People-centric economy to strengthen national entrepreneurs

By JUSTIN KEPPETIYAGAMA

Jdkgama02@gmail.com

Before the general election held on August 5, speaking at a series of election rallies Former Prime Minister and the leader of the UNP Ranil Wickremesinghe said he haD an economic plan to rebuild the economy by raising $6,000 million from the International Monetary Fund and friendly countries.

But President Gotabaya Rajapaksa’s plan is to build a people-centric economy that will be fully owned by the people of the country. He wants to create a national economy that will strengthen the local entrepreneurs instead of selling national resources and financial assets of the country to foreigners.

At the general election, Sri Lankans rejected Ranil Wickramesinghe’s economic plan including the dollars he wanted to raise from IMF and friendly countries. Ranil Wickramasinghe’s UNP was reduced to just one National List member and was down to 249,435 (2.15%) countrywide votes. He was not allowed even to go to Parliament by the Colombo district voters. The General election dealt a debilitating blow to Ranil’s Economic Revival plan and his plan to raise $6000 million from IMF.

On the other hand Gotabaya Rajapaksa’s SLPP (Sri Lanka Podujana Peramuna) secured a near two-thirds majority. 6,853,693 (59.89%) voters have endorsed his people-centric economy that will be fully owned by the people of the country. Now, Sri Lanka does not have a people-centric economy, but a state-centric economy. A large number of economic activities is now performed by state owned enterprices. A Sri Lanka, Policy Think Tank, Advocata Institute has identified a total of 527 state-owned enterprises (SOEs). But according to The Mid-Year Fiscal Position Report – 2019, issued by the Minister of Finance there are only 422 state-owned enterprises (SOEs). According to the published reports by 55 of these SOEs the loss incurred in 2018 had been a staggering Rs.27.40 billion. This is nearly one-third of the country’s GDP.

Nobody knows how much the remaining SOEs cost the state and the people, because most of SOEs do not publish their annual accounts as per the statutory requirements. But they do consume an extraordinary amount of resources and possess impressive assets. These SOEs are unable to function without a constant stream of funds from the Treasury. That is a burden to the Sri Lankan people. They are largely seen as employment providers rather than service providers.

SOEs are managed by boards of directors appointed by politicians in power. These directors are not stake holders. Political affiliation to the ruling party is the overriding criteria that prevail in selecting people to the governing bodies of State organizations in our country. Clearly, these business enterprises have not been performing to their full potential due to the absence of good governance, clear accountability mechanisms, performance-based incentive schemes and a strong supervisory role played by SOE management.

A research by ‘Advocata’ has revealed that only 10.4 percent of SOEs provide financial information on their operations. While there is no substantial financial contribution to the state, many, if not all SOEs are overstaffed, poorly managed and under-performing. In the final analysis they have become a severe burden on the people of Sri Lanka. It is a well-known fact that such enterprises have become recruiting grounds for the families and friends of politicians and cronies.

Mismanagement, fraud, corruption, misappropriation of funds and negligence in SOEs have been highlighted in the recent reports of the Auditor General and COPE. During the first four months of the year 2019, losses incurred by a few key SOEs are as follows:Ceylon Electricity Board (CEB) have incurred operating losses Rs.23,114,000,000,Ceylon Petroleum Corporation (CPC) with operational losses of Rs.4,294,000,000Sri Lanka Ports Authority (SLPA) has made profits of Rs.10,505,000,000 during the first four months of 2019 but had debts amounting to of Rs.11,957,000,000 for the same period.

SriLankan Airlines (SLA) has lost Rs.12,961,000,000 in the first quarter of 2019 . In 1998 this airline was partially privatized, with investment by Dubai-based Emirates Group, by buying 40% stake worth US$ 70 million. When Emirates pulled out in 2008 accumulated profit of Sri Lankan was Rs. 9.288 billion in that financial year.

Although the government retained a majority stake in the airline it gave full control to Emirates for investment and management decisions. From 2008 to 2015, when the government administration ran it, the loss for the seven years was Rs. 128.238 billion (US$875 million). From 2008 to 2015 management decisions were taken not by stake holders but by political appointees.

What needs to be done to ensure transparency in all public sector transactions and monitor them closely so as to prevent bribery and corruption and losses? What has ruined the state enterprises is the practice of government leaders appointing their cronies and kith and kin to key positions therein. These cronies are not the stakeholders of the enterprise.

. However, when the sole stakeholder becomes the state there is no alternative other than appointing government cronies to manage these enterprises.

The government can use these SOEs to create a people- centric economy as it promised during the election. Methodology is explained below.

1. Restructure all SOEs as Public Limited Liability Companies (PLCs) under the Sri Lanka Companies Act.

2. The value of the net assets of the enterprise should be considered as the paid up share capital of the enterprise owned exclusively by the government. The government should retain 50% of these shares and 1/2 of the controlling interest. The balance 50% of shares should be sold to local and foreign investors and the employees of the particular SOE. Employees should buy shares valuing at least to their one month salary.

4. Management control should be shared pro-rata to share holdings.

5. Distribution of 50% of net profits as dividend to shareholders and 10% of net profit as bonus to all share holding employees should be made mandatory

By this arrangement the government can

1. Create a People –Centric economy

2. Earn the much-needed funds required to settle the government’s other financial commitments.

3. Employees of the enterprise also become stake holders and they will do their best to run the enterprise as a profitable venture. Otherwise they will not receive bonus and dividends.

This arrangement will help the government to run the state enterprises without corruption and losses and settle foreign and local loans without burdening the local taxpayers.