Graft in state owned enterprises hurts economic growth

State-owned enterprises are business enterprises in which the government or state has significant control, directly and indirectly, through full, majority, or minority ownership. These enterprises play an important role in economic development in Bangladesh through creating employment and providing value added services to the economy. They also play a crucial role in the important sectors of energy, water, communications, healthcare, air and railway transport.

The state-owned enterprises represent a significant proportion of Bangladesh’s GDP and are often the country’s largest employers. However, most state-owned enterprises in the country have explicit corruption risks because of their close links to the government and public officials and the services they control. A number of high-profile corruption scams have implicated state-owned enterprises, which clearly showcase the loopholes of these organisations.

The state-owned enterprises were designed to deliver effective and efficient services to the people. They are a major part of the county’s economic growth and development strategy. The strategy requires them to provide services and build infrastructure to facilitate the private sector.

The global experience proves that when state-owned enterprises are well managed and good governance is prevalent, they can provide necessary services to the population at an affordable cost. The reverse is also true. When they are inefficiently managed, the state-owned entities directly affect the poor and marginalised segments of the population. These people are most vulnerable to the below par performances by the state and its enterprises.

The lacklustre performance unmasks the state-owned entities’ incompetence, corruption and generally poor delivery of public services.

More often than not, state-owned enterprises receive advantageous treatment from the government. Government supported guarantees, discounted funding, direct subsidies and favourable regulatory treatment are par course for the state-owned entities. Last but not the least the state-owned entities are directly linked to the governmental budget through guarantees, bailouts, debts and foreign investments. In spite of these advantages state-owned entities are susceptible to corruption, which is an open secret in Bangladesh. People hardly get any public services without offering kickbacks. This writer has personal experience regarding the problem.  Corruption can and does severely weaken their performance. In addition to this, government support can result in lowering production efficiency and miserable economic performance. This is because the blessing they get from the government might often decrease their competitiveness.

Most of the state-owned enterprises in the country loom large over the economy. Teletalk Bangladesh Limited, for example, is providing telecommunication service in the country. The mobile phone operator is fully owned by the government.   A Bangladesh Telecommunications Regulatory Commission (BTRC) report recently revealed that Teletalk was involved in offering illegal VoIP business opportunities. It is not following the rules to curb illegal international call termination and is the most backward operator in the market. It accounts for 75 per cent of SIMs used in VoIP trade caught in the fiscal 2019-20, said the report. The operator enjoying state facilities lags far behind the private mobile phone operators. The government has been losing more than Tk 4,500 crore in revenue every year due to the corruption, according to media reports. 

There are many more examples. The 2013-2014 audit report of the company showed that people had to pay bribes to the tune of Tk 45,000 to get an illegal connection at the time. The figure will be much higher now. In 2019, the Anti-Corruption Commission identified that corruption plagued the state-owned utility Titas Gas. Biman Bangladesh Airlines is another den of corruption. The national flag carrier, once a profitable entity, began to sink into the losses from 2009 when the political government came to power. According to a report, about Tk 3,600 crore in Biman was embezzled in ten years.  

These are the results of the poor performance of the state-owned entities. Given the pivotal role they play in the economy, it is very important to understand their role in economic advancement. Equally important is understanding how the corruption and inefficiency are passed on to the economy.

While corruption eats up a big chunk of the revenue, the cash-starved government asked all government-funded autonomous bodies and ‘grantee institutions’ to shell out a significant portion of their reserves into the public coffers. The government is expected to receive a fund of around Tk 15,000 crore in the current fiscal year from the state-owned enterprises to carry out the development projects. Apparently, the move was aimed at boosting the economy. However, we need to track the fund to ensure if it is utilised properly.

The government has been losing a significant amount of money due to corruption. Once the corruption is curbed, it will help boost revenue income.

In February 2020, the parliament had passed a Bill to allow the use of surplus funds of self-governed public agencies amid strong protest of the opposition parties. The BNP, the arch-rival of ruling Awami League, walked out in protest and the Jatiya Party, once an ally of Awami League, voted ‘No’ after fiery arguments. The opposition lawmakers called the Bill a “black law to loot the public’s money”, according to media reports. The fund transfer to government coffers may curtail the capacity for meeting their actual expenditure requirements on a real-time basis.

From a macroeconomic point of view, it can be explained how dismal economic performance brings adverse impact to the economy.

The inefficiencies of public enterprises and high levels of corruption within them have spill-over effects on the economy. These negative spill-overs include holding back economic growth and income as well as job losses, even leading to increased risks of poverty. The corruption in the state-owned enterprises has a ripple effect throughout the economy. It first aids in raising their operational costs, which in turn put a negative impact on companies and other privately owned industries that are directly dependent on the services provided by the state-owned enterprises. This puts a damper on the domestic and global competitiveness of the industries and eventually sneaks into the entire economy. This also makes the country’s exports less competitive. Resultantly, export-oriented companies have been forced to cut production and eventually lay off workers. It increases the unemployment rate, which in turn shrinks household income and therefore household consumption, which is one of the drivers of economic growth.

Down the road, economic growth struggles, further reducing the economy’s capacity to generate jobs. Weakened growth also hits savings, investment and lower tax collection by the government. These further stifles the government’s efforts to increase various welfare activities.

Scandal and corruption in state-owned enterprises also lead to mistrust in people, local and foreign investors. This holds back investment, which slows down economic growth. While fraud and corruption make a few richer, the poor become poorer. Thus, this also is linked to rising inequality and poverty.

The government runs these enterprises to enable citizens and industries access important services at affordable prices. But the government’s ownership on its own doesn’t guarantee the outcomes. The cascading effects of the subsequent underperformance might not be confined to the state-owned enterprises. They eventually spread throughout the economy. The only gainers in this vicious circle are the miniscule minority of a few wealthy people and politically powerful individuals. The poor bear the brunt of a weak economy. The priority for Bangladesh should be to restore the competitiveness of state-owned enterprises to gain the confidence of people and investors, which in turn will lead to higher economic growth.

The writer is Planning Editor at The Business Post. He can be contacted at [email protected]