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ECN220: Economy of Bangladesh

Comparative Performance of State Owned


Enterprises in Bangladesh
Aninda !stafa "#$%%20&'0
(he government of Pa)istan !sed the state*owned enterprises mainly for the development of the
economic condition of +est Pa)istan d!ring the period ,etween %-&. and %-/00 (he private
sector received little government patronage in East Pa)istan1 where the p!,lic sector investment
was1 however1 relatively larger than in +est Pa)istan0 (he p!,lic sector of the economy of
Pa)istan in the early post*partition years ,etween %-2/ and %-&0 covered comm!nication
networ)1 power1 irrigation1 defence and social service sectors li)e ed!cation and health0
3ollowing the independence of Bangladesh in %-/%1 ma4or changes were made in the ownership
str!ct!re of the enterprises of ind!strial1 commercial and financial sectors0 (hro!gh
nationalisation1 the government gained control over .'5 of the total ind!strial assets in the
co!ntry0 (he government too) over all the !nits of the ind!stries a,andoned ,y +est Pa)istani
and other non*Bengali owners and nationalised them0 (he government also nationalised all
ind!strial !nits owned ,y Bangladeshi citi6ens in the three ma4or sectors1 namely cotton te7tile1
4!te and 4!te man!fact!ring and s!gar man!fact!ring0
"n 8!ly %-/21 the government imposed ceiling on private investment0 (he limit set for private
investment in small ind!strial !nits was () 20& million1 which was later enhanced to () 90&
million incl!ding the investment of profits1 and sim!ltaneo!sly1 the government preserved the
right to nationalise any private enterprise whenever felt necessary0 (he strategy did not wor)
well and within two*three years of nationalisation1 the state*owned enterprises started
e7periencing severe deterioration in prod!ctivity and profita,ility largely d!e to management
inefficiency1 corr!ption and an ideological conflict ,etween personal am,itions of the policy
ma)ers1 managers and employees and the national interest0
"n %-/'1 the government ,ro!ght f!rther changes in the national development strategy and
enco!raged state*sponsored private ind!strial development0 (he ind!strial policy was again
revised and offered concession to ,oth local and foreign private investors0 ost reserved sectors
for state investments were made open for 4oint participation of p!,lic and private enterprises0
(he government a,olished the provision of moratori!m on nationalisation1 form!lated policies to
promote private capital and enco!rage competition ,etween p!,lic and private sector enterprises0
(he p!,lic enterprises were restr!ct!red thro!gh merging some p!,lic corporations and creating
a few new enterprises0 (he new goals incl!ded revitalisation of the private sector1 increase in
efficiency of the p!,lic sector management1 organisation of efficient import s!,stit!tion1
prod!ction of e7porta,les1 and restriction on monopoly in prod!ction1 employment generation1
and development of s)ills and technology0 All these were incl!ded in the government:s ind!strial
policy declared in %-.20 (his policy clearly demonstrated the intention of the government
towards
Box 1.1: Non-Financial Public Enterprises
Sector No. of
Enterprises
Title of Enterprises (Non-financial)
Industry 6
Bangladesh Textile Mills orporation (BTM)! Bangladesh Steel "
Engineering orporation (BSE)! Bangladesh Sugar " #ood Industries
orporation (BS#I)! Bangladesh he$ical Industries orporation (BI)
Bangladesh #orest Industries %e&elop$ent orporation (B#I%)!
Bangladesh 'ute Mills orporation (B'M).
(o)er! gas and
)ater
*
Bangladesh +il! ,as " Mineral -esources orporation! Bangladesh (o)er
%e&elop$ent Board (B(%B)! %ha.a (o)er %istri/ution o$pany (%(%)!
%ha.a 0ater and Se)erage 1uthority (01S1)! hittagong 0ater and
Se)erage 1uthority! -a2shahi 0ater and Se)erage 1uthority and 3hulna
0ater and Se)erage 1uthority.
