State-Run Struggle: Why Bangladesh’s Public Enterprises Keep Failing
State-owned enterprises in Bangladesh are failing to remain competitive. The sectors that have undergone privatization are suffering even more when it comes to government-run organizations. More than 54 years after independence, many state-owned enterprises continue to incur losses decade after decade. In an effort to improve efficiency, several of these entities were converted into 100% government-owned companies under the Companies Act. However, even corporatization has produced little benefit. Only a few state-owned, single-service entities operating without competition remain profitable—yet this lack of competition has also resulted in low efficiency within those sectors.
Why are government enterprises consistently incurring losses?
Why can’t these state-owned companies be made profitable? At the root of everything lies the government’s mindset and widespread corruption. Beyond that, there are numerous operational challenges.
Large infrastructure projects are executed by the government, and several goods and services are delivered to the public with government subsidies. As a result, such entities never see profits. Subsidy amounts are merely recorded; the true performance of these enterprises cannot be assessed due to the subsidy mask.
In many sectors, the level of private—both domestic and foreign—investment far exceeds the government’s. Meanwhile, state-owned enterprises typically fail to invest on time due to bureaucratic complexities. Even when a project receives approval, the procurement process under the Public Procurement Rules (PPR) forces it into lengthy cycles of tender, re-tender, and committee reviews, often rendering the technology obsolete. Failure to strictly follow PPR invites audit objections or potential entanglement with anti-corruption authorities.
In contrast, the private sector swiftly adopts modern technologies, introduces new products or services, and rapidly captures market share.
In most cases, the chairman of a state-owned company’s board is the secretary of the relevant ministry by virtue of office. Other board members often include bureaucrats from other ministries, university professors, military officials, and business leaders. Managing directors (MDs) are appointed internally based on seniority, or selected from ministry officials of joint or additional secretary rank. Often, no individual with long-term industry experience or business acumen is placed in senior leadership. Employees enjoy all government benefits and secure salaries, with little scope for merit-based recruitment, promotion, or dismissal.
Furthermore, due to various interventions from ministers or secretaries, even a capable chief executive often cannot operate the organization efficiently. Instead of focusing on profitability, many spend their time serving the preferences of higher authorities. At times, the government pushes projects that are never commercially viable but benefit third parties instead.
Across the world, many countries once had predominantly state-owned enterprises. By the 1980s or earlier, developed countries privatized most sectors. Developing nations, following World Bank recommendations, first converted agencies into state-owned companies and then partially privatized them, brought in management partners, or raised capital by issuing shares. In many cases, foreign investors later exited by selling their stakes. Bangladesh created many fully government-owned companies following this trend, but did not implement the subsequent privatization phases seen in other developing nations.
For example, in 1998, SriLankan Airlines sold partial shares to Emirates as a management partner. But in 2008, the Sri Lankan government bought back all shares. In 1997, Sri Lanka Telecom was privatized, with the government retaining 49.5% and selling the remainder to Japan’s NTT, the stock market, and employees. NTT acquired about 35%, participated in management, and later sold its stake in 2008 to Malaysia’s Maxis Telecom Group at a capital gain of $10 million.
In Bangladesh, the Pan Pacific Sonargaon Hotel and InterContinental Dhaka properties are government-owned. Under the Ministry of Civil Aviation and Tourism, Hotels International Ltd. and Bangladesh Services Ltd. own the infrastructures, while Pan Pacific Group and InterContinental Hotels Group operate them through revenue-sharing management contracts. Thus, Bangladesh already has examples of management-contract-based operations.
Government jute and textile mills incurred losses for decades. Multiple BMRE projects costing thousands of crores yielded no results. Eventually, these mills were leased out to the private sector. State-owned paper mills face the same fate.
At a time when the government is struggling to raise enough revenue for public expenditure, trying to keep loss-making enterprises alive with taxpayer-funded subsidies or expansion attempts is counterproductive. To improve market efficiency—excluding strategic infrastructure sectors—other industries need to be privatized in various formats (investment or management partnerships).
However, before full privatization, the government must establish strong, skilled, and independent regulatory bodies for each sector. In addition, the Directorate of National Consumers’ Rights Protection and the Bangladesh Competition Commission must be strengthened and expanded nationwide for efficient enforcement.
Writer: Md. Hasibur Rashid, CEO, Intercloud Limited
Note: Views expressed in the opinion section are solely those of the author and not affiliated with Digital Bangla Media. To uphold the principle of pluralism, opinions are published without editorial intervention. Any objection or displeasure is exclusively the reader’s own responsibility.
