancing their competitiveness.
Generally, the SoEs are overstaffed. The presence of trade unions which fond to operate by muscle-flexing and under patronage of the vested interest groups hampers the normal activities of the SoEs. This lowers their productivity and increases dependence on government subsidies. When the need for investments for infrastructural development has been increasing day by day because of industrialisation, urbanisation and growing demand for agro-based economic activities, the government is not in a position to meet such need as it has to spend more and more on subsidies and all other kinds of supports to keep the ailing SoEs afloat.
This situation has adversely affected the ability of the government to fund properly the investment programme owing to resource constraints. But the need is now stronger for expanding the base of agro-based economic activities. Meeting this need will demand more investments in storage facilities along with easy transportation of agri-products to the urban markets and many other supportive measures by the government.
In this context, the rationale for deploying public resources through a large amount of subsidies for operations and maintenance of the perennially loss-making SoEs remains certainly questionable on many counts. This situation can not last for a longer period. The conversion of the heavily subsidised SoEs into public limited companies for their privatisation under market-driven conditions following the standard rules of the game, will facilitate their restructuring. This will help to bring about changes in management structure of such enterprises. Private investors will then become stake-holders in the businesses where the government is now wrongly involved. The capital market will also get a new momentum then for its further growth and development as well as for its increased operational depth.
At the beginning, privatisation of the existing major SoEs may reduce many existing employment opportunities in the public sector because of tougher management practices. But many such existing jobs have no links with productivity. Job-shedding in such areas will ultimately benefit the economy. The overall level of unemployment in the country can be reduced by creating opportunities for jobs elsewhere by more efficient uses and reallocations of resources.
Meanwhile, privatisation of the SoEs will increase the number of the listed companies in the market. The market capitalisation of the listed issues will then be manifold, much higher than that of the existing level. This will, in the process thereof, create the demand for higher standards of accounting and financial disclosures that are needed for transparency and more openness in the country's corporate sector for sustained growth of the capital market.
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The writer works at ONE Bank Ltd., Khatunganj Branch, Chittagong