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NewsDay

AMH is an independent media house free from political ties or outside influence. We have four newspapers: The Zimbabwe Independent, a business weekly published every Friday, The Standard, a weekly published every Sunday, and Southern and NewsDay, our daily newspapers. Each has an online edition.

State-owned enterprises need good management

Opinion & Analysis
Ask Air Zimbabwe management and board members as to how the airline ended up literally insolvent and how the debt burdened air line has ended up with two (new?) Airbus A320 jet liners, when it has excess capacity in commuter jets besides the crippling $140 million debt, more or less the value of the two planes, fingers will point most likely to politics and politicians.

Ask Air Zimbabwe management and board members as to how the airline ended up literally insolvent and how the debt burdened air line has ended up with two (new?) Airbus A320 jet liners, when it has excess capacity in commuter jets besides the crippling $140 million debt, more or less the value of the two planes, fingers will point most likely to politics and politicians.

Opinion by Tapiwa Nyandoro

Those in the aviation industry will know that when the time to replace the aged but still capable Boeing 737 eventually comes, the most logical choice would have been with cheaper and more fuel-efficient turbo props. Indeed there was never a case for jets in the first place, let alone three of them, in the domestic and some regional routes given the extremely short distances. But now we have five and virtually no passengers. There is no working capital with the brand in tatters. Fingers again will point to politics and politicians for its bloated head count, with some workers on retrenchment, but their dues not being paid. As for the source of funds for the new planes; there is silence. Corporate governance is at its lowest transparency and accountability not traits to be found.

Air Zimbabwe is not alone in this poor governance among our State-owned companies. The Reserve Bank of Zimbabwe (RBZ) has retrenched some of its workforce too. Like its sister parastatal, it has not fully honoured its obligations to the retrenched. That medical research has shown such callous corporate practices are a life and death matter to the victims seems immaterial. The RBZ also has a huge debt burden and is probably insolvent. The Central Bank has a law that provides immunity from prosecution for its officers with dirty hands, most likely breaking new ground on monetary mismanagement and poor corporate governance. The story is the same at National Railways of Zimbabwe (NRZ). Capacity utilisation is down to one sixth of installed capacity. Workers have been reported to go for month without pay.

Zimabwe Electricity Supply Authority (Zesa) too operates at 50% of installed capacity, even as domestic and regional demand outstrips supply. On a positive note, the State-owned electricity utility has paid up its regional creditors and even awarded a tender for enlarging Kariba hydro generation capacity, with Hwange upgrade tender, we are told, not far behind. Energy minister Elton Mangoma seems to be in his element, though he must proceed with care over the unbundling of Zesa.

Independent power producers (IPPs) he intends to court, tend to sell power more expensively than state owned Companies without the profit motive. China and the United States provide their manufacturing entities deliberately with cheap energy, giving their manufacturing industry a significant competitive advantage. So whatever the minister may do, a pricing formula that ensures competitive energy prices for mining and agriculture must be in all contracts with IPPs, as early as the Project approval stage to avoid a repetition of the green fuel fiasco.

Give an average politician the option of retaining office or bankrupting a State-owned industry, he will without hesitation opt for the former. As a result, it makes sense to transfer most if not all the State-owned and controlled organisations to one independent commission, under the Ministry of State Controlled Industries, modelled on the lines China has followed. The Chinese state owned Assets Supervision and Administration Commission (Sasac) is the controlling shareholder of some 120 State-owned firms. Sasac has been described by the Boston Consulting Group as “the most powerful entity you never heard of”. The idea is to create strong institutions that can survive political transitions by remaining focused on the triple bottom line, as regards their social, environmental and financial obligations besides national goals, as regards overall national productivity and competitiveness.

The commission to manage some of our State-owned enterprises terms of reference should be kept simple, for example:

  • Attract capital for recapitalisation and growth from bonds if sustainable and equity if necessary or both;
  • Acquire and, or deploy technology to maximise productivity;
  • Reduce government shareholding to around 25% for half to 60% of the combined total asset value over a period of fifteen years. Retain as wholly-owned State enterprises those entities enhance national competitiveness in agriculture, mining and manufacturing such as Zesa and NRZ. Allow, however, competition by the private sector.
  • Provide services and goods at affordable prices in the lower 15% profile when benchmarked against comparable class leading viable service and or goods providers, globally.
  • Be in the upper quartile for total factor productivity within ten years, and stay there.

Over the past three decades and to date, debate has gone on globally as to what should be a national government’s role in industry. The Western conservative thinking was none at all; the Anglo Saxon equity capitalism was the best. The Left and Communist seemed to favour collective ownership of the means of production or State capitalism. Deng Xiaoping’s 1978 renaissance ushered in a combination of both, that has stood the test of time.Recent examples of the West taking a cue from the Chinese formula were the successful intervention by the American Federal government in General Motors, AIG and Chrysler. Here the policy was to save jobs and prevent the contagion effect that comes from the collapse of companies deemed to big to fail. Although the government provided funds from another deliberate policy of quantitative easing, to a large extent the Boards of the assisted companies were given a free reign. The policy was clear to all, including the political opposition which attacked it. But the endevour saved millions of American jobs, with the government realising a profit when it eventually sold its shares. In Japan, the Enterprise Turnaround Initiative Corp, funded by the Japanese government and the nation’s big banks, has just rescued Japan Airlines from bankruptcy and the government is due to receive a health payback via an IPO. Again jobs have been saved by a good policy. Air Zimbabwe would do well to study the turnaround which involved cutting capacity. and not increasing it, while slashing employees’ remuneration