Transport and
co$$unication
*
Bangladesh Shipping orporation (BS)! Bangladesh Inland 0ater
Transport orporation (BI0T)! Bangladesh -oad Transport orporation
(B-T)! hittagong (ort 1uthority! Mongla (ort 1uthority! Mongla %oc.
0or.er4s
Manage$ent Board! Bangladesh 5and (ort 1uthority.
Trade 6
Bangladesh (etroleu$ orporation (B()! Bangladesh 'ute orporation
(B')! Trading orporation of Bangladesh (TB).
1griculture 7
Bangladesh #isheries %e&elop$ent orporation (B#%)! Bangladesh
1griculture %e&elop$ent orporation (B1%).
onstruction 8
-a2dhani 9nnayan 3artipa.sha (-1'93)! hittagong %e&elop$ent
1uthority (%1)! -a2shahi %e&elop$ent 1uthority (-%1)! 3hulna
%e&elop$ent 1uthority (3%1) and National :ousing 1uthority.
Ser&ice ;*
Bangladesh Mu.ti2oddha 3alyan Trust! Bangladesh #il$ %e&elop$ent
orporation (B#%)! Bangladesh (ar2atan orporation (B()!
Bangladesh S$all and ottage Industries orporation (BSI)!
Bangladesh i&il 1&iation 1uthority! Bangladesh Inland 0ater Transport
1uthority (BI0T1)! -ural Electrification Board (-EB)! Bangladesh Export
(rocessing <one 1uthority (BE(<1)! Bangladesh :andloo$ Board!
Bangladesh Sericulture Board! Bangladesh 0ater %e&elop$ent Board
(B0%B)! Bangladesh Tea Board! Bangladesh Teleco$$unication
-egulatory o$$ission (BT-)! Export (ro$otion Bureau (E(B)!
Bangladesh Sericulture -esearch Institute! Bangladesh Bridge 1uthority
and Bangladesh Energy -egulatory o$$ission
Comparative Growth of !E an" National #ncome
(he st!dy of the state owned enterprises in Bangladesh reveals the str!ggling side of the p!,lic sector0 All
indicators of performance s!ggest that SOEs have deteriorated financially a long time ago1 and has ,een
g!ilty of ,eing noticea,ly !nprod!ctive in recent years0 3or e7ample1 their contri,!tion to ;#P1 which
averaged a,o!t 2 per cent of ;#P over mid*%--0s1 has declined to far less than % per cent in recent years0
(he ma4or man!fact!ring and !tilities SOEs contri,!ted to less that 00.5 a,sol!te increase in ;#P
d!ring the early 2000s0
#!ring 3< 200'*0/1 the total operating reven!e of all e7isting SOEs stood at ()0 991%/- crore which rose
to ()0 /.19'-02& crore in 3< 20%0*%% with an ann!al growth rate of 290-/ percent0 #!ring this period1 the
val!e of p!rchase of goods and services increased ,y 2/02& percent0 According to the prod!ction cost1 the
amo!nt of val!e addition in 3< 200'*0/ stood at ()0 21'%% crore which significantly decreased to ()0
*%1/.0 crore d!ring 3< 20%0*%% res!lting in a decreased growth rate of val!e addition ,y *2'0/% percent0
#!ring 3< 200'*0/1 the operating deficit of the SOEs was ()0 %1&/2 crore while it increased to an
operating deficit of ()0 .10-'020 crore in 3< 20%0*%%0 (a,le 20% shows the growth rate of reven!e1 val!e
addition and prod!ction income of non*financial SOEs d!ring 3< 200'*0/ to 3< 20%0*%%0
=ecent data shows a comparative fall in prod!ction in almost all sectors0 >rea prod!ction ,y BC"C fell
from %.0/. la)h mt0 from 2002*0& to %% la)h mt0 in 20%%*%20 <arn prod!ction ,y B(C fell from %9009%
la)h )g to 2-022 la)h )g in the same time period0 (here was also decrease in prod!ction of s!gar and
(SP1 with B8C and BSEC the only two SOEs to have higher prod!ction levels than & years ago0
$able %.1: Growth &ate of &evenue' (alue )""ition an" Pro"uction #ncome of Non-financial
!Es *%++,-+-to %+1+-11.
