Proof that govt can’t run real business

Can the government be relied on to run a business and be profitable? There is proof that whenever private entrepreneurs establish a foothold in any sector, the government enterprises in that sector begin to fall behind.

The government's perennial inefficiencies, red tape, corruption and lack of planning are exposed the minute it throws open a market to private investment, even in some instances going from black to red when private investors make an entry.

This is not a myth promoted by the free market lobby. The Economic Survey 2022 shows that government institutions are only thriving where there is no competition.

Its reliance on a few showcase institutions shows a profit, after subtracting the losses for 49 government organisations and institutions, of a piffling Tk2,867 crore in the fiscal 2021-22, a staggering 428% fall from FY21's Tk15,159 crore.

A key reason for this dismal showing is the loss in earnings of the Bangladesh Petroleum Corporation (BPC), the cash cow for the government.

Where the BPC made Tk9,559 crore in FY21, it reported a profit of only Tk1,263 crore in FY22 owing to a very volatile energy market following the Russian invasion of Ukraine.

The BPC is a monopoly. While it still made a profit, others did not fare well.

According to the Bangladesh Economic Survey 2022, the government has various investments in different industrial and commercial sectors but few have anything to show.

The Bangladesh Standard Industrial Classification shows that the government has investments in 49 organisations in the non-financial sectors, including utilities, transport and communications, trade, agriculture and fisheries, construction and services and other sectors.

From these, government institutions are raking in the cash in monopoly businesses such as electricity, energy import and distribution, telecommunications, submarine cables and utilities.

The textile industry, perhaps, provides the best snapshot of this prevailing reality of failing in the face of competition from the private sector.

Before the emergence of the private sector in the industry, government mills were doing well.

But since the late 1980s, when the private sector, especially the export-oriented garments industry started to solidify, the government textile mills began to slide.

There were 86 mills under the Bangladesh Textile Mills Corporation (BTMC), the managing organisation of textile mills, but it has since been whittled down to 25.

Where the country is heavily reliant on RMG's export earnings, showing the sector's profitability, the BTMC instead is counting losses of Tk17 crore.

The Chief Operating Officer of BTMC Md Nurul Alam, however, said the matter was not easy to explain away.

"It is very complicated. In textiles, the private sector is doing well because of management but the government mills have management and other problems," he said.

The top officials of different government industrial organisations agree with this. They point to the lack of good governance, poor management and inefficiency in the management of government institutions.

Are there more examples of government-run enterprises failing miserably while a similar private sector is doing exceedingly well?

There are. Take the example of the Bangladesh Road Transport Corporation (BRTC), which provides bus services in and outside Dhaka Metropolis, among other things.

What's interesting is that the BRTC is the only loss-making agency among seven others in the transport sector.

An oft-cited example for government inefficiency is its long drawn-out procurement process, with many purchases for raw materials made off-season, resulting in higher costs.

Here, the BRTC can be cited as a shocking case of public entity failure in prompt procurement decisions even with huge cash support from the exchequer and foreign loans. The state-owned service sector corporation bought 1,200 brand new buses – double and single decker – just in two years till June this year under a $172 million component of India's line of credit. Such a big fleet of brand new buses could have changed any of the country's private bus companies. But that did not revert the balance sheet of the BRTC.

It has 24 depots, four training institutes, spacious workshops and acres of land in Dhaka and other major cities. It has an army of about 3,500 staff members to serve passengers and users of its buses and trucks plying a number of routes. But it could not become either a service-oriented company, nor a trading company, let alone compete with the private sector operators in business or service.

It has 1,594 buses in operation now in Dhaka and on a few inter-district routes. In its first-ever annual report published this year since its birth, the BRTC reported Tk6.31 loss per passenger per kilometre and Tk4.81 lakh loss per bus in 2021 – for whatever service it is providing.

Meanwhile, the Maritime Transport Corporation, the Inland Water Transport Corporation, Chittagong Port Authority, Mongla Port Authority, Land Port Authority, and Bridge Authority made Tk3,993 crore in profits in total.

The Bangladesh Railway, too, has been making losses, being Tk13,492 crore in the red in 12 years, according to its documents.

The state-run transport agency suffered a loss of Tk2,063.1 crore in FY20, the highest for a single year since FY09.

Biman, another institution of the government, is also making losses. According to an audited account, the company retained negative earnings by Tk950.93 crore.

In the FY 2020-21, the company made a profit of Tk158.40 crore, while the loss in the previous financial year was Tk81.13 crore.

According to the survey, among the seven non-financial sectors, the industrial sector suffered the highest loss of Tk1,698 crore.

Sad state of affairs

The loss-making companies in the industrial sector are BTMC, the Steel and Engineering Corporation, the Bangladesh Sugar and Food Industries (BSFIC), the Bangladesh Chemical Industries Corporation, and the Bangladesh Jute Mills Corporation.

In an effort to revitalise the ailing jute sector, the government undertook a de-nationalisation policy, with two jute mills already privatised. Seven more are in the process of privatisation.

Meanwhile, the BSFIC, which has 15 sugar mills under its umbrella, suffered the biggest loss Of Tk971 crore.

Sugar-producing units suffered around Tk800 crore losses on average per year from 2015-16 till 2019-20, which forced the government to undertake a modernisation drive in 2019.

No progress in that regard has been made since. All of its industrial units, except one, are loss making.

BSFIC Chairman Arifur Rahman Apu told TBS, "Private sector entrepreneurs produce sugar by refining it after importing raw materials at a low cost, while government mills produce sugar from sugarcane."

Saying the process was expensive, he added that initiatives are being taken to turn the mills profitable.

The Bangladesh Steel and Engineering Corporation, on the other hand, has a loss of Tk675 crore.

Raining money in construction

Government agencies in the construction sector – Rajdhani Unnayan Kartripakkha (Rajuk), Chittagong Development Authority, Khulna Development Authority, Rajshahi Development Authority, Cox's Bazar Development Authority, and the National Housing Authority – have all registered profits in FY22.

According to the Economic Survey, all of these sectors made a total of Tk305 crore.

Rajuk made the highest profit of Tk210 crore.

Profit for most services

Fifteen out of 18 organisations and institutions of the government in the services sectors made a profit. Excluding the losses of the remaining three companies, the profit was Tk1,248 crore, which is about 59% less than the previous year.

The Rural Electrification Board, Export Processing Area Authority, the Civil Aviation Authority, the Bangladesh Standards and Testing Institute, the Bangladesh Freedom Fighter Welfare Trust, the Civil Aviation Authority, the Bangladesh Export Processing Zone Authority, Bangabandhu Sheikh Mujibur Rahman Novo Theatre, the Tourism Board, and other service sector organisations have made profits.

But, the Film Development Corporation, the Tourism Corporation, the Inland Water Transport Authority, the Bangladesh Small and Cottage Industries Corporation, and the Bangladesh Sericulture Research and Training Institute are at a loss.

Privatisation and profit models are there

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry (DCCI), told The Business Standard, "A government organisation does not run like a private one. Government institutions may not have the same level of accountability that senior officials have in managing private institutions.

"It is useless to talk about the problem now since the government institutions have not been profitable for years. We always urge for privatisation."

He also suggested joint ventures through the public-private modality, pointing to the success of the Karnaphuli Urea Fertiliser Company Limited (Kafco) which has Japanese and European investors.

"Despite the crisis of fertiliser in the market now, Kafco is a profitable institution. It is mainly a public sector and private sector joint venture. We see a lack of accountability in government institutions. In that case, they can work in joint partnership with the private sector."