Is SEMA the Answer? Depends on the Question
By Mahoshada
The UNFA government has recently announced the formation of the Strategic Enterprise Management Agency (SEMA). This new agency will be under the president with Mr Mano Tittawella named as the chairman and CEO. He told a news conference last week that “the new government does not believe full scale privatisation is warranted in strategic enterprises… The government is committed to manage strategic enterprises as independent commercial enterprises with commercial autonomy instead of privatising them.” According to Mr Tittawella, SEMA is going “…to improve management and financial viability … help prepare business plans, ensure they obtain credit ratings and make them compete better with the private sector.”
The 12 strategic enterprises include Bank of Ceylon, People’s Bank, National Savings Bank, State Mortgage and Investment Bank, Ceylon Electricity Board, Ceylon Petroleum Corporation, Sri Lanka Ports Authority, Airport and Aviation Authority, Ceylon Government Railway, Ceylon Transport Board and Regional Cluster Bus Companies, National Water Supply and Drainage Board and the State Pharmaceutical Corporation.
As one of the first serious initiatives of the UNFA government, we should look carefully at SEMA and ask whether it will be able to provide reasonable answers to the critical problems facing these state owned enterprises. In effect, can we expect SEMA to turn these enterprises around so that “their profits and dividends can become a main source of government revenue” rather than a major burden on the budget as many of them are today?
One point to keep in mind is that these 12 enterprises are a very mixed bag, ranging from the nearly profitable to basket cases that would evidently require major infusions of money and extensive restructuring to even begin to get them on their feet. With these 12 constituting the client list for SEMA, it should be remembered that ‘one size does not fit all.’
If SEMA really is the answer, then the primary reason that these enterprises are facing the difficulties that they face today must be misguided management. That is what SEMA is being designed to fix. However, if that is in fact the case, then why not simply appoint competent managers in the first place? But, is this really the problem? Is it even remotely plausible that if these enterprises had been given guidance in preparing business plans and improved managerial practices that they would be in much better shape today? It seems highly unlikely. We have to look elsewhere for the real sources of the problems faced by these enterprises. Only then we can ask whether SEMA is the answer.
There is no doubt that the principal reason these state owned enterprises are in such as mess today has been due to extensive government interference in their operations. It is no secret that some past governments saw them as ready sources of employment for friends and supporters. There have been many allegations of misuse of the funds of state enterprises as well as the use of vehicles, offices and other resources for political purposes. If the management of these enterprises has willingly or unwillingly succumbed to the wishes of their political masters in the misuses of these resources, then it is not a question of improving managerial practices, it is a question of genuine autonomy – eliminating the scope for governments to interfere. One of the reasons why privatisation is often the most effective answer is because it is usually the best way to actually ensuring independence from continued government interference.
Let us look at one dimension of this problem – maybe the most politically sensitive issue: overstaffing. Virtually all of the 12 state enterprises identified by SEMA have far more employees than they can maintain and hope to become financially viable or competitive with the private sector. In some cases, the enterprises have as much as 300% to 400% or more workers than is sustainable. Mr Tittawella as a former chairman of People’s Bank is undoubtedly well aware of the extent of the problem. Presumably this is why, as has been reported, none of the thousands of unemployed graduates to be hired by the UPFA government will be destined for jobs in these state enterprises.
For there to be any chance of SEMA to achieve its stated objectives, there will have to be substantial numbers of workers retrenched in most of not all of these enterprises. Yet, in none of the public statements concerning the establishment of SEMA has there been any mention of job losses. Is this because they are unaware of the extent of the challenge that they face, or simply political expediency – especially just before another round of elections? Either way, it does not give much encouragement concerning the chances of success for SEMA. The hard reality is that a government unwilling to sell a single share of these enterprises is even less likely to take the politically difficult steps that will be necessary to restructure and reduce the labor force to manageable levels.
This raises a related question about the management structure being proposed by SEMA. These state owned enterprises will continue to be responsible to their present ministries – CEB to the Ministry of Power and Energy, People’s Bank to Ministry of Finance, etc. Will SEMA have actual authority to require these enterprises carry out the necessary difficult by necessary changes, or will it merely be an in-house management advisory body? If SEMA does indeed have real authority over these enterprises, then it would seem that they will now have (at least) two masters – bad management practice in itself. If SEMA has no genuine authority, then the prospects for any real reform are even more remote.
This brings us back to the original question: Is SEMA the answer for addressing the problems of these state owned enterprises? Unfortunately, it would appear that it misses the mark by a wide margin. There is no indication that it will have either the authority or the intention to address the core problems of these enterprises – the accumulated baggage due to past government interference and the lack of political will to take the steps necessary to undo this legacy, such as the changes that will be required in the size and structure of their workforces. It would seem that SEMA is little more than a cleverly packaged excuse to avoid the politically difficult issues of privatisation and/or genuine commercialization. The inevitable result will be that these problems will be pushed further and further into the future, the burden on the national budget will continue to grow as these enterprises become weaker and weaker as the critical productive investment necessary for them to improve performance remains out of reach.