?"n Crore (a)a@
200'*0/ 200/*0. 200.*0- 200-*%0 20%0*%% ;rowth =ate
from 200'*0/
to 20%0*%%
Operating reven!e 991%/- 2010%. 9-1&2/ '21-&. /.19'-02& 290-/
P!rchased goods and
services
901&'/ %2120' 9%1%22 &&1'22 .01%2-0/% 2/02&
Aal!e Addition 21'%% /1'%2 .120& -199' *%1/.0 *2'0/%
Fig. 2.2 Net Profit/Loss of all SOEs in Bangladesh
On the other hand1 the ;ross National "ncome ?;N"@ of Bangladesh has increased tremendo!sly over the
last 20 years0 After gaining independence from Pa)istan1 the state of the economy was wea) and most of
the people were relatively poor0 (he war had ta)en its toll on the nation and its people0 ;N" at that point
in time stood at a meager fig!re1 less than %0 ,illion dollars0 3ast forward to 20%2 and the ;N" of
Bangladesh has shot !p to almost %20 ,illion dollars0 "t m!st ,e mentioned that d!ring this period the
pop!lation of Bangladesh has also grown to a massive %&2 million from a,o!t /0 tho!sand at that time0
Bowever1 d!ring that time the prod!ctivity of the people as well as the private sector went thro!gh radical
changes0 (echnological advances and increase in )nowledge has led to prod!ctivity in the private sector
to ,e far more s!perior0
Privati/ation
"n %-/21 in an effort to chec) the accent!ating crisis1 the government too) initiative to revise the
investment policy ma)ing greater room for private enterprises in the economy0 "n the revised investment
policy of %-/21 only %. sectors were reserved for the p!,lic sector and the remaining sectors were )ept
open for private investment and the ceiling for private investment was raised to () 90 million0 (he new
policy opened scope for foreign private investment in the co!ntry0 Provisions were made to compensate
the owners in the event of nationalisation and the moratori!m on nationalisation was e7tended from ten to
fifteen years0
(he Second 3ive*year Plan for %-.0*.& was revised and the allocation for private sector ind!stry was
enhanced from 2&5 in %-.0*.% to &-025 in %-.%*.20 (he few sectors )ept reserved for state*owned
enterprises were air transport1 telecomm!nication1 n!clear energy1 power1 and defence goods0 All other
sectors and )inds of ind!stries were made open for private investment witho!t any ceiling0 (he ma4or
capital intensive p!,lic sectors s!ch as 4!te and cotton te7tile1 s!gar1 paper1 steel1 ship,!ilding1 heavy
electricals1 minerals1 and oil and gas were also made open for either p!,lic or private investment or for
partnership of ,oth0 (o facilitate private investment1 the government disinvested more than 9-0 !nits of
ind!strial1 commercial and financial sectors0 (o help promote share mar)et and to acc!m!late reC!ired
f!nds1 the government !nloaded 2-5 of the shares of some p!,lic sector enterprises0
Comparison of Government #nvestment an" Private #nvestment
"t can ,e arg!ed that allowing private sector investment has mostly f!elled Bangladesh:s economic
growth0 +hen 3#" was restarted in %-/& along with the privati6ation efforts in the .0s and -0s led to
h!ge amo!nts of spending in the private sector0 Bowever1 a st!dy ,y ahmood1 Basan and So,han done
9 years after privati6ation of SOEs showed that there was not m!ch difference in performance ,efore and
after0 Bowever1 it co!ld ,e arg!ed that the st!dy was done too soon for the companies to achieve any
