Should State-Owned Enterprises Be Privatized?

By Kyaw Hsu Mon & Htet Naing Zaw 18 August 2016

RANGOON — Burma’s government has sought verification as to why state-owned enterprises have been unprofitable, in order to better consider a move toward privatization to reduce the budget deficit.

On August 11 in the Upper House, Myat Nyana Soe, the secretary of the Joint Bill Committee, urged the Union Parliament to form a commission to investigate state-run enterprises which are running at a loss.

The Bill Committee suggested suspending state-run business projects during the current fiscal year, stressing that they need to be re-evaluated.

Myat Nyana Soe said it is time that a commission consisting of foreign consultants be formed to evaluate unprofitable state-run businesses, with an exception made for enterprises that the government operates in the public interest from within the Union budget.

“If large sums of investment have been put into those businesses and it is sure they will continue to function at a loss, then we should suspend or ultimately shut them down based on the assessment of the proposed commission,” said Myat Nyana Soe.

Burma’s economic analysts expressed varying views in response to the bill committee’s proposal to suspend and privatize failing state-run businesses.

Economist Aung Ko Ko said privatization is not the only the way to fix a budget deficit, and recommended that the government first explore why these businesses have been encountering loss.

“The government can still manage those businesses, because if all business is privatized, only the private sector will benefit. Customers will see the impact of this,” he said.

Aung Ko Ko pointed out that in the past many state-owned enterprises were handed over to people who were close with government officials and their outputs have not changed.

“For example, fuel enterprises have been privatized. [But] even though international oil prices are down, the local prices have yet to fall. It is because the government does not place controls on the private sector, and finally, customers face the consequences,” he said.

“In my opinion…state-owned businesses in the transport sector [in particular] should not be privatized, because it affects people’s daily lives,” Aung Ko Ko added.

Nyo Nyo Thin, a former Rangoon Division lawmaker, echoed Aung Ko Ko’s sentiments on privatization and urged government officials to carry out an internal investigation into such businesses to root out corruption.

“It’s possible that those businesses have had losses because of corruption. If [the government] can address cases of bribery, it can manage rather than privatize, in order to reduce the state deficit,” she said.

“Some state-owned enterprises should not be handed over to the private sector, like those in transport. This new government should not follow by doing what the previous government has done,” Nyo Nyo Thin continued.

In 2011, the former Thein Sein-led administration formed a privatization commission and proceeded to privatize thousands of state-owned enterprises including factories, land and customer services.

Laws exist that allow state-run businesses such as Inland Water Transport, Myanma Port Authority, Myanma Dockyards and Myanmar Airways to operate on their own, apart from the state budget. However, the bill committee criticized how after those businesses suffered losses, they rejoined the state budget and received special reserve funds.

“To recover loss with the use of special reserve funds is just a short-term solution. It will not solve the root cause,” Myat Nyana Soe added.

However, Tun Lwin Oo, a director-general with the Ministry of Transportation and Telecommunications who is supervising those businesses, said in a press conference on Tuesday that such enterprises had tried to stand on their own but failed, and therefore need to operate under the state budget.

“Inland Water Transport is operating at a loss across the country except on the Arakan coast. It is also because people choose other modes of transportation as time goes on. Though it is taking on losses, we need to continue operation to meet public needs, and therefore I have proposed that it should be funded by the state budget,” said Tun Lwin Oo.

Under the Ministry of Transportation and Telecommunications, the former Myanmar Airways—re-branded now as Myanmar National Airlines—is currently re-forming as a corporation with its own budget.

Maung Maung Lay, from the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), explained that state-run businesses were not privatized properly during the Thein Sein administration’s era due to poor transparency and nepotism, causing the enterprises to then fail.

“The government should have privatized burdensome businesses a long time ago. But it is important that they do not secretly hand them over to their close associates like the previous government did. The resulting problems of such favoritism have not yet been resolved. The current government knows that,” Maung Maung Lay said.

Tin Cho, an advisor to the Parami Group of Companies, also shared his view on the issue.

“Since there was no transparency during the time of the previous government, those businesses got into the wrong hands. They bought them, not to operate them, but to sell the land. So, how is this going to help economic development?” said Tin Cho.

After General Ne Win and his military regime nationalized Burma’s businesses in 1963—one year after taking power in a coup—most failed due to mismanagement. Ne Win’s government suffered a budget deficit; to resolve this, it printed a surplus of banknotes, leading to massive inflation and ultimately collapsing the economy, explained Tin Cho.

“It all failed because there were no experts,” he said.