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The Financial Express

Incentive-based programmes for the SoEs


Incentive-based programmes for the SoEs

Prime Minister Sheikh Hasina  has endorsed the draft policy on the utilisation of unused land. Structures for investment and industrialisation also got the go-ahead in the governing body meeting of the Bangladesh Investment Development Authority (BIDA).

As the law goes into operation, reports say, some 257 new industrial units are scheduled to be set up on ill-utilised or unused lands of listed 39 state-owned enterprises (SoEs) under Industries and Textile ministries with about Tk 50 billion in investment. However, these landed properties then need to be brought under reallocation.

It was observed that if 30 per cent of the extra land of 39 SoEs and five per cent extra land of the sugar mills could be brought under privatisation, 1,288 acres could be given on lease for 35 years while the government could earn Tk 1.288 billion if per-acre lease money is Tk 10 million.

With the reallocation of the unused land, the draft policy says, 50,000 job opportunities will be generated if one industry employs about 200 persons -- three times higher than the present 16,367 employees in such enterprises. The draft policy was framed as per article 23 (1) of the BIDA Act 2016.

The BIDA surveyed a total of 15 organisations' lands measuring 364.22 acres and extra land of 110.93 acres. There are 15 industries and other structures on the land, 13 of which are closed while two are in operation. These industrial units are under the textiles, industries, environment and commerce ministries. However, the environment ministry has withdrawn its three organisations from privatisation list with a total land area of 52.3 acres.

All public sector enterprises, analysts say, need to be surveyed comprehensively. If it is observed that they would be profitable after privatisation, necessary steps need to be taken for their better utilisation.

Of the total 39 SoEs, 18 units are in full operation, three partially operating and 18 are fully closed now. It is the responsibility of the BIDA to see how these enterprises could better be utilised.  If any other investment-promoting agency like Bangladesh Economic Zones Authority (BEZA) or Bangladesh Export Processing Zones Authority (BEPZA) or any other investor can productively utilise those in a better way, these should be handed over to them.

What is worrying is that all these SoEs have, at present, no accountability in the use of public resource and money. The level of compliance in the government business entities is not encouraging in the absence of any statutory obligations and enforcement mechanism for compliance.

The accounting system of such SoEs does not comply with any international accounting or financial reporting standards, it has been alleged. On its part, the authorities say it will take time to adopt the accounting and auditing standards by the government in public sector entities.

The departments concerned and the ministries are arranging workshops and trainings on the relevant subject matter for the officials to make them updated with knowledge and information. There is no statutory requirement for SoEs with respect to the International Financial Reporting Standards (IFRS), and thus there is a wide variation in financial reporting practice among SoEs.

In such a situation, there is a need for quality financial reporting among the SoEs to ensure accountability in the use of public resource and to achieve the expected results, both financial and social. The government should develop a comprehensive financial reporting framework with enforcement and implementation mechanism. Effective and efficient use of public resource and strong accountability are needed for better public service delivery.

The government needs to review the SoEs' monitoring system and consider a standardised analytical framework of the financial performance indicators across all the units. Information technology in the SoEs should be introduced and linked by a three-tiered Wide Area Network (WAN) system. Internet-based computing should also be introduced.

The country's industrial development, in fact, depends upon many factors of business environment. It is very difficult for the SoEs to keep track among the concerned departments or agencies and get their support to help the country's industrialisation process.

On the other hand, most of the policies were previously framed from macroeconomic perspectives without taking into account distinctive strategies or any specific action plan or timeframe. If such policies have the microeconomic approach with specific timeframes and the agencies responsible are identified, these could be executed in a better way.

In order to get optimum results out of the long list of policies, analysts say, a well-planned law can be enacted for implementation. It should have both macroeconomic and microeconomic versions with time-bound duties and responsibilities of the concerned organs of the government. This will help the SoEs to better perform in the industrialisation process of the country.

It may be mentioned that the Bangladesh Investment Development Authority Act was passed in parliament creating a new national investment authority through merger of the Board of Investment (BoI) and the Privatisation Commission (PC). A new legislation proposing one-stop service to boost investment has recently got the required approval.

In order to reduce bureaucratic tangles, Intellectual Property Rights, Law of Contract, Income Tax Act, Competition Commission Act, Import Policy, Export Policy and Banking Policy also need to be aligned to make the law effective.

The alignment of such laws and regulations is needed to make it legally binding for other ministries and departments to accept regulating authority of the BIDA. Also, the export processing zones and special economic zones should come under it to boost investment in these specialised zones.

A special secretariat under the supervision of the Prime Minister, analysts say, should take the lead in promoting coordination among the relevant organisations, agencies and ministries to implement the industrial development act. A strong monitoring and evaluation team can be there to ensure transparency in implementing each component of the Act by the organisations concerned byfollowing pre-determined timeframes.

The SoEs should demonstrate that they have adequate skills to interpret and analyse financial indicators especially in areas of cost accounting and auditing, and recruitment of qualified staff. Enabling environment is needed to facilitate effective governance including operational autonomy, accountability, corporate culture and incentive-based compensation system.

Appropriate steps should, therefore, be taken to include statutory provisions for implementing monitoring system, reward and punishment scheme, and incentive based programmes for the SoEs which are, at the moment, largely lacking.  A comprehensive financial reporting framework for these enterprises is also deemed necessary. 

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