Dr. Razeen Salley

As Sri Lanka plans to draw inspiration from the Singapore-styled Temasek Holdings in managing the continuously loss-making state-owned-enterprises (SOE), the island nation should look to place only selected SOEs in the event such a state-owned investment company is set up and not all of them, a top Economist has advocated.

Speaking in an interview published in ‘The State of State Enterprises in Sri Lanka’ Report published by newly-established independent policy think-tank, Advocata Institute, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, Dr. Razeen Salley says that enterprises that essentially operate in a commercial sphere, where there is some competition already or where there could be more competition should be pooled together in the planned holding company.

“If you have a state-run monopoly or oligopoly, then don’t put it in such a holding company. Keep it separate. Because that’s probably going to be more politicized anyway there may be other public policy objectives that will get involved in the running of that enterprise. So keep that to one side. Rather, put in this basket enterprises that are commercial,” Professor Salley, who is also the Chairman of the Institute of Policy Studies of Sri Lanka said.

He, therefore, said that this would include SriLankan Airlines,  Mihin Air and Sri Lanka Transport Board (SLTB) but not enterprises like the Ceylon Electricity Board.

“So in other words don’t put all SOEs in this holding company, only put some of them that operate in a commercial sphere. These should be corporatised with initially majority state’s ownership.

“Then you should start introducing minority equity participation. And Temasek is interesting because, in the key enterprises, the government still retains majority equity, therefore control. But they have actually gradually beefed up minority equity in most of the Temasek enterprises. That’s also a boost for the stock exchange or financial markets.

And in some cases with non-priority enterprises they have actually taken the private sector stakes to a majority of equity and the government has retained only a minority of equity,” Professor Salley said.

He further added that the lesson one would draw from the best example which is Temasek, is that first you subject SOEs to all round competition including international competition. And second, you put in place mechanism to depoliticize them as much as possible.

“In other words separate ownership from management. That’s the starting point,” Professor Salley, who previously taught at the London School of Economics, in which he obtained his Doctorate highlighted.

State of SOEs

According to the analysis published by the Advocata Institute, Sri Lanka’s loss-making SOEs have cost the taxpayer a colossal Rs.636bn between 2006 and 2015, while the profitable SOEs contributed Rs.530bn. Cumulative losses of 55 strategically important State owned enterprises (SOE) as per treasury is about 605 Billion, which equates to 18% of 2015 GDP in Sri Lanka and 81% of the current budget deficit in Sri Lanka.

The report further points out that the number of SOEs in Sri Lanka has more than doubled since 2009 from a total of 107 entities in 2009 to about 245 entities by year 2015 while the total number of employees in the SOEs had nearly doubled from 140,500 to 261,683 persons. The report further highlights that by end 2015, the number of employees in the public sector now represent around 15% (1.28 million) of the working population amounting to a total of 8.552 million.