Businesses with state ownership account for a sizeable share of economic activity. Almost 70 percent of these businesses are operating in industries where the private sector is better suited to deliver more efficiently.
The report, The Business of the State, examines 76,000 companies in 91 countries with more than 10 percent government ownership. It shows that the state footprint and influence have become more pervasive as many government’s turned to state owned enterprises to cushion the impact of the global financial crisis and more recently, the Covid-19 pandemic. The firm-level analysis in the report shows that a larger state footprint can reduce business dynamism, increase market concentration, discourage new firms from entering markets, and curb private investment, leading to a slower growth.
The report calls on policymakers to apply five principles to improve the performance of businesses of the state:
· Prepare a nationwide mapping of businesses of the state
· Reassess state involvement in competitive industries
· Support strong institutions to regulate markets
· Encourage competition between public and private firms on a level playing field
· Have a phase-out strategy for state businesses when no longer needed.
These efforts will help achieve higher productivity and growth while reducing pressure on public finances.
