Are the state owned enterprises less profitable than the private ones?

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Can a state ownership of 3444 enterprises be justified from a financial standpoint? Are there any other more important goals for a state than the obtaining of profits?

The Centre For Economic Strategy experts offer the answers to these questions in the analytical note: “Are the state owned enterprises less profitable than the private ones?”.

The state can own the enterprises with two primary objectives in mind. The first goal lies in obtaining a return on the capital employed, the second — in undertaking certain social mission.

Results of the study demonstrated that, in 2016, the state failed to receive UAH 4.93 bln in profits from state-owned enterprises. On average, the public enterprises are 2.9% less profitable than the similar private ones. This figure is many times higher for an agricultural sector — public companies in this industry generate 14.8 % less profits than the private enterprises.

It is worth stressing that the lower ROE might be stipulated by two factors — subsidies related to certain social objectives, or a general inefficiency of an enterprise.

Therefore, there should be developed a state ownership policy on socially significant functions of state-owned enterprises.

This note continues the Centre’s research on the privatisation and the state ownership policy.

The general advice from the experts on managing the state property is to privatise or liquidate all state enterprises that do not provide unique public goods. The privatisation would result in less corruption, more investments, new jobs creation, increased performance, and – most important – an economic growth.