Business Times

Is the new Act to take over underperforming enterprises or underutilized assets an urgent need?

By Franklyn Amerasinghe

As we know this Bill was rushed through as if it was going to be the Silver Bullet to save the economy! In fact the preamble to the Act is rather ludicrous as it says, inter alia: “Whereas in furtherance of the expeditious development policies being expeditiously implemented within the country in the backdrop of the favourable economic environment…..”

If we need expeditious measures what is being done in relation to the horrendous situation in the public departments and statutory authorities which are struggling along with no plan to revive them? The CEB, the Railway Dept., the Petroleum Corporatin and even the Cricket Board are reported to be facing financial crises.

A trade union leader says that in the State Engineering Corporation, dozens of marketing executives who have been provided with cars and attractive salaries are happily engaged in doing nothing at state expense. There are many such parasites around in the state service, or rather holding state appointments, without a job to perform!

Whether we are in a “favourable economic environment” is debatable, given the turmoil in the external markets and the fact that our stock market is reeling. Who is investing in Sri Lanka or creating new jobs? There are a handful of local entrepreneurs who seem to be mopping up shares in the market, but there seems to be little foreign investment or new investors. The EPF has been reported at least in one instance to have purchased shares at a much higher price than the market! Secure jobs are vanishing and jobs if created are insecure, vulnerable and at risk.

To get to the details of the Act, as pointed out by the Director General of the Employers Federation, Section 2 appears to make it necessary for the so called “Underperforming Enterprises” (in fact it is only one company named which then makes it questionable as to whether the Schedule 1 could be added to later by way of Amendment?) to have been shown to be having an “adverse impact on the economy”. The Act could have said that the identified companies were in fact having an adverse impact as at the date of the vesting and it is therefore to be assumed that the fact of the “adverse impact” is yet to be ascertained? Sevanagala, for example, claims to be profitable? Are we to assume that the companies concerned would still have the right to challenge the vesting on the basis that they have not endangered the “national economy” in any way?

The appointment of Competent Authorities instead of boards to manage the vested enterprises should be viewed as a retrograde step considering past experience. In one company which was a GOBU and was handed over to the private sector several years ago, there was almost Rs 20 million missing from the Provident Fund itself! It may not be out of context to mention that many public corporations which had Private Provident Funds defaulted and workers are not necessarily looked after better by the state, although the political appointees and under-performers are happiest in state employment.

Section 3 (3) makes it clear that the Competent Authority is subject to the direction of the State and has no free hand to manage the enterprise in a manner which is conducive to its sustenance and growth. The government reserves to itself the power to give “general” and “special directions” which could also be “to the interests of the workers “. This clearly shows that the political will of the government will take precedence over any desire of the Competent Authority to perform his job in a professional way. Perhaps as in many corporations the workers will decide which managers they could tolerate.

As we know the Supreme Court appointed a board to manage Waters Edge. We are told that recently a government affiliated union has been formed and there are allegations of massive corruption. We are also made to understand that the there is unrest and agitation on the part of the former employees of LMS who through their union are alleging that promises given by the SLPA have not been kept.

Are we to accept what the government is saying that this will not have any impact on investment? Let us wait and see for ourselves! In 1994, when the PA government came to power the trade unions in the privatized companies immediately started agitating that the companies be take back to the state. We are reliably informed by unions that with the new Act, many worker leaders are putting pressure on their unions to ask that their organizations be taken back to the state! The expectations of the workers seem to be that the government will now espouse a clear policy of intervention in production and services.

My attention has also been drawn to the Bilateral Trade Agreements with 27 countries which our investment promotion agencies proudly declaim to the world. The BOI Website says thus: “Sri Lanka pioneered South Asia’s economic liberalization over three decades ago. Liberalizing many areas of the economy, the government has embraced strategies and policies that are more than conducive for international investment. In fact the policy environment is undoubtedly, compelling.

The following transparent investment laws aim to foster foreign direct investments.
Total foreign ownership is permitted across almost all areas of the economy.
No restrictions on repatriation of earnings, fees, capital, and on forex transactions relating to current account payments.
Safety of foreign investment is guaranteed by the constitution.
Existence of a transparent and sophisticated legal and regulatory framework. Covering all prerequisite business law enactments.

Bilateral investment protection agreements with 27 countries and double taxation avoidance agreements with 38 countries.
Sri Lanka is a founder member of the Multilateral Investment Guarantee Agency (MIGA), an investment guarantee agency of the World Bank. This provides a safeguard against expropriation and non-commercial risks.

Index of Economic Freedom measures the pro-business policy environment of a country. According to the Index of Economic Freedom – 2011, the country has been ranked 107 of 179 countries and 19th of the 41 countries in the Asian Pacific Region.

Sri Lanka has been rated as one of the 'most improved countries in the world in economic freedom as per the 2011 rankings”. Are we entitled to make these statements after the passage of the Act?
The Act (See section 4 (2) does not even leave room for challenging the computation of compensation and makes an Appeal available to the Court of Appeal only on a question of law! How free are our enterprises now?

(The writer is a former Director-General of the Employers Federation of Ceylon and now serves on the boards of some public companies).

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