Opinion: RESPECT GWENZI
SUBSEQUENT events, following January fuel price hikes, have seen government drift off course from the envisaged parastatal reforms charter as espoused by the two-year Transitional Stabilisation Programme, the 2018 and 2019 budget statements, respectively.
The President Emmerson Mnangagwa-led government has promised to pursue massive fiscal restructuring and realignment. State-owned enterprises and parastatal reforms have been one of the key areas of focus. Zimbabwe has 78 State-owned enterprises and parastatals and of these barely 15 are profitable.
Audits have since shown that 38 parastatals surveyed, including Zupco, made losses totaling $270 million in 2016 and 70% of them were technically insolvent or illiquid. Government has committed large sums of money in respective budgets to capitalise the loss-making entities, which in turn has worsened the country’s fiscal deficit.
Zupco has been specifically targeted for partial privatisation together with 12 other parastatals after perennial losses now spanning almost two decades.
Partial privatisation is the partial disposal of government shareholding to private parties in government-controlled entities. Zupco is, however, a contentious entity in that ZimRe, a listed insurance holding company, claims a 49% shareholding in the bus company, which was acquired in 1995 from United Transport Group, the then owners of Zupco.
In 2006, government, however, said it had acquired the stake from ZimRe without giving further details. This might have been a technical case where ZimRe refused to play ball in capital injection requests by government and in turn government assumed dilution through Zupco debt assumption and various capitalisations.
This is a clear red flag regarding any future potential investment in Zupco. ZimRe is a deep-pocketed company with capacity to fund viable projects and its ability is unquestionable. Although the company has had some few bad investments such as CFI and Zupco, in the world of insurance it has done wonders seen through NDI, ZPI and Fidelity. The only possible reason why ZimRe could not act on this particular investment is because of government’s strong influence. It would not have been rational to inject more funds when the system in place could not mitigate attendant risks as well as ensure profit maximisation.
Assuming, however, that ZimRe is out of the picture and that government is sincere on seeing through its parastatal reform agenda, what then could have influenced the recent solo capitalisation of Zupco by an evidently broke government, without the necessary restructuring and partial privatisation?
Government has announced that it is expecting delivery of 200 buses to boost the current fleet being managed by Zupco under a transport subsidisation initiative introduced earlier in the year. It is clear that government had no plans nor capital, whatsoever, at the beginning of the year to fund Zupco capitalisation, neither had it restructured the operation to stem operational risks associated with pilferage, corruption and management incompetence.
In her 2018 review of the parastatals’ financials Auditor-General Mildred Chiri noted that there has been material breakdown in parastatals internal control financial systems and procedures, inadequate accounting processes, and significant weaknesses and misstatements of financial reports.
Operationally, to ensure a viable transport system, there is need to put risk management as the engine to support management systems of the transport networks. Dubai, which runs one of the most efficient and expanse transport networks in the world, had this to say about transport management.
“Risk management sits at the nexus or the hub of all of that we do and drives these other processes. If we don’t have a risk management system working effectively at the corporate level, the strategic level and the operation level, the operation would be challenged.”
It is, therefore, imperative that government ceases to make reactionary moves to the economy, lest it digs deeper on the crisis. The popularity of subsidized “Zupco buses” currently plying local routes in the aftermath of the fuel price increase, is not enough to justify capitalisation of Zupco without reforms that is if finding a partner, as envisaged, is now deemed far-fetched.
The idea of a state-run transport system is a noble idea and there are countless examples globally, in both the developed and developing world. It is, however, the systems put in place and the necessary infrastructure that count.
The United Arab Emirates, for example, uses a card-based system for commuters, the rail system is exclusively automated, thus ensuring timekeeping and low pilferage, while the bus system is partially automated. The rail and road networks are constantly refurbished and this reduces depreciation.
The automated systems ensures everyone pays and no one can temper with the receipts. The taxman can easily track the receipts and labour costs are significantly reduced.
Zupco’s comeback will not solely rely on the above factors, laws guiding operations within the sector will have to be altered and the deregulation of the urban transport sector scrapped.
There are more pros for regulation of the metropolitan transport sector than cons and post-restructuring and recapitalisation government will have to move to regulate the sector.
The restructuring will have to involve complete management overhaul, both at operational and strategic levels, with a view to institute a new culture of competency honesty and excellency.
The present board is not inspiring and it is even more worrying considering the huge sums of money Treasury has readily allocated to the moribund entity without necessary cover.