significant res!lts0 Another st!dy1 cond!cted ,y Binaya) Sen1 showed how d!ring %-.&*-%1 /25 of the
(e7tile mills in private sector were loss ma)ing enterprises0 (he n!m,er was '25 for the nationali6ed
sector0
+hen we loo) at the scenario today it is a completely different one0 +hereas most SOEs are corr!pt1
inefficient and lethargic the private ind!stries have led ,y e7ample0 ;0S Sahota of the +orld Ban)
eval!ated that prod!ctivity does not depend on ownership1 ,!t on managerial efficiency0 "t is possi,le that
most of the p!,lic sector ind!stries in Bangladesh are completely managerially inefficient0
(a,le %202 shows !s a ,rea)down of investment in the co!ntry from 200% onwards1 ,oth domestic and
from foreign so!rces0 "n 2009*021 total private investment was (a)a %'%-0% ,illion0 Over the years that
fig!re has increased to (a)a ./.-92 ,illion in 3< 20%%*%20 (hat is an overall growth of almost 2295 in
%0 years0 On the other hand1 if we loo) at ta,le %20%1 we can see that total government grantsDs!,sidies to
SOEs have increased from 9.&0.2 Crore (a)a in 2009*02 to %%./0'& Crore (a)a in 20%0*%%0 Even tho!gh
this fig!re shows an overall increase in government spending in the p!,lic ind!stries1 it does not show a
clear pict!re0 "n the year 2009*021 private investment was &%/ ,illion (a)a and p!,lic investment only
%.' ,illion (a)a0 "n the same period private investment consisted of %/025 of ;#P while p!,lic
investment only '0250 "n 200&*0'1 private investment increased to %.5 ,!t p!,lic investment fell to '5
of ;#P0 "n 3< 20%%*%21 this fig!re stood at 200025 for private investment and '0&05 for p!,lic
investment0
As a res!lt1 we can see from the data that over the last %0 years1 Bangladesh has enco!ntered different
levels of growth for its p!,lic and private sectors0 +hile the private sector has flo!rished1 the SOEs have
staggered to )eep !p and play a defining role in the co!ntry:s growth0 (he charts in the following pages
?3ig0 90%*902@ show the performance of SOEs0 "t is clear for all to see their fail!re ,oth financially and
prod!ctively0 3ig 90% shows that all SOEs in the man!fact!ring sector made ann!al losses from 2009*
200' e7cept BSEC and B3"#C0 "n 3ig0 902 we see that all SOEs in the transport sector made large losses
in the same period of time0 >tility providing SOEs also made significant losses in all years e7cept for
3<2002*090 (he last chart shows !s that there were large loans also ta)en ,y the SOEs1 most nota,ly ,y
B8C for an amo!nt of over (a)a &00 crore0
$able-10.1 Government Grant1ubsi"2 "urin3 F4 %++5-+0 to %+1+-11
?"n Crore (a)a@
!r3ani
/ations
%++5-+0 %++0-+6 %++6-+, %++,-+- %++--+7 %++7-+8 %++8-1+ %+1+-11 %+1+-11
*&evise
"
B8C 99009 2-0&/ %00000 920-- 920-- 9202& '&0%2 -2022 %&&0/2
B"+(C 00&0 00&0 00&0 00&0 00&0 00&0 00&0 00&0 00&0
=#A 00%0 000- 00%2 00%9 00%& 00%& 0020 0020 0020
B33+( %'02& %'022 %.0%- %.02- 2/0/0 220&9 '%0%' /.020 /200&
B"+(A 2/0.' 9%0.. &20%- &00&2 2202& .202- -.022 %200&' %&90&'
BSC"C 2%0&0 220&% 2'0& 2.0&0 9'0-. 9-0-' 2/0/2 '202% '20&9
=EB .000 .000 .000 .000 .000 .000 .000 .000 20'.
BBB 20&0 20'% /0-- /029 /029 * * * *
BSB 2090 202' 90-/ 2092 '02- .0.- %002 %90.& %90.&
EPB 2000 %0000 %2000 %%000 %2090 %90.% %90.% %'000 %'0&0
BA#C 9&000 22000 &.0'2 ''0&0 .'0'2 %&&000 20202/ 29-0%- 2/-090
B+#B 2900.0 2&%0.9 2/-00% 22.022 22.022 &/%0'2 '2&0/2 &9%0'' '/%0/.
