Loss-making industries only waste govt funds

The state-owned industries of Bangladesh are like white elephants that require huge expenses to be maintained but yield almost nothing.

The government hardly sees any profit from these consistently loss-making enterprises. To reduce losses, it has brought over 250 factories under denationalisation, corporatisation, privatisation and public-private partnership (PPP), but to no avail.

As is their usual nature, 103 state-owned enterprises in the industrial sector will have to count Tk2,387 crore in operating losses in the current fiscal year 2020-21. Excluding income from renting lands and buildings and interest on bank deposits, the net loss will amount to Tk1,555 crore.

In the industrial sector, these state-owned enterprises contribute only 0.17 percent to the national gross domestic product.

A report prepared by the finance ministry's monitoring cell, titled "Budget-Summary of State-Owned Institutions for Fiscal Year 2020-21", highlights the dilemma.

The report notes that despite the increase in the cost of huge purchases and recruitment of manpower, the losses incurred by state-owned non-financial institutions have been growing due to reductions in value additions per worker.

Although mismanagement, bribery and corruption have been blamed for the losses at state-owned enterprises, a new piece of information has emerged in the finance ministry's report ---that productivity is much lower than the wages of workers.

It also says that the average annual salary and allowance of an employee of state-owned corporations and organisations is Tk558,023, while the annual value addition of 61,030 industry workers is only Tk804 crore. It means that value addition per worker is only Tk13,174, which will decline to -8.23 percent in the current fiscal year.

The government recently ordered a shutdown of 26 state-owned jute mills, taking the initiative of re-running them on the PPP model.

The Bangladesh Sugar and Food Industries Corporation is the sector incurring the most losses. Except for Carew and Co (Bangladesh) Ltd, 14 out of 15 of its institutions have been incurring huge losses every year.The loss of the corporation has been estimated at Tk1,045 crore in the financial year 2020-21.

As finance minister, Abul Maal Abdul Muhith had written to the then industries minister to close down the sugar mills but the industries ministry did not follow that path. It rather started thinking of modernising the factories.

Economists suggest that state-owned industries and commercial enterprises which have consistently been making losses should be left to the private sector. And if private investors are not interested in taking them, they should be closed down and the land on which they are situated should be sold off. Their opinion is that as long as these institutions run, people's tax money will continue to be wasted.

They also note that state-owned enterprises have big chunks of land. Of these, the land that cannot be privatised should be kept on the condition that industries will be set up there. Various industries have been set up in the economic zone built on the land of the Adamjee Jute Mills, which employ about 65,000 workers.

Finance ministry officials said that since the liberation of Bangladesh, various policies have been adopted at various times to reduce the losses emanating from state-owned enterprises, but none of them have worked.

Institutions that were left under the denationalisation policy during the 1980s could not be reopened due to various conditions set out by the government. Although corporatized during the 1990s, these institutions are yet being run by bureaucrats as before.

Later, various enterprises were left to the private sector, but the government recruited workers who had been working there previously and set a condition of the same product being produced as before. As a result, most of those privatised industries closed down, unable to make profits.

The government decided to transfer the land of the state-owned enterprises with the objective of industries for domestic and foreign investors being set up. However, the decision was not implemented due to a lack of interest on the part of the corporations and the ministries concerned.

The government has six corporations in the industrial sector – Bangladesh Sugar and Food Industries Corporation, Bangladesh Jute Mills Corporation, Bangladesh Chemical Industries Corporation, Bangladesh Textile Mills Corporation, Bangladesh Forest Industries Development Corporation and Bangladesh steel and Engineering Corporation.

A former finance adviser to the last caretaker government, AB Mirza Azizul Islam, told The Business Standard that the government should privatise all loss-making industries.

"If private investors are not interested, it is necessary to close down the factories and sell the equipment and land."

He also said these loss-making institutions seem to be a furuncle for the country and the economy.

"Every year, they borrow thousands of crores of taka from the government on a name-only interest rate, in addition to subsidies, but do not repay a single penny. The finance ministry cannot even show that money as a subsidy. The amount of such loans taken from the budget is more than lakhs of crores of taka."

Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office, said the government's industrial and commercial enterprises that have been losing money over the years should not be allowed to continue. "As long as these institutions continue, they will make losses."

He further said although about 30,000 workers lost employment due to the closure of Adamjee Jute Mills, the land has now become an economic zone employing 60,000-65,000 workers.

He suggested shutting down industries with more land and doing something on the pattern of Adamjee Jute Mills.

He also called for running the rest of the enterprises by reducing bureaucracy through privatisation or the PPP model.