The bittersweet truth about state-owned enterprises | The Daily Star
12:00 AM, June 04, 2018 / LAST MODIFIED: 12:26 PM, June 04, 2018

The bittersweet truth about state-owned enterprises

Bangladesh Sugar and Food Industries Corporation (BSFIC) is a state-owned enterprise (SOE) that is among the remnants of a bygone era when, in a post-liberation war-ravaged economy, the sugar and food manufacturing enterprises left behind by non-resident business owners from pre-independence times had to be taken under the stewardship of the state. In the first three and a half decades of its formation, the BSFIC has provided almost all the sugar consumed by our nation, whether to make sweetmeats for us all, candies for the kids, or to sweeten one's cup of tea.

But even in those days when most people were quite happy with the cloudy, yellow sugar crystals available in the markets, some discerning buyers were already hooked to imported sugar which was conspicuous in their whiteness compared to the local variety. However, BSFIC still had a pricing advantage and was making a profit despite bloated employee rolls—an aftereffect of political patronage of job-seekers in a tepid economy.

In the last ten years or so, the situation has changed dramatically, with the opening of a floodgate of imported sugar saturating the market with cheap, white, crystalline sugar and pushing the BSFIC into the red to the tune of several billion taka. Whereas imported sugar is usually from beet and their quality is often questionable, as has been found in several tests by the Bangladesh Standards and Testing Institution (BSTI), the BSFIC sugar is genuine cane sugar and can be likened to organic sugar as all the canes are naturally grown either on BSFIC's own farmlands measuring some 22,000 acres or grown by generations of contract-farmers.

Despite these significant product differentiators, BSFIC is having a hard time selling their stock of cane sugar in competition with imported sugar, which sells at a price just a fraction lower. With good marketing, BSFIC should be able to command a hefty premium over the imported variety, but alas that is not to be. The only way BSFIC—or any of the other SOEs, for that matter—can return to profitability is either by strengthening their marketing apparatus or lowering their unsustainable headcount, or a combination of the two.

As long as the government retains operational control of these SOEs, it will always be business-as-usual racking up further debts in tens of billions of taka (that's thousands of crores, in case you are wondering). The funny thing is, there are plenty of enterprises owned by the government that are running professionally and profitably only because the government does not own controlling shares or the management is in professional hands. The local operations of several transnational companies as well as many of the top-flight hotel properties fall into this category. With such a compelling rationale for an operational model that works even with state ownership, it's a no-brainier that the government, specifically the Ministry of Industries, needs to examine how it can offload shares in the SOEs or engage professional management agents to turn the SOEs around from being sinkholes of thousands of crores in government subsidies/credit, and instead contribute handsomely to the state exchequer.

Going back to the BSFIC, we can see that their current woes stem from several factors: (a) procurement price of sugarcane has gone up steeply in recent years in competition with other agricultural produce, (b) their current headcount of 15,000 is almost twice of what it should be based on their production volume, and (c) they hardly have any marketing system in place. The first of these issues is intractable and they must live with it but the other two can be easily fixed through proper management arrangements.

Lowering headcount could be a sensitive matter but then again, they can increase productivity by introducing new products by expanding on their distilleries or installing juicing plants while keeping the same headcount. One can easily surmise that with a little nudge, many of the transnational or even large local purveyors of fast-moving consumer goods (FMCG) could be interested in taking on the management of BSFIC and turn them—with proper managerial acumen, marketing flair and strategic investments—into a conglomerate of food processing and distribution.

Similar arrangements could be made for most of the SOEs. In fact, in a fast-growing economy that has already become eligible for graduation from the Least Developed Country (LDC) status, the role of the Ministry of Industries begs transformation from one of owning and operating factories into one of promoting and nurturing the industrial economy, similar to the ministry of trade and industry in Japan.

It is encouraging to see that the Ministry of Industries has recently undertaken a study funded by the Japan International Cooperation Agency (JICA) that examined sectoral opportunities for high growth. Exercises like these could help the ministry formulate the blueprint for transformation befitting our current economic realities. It is high time we changed the state institutions and the government apparatus that were built during an era that preordained a command economy accounting for 90 percent share of the economy in the public sector. Have the state functionaries noticed that the situation is exactly reverse now with the private sector accounting for nearly 90 percent of the economy today?

Habibullah N Karim is an author, policy activist, investor and serial entrepreneur. He is a founder and former president of BASIS and founder/CEO of Technohaven Company Ltd.


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