Public enterprises and the Government’s role

Introduction

With the end of the decades-long war situation almost two years back, Sri Lanka is currently on a cause of regaining her lost glory. Thus, strengthening the affected economy of this isle is key and crucial if we are to see any development in our country in the near future.

So, can the Government achieve those determined economic goals alone? That’s the question lying before us. Also, can the private sector alone run the county’s economy? The answer is no. Then who should take the leadership? Is it the Government-led enterprises or the private sector-driven enterprises? Or should it be a collective effort of both Government and private sector enterprises?

The intention of this brief article is to discuss the role that the Government-led enterprises should play and the role of private sector enterprises.

Role of the Government

Basically the Government’s role in an economy is to act as a regulator and facilitator. Yet, we can observe that many governments around the world run government-owned business entities. So there is no exception in Sri Lanka too.

There are hundreds of different State-Owned Enterprises (SOEs) in operation throughout the country. Some of such entities have been identified as successful stories while the rest are not. So, in other words, some of them are making a substantial contribution to the national economy while some of them are viewed as a burden to the economy. Some of such key State owned business or commercial entities are:

=Bank of Ceylon (BoC)

=People’s Bank (PB)

=National Savings Bank (NSB)

=Sri Lanka Telecom PLC (SLT)

=Sri Lanka Telecom Mobitel (2002 – Became a wholly owned subsidiary of SLT)

=Sri Lanka Insurance Corporation Ltd. (SLIC)

=Independent Television Network Ltd. (ITN).

=Sri Lanka Rupavahini Corporation (SLRC)

=SriLankan Airlines Ltd

=Milk Industries of Lanka (Pvt) Ltd. (MILCO)  

=State Engineering Corporation of Sri Lanka

=State Timber Corporation (STC)

There are some key areas where the Government should have a substantial hand due to national interest and national security. Some of such key areas can be categorised as follows:

=Power and energy sector

=Financial sector

=Agriculture sector

=Transport sector

=Telecommunication sector

For instance, the Government should have a significant role to play with regard to the power and energy sector considering its national importance. We all can recall the difficulties that Sri Lanka faced when the local gas market was dominated by the Shell Company until recently. As a result, the Government of this country had to depend on a foreign company for a considerable period of time.

Performances of Govt.-run businesses

I believe that the use of pertinent statistics will help us to understand the actual situation and to assess the conditions well. Therefore, let’s discuss the performance of some selected public commercial enterprises.

Here I will discuss the performance of some key SOEs coming under the financial sector, telecommunication sector, etc.

Financial sector

Initially I would like to draw you kind attention on the performance of the Sri Lanka’s premier Bank, Bank of Ceylon. The performance of BoC will give us an ideal platform to discuss the theme of this article well.

Performance of Bank of Ceylon

Bank of Ceylon (BoC) is the largest commercial bank in Sri Lanka and it is the only bank that operates its businesses through its own branch network overseas. It currently has branches in England (London), India (Chennai) and in Maldives (Male). It is also learnt that the Bank of Ceylon is in the process of expanding its branch network in India further.

Some business highlights of Bank of Ceylon are:

=Highest ranked Sri Lankan bank in the Banker Almanac

=Customer base of over nine million accounts

=Leader in inward foreign remittances with over 43% market share

=Leader in treasury operations with over 50% of local foreign exchange market

=Recognised as the Best Sri Lankan Trade Bank for 2010 for the second consecutive year with over 50% market share

=Lending to private sector increased by Rs. 62 billion, 34% up, etc.

(Source: Annual Report and Financial Statement of Bank of Ceylon – 2010.)

Many talk about that financial performance of public enterprises and state that they are not doing well in terms of management and in terms of financial performances. Yet, BoC’s operating results are impressive and it managed to earn significant revenue while running at a very good profit over the years. Hence, Bank of Ceylon has proved that those assumptions are incorrect.

Bank of Ceylon’s Income and Net Interest Income for the last five years is shown on this page (source: Annual Report and Financial Statement of Bank of Ceylon – 2010).

I would also like to draw attention to the financial performance in terms of profits of the premier State owned banks, namely: Bank of Ceylon (BoC), People’s Bank (PB) and National Savings Bank (NSB).

The financial figures pertaining to these three banks demonstrate that these key State banks have been performing quite well over the years and profits are increasing on a yearly basis. Hence, the performance of these banks is highly commendable.

As illustrated, it is quite visible that the State-owned banks have shown a significant improvement both in terms of their income and profits over the last few years. Therefore, it proves that public enterprises too can earn high income and substantial profits and run well if managed properly, professionally, with discipline and with strong and with visionary leadership.

