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

Transcription

1 Are the state owned enterprises less profitable than the private ones? Research findings presentation facebook.com/cesukraine twitter.com/ces_ukraine

2 Why should a state own an enterprise? The state can own the enterprises with two primary objectives in mind: 1. Financial obtaining a return on the capital employed As long as a state owns enterprises for the purposes of obtaining a profit, ROE (Return on equity) level has to be higher than that generated by private companies. The lower ROE can be stipulated by two factors subsidies related to certain social objectives or an enterprise inefficiency. 2. Social mission can be related to fulfillment of public service obligations. A state might have such obligations in the following spheres, for example: post (universal postal services), social services (services for disabled people), energy (power supply), transportation (connection to remote settlements), and banking (financial inclusion)

3 State-owned enterprises efficiency Main reasons for the potential ineffectiveness of state enterprises: involvement in political schemes and corruption

4 State-owned enterprises efficiency The European Commission s research State-Owned Enterprises in the EU: Lessons Learnt and Ways Forward in a Post-Crisis Context demonstrates that private companies ensure much better results than the state-owned ones. According to this research results, enterprises in all sectors have less ROE if they are owned by a state. At the same time, during crisis periods, the state enterprises in half of the industries reported the profits almost on par with the private ones

5 Key indicators for state and private enterprises in Ukraine Indicator median value State enterprises Non-state enterprises ROE 2% 10% Registration Date 16/03/ /12/2005 Revenue (UAH thous.) Assets (UAH thous.) Number of Employees (persons) 72 3 Accounts Payable (UAH thous.) Current Liabilities (UAH thous.) Sources: CES calculations based on YouСontrol data

6 Variable Coefficient Standard effor State enterprise *** Registration Date¹ *** Number of Employees (logarithm) *** Capital (logarithm) *** Assets (logarithm) *** Revenue (logarithm) *** Private Enterprise *** Limited Liability Partnership *** Farm Enterprise *** Municipal enterprise *** Foreign Enterprise Municipality Accounts Payable (logarithm) *** Current Liabilities (logarithm) 0.748*** Wholesale Trade (except vehicles and *** motorbikes) Agriculture, Hunting, and provision of related *** services Real Estate *** State enterprise in the sphere of Agriculture, *** Hunting, and provision of related services Constant *** Number of observations R^ CES Model results Dependent variable profitability (ROE, %) [1] January 1, 1970 as a zero value Each following day equals one unit. Dependent variable profitability (ROE, %) * significant coefficient on 95% confidence interval *** significant coefficient on 99.9% confidence interval Sources: CES calculations based on YouСontrol data

7 Ukrainian Realia Based on such analysis results, if we assume that each of the state enterprises generated 2.9% less profits in 2016, it should mean the state, as an owner, had lost around UAH 4.93 bln during one year only

8 Ukraine vs EU Obtained results for Ukrainian state-owned enterprises deviate from European figures due to the following factors: Private enterprises conceal profits to evade taxation Underdeveloped credit market Almost non-existent stock market Similar effects in various sectors of EU economy: from 8 to 32 percent

9 Conclusion Obtaining of profits cannot sufficiently justify state ownership of enterprises in Ukraine Based on the analysis results, we have arrived at a conclusion that the state owned enterprises in Ukraine demonstrate less ROE levels than the private ones. E.g., in agricultural sector 14.8 percent

10 Are the state owned enterprises less profitable than the private ones? 36D Saksahanskoho Str., Kyiv, 01033, Ukraine Tel.: (044) facebook.com/cesukraine twitter.com/ces_ukraine