Big, ponderous, Government enterprises are not responsive to people’s needs, said veteran policy policy expert and an advisor of the Advocata Institute, Prof. Rohan Samarajiva.
He was speaking at Advocata’s press briefing, organised to highlight the urgency of carrying out reforms to State Owned Enterprises (SOE).
“The basic issue is that we are suffering from a twin deficit. We need to get started on addressing the core problem,” he said.
According to Prof. Samarajiva privatising a globally visible, yet loss-making SOEs such as SriLankan Airlines is the best solution to create confidence among investors that Sri Lanka is serious about reforms.
Sri Lanka’s SOEs are a serious burden on public finances. With the economic crisis reaching a tipping point, it is becoming increasingly impossible to keep these loss-making enterprises afloat. The continuation to do so, at the expense of the taxpayer can have serious consequences to the economic trajectory of the nation.
Advocata Institute’s research team has identified that the cumulative losses of the 55 SOEs from 2006-2020 is a staggering Rs.1.2 trillion. The combined loss per day of the Ceylon Petroleum Corporation, the Ceylon Electricity Board, SriLankan Airlines, Sathosa and the National Water Supply and Drainage Board is about Rs. 384,479,189, according to data for 2019.
This is in the backdrop, where the country is wading through a serious debt crisis with questions surrounding our ability to meet forthcoming debt obligations. The briefing brought together a panel of industry experts who raised alarm bells on why Sri Lanka cannot afford to be complacent about State Owned Enterprise reforms anymore.
Prof. Samarajiva outlined the seriousness of the issue along with how privatisation can achieve positive outcomes for the country.
“In 1997, Sri Lanka Telecom was making losses and providing bad services. Today, after privatisation, it is providing us with good services and employment and double of what they were earning. It is also providing the Government with a dividend which generated billions to the Government.”
He said that the country has no other alternative to prevent the hemorrhaging losses of State Owned Enterprises apart from privatisation.
“Privatisation is not a one size fits all model, it is different in different countries and sectors - as seen in the telecommunication industry in Sri Lanka - with a good regulator we can have competition, leading to greater efficiency and making technology accessible to the common public,” said Advisor to the Advocata Institute, Ms. Anarkali Moonesinghe.
She outlined possible avenues for privatisation that can be considered include listing of State Owned Enterprises in the stock exchange.
According to Ms. Moonesinghe, “Our stock market could use large capital companies that are owned by the Government today. It not only gives people ownership but also broadens ownership by giving the average person an opportunity to become a direct stakeholder in these enterprises. This can be a better option than attaching the person through taxpayers money or having your EPF/ETF being taken into these enterprises,” thereby describing the merits of listing.
Advocata’s Academic Chair, Dr. Sarath Rajapatirana said that the present crisis makes two choices available to us, which is “reform or perish’’.
He highlighted the urgency of implementing structural reforms. He said that the key issue with State Owned Enterprises lies in productivity. “For over 30 years, Sri Lanka’s total factor productivity was less than 1%. This is in sharp contrast to countries such as South Korea and Vietnam, where a jump in productivity is experienced today which we were never able to maintain. If you want permanent change in the GDP rate, you need to have productivity increase,” said Dr. Rajapatirana.