Time for reform in Bangladesh’s state-owned enterprises

A crisis compels nations to undertake essential reforms, and Bangladesh is likely to go through the same path for a better future.

Bangladesh should seriously think about including its state-owned enterprises (SOE) in the reform agenda so that they don't bleed despite having significant asset and market edges, especially in the utility sectors.

No room for argument against the fact that Bangladeshi SOEs have historically been textbook examples of inefficient, lethargic operations that only cost the taxpayers and the nation.

Investors know how difficult it would be to build companies such as the Power Grid Company of Bangladesh, Titas Gas Transmission and Distribution or Dhaka Electric Supply Company Ltd out of private investments.

Just pushing them forward to the track and letting them run as a responsible and efficient business can put an end to the SOE tragedy that continues even in the sixth decade of Bangladesh's independence.

We have successful private sector companies within the country that showed how to grow big and serve the nation alongside shareholders. In other countries, including India, Malaysia, and China alongside the Western economies, so many SOEs showed the same commitment and success stories.

It was unfortunate that dozens of asset-rich SOEs despite having their market edges failed to show the expected financial performance that could attract both local and foreign investors, and help build a robust capital market. 

Also, the government could finance their deficit budget by offloading their shares as we saw in Bangladesh in the 2000s which still continues in India.

As a Bangladeshi capital market professional, I would outline the major areas to focus on.

Corporate governance in the SOEs is the top factor that needs to be addressed in Bangladesh, particularly within the financial sector.

The Bangladesh government has recognised the need to improve governance structures, enhance transparency, and strengthen accountability to ensure that these corporations operate efficiently and contribute positively to the economy.

Here's an overview of the key aspects of the needed reforms.

Regulatory reforms and oversight: It will need strengthening the regulatory bodies and their role. SOEs' boards of directors should work independently and uphold the corporate governance codes.

The boards should be composed of professionals instead of politically favoured ones. Independent directors must be independent in the true sense while the board committees must function fearlessly.

Transparency and disclosure are key areas investors look for and SOEs should enhance their reporting requirements for the sake of healthy communication with shareholders and also for their public accountability as SOEs.

Risk management and internal controls are a must within a successful enterprise and we need our SOEs to have a strong risk management framework, their internal audit functions should be up to the mark so that their work is never influenced by any external pressure.

For the reduction of political interference appointments must be based on merits and they must enjoy true autonomy in decision-making.

However, the SOEs' performance monitoring and accountability will also be crucial for the sake of their continuous improvement. Just like the successful private sector firms, SOEs and their executive leaders should have their key performance indicators to chase. Their performance must be reviewed on a regulator basis and of course, each of them should face consequences of non-performance.

The capital market cheers the listing of SOEs and the reform-centric government should take the opportunity to change the image of SOEs that can help attract quality investments, both local and foreign ones.

We have learned that welcoming good investors to the boards adds value and ultimately helps the enterprises themselves.

The writer is a former CEO of PLI Asset Management. He has two decades of experience in brokerage, investment banking and asset management in Bangladesh.