BE=C * * 00&2 00// %000 0000 0000 0000 0000
BS=(" - - * %022 %0' %0/- %022 20.2 9000
$otal 576.70 0%1.,8 6,-.,5 0,+.,8 080.%6 8,1.18 116,., 117-.,6 1056.,8
Fig. 3.1: Net Profit/Loss of SOEs in
Manufacturing Sector !n crore "a#a$
Fig. 3.2 :Net Profit/Loss of %ll "rans&ort and
'o((ercial Sector SOEs !n crore "a#a$
Problems of tate
!wne" Enterprises an" Conclu"in3 &emar9s
(here are many shortcomings and constraints in the str!ct!re of control and management of the
state*owned enterprises in Bangladesh0 ;enerally spea)ing1 there are fo!r hierarchical levels in
the control s!pervision str!ct!re0 At the ,ottom is the enterprise level control involving internal
management matters0 At the ne7t tier is the corporation control involving s!pervision1
coordination among !nits1 and delegated policy matters0 At the third tier is the ministerial control
of ,!rea!cratic nat!re1 involving eval!ation1 coordination amongst ministries and non*delegated
policy matters0 3inally1 at the top is the political control e7ercised ,y the minister and the
government involving ma4or policy iss!es0
At the ,ottom is the individ!al enterprise1 which is the !ltimate o,4ect of control and s!pervision0
(he enterprises have no policy*ma)ing options as they operate within approved ,!dgets1 plans1
policies and norms0 Even when there is an enterprise management ,oard1 they limit themselves
to ro!tine operational matters and refer everything to the corporation0 (his res!lted from the
a,sence of m!t!al tr!st1 lac) of professionalism and the !ncertain and changing state of informal
Fig. 3.3: Net Profit/Loss of %ll )tilit* SOEs !n
crore "a#a$
Fig. 3.+: 'lassified Loan of Mfg. Sector SOEs
crore ta#a$
a!thority and acco!nta,ility0 A,ove the enterprises are the stat!tory corporations0 (he ,asic
f!nction of these 4!ridical ,odies as defined in presidential orderDordinancesDacts of parliament is
to s!pervise1 coordinate and direct the enterprises0
(hese ,odies control and s!pervise the enterprises directly and contri,!te towards coordination
,etween enterprises in matters of foreign proc!rement1 personnel1 mar)eting1 disposal of s!rpl!s1
or arrangement of finance0 B!t the stat!tory corporations are heavily dependent on ministerial
decisions0 "n most matters of policy and in certain matters of operations1 they do not en4oy any
a!tonomy0 Bowever1 the stat!tory corporation can move on matters of policy on their own ,ehalf
and on ,ehalf of the enterprises !nder them0 (he third tier is the ministry1 which retains all
control over the policy matters1 which they define in cons!ltations with other ministries1 after
scr!tiny of papers prepared ,y the corporations0 (he fo!rth tier1 the minister1 who is a people:s
representative or a g!ardian of the p!,lic interest1 often gets involved in small details of day to
day administration rather than the policy iss!es0 (he minister1 however1 cond!cts review
meetings1 pilots policy proposals in the ca,inet and responds to parliamentary scr!tiny on ,ehalf
of the enterprises and corporations0
Overall1 this comparative st!dy of state owned enterprises in Bangladesh reveals a harsh reality0
"t has ,een very diffic!lt for p!,lic ind!stries and instit!tions to s!cceed0 anagerial
inefficiency1 corr!ption1 red*tape and lac) of organi6ation have led to h!ge financial losses over
the years as well as the str!ggle to cope !p with the private sector0 After the independence of
Bangladesh1 B!ssein ohammad Ershad resc!ed state owned enterprises ,y allowing
li,erali6ation0 ay,e the time has come again for Bangladesh to allow privati6ation in a larger
scale for most of its remaining p!,lic ind!stries0 (his will allow them to ,e more efficient and
competitive and p!t the people:s money into ,etter !se0
=eferences:
%0 Bangladesh Economic =eview 20%2
20 Banglapedia
90 Aario!s Statistical Appendices