The Finance and Economic Planning Portfolio Committee was this week out in the field conducting public hearings on the Public Entities and Corporate Governance Amendment Bill currently before Parliament. The hearings are in compliance with Section 141 of the Constitution, which requires Parliament to ensure interested parties are consulted before passing a piece of legislation.
By John Makamure
The Bill seeks to provide for the corporate governance of public entities, that is to say statutory bodies (parastatals), certain constitutional commissions, and commercial entities that are owned or controlled by the government. The expectation is that by improving the internal management structures of parastatals and other public entities, this should lead to an improvement in their performance.
The proposed legislation fulfils provisions of Chapter 9 of the Constitution of Zimbabwe which provides for the administration of public institutions or government controlled entities. Sections 194 to 198 mandate the State to adopt and implement policies and legislation aimed at developing efficiency, competence, accountability, transparency, personal integrity and financial probity in all institutions and agencies of government at every level and in every public institution.
The Bill compliments very well a directive issued this week by the Office of the President and Cabinet for all ministers, their deputies, permanent secretaries, principal directors, board chairpersons of public entities, board members and chief executives of these entities to declare their assets by not later than February 28.
The general feedback from the hearings is that the Bill is a good piece of legislation, in as far as it tries to bring sanity in the public enterprise sector. It is public knowledge that the majority of the entities are grossly mismanaged, have been posting perennial losses and receiving huge government financial bailouts. Their burden on the fiscus has been massive, thereby contributing to the unsustainable fiscal deficits that have caused severe headaches for the fiscal authorities.
According to statistics from the Office of the President and Cabinet, 38 of the 93 State-owned enterprises (SOEs) audited in 2016 incurred a combined $270 million loss as a result of weak corporate governance practices and ineffective control mechanisms. Of the 93 SOEs, 70% of them were ‘technically insolvent’ or ‘illiquid’ presenting an actual or potential drain on an already overburdened fiscus.
Finance and Economic Planning Patrick Chinamasa announced in the 2018 Budget Statement that State enterprises’ contribution to gross domestic product had come down from 60% at their peak to current levels of about 2%. Despite the underperformance, management at most State enterprises continued to enjoy huge salaries and other benefits, which continued to breach Cabinet’s directive for the packages not to exceed 30% of total revenues.
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While several provisions of the Bill are progressive, there is need to review or tighten some of the provisions for the piece of legislation to satisfy the basic tenets of good law and achieve the goal of efficiency and effectiveness in the operations of public entities.
On the appointment of board members, it is proposed that these members will no longer serve for more than one term of four years, although there is provision for reappointment for another four-year term.
In addition, no one will be allowed to serve on more than two boards at a time. While an improvement from the current situation whereby some of the board members have been there for eternity, I would have expected that the Bill provides for a board member to strictly serve for not more than one term. There is a large pool of competent Zimbabweans out there who should take turns to serve on the boards of these public entities.
The other major concern emanating from the hearings is that line ministers still have too much control over the appointment of board members. The only change is that the ministers must avail the names of the proposed members for inspection by the Corporate Governance Unit. It is strongly felt that Parliament should be given more such powers through the relevant portfolio committees. In other words, the Minister should not have the final say, but recommend names for approval by Parliament.
Too much power conferred to ministers in the management of State entities means the Corporate Governance Unit will be weakened in its statutory role of enforcing compliance.
Still on the appointment of board members, I would have expected a more robust shortlisting and maintenance of a database of qualified candidates for board appointments by the Corporate Governance Unit in order to stem corruption.
Clause 11 (4) of the Bill which provides for full-time employees of the State to be appointed to Boards of public entities (although they cannot form a majority on any such Board), allows too much interference in the running of the public entity by ministry officials. I however like the provision which bar permanent secretaries from being appointed to or holding office as a member of any such Board. In the past this has been abused by permanent secretaries, with some of them running the entity as a one-man band and engaging in rampant abuse and theft of the entity’s financial resources and assets.
The Bill allows a Board member to be on the Board of a public entity and also on the Board of its subsidiary. This violates normal corporate governance practices. While there is a provision for signing of a performance contract between the line ministry and the board members of the public entities, there is no provision stating how often the evaluation of the performance would be done.
I would like to end by saying while the legislation is generally good, we should remember that the major challenge with State entities has been the lack of political will to implement remedial measures in line with existing statutes and recommendations of the Auditor-General and less to do with appropriate legislation. Legislation is not always the panacea to all evils.
John Makamure is the Executive Director of the Southern African Parliamentary Support Trust