A Case For Parastatal Reform

By Nick Mangwana

"We are not going to hesitate to put some parastatals under the hammer. We should be able to say, you are not performing so please get out. We must be harsh enough to say this because tiri kunyarana.” This statement was said by the Minister of Finance and Economic Development Cde Patrick Chinamasa quite recently.  "Putting under the hammer" was widely interpreted as meaning that the government was going to privatise some of its parastatals that are underperforming. 

There has been calls from certain quarters that companies like the GMB, National Railways of Zimbabwe, Air Zimbabwe and ZUPCO and a few others are a drain on the fiscus so should be privatised.  Over the years the government has been giving subsidies to these State Enterprises. But where because of budgetary constraints the government has been unable to do that the enterprises ended up huffing and puffing as most of these are currently doing. So some people have felt that there is a need for government same and place them into private hands.

Accusations of cases of corporate rot in parastatals is no longer headline grabbing. There are cases of abuse of both financial and physical assets of these companies which are owned by the tax payer. Because profit is has never been the major driver one can find that most parastatals in Zimbabwe pay much more than private firms. But these highly paid executives don't seem to have the creativity that is normally called for in the private sector and are inefficiently run. So because when privatisation is done properly it tends to bring micro-economic efficiencies.

But in this clamour for more privatisation one should never forget that most of these firms

were set up with a political perspective in mind. Say the GMB for example; at the heart of its objectives is food security of the country. It is not profit. So in placing it in private hands considerations should be given the original allocative objectives and whether they can still be met.  The answer to this question is likely to be negative. The next issue that must be addressed is the one about retrenchments. In most cases layoffs always follow privatisation. And with the high rate of unemployment at the moment is it the right time to even consider trading efficiencies for unemployment?  But then the counter argument is that in most of its depots there is more wooden pallets than grain anyway. So resources which are being used to keep it afloat could be deployed elsewhere to meet other socio-economic outcomes.

Over the years as much as 25% of the national budget deficit was going towards subsidising our loss making parastatals because they themselves cannot sustain profits. Companies like Zimbabwe Power Company have dominance on the market but that has not allowed them to make profits and if the power cuts and load shedding that is going on is anything to go by then it also very clear that they are  probably is not the most productive asset of the economy.

The ZISCO/Zimsteel saga is over documented that there is no need to dwell on it. The issues of the challenges faced by parastatals is not a new thing. There have been quite a few Commissions of enquiries over the years in these assets to see how they can be turned around. The deficits and inefficiencies have continued unabated. And surely the reader is challenged to name a parastatal that has not suffered from the so called "soft budget constraint". The State has been called upon over and over again to bail them out. Parliament is getting experience in debt assumption debates as the government reaches out to stop some its enterprises going under. So the proponents of privatisation would identify with Minister Chinamasa's call. They argue that privatisation itself raises money in selling off these assets. There is also the point that all the borrowing that was being done to keep the enterprises afloat will be lowered. 

Resources that were being used in the sector will allocated elsewhere. Thus those who are

finding resonance with the minster's warning or is it a threat see macro-economic stability being set in motion and the people's suffering being reduced. They point to examples like the partial privatisation of Kenya Airways where the government owns only 29.8%, KLM 26.7% and the rest in very private hands on the stock exchange. They point how it is an airline that is incomparable to our own Air Zimbabwe.

Some of those opposed to the idea point at the popularity of the re-nationalisation agenda in Britain, especially when it comes to the railway transport industry. This was a sector was initially set up with the commuter in mind and not profit. But since its privatisation and introduction of competition, there has been an escalation of fares and the efficiencies have only been witnessed in the number of profits that being made. So sometimes the introduction of competition does not automatically bring in efficiencies. Another case in point closer to home is the opening up of the urban commuter industry in Zimbabwe and the havoc that followed with the Kombis crowding out ZUPCO and yet the road safety and anarchy  became a nightmare. But those who defend this would point to the lack of regulation rather than the principle of reform itself.

The political establishment seems to have confronted the inevitability of the fact that the public purse is not deep enough to continue to run some of these enterprises the same way. There are of course those highly sensitive and strategic that a small country like ours cannot privatise without compromising national security, those should not be privatised. However the much vaunted "Corporate Governance Reform" should not be just a phrase in season. It should be real. It is about 2 years since the first publication of the ridiculous public sector executive remuneration packages in some of these companies. It is disheartening that there are reports that it has carried on unremittingly. 

There are cases where there has been a general consensus over reform or privatisation and in some cases private public partnerships(PPP) but the management of the process itself has been fraught with inefficiencies, ineptitude and downright incompetence which is highly masked in fogginess. The ZimSteel/ Essar Deal comes to mind. This of course was something that seized the GNU and the current government and simply now ended up with the deal itself seizing up with no alternative on the horizon.

So it appears the journey is much longer than it ever needs to be. Firstly the making of the decision to privatise itself is very protracted and a fingernail pulling processes. When that decision is made the implementing (if it happens) is another challenge. The public confidence is dented and acclamation is now replaced with derision when deals are announced. It shouldn't be kind that, and it doesn't need to be like that.

There is no question that the utility industry in Zimbabwe needs reform. However privatisation is another question altogether. There has been a lot of talk and blaster about bringing in good corporate governance. It's just a sound bite at the moment as after a bit of time everyone is always surprised that those parastatals executive are still earning those ridiculous remunerations.

One thing that can never be ignored is that there are always political ramifications to any privatisation.

People have always argued that there is a lot of money either to be made or saved by privatisation but it's not as straight forward as people would like everyone to believe.

Government divesture in some of the companies in Zimbabwe at the moment may not yield value for money as they are currently undervalued because of the way they are run. The companies seem primed to only benefit the executives and in some cases board members. That has haemorrhaged their worthy. So if a decision to sell off is made, it should be borne in mind that there is a price to pay.

The UK experienced this by selling its utility companies below fair market value but now there is an agitation by the new leader of the opposition to go back to State control because of too much profiteering by these private utility companies. These companies have now made a lot of profits which the public has found too high to accept.

There is no country under the son that will not consider political objectives in the sales or reform of their public sector industry.

Most public enterprises are set up for a mission. That mission is normally to fulfil a certain socio-economic agenda, there has to be a balance in opening up the market, bringing in competition and loosening the degree of control that allows for the meeting of the objectives for which the enterprise was set up for in the first place. That may mean bringing in an independent regulator. What is clear is that the current scenario is unsustainable. The nation cannot afford to have a National Railway that is struggling to stay afloat. A national airline that is now not seen in most G7 cities and a power company whose name is now used by children to curse each other in the play ground. 

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