Advocata commends Government’s decision to shut down SaluSala

Jun 19, 2019 (LBO) - Advocata Institute commends President Maithripala Sirisena’s directive to shut down the loss-making, state-owned handloom enterprise Salu Sala. While we commend this decision, we are also anticipating the official gazette enacting this statement.

The SaluSala, now a white elephant to society, was once the only state textile trading enterprise in the country. As the only provider of textile during the closed economy, SaluSala received heavy protection.

In 2011, the First Committee of Public Enterprises Report (COPE) revealed that for the year 2009/2010, Lanka SaluSala Ltd. has made a loss of Rs. 30 million. The reason for this loss, as identified by the report, was due to salaries paid to staff who had been sent on compulsory leave during the restructuring process of the organisation. However, Advocata has been unable to track the financials of Lanka SaluSala thereafter as there has been no Annual Reports or Performance Reports published and available to the public.

Advocata Institute strongly believes that the state should have no role in running business enterprises using taxpayer money,  particularly in industries with enough private investment and competition.  Advocata encourages the government to look at other ‘white elephant’ State Owned Enterprises (SOEs), and divest and exit industries that serves no strategic purpose. Out of 527 SOEs identified by Advocata’s 2018 State of State Enterprises report, only 54 are classified as being ‘strategic’ by the government.

Whilst the policy debate in Sri Lanka on SOEs has focused on ‘privatisation’, many of  Sri Lanka’s SOEs have no commercial purpose, riddled with corruption and mismanagement and, in the core justification of existence, is not attractive to private investors looking for profit making ventures. Advocata urges the government to exit enterprises of  this nature and release the valuable resources they occupy into more productive sectors of the economy, while awarding fair compensation to public sector employees of these enterprises.

In the case of Sal Sala, the Treasury has allocated Rs. 340 million to pay compensation for 217 employees under a voluntary retirement scheme. This is a model the government should consider adopting in cases where paying a compensation is more economically viable than continuing to keep a loss making enterprise afloat. Lanka SaluSala is not the only State Owned Enterprise (SOE) that is a fiscal strain on Sri Lanka’s Economy. Non Strategic SOEs like Sri Lankan Airlines, Lanka Sathosa and Agriculture and Agrarian Insurance Corporation are in need of immediate reform.

Source: Department of Public Enterprises, Performance Reports (2015-2017) and Ministry of Finance - Annual Report (2018)

Key Points

• Lanka SaluSala, a state owned handloom enterprise will be shut down as per orders by the President.
• Advocata Institute commends this decision and is anticipating the gazette formally enacting this order.
• The Treasury has allocated Rs. 340 million to pay compensation for 217 employees of SaluSala under a voluntary retirement scheme.
• SaluSalu has been a “white elephant” for years, and the government has failed to keep track of the financials for this enterprise.
• The first COPE report in 2011 revealed that Lanka SaluSala Ltd. has made a loss of Rs. 30 million for the year 2009/2010. Annual Reports have not been published thereafter, and the Ministry of Industry and Commerce, which is the designated line ministry has also not published any information on the performance of Lanka SaluSala thereafter.
• SaluSala is only one of the many SOEs fiscally straining Sri Lanka’s economy, and it is only one of the many SOEs that the government has failed to monitor financials for. Out of the 527 state owned enterprises identified by the Advocata Institute, the government regularly tracks the financials of only 54.
• While the Advocata commends the government’s decision to close SaluSala, it is equally important that the government conducts a survey of all state owned enterprises in order to establish a comprehensive system of financial monitoring.
• Other non-strategic loss making State Owned Enterprises in need of immediate reform includeSri Lankan Airlines, Lanka Sathosa and Agriculture and Agrarian Insurance Corporation.

‘A lack of accountability is leading to flagrant abuse within SOE's. The government must act urgently to prevent it spiraling out of control. Salu Sala is only one of many examples” warned Ravi Ratnasabapathy, Resident Fellow, Advocata Institute.

Advocata is an independent policy think tank based in Colombo, Sri Lanka. We conduct research, provide commentary and hold events to promote sound policy ideas compatible with a free society in Sri Lanka. Visit advocata.org for more information.