WASHINGTON, November 28, 2023 — Almost 70% of businesses with state ownership operate in competitive markets such as manufacturing and tourism, where the private sector could deliver more efficiently, says a new World Bank report.
The report, The Business of the State, examines 76,000 companies in 91 countries with at least 10% state ownership. Revenues from these businesses are equivalent to 17 % of GDP on average, where data is available, revealing the true extent of the presence of state in the economy. The report points out that a larger state footprint can result in lower business dynamism and higher market concentration, discouraging new market entrants and curbing private investment leading to slower growth.
“The footprint of the state in developing countries has become much larger than previously thought and almost 70% of the businesses, with at least 10% state ownership, are operating in competitive markets,” said Pablo Saavedra, World Bank Vice President for Equitable Growth, Finance and Institutions. “While some of the firms with state ownership perform well in those markets, a significant share of them face soft budget constraints and favorable regulatory treatment, undermining firm entry and competition.”
In certain cases, businesses of the state can play an important role in providing access to basic services and utilities, or in cushioning the impact of economic crisis or natural disasters. However, the report notes that direct state participation in the production of goods and services is not essential to achieve development objectives. Fiscal and monetary policies offer more effective tools for stabilization without generating contingent liabilities and displacing private firms.
“What is needed is greater transparency in state-business activities that can help governments assess their costs and benefits for achieving development goals,” said Mona Haddad, World Bank Global Director for Trade, Investment, and Competitiveness.
Download the report: www.worldbank.org/business-of-the-state
