How To Get More Of It

A case for fast-track privatisation

Enam A. Chaudhury

Nationalisation and Privatisation have been sensitive issues for all governments everywhere since the end of the Second World War. In East Pakistan (now Bangladesh) the role of the government and that of the public sector in the process of industrialisation was an accepted phenomenon, both in the policy level as well as in actual practice. After 1971, there was a radical change in the whole pattern of industrial ownership and policy in the country.

From state sponsored capitalism and mixed economic system of the Pakistan days, the government of Bangladesh made a fundamental shift in its policy stance when it tried to evolve and follow a socialist economic path. To achieve this objective, the government not only turned to planned economic development but it also took over a large number of commercial and industrial undertakings abandoned by the non-Bangladeshis and absentee owners. In the Nationalisation Order, 1972, the government vested upon the public sector all the key industries in the country, including jute, textile and sugar. Foreign trade and financial sectors were put under tight governmental grips. The first industrial policy statement which was issued in January 1973 left the private sector with virtually no other areas to operate except in cottage and small industries, and that too within a prescribed low investment ceiling.

From mid-seventies, the process of disinvestment started, initially by fits and starts, and by occasional executive decisions. Subsequently the process was put under a policy framework, and systematic privatisation began. The approach of the government of Bangladesh during the tenure of Shaheed President Ziaur Rahman was to directly promote private entrepreneurship through an ambitious term-loan extended thorough DFIs backed by resources from the World Bank, Asian Development Bank (IDB) and other bilateral donors. The New Industrial Policy (NIP) of 1982, which was the first holistic policy statement of the GOB to embrace the World Bank Structural Adjustment Reforms (SAR) spoke of a policy to promote private sector development, but only made a passing reference to the policy of privatisation of public enterprises. The NIP did not clearly spell out a policy indicating which areas will be exposed to privatisation and which would remain under public ownership. Each set of decisions to privatise a particular state enterprise tended to be an ad-hoc decision originating in an executive order specific to the enterprise or to policy conditionality attached to a particular foreign loan. Even after the passage of the Privatisation ACT of 2000 and the Rules and Regulations (called “Neeti Mala”) formulated under it, the trend continues.

The executive decisions of the military dictator HM Ershad's government applied an ethnic process to privatisation rather than have an economic rationale which would have covered all the units nationalised under P.O. 27 of March 1972. The logical decision would have been to legislate denationalisation of the jute and textile industries which together accounted
for around 60 percent of the manufacturing sector. The GOB, however, took a decision to divest the SOEs owned by only Bangladeshis to their former owners. This decision did not follow a well-thought-out privatisation process involving competitive bidding or fitness tests.

In chapter I of the introduction to the well-researched publication. “Privatisation in Bangladesh” edited by Prof. Rehman Sobhan he points out the counter-productiveness of such ill-conceived ethnically-biased government decision, and commented that the validity of disinvestment process, under prevailing global norms ,may thus not only be politically unsustainable but could even be legally challenged under the WTO for being discriminatory, and hence hostile to fair trade. This particular divisive policy ruined the prospects of productive healthy privatization and ultimately prevented the growth of efficient entrepreneurship and investment in Bangladesh in these sectors, which subsequently developed in India, Pakistan and even in East Africa and South East Asia.

The GOB those days had, as part of its implicit policy of an ethnically driven privatisation process, returned two NCBs, Uttara Bank and Pubali Bank, to their former Bengali owners and had also returned Bengali owned Insurance Companies to their former owners. Prof. Rehman Sobhan further comments “None of these actions of the GOB had any policy cover since ethnic disinvestment still had not been recognized as an official policy”. Nevertheless, this happened.

GOB eventually disinvested 486 enterprises between 1972 and 1996 valued at Tk. 2.4 billion and in that time, value added from manufacturing SOEs, in relation to GDP, had been more than halved. Even critics hold that this has been a remarkable achievement by third world standards.

As it stands now, the argument for privatization has been at the forefront of the agenda of donor driven policy reforms, and the successive regimes in Bangladesh have committed themselves to privatisation. Though no serious monitoring or post privatization systematic evaluation has taken place, it is generally held that in most cases privatized SOEs have fared better, on a comparative basis, mainly due to weakened, corrupt and politicized public sector management. However, it is absolutely essential that regular arrangements for conducting analytical and systematic monitoring and evaluation be introduced, so that corrective measures may be taken for the sake of expediting well-planned industrial growth. In a personal life as well as in that of a nation, we learn more through mistakes than thorough wisdom, provided we are willing to do so.

