Mixed signals of Government’s strategy on SOEs

Confusions have arisen with regard to the Government’s policy on SOEs in light of the contradictory views expressed by the leaders of the ruling NPP administration. The ambiguity of the Left-leaning political alliance was witnessed even prior to the two national elections. 

Health Minister Nalinda Jayatissa during the Presidential poll remarked that their coalition was not keen on having commercial enterprises under the State ownership although some prominent NPP members (including the President) vowed to retain so-called strategic entities within the control of the Government.

Even after the conclusion of the elections, there is a lack of clarity over the NPP dispensation’s stance on public enterprises, leaving many to ponder and speculate. At the recently held Sri Lanka Economic Summit, President Dissanayake stated the Government was studying to merge the public enterprises to a holdings company and issue a certain number of shares via the stock market. He had opined some SOEs would have to be closed down with few others needing to be merged while having pointed out that scope of certain enterprises need to be changed. However, no reference had been made about the transfer of ownership from the public sector to private entities.

At the same conclave, Deputy Minister of Finance Dr. Harshana Suriyapperuma had disclosed certain SOEs would remain under public control with others getting transferred to the private sector for public efficiency. Suriyapperuma had also argued in favour of the Government’s continuous presence in certain business activities without revealing what those areas are.

This column has consistently stressed the need for the State to detach itself from commercial enterprises. Despite the fact islanders have become poorer as a result of loss-making, inefficient, State-owned businesses, widespread hostility towards privatisation among the hoi polloi is quite hard to comprehend and is a reflection of the economic illiteracy of masses. The NPP in its earlier political life as the JVP was viscerally opposed to the sale of State enterprises and their propaganda more or less portrayed privatisation something similar to homicide. Trade unions of SOEs that abhor privatisation supported the ruling alliance enthusiastically during the last two elections, hence, pivoting from detesting privatisation to implement it as a Government policy would be a political nightmare.

Half-hearted measures like divesting a minority stake in Government-owned businesses to the public through an issue of shares and ultimately getting it listed in the bourse would not result in greater levels of profitability and efficiency. No one would show an interest in buying shares of firms that are managed inefficiently and plagued by undue political influence as well as destructive trade union domination. The present status of SLT can be illustrated to validate the drawback of divesting minority stakes in SOEs. During 2023, the State telecom operator suffered a loss of Rs. 3.92 billion. The Treasury is the largest shareholder of SLT, and the company lags behind its close competitor in terms of profitability and management efficiency.

The fundamental issue with SOEs is there is no sense of ownership unlike in private companies. The top management and board directors of State firms do not suffer financially even when the organisations they lead are incurring losses successively. The employees too do not feel their jobs are threatened as they know that Government would bail them out from taxpayers’ money. In entities like SriLankan Airlines, bonuses are declared for workers in spite of the incurrence of losses. Such a situation would be unthinkable in private-owned enterprises.

Both the Industries Minister and Trade Minister are actively reviving the SOEs within their purview with a great deal of gusto. Some of the individuals who have been appointed to head SOEs by this administration are leading executives of private companies that compete with the very Government firms they are heading, creating conflicts of interest apart from suspicion. The Government is still on a learning curve. Sooner they learn the obvious, better for the economy.