Telecommunication sector

Today this sector is considered a rapidly developed area and as per the statistics available on the official website of the Telecommunication Regulatory Commission of Sri Lanka (TRC), the total number of cellular mobile subscribers stands at 17,359,312, while the total number of fixed phones stands at 3,578,463 (statistical overview of the telecommunication sector as at end of the fourth quarter of 2010 – source: http://www.trc.gov.lk).

This is indeed a notable achievement. Considering that our total population is just 20 million, 17 million are using mobile phones. This figure is rather remarkable considering that we are still a developing nation.

The telecommunication sector in our country has shown a significant transformation and innovation over the years. By today, most of Sri Lankan citizens enjoy the extensive telecommunication facilities, both voice facilities and wireless internet or wireless broadband, offered by the various telecommunication operators, including Sri Lanka Telecom PLC and Sri Lanka Telecom Mobitel (Pvt) Ltd. as the SOEs. Nevertheless, the performances of SLT and performances of Mobitel are highly commendable.

I would like to quote the following statement from the official Mobitel website: “After being acquired by Sri Lanka Telecom in 2002, Mobitel has grown by leaps and bounds and is now on par technologically with the very latest in the Sri Lankan telecommunications industry. Mobitel is the first mobile operator to launch super 3.5G HSPA technology in South Asia” (source: www.mobitel.lk).

Though there are a number of private telecommunication facility providers, an SOE such as Mobitel has performed exceptionally well. Product innovation and extensive marketing would be the contributory factors to achieve these heights.

Transport sector

In Sri Lanka, transport services are basically provided by both the Government and the private operators, in which the railway services are provided only by the Government.

However, both Sri Lanka Transport Board (SLTB) and Sri Lanka Railways have not been making profits over the years. Nevertheless, we cannot forget the fact that Sri Lanka Transport Board buses are operating on uneconomic routes, unlike private buses. Hence, naturally SLTB has to incur losses. It is quite necessary to operate such routes for the benefit of those who live in such areas.

However, I personally believe that both SLTB and Sri Lanka Railways can make profits if they are ready to make drastic changes in their structures and methods. Public transportation services offered by the Sri Lanka Transport Board and Sri Lanka Railways have been identified as a service and therefore these entities are much more service-oriented rather than profit-oriented. Hence, it gives a relief for the general public who are not financially able to travel using personal vehicles and these two transport providers offer services at an affordable cost for such commuters.

Quite interestingly, this factor has been mentioned even in the vision statement of the SLTB: ‘To be acknowledged as the best provider of bus passenger transport for an affordable price in Sri Lanka’ (source: www.transport.gov.lk.).

The 2009 Annual Report of the Central Bank of Sri Lanka (CBSL) reveals that 15 depots of the SLTB have reached breakeven level in their operations during 2009, which is a healthy sign for the SLTB in the long-run, provided that it continues to make progressive upward moves on a continuing basis.

Therefore, I believe that the Government should have a significant control over the transport sector in order to provide high-quality service at an affordable cost for the general public of this country.

What matters for better performances?

To run any business with success, it should fulfil key things such as:

=Discipline

=Commitment

=Dedication

=Professionalism

=Strong communication skills

=Positive attitude

=Innovations

=Latest technology

=Proper management of human resource

Yet, many believe that these factors are only visible in private sector organisations. The Above mentioned examples show why these assumptions are wrong for some State run enterprises.

However, we have to accept the fact that the most State run businesses fail due to the lack of the above mentioned key factors, such as discipline, dedication, commitment, etc. Furthermore, such entities have failed not just because of the poor performance of the top management alone; the supervisory staff attached to such firms should also be held responsible for the poor performances.

Changing the attitude and commitment of such workers will facilitate these State entities to be much more competitive and cost effective. So, in order to achieve success, these firms should be led by true leaders by example and with correct attitude and especially with a sound vision for the future.

Conclusion

As we discussed, State business entities should be run by professionals and the Government should aid and encourage such talented leaders, managers and professionals to run these organisations quite successfully.

Furthermore, the Government should facilitate and should implement an appropriate mechanism enabling those professionals to share their experiences, expertise, technical know-how, etc., with other State enterprises which are not doing well.

Developing and introducing an appropriate mechanism will help to narrow the gap between the Government sector and the private sector. However, key Government business entities which are of national importance should be in the hands of the Government as discussed earlier, while allowing the private sector to run their businesses in other areas.

Furthermore, I believe that Sri Lanka should develop its own identity in managing things, while keeping with international norms and standards rather than depending upon orthodox theories, perceptions and beliefs. What the country needs at this hour is constructive criticism and not mere criticism.

In conclusion, as an optimist, I firmly believe that a collective effort is crucial by both the Government and the private sector to take our economy forward. Consequently, we can expect positive results sooner rather than later.