State enterprises privatisation real deal

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THE government’s decision to privatise some public enterprises to improve efficiency and governance is the best way to cut them loose and end their over-reliance on the fiscus.

Parastatals have been performing dismally with the majority of them making losses amounting to millions of US dollars for close to two decades now.

Privatisation of State enterprises saw the government, in the mid-1990s, cutting loose some of its enterprises, including the Cotton Marketing Board (CMB), Dairibord and the Cold Storage Company (CSC), among others.

In this regard Finance minister Mthuli Ncube has indicated in his pre-budget strategy paper the government’s intention to  either fully privatise, de-merge, dispose, form strategic partnerships or give government department status to its enterprises.

This is notwithstanding the fact that the privatised companies do not seem to have made any meaningful progress, with the CSC having since closed shop.

However, Africa Economic Development Strategies director, Gift Mugano, who is also an adjunct professor of economics at Durban University of Technology, told the Daily News on Sunday that the new attempt to privatise some parastatals was the way to go despite that the State enterprises used to contribute  60 percent of the country’s Gross Domestic Product at Independence in 1980.

“Between 1998 up to now, State enterprises have had a parasitic effect on the government’s revenue. The major reason is that the previous government mismanaged them, appointing boards on political grounds where people who had lost Zanu PF primary elections, for example, would be given positions as appeasement.

“The entities had also become campaign vehicles for the ruling party which led to loss of capital and asset stripping.

“To avoid this, there is a need to privatise productive entities such as the CSC because surely the government has no business rearing cows. Of course others that provide public services such as the National Railways of Zimbabwe and Zinara must remain State owned. They could be improved through public private partnerships (PPPs),” Mugano said.

He dismissed the notion that the government’s previous go at privatisation had failed.

“It is not entirely correct that privatisation during the Economic Structural Adjustment Programme in the 90s didn’t work. Dairibord and CMB, now Cottco, can be regarded as success stories, never mind the challenges that the latter faced because it was a result of the fundamentals in that sector such as side marketing and global prices of cotton.

“That Cargill, a private company, also failed tells you that the failure by Cottco was not about privatisation,” he said.

Another renowned economist, John Robertson, weighed in saying it was a prudent decision to go the privatisation route given that the government had proved to be a bad manager, motivated by political pressures rather than sound economic and business sense.

“Experience over many years suggests that the government lacks the management skills and the people appointed to run the parastatals lack the discipline needed to make and reinvest the profits.

“That seems to be the reason most parastatals have made serious losses for years. Private sector investors behave differently because their standings with shareholders determine whether they keep their jobs.

“Being made head of a state-owned enterprise has usually meant a secure job no matter how well or poorly it is done. The private sector will do much better. The hard part will be to find willing investors, especially if the government wants to have a large shareholding,” Robertson said.

He said unlike Zimbabwe, in other jurisdictions such as China, bad behaviour could lead to execution of the culprits.

“We seem to let the culprits off easily and even allow them to keep what they embezzled from the organisation,” Robertson said.

Another economic expert, Christopher Mugaga, said while privatisation was the best route, most parastatals are not marketable.

“The first thing is whether or not there is the political will to privatise on the part of the government. Secondly, if the will is there, are the entities in question attractive? Most of them do not have clear balance sheets. That said, the government is in a catch-22 situation because it is not helpful to continue pouring money into entities that are not giving anything back.

“The other challenge is that when say, for example, a state-owned company is privatised, its services become expensive beyond the reach of many,” Mugaga said.

He argued that a private firm has pressure from shareholders to perform efficiently because if it is unproductive, it could be subject to a takeover.

Ncube, in his Pre-budget strategic plan said the government, under the Civil Aviation Amendment Act, will unbundle the Civil Aviation Authority of Zimbabwe, creating a separate airports management company.

Ncube also indicated that the re-bundling of Zesa is already underway, with the draft statutory instrument for the amendment of the Electricity Act now in place.

So far the government has completed the demerger of the Grain Marketing Board (GMB) into GMB Strategic Grain Reserve and Silo Foods Industries.

The government has also approved the joint venture between the Zimbabwe Consolidated Diamond Company and Alrosa Overseas SA — a subsidiary of PJSC Alrosa of Russia for the exploration, development, mining and marketing of diamonds.

Zimbabwe has 207 state-owned enterprises and parastatals which contribute a paltry two percent to the GDP from a peak of 40 percent in the 1990s.

In 2016 alone, about 38 of these firms ran cumulative losses of US$270 million, indicating poor management, weak corporate governance and a deep-seated rot in public enterprises.

As of July 2018, state enterprises and parastatals owed the taxman $491 million.

Some of the loss-making parastatals include the NRZ, Ziscosteel and CSC, among several others.

In China, over 150 000 state-owned enterprises are important components of the economy.

In 2018, the firms generated 29,1 trillion yuan (about US$4,3 trillion).

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