Privatisation: A panacea to State enterprises decay

Privatisation is a topic that has dominated Zimbabwe’s economic discussions, policy and budgets since the early 1990s. Privatisation was pursued successfully between 1990 and 2000. During the Economic Structural Adjustment Programme (ESAP) years (1991-1995), the government commenced a public enterprise reform process designed to unlock value through the disposal of public entities or commercialisation of those with good production models.

By Victor Bhoroma

Under the successful programme, Dairy Marketing Board was privatised in July 1997 to form Dairibord Zimbabwe Limited and Cotton Marketing Board was commercialised in October 1997 to form Cotton Company of Zimbabwe (Cottco). After privatisation Dairibord later acquired Lyons Zimbabwe, Charhons and formed NFB Logistics to build a complete food processing business. Cottco effectively weaned off SeedCo, Quton Seeds and Olivine Industries, which now operate efficiently as independent companies.
Similarly, the government sold off its major stake in ZimRe Holdings in November 1999 and the company successfully unbundled to give birth to Fidelity Life and NicozDiamond, which are listed separately on the Zimbabwe Stock Exchange.

In 1997 after successfully saving CBZ Bank from collapse in previous years, the government sold off its stake in the bank. The bank would later diversify under private shareholders, form Datvest and grow to be the largest bank in Zimbabwe in terms of deposits and assets.

The success stories of the privatisation model pursued in the 1990s are that efficient companies were formed and these companies are a mainstay in their sectors to this day, listed on the ZSE and employing thousands.

Markets were liberalised and key economic functions separated (regulation, shareholding and management).

An extensive study by the World Bank in 2012 on the impact of 18 privatisation programmes in 10 African countries, found that productivity rose in 16 cases and remained constant in two.

High capital investments took place as private investors were growth-oriented than the government, workers were not worse off and in most cases were even better off through equity or share participation in the privatised firms and that consumers received better service and quality products.

State-owned enterprises have always been an important area of most economies, including the most advanced nations. Some of the most popular State-owned multinational corporations in the world include Gazprom from Russia, China Mobile & ZTE from China, Petrobras from Brazil, Singapore Airlines from Singapore, BBC from the United Kingdom and VW from Germany.

These large corporations are partly owned by the State and there is nothing wrong with that commercial model, if corporate governance ethos are followed properly which brings maximum benefits to the shareholders, the economy and society at large.

As a move in the right direction, the Zimbabwean government formed the State Enterprises Restructuring Agency to oversee the privatisation of State enterprises and parastatals (SEPs).

Zimbabwe has 107 SEPs, but only 43 are wholly commercial entities. These commercial entities now contribute less than 7% of the country’s GDP from the 40% they used to contribute in 1998.

A closer look at the numbers tells the whole picture, SEPs expenditure rose by 5,9% per year between 2011 and 2014 while annual revenue grew by 2,9% only. Aggregate annual expenditure averaged $3,5 billion during the 2011-2015 period, while personal costs, which account for about 20% of parastatal spending, increased by 5,5% on average.
Debt has grown to over $1 billion and debt service costs also increased by 6,1% in the same period.

The Auditor-General has been releasing annual audit results that point to corporate governance malpractices at SEPs since 2011.

Audits showed that 38 SEPs surveyed in 2016 made losses totaling $270 million.

These figures are staggering considering the fact that SEPs debt is always assumed by the government and the government continues to pump in millions into entities that can be weaned off without any negative impact to the economy.

So far, the government has published a priority list of companies earmarked for privatisation including Air Zimbabwe, National Railways of Zimbabwe, Cold Storage Company, Zesa Holdings, Posts and Telecommunication Corporations (NetOne, TelOne and Zimpost), Finhold (ZB Holdings), Industrial Development Corporation of Zimbabwe subsidiaries, Olivine Holdings, Agribank, Caps and Industrial Development Corporation subsidiaries among others.

What is key for government is to maintain control in the production of strategic resources only such as water, energy, land allocation, roads and human welfare.
This falls in line with the government’s mandate of availing opportunities and resources to the economy. This will help to keep prices for basic amenities in check to maintain economic stability and competitiveness.

Additionally, the government will also be required to provide regulations and policy through regulatory authorities such as the Postal and Telecommunications Regulatory Authority of Zimbabwe, Reserve Bank of Zimbabwe, Standards Association of Zimbabwe, Zimbabwe Revenue Authority and Bankers Association of Zimbabwe among others.

However, the Zimbabwean scenario is of a referee (regulating and law enforcement) playing the match (shareholding and ownership) and coaching (managing) at the same time.

This has resulted in rampant corruption and mal-administration, operational inefficiencies, poor service quality, losses and debts and lack of strategic direction.

Out of the 107 SEPs in Zimbabwe, there are some sectors where the government should not even be found, as shareholders of any company for efficiency and productivity reasons. These include banking, insurance, transport services, manufacturing and telecommunications.

These sectos play a key role in economic growth, such that once they fall in the hands of government, they slowly decay and drag the whole market with them. In some entities, the government is supposed to dilute shareholding to less than 50% just to have a say in the direction of the entity and some sectors, where the government needs to have over 50% such as energy production (not petroleum retailing) and water.

Some sectors will always remain the prerogative of the State such as non-profit making sectors in the form of basic health, sports, arts, culture, education, justice, constitutional commissions, fisheries, land, research, local government, civil service and pension administration
The key objectives for the government are to improve economic competitiveness, control debt and government expenditure.

Privatisation is, therefore, a necessary step for all the above, provided there is political will and commitment on the part of the government.

No matter the privatisation models followed, what is key is for the government to separate shareholding, regulating and managing. Once these functions are all executed by the State; innovation, efficiency and growth in SEPs will remain a mission impossible.

Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on or Skype: victor.bhoroma1.

1 Comment

  1. Your post captures the issue pelefctry!

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