Privatisation of public enterprises

A.B.M.S. Zahur

PUBLIC enterprises are created to achieve social goals (such as improved income distribution, job opportunities, development of depressed regions) to overcome market failures. Bangladesh public enterprises are categorised as “abandoned” (P.O 16), “nationalised” (P.O 27), “vested” (P.O 29) enterprises promoted by the then East Pakistan Industrial Development Corporation (EPIDC) and enterprises set up after liberation in 1971. These were created to break-even or to make profit. It was envisaged that they would operate along commercial lines with due weight given to other objectives.

The beginning of privatisation was informal in Bangladesh. The policy of divestiture was formally announced in 1975. Later, it was revised twice, in 1982 and 1986. As the public enterprises failed to fulfill the objectives behind their setting up, and as they could not play the proper role in economic development or ensure distributive justice, the government had no option but to allow private enterprises to participate more significantly in the national economic development.

A program of privatisation of public enterprises has been running for more than three decades and a Privatisation Board under a chairman with the status of state minister was set up in 1993, but privatisation could not gain momentum due to lack of a transparent, consistent and effective policy. Thus, heavy losses in public enterprises are still continuing and economic growth is being hampered.

The largest number of public enterprises is in the manufacturing sector. Energy and power, oil, gas, minerals and petroleum are control by the government. Due to resource constraints the government has to reduce its investment in the industrial sector. Self financed investments in the public sector should not be undertaken unless the enterprises are able to meet their debt servicing obligations on cash reserves and investments are viable without price control and subsidies.

Budgetary support is not provided to public sector projects. Instead, foreign and domestic sector investment is encouraged.

The government is in a dilemma because of the threat of global economic meltdown and its election commitment for reducing unemployment. It is striving hard to stay capable of facing any possible impact of the global economic crisis. Instead of total privatisation or no privatisation it may encourage public-private joint ventures. In choosing such a strategy it may go for agreement with foreign partners.

Due to less developed capital market, which plays a crucial role in fostering transfer of public enterprises, and low domestic saving a better option appears to be direct sale of public enterprises to overseas companies instead of gradual sale through domestic outlets. In case of strategic industries it is better to avoid foreign investment because such industries should not be controlled from abroad.

Bangladesh can never fulfill its vision 2021 unless there is substantial increase in investment. We need rapid development of infrastructure. Obsolete technology is to be replaced by modern technology to reduce cost and increase productivity and competitiveness of the industries.

It is reported that the government is considering announcement of a new industrial policy soon. The said policy should spell out its policy for privatisation clearly. There appears to be some difference of opinions between the finance minister and the minister for industries. While the finance minister needs reduction of budget deficits and less reliance on external borrowings, the minister for industries has to emphasise on increase of employment (an election pledge). Both the ministers have their points.

Partnership between government and foreign investors appears to be a good strategy under the circumstance. Simultaneously, the option of selling public enterprises directly to overseas companies to accelerate privatisation may also be considered seriously.

Our experience of privatisation is not so successful. Very few private enterprises have shown dynamism on transfer from public to private. Thus, a thorough analysis of the existing privatisation policy is needed to bring about a balance between growth and people’s interest.

 A.B.M.S. Zahur is a former Joint Secretary.

Source: The Daily Star, 03 June 2009


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