The recent emphasis seems to be on closure of loss-incurring SOEs so as to prevent the 'hemorrhage' in economy. Government today cannot and does not come up to initiate industrial enterprises in areas where private initiatives are lacking or shy. This means that in the whole range of manufacturing activities which may be critical to the growth of the economy, where private enterprise is not forthcoming or is coming at a very low pace, Bangladesh is denied the scope for initiating public action. IBRD's own report reveals that Bangladesh is now left with a narrowing manufacturing base where very little diversification has taken place outside of the RMG which is now Bangladesh's leading industry and exporter. Prof. M.M. Akash, a recognized knowledgeable expert on economic issues including privatization, correctly recommends adoption of a policy based pragmatic privatisation approach, which should take into account the over all necessity of the economy and the imperatives of industrial growth, and chalk out a systematic sector-wise programme for privatisation. This is what he astutely calls “the case for pragmatism”.

The Privatisation Commission constituted under the Privatisation Act of 2000 can be called, judged by its constitution, a high-powered one. The Chairperson of the Commission statutorily holds the rank and status of a functionary not below that of a Minister of State and the members include six Members of the Parliament, six Secretaries to the government, the Chairman of the Securities and Exchange Commission, the President of the Federation of Bangladesh Chambers of Commerce and Industries and a representative of relevant professions. But its budget is very limited and the staff strength has remained the same as it had been before the Commission was constituted. It can only privatise those SOEs allocated to it by the Cabinet Committee on Economic Affairs. So its agenda is also limited and as such, the Commission by itself, cannot draw up and execute a privatization programme. It has been now left with the Ministries to determine whether they should allocate any SOE to the Commission for privatization or should try to liquidate it or run it, even if it is loss incurring. The Privatization Commission holds that under the law, the Commission is the only agency of the government authorized to conduct any method of Privatization (and there are a few including liquidation), and no Ministry other should be permitted to do so because of evident conflict of interest and lack of expertise. This issue is being sorted out now on a request from the Commission.

A total of 81 SOEs were in the list for privatisation by the Commission. Out of these 28 SOEs were withdrawn by the owning Ministries, keeping only 53 in the Privatisation list. The present state of the progress of privatisation of these 53 SOEs is as follows :
1. Sold and handed over to private buyers: 9
2. Letter of intent (LOI) sent to the buyers after finalisation of disposal proposal: 3
3. Handed over to the Army and the Navy for running the SOEs: 2
4. Process initiated for disposal of minority shares: 4
5. Process initiated for privatisation: 5
6.Process temporarily suspended as a result of court cases: 10

As it may be seem action has been initiated or taken in all these cases, cent percent, unless stopped by court orders. There has been absolutely no delay in any case and complete transparency has been maintained in the processing of all cases. There has not been any allegation of any kind so far and the Commission has been able to create, which, I can say with all the veracity at my command a sense of confidence among the potential buyers and even among the workers and employees. In other words, in the world of business, there have been cases where the employees of some SOEs have approached the Commission to privatise the concerned enterprise as the Management, in this views were not in a position to run those efficiently or pay regular salaries. The Commission is now engaged in the Privatisation of state-owned Rupali Bank, an assignment only recently handed over to it. The proceedings, however, held up by injunction issued by the Hon'ble High Court. The Commission fought back and the Court has now vacated the prohibitive orders.

This analysis indicates that efforts of the Commission todate present a success story. It has done whatever it was expected to do, and whatever it was assigned to perform. The Commission can withstand any critical review on this and face any debate. However, it is true that provided the Commission had been allocated more SOEs, much more privatisation could have been achieved. But this has not been the case. The Commission cannot go beyond its assigned responsibilities or the pre determined parameters.

In order to expedite the process of privatization, certain actions need to be taken. As per law, the Commission, and no other agency, will have to be entrusted with the responsibility of privatization. The Ministries should concentrate on running there enterprises, not liquidating these. Disposals should be done by one authority which will have no vested interest, and have the proven expertise. What is required is also a strong political commitment. Fortunately, all the successive governments and major political parties have declared privatization to be their acclaimed policy and as such, it is expected that the process will continue unabated under all governments, Privatisation of SOEs can be instrumental in a way to help in the implementation of Poverty Reduction Strategy programme, recently prepared by the government at the behest of all the donors. The monitoring activity of the Commission will have to be strengthened. We have to bear this in mind that Privatisation is not meant for just closing down state-owned enterprises but it should be taken as a tool for boosting activities in the private sector and for expediting the process of industrial growth. The agenda for privatisation should clearly and unambiguously be based on this realisation and consideration.

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The author is Chairman, Privatisation Commission.