Privatisation has entered the lingo of the nation once more. A few years ago, the mere mention of it was taboo in many circles and although the fear of using the word hasn’t fully evaporated, an increasing number of people actually understand the concept today.
The discussion is now drifting towards whether privatisation is good or bad, with those proposing privatisation highlighting examples of success stories while those against it bring up examples of where it has gone wrong.
In my view, rather than debating the merits of privatisation right away, the starting point of the discussion has to be about what Sri Lanka can do to overcome the crisis and how to transform our little island into a dynamic economy in Asia.
On our journey to find answers, we can consider many options, of which privatisation is definitely one. However, our starting point has to be getting Sri Lanka out of this mess and our solutions have to be pragmatic and suited to our context.
It is the same as a doctor prescribing medicine for ailing patients. The doctor first performs a diagnosis and then recommends medication based on the patient’s condition, history, affordability, side effects, and many more; he does not begin debating the merits of a particular treatment without a thorough diagnosis.
Obstacles against reforming the State sector
There is a brewing school of thought in Sri Lanka that given the many public corporations well-operated by honest and honourable professionals in other countries, nothing stands in the way of Sri Lanka having the same. The oft-cited examples include Singapore and New Zealand.
Firstly, we have to realise that Sri Lanka’s context is very different. We are a country whose political system is rotten to the core. In fact, when President Gotabaya Rajapaksa took over the office of the president, he appointed a committee to appoint directors to State corporations and we are all aware how that ended.
Simply put, our political system and context doesn’t facilitate getting talented professionals for the management of State-Owned Enterprises (SOEs).
Secondly, the vast majority of capable professionals in Sri Lanka are very well compensated and taken care of by the private sector, so they have no reason to move to the public sector, which would come with a massive risk of political backlash and less pay to boot. Salary scales in our SOEs simply do not attract the right talent to drive management change. And that’s just one side of the story.
Thirdly, Sri Lanka is now unfortunately bankrupt and most of the key SOEs carry both massive debts and losses. We cannot realistically expect the right talent to join and transform SOEs, knowing they will be faced with a difficult restructuring and turnaround, particularly without even the incentive of competitive salaries.
Last but not least, there is a principal-agent problem when the State attempts to conduct business. The State is currently involved in many industries as botha regulator and a market player. Can you imagine if the umpire in a game of cricket was also a batsman for one of the sides?
The State is involved in a multitude of sectors including hospitality, aviation, modern trade, banking, energy and many more. Although it has a bigger role in establishing the rule of law and a competitive marketplace, it is instead wasting resources on micromanaging certain industries.
The State is presently a jack of all trades and master of none, falling far behind expectations both in terms of ensuring the rule of law and managing business.
Privatisation as a viable option
It is in this context that Sri Lanka has to consider privatisation – not simply for the sake of privatisation but as a solution for the problems we have. There are six basic reforms that we have to implement if we wish to emerge from this crisis in a timely fashion.
- Increase revenue
- Reduce expenditure
- Reduce debt
- Increasing growth
- Increasing productivity
- Attracting FDI