August 12, 2023 opinion

Sri Lanka’s restructure of State-Owned Enterprises may pose a threat to the safety of the country

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Nadia Diakowska in Oxford, United Kingdom

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Old Parliament Building, Colombo, Sri Lanka

Picture by: Sergei Gussev | Flickr

Following the 2022 bankruptcy, the Sri Lankan government has been implementing tough reforms to improve the economy.

Except for increased tax rates for higher earners, high interest rates and numerous other measures aimed at strengthening the budget, one of the most divisive changes which was argued has been the privatisation of some State-Owned Enterprises (SOE’s).

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Sri Lanka has now begun implementing the privatisation of some SOE’s with over 60 enterprises identified by the government to privatise and 25 already privatised. However the restructuring scheme seems to be abrupt and ill-considered.

As Lanka is prodigiously selling previously state-run firms to private sector players, who in turn end up getting unlimited access to authoritative enterprises, influencing the way the entire country functions.

It appears as though the government is too focused on paying off debts to acknowledge the possibility of compromising the safety of the country.

One of the businesses that went up for sale in March 2023 was the Sri Lanka Telecom (SLT), the national information and communications provider. SLT is the backbone of the country’s communication network and poses an important role in the nation’s development.

The Lankan Sectoral Oversight Committee on National Security expressed concern in regards to national safety. A government report, published in July 2023, detailed the ‘effects of the privatisation of Sri Lanka Telecom’.

“Securing these networks is crucial to prevent unauthorised access, data breaches and disruptions in communications. Sensitive information and intelligence should be protected and should be handled only by the state to prevent unauthorised access,” the report stated in relation to cyber security concerns.

Following its findings the government put its plans on hold until further analysis.

The mere idea of selling off the country’s leading telecommunication enterprise seems to signal deficiencies in the government’s decision-making.

Not only is the choice of enterprises for sale questionable, so is the choice of buyers.

China has emerged as the leading source of Official Development Assistance (ODA) and Foreign Direct Investment (FDI) contributing more than 14 billion USD while buying out the Lankan SOE’s. Sri Lanka’s debt to China reached approximately 7.3 billion USD by the end of 2022, accounting for nearly 20% of Colombo’s public external debt.

It seems as though China’s dominating the Lankan market through multiple buyouts of Sri Lankan enterprises. The prominent private investors (accounting for an extra 2 billion USD of foreign investment) are mostly Hong Kong billionaires, including Li Ka-Shing, who invested 20 million USD in Hutchison Telecommunication. The wealthy end up making millions of profit, whilst the Lankan people receive minimal remuneration in comparison to the benefits of the firms’ owners.

Of course there still are many benefits to privatisation, such as minimised government spending and promotion of competition on the market, which later helps provide a more diverse assortment of goods and products of higher quality.

The trick to Sri Lanka’s successful restructuring will be doing it cautiously through diversifying the buyer’s list and picking enterprises that don’t handle the country’s crucial intel.

Written by:

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Nadia Diakowska

Economics Correspondent

Warsaw, Poland

Born in 2005, Nadia is a graduate of Stefan Batory High School in Warsaw, currently taking a gap year to complete A-levels.

Her main interests include economics, mathematics and psychology. In the future, Nadia plans to study economics and management in the UK.

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