What are the causes of low profitability of public sector enterprises?
The reasons for the low profitability of public sector enterprises are:
1. Social purpose:
Public sector enterprises are formed for the development of society. As a result, the purpose of making profit is secondary to these organizations. The products of public sector enterprises are sold to the people at low prices. As a result, the profitability is low.
2. Excess expenditure:
A huge amount of money is spent on the ancillary facilities of the board of directors and employees of the companies. It results in lower profit margins.
3. Lack of professional skills:
The management of government affairs is entrusted to the board of directors nominated by the government. Usually, all of these managers are not professionally trained. As a result, the cost of doing business increases and the profitability decreases.
4. Lack of motivation:
Employees in public sector enterprises have a lot of job security and other opportunities, so they lack personal motivation. As a result, the amount of production is reduced and the rate of profit is reduced.
5. Higher production cost:
In public sector enterprises, production capacity is not utilized to its fullest, as a result, the production cost per unit becomes higher. As a result, the margin of profit becomes lower.
6. Political influence:
Public sector enterprises hold more than 51 percent of government shares. As a result, the government is forced to influence the work of the company. The government that believes in the political idealogy usually tries to introduce that ideology in the companies. As a result, production costs are higher in most cases and profit margins are lower.
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