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Eric Bloch Column

Abandonment of privatisation ill-considered

anguage: JA”>By Eric Bloch

INDUSTRY and International Trade minister Samuel Mumbengegwi has done it again — or, to be more correct, has undone it again! Whenever government formulates a policy which is economically  counter-productive, it adheres rigidly to that policy and either disregards all the negative repercussions of doing so or blames selected third parties for those repercussions. After all, it is well beyond the capability of the Zimbabwean government to admit to error!

How can any in government be guilty of formulating an adverse policy, or of failing to implement a policy effectively, when all in government are infallible! And whenever government formulates a policy which is constructive and economically advantageous, it either fails to implement it, or implements it half-heartedly, or suspends or rescinds the policy.

And it is such an ill-considered suspension of policy that Minister Mumbengegwi announced last week. Following his attendance at the recent congress of the Zimbabwe National Chamber of Commerce, he announced the suspension indefinitely of privatisation of state-owned companies. He said government was no longer considering disposing of some of its entities as they were locally owned and managed (in most instances he would have been more correct if he had said “mismanaged”).

He said that “the government is already a major player in the indigenisation programme and it has been considered not necessary to privatise such companies”, and that government wants to stop the privatisation of strategic parastatals and concentrate on improving their viability. In particular, he said, parastatals such as the National Railways of Zimbabwe, the Zimbabwe Electricity Supply Authority and Air Zimbabwe would no longer be considered for privatisation but would be commercialised.

Zimbabwe first announced its intent to privatise parastatals approximately 13 years ago when it launched the Economic Structural Adjustment Programme, but did nothing about it. Then, in 1998 government announced a new economic programme, which was to have been implemented two years previously, called the Zimbabwe Programme for Economic and Social Transformation, followed nearly three years later by the National Economic Recovery Programme. Over the last five years there were a number of very successful privatisations of parastatals, bringing into being the immensely successful Cotton Company of Zimbabwe Ltd, the very profitable and well managed Rainbow Tourism Group Ltd, Daribord Zimbabwe Ltd, Zimbabwe Reinsurance Company Ltd, and a few others.

History has demonstrated throughout the generations, and throughout the world, that no government can consistently operate businesses efficiently.   They may do so for a period of time, but they do not consistently operate businesses well because there is such a frequent conflict of interest between political objectives and good and sound business needs.  

Decisions are made by those in ultimate control of parastatals in accord with political concepts and ideologies, rather than the common sense and logic, expertise and experience normally applied by the businessman.   An illustration of that type of conflict and irresponsible business decision-making in parastatals is the frequency of non-viable pricing of goods and services whenever government considers that prices should be contained and the consumer thereby subsidised, notwithstanding that the consequence can be destruction of the enterprise.

In addition, parastatals rarely succeed because, as a general rule, there is very little personnel motivation. The parastatal employee functions in a protected, secure environment aligned to that of the public service, wherein the employee cannot readily be dismissed and is virtually assured of employment until retirement. The fundamental principles that drive aspirations within the private sector rarely prevail in parastatals.

Certainly, few Zimbabwean parastatals can credibly lay claim to successful operations, viability and meaningful consumer service.   Instead, most are technically insolvent, surviving only on immense borrowings attained on the basis of almost unlimited government guarantees. Most of the parastatals are either inherently inefficient, or unable to operate effectively due to inadequacy of working capital or insufficient technological inputs and expertise, or due to employee lethargy.

There are uncountable examples, including the incapacity of the National Railways of Zimbabwe to transport sufficient coal from Hwange to where it is needed, or to clear from its container yards in less than 21 days goods which took less than five days to travel from Durban to Bulawayo. They include the inability of Tel*One to repair the telephone of an elderly couple of 94 years and 87 years respectively, very dependent upon that telephone, in four weeks. They include the national airline being unable to adhere to schedules despite the excellence of “check-in” personnel and flight crews, because of insufficient aircraft, equipment and other resources. In fact, its fares go up more frequently than do its planes!

By contrast, the privatised Cottco, RTG, Daribord and Zimre operate with impressive efficiency, profitability and awareness of business responsibilities of customer care.

Government should also not overlook that privatisation unlocks asset value for the state, providing funding for infrastructural development, and thereby creating and facilitating opportunities of national economic growth and development, targeted at greater wellbeing for the populace.   Moreover, disinvestment from parastatals releases government from a very great debt burden. It enables the release of government from an ongoing obligation to guarantee debts of parastatals, and provides funding for repayment of government debt, which domestically exceeds $300 billion, whilst foreign debt is believed to exceed US$1,3 billion.

A frequent argument used by government to justify parastatal operations is the protection of the consumer, but that is spurious in the extreme.   Most parastatals are monopolies, and few of them have demonstrated concern for the consumers and for their other customers. Witness, for example, the galloping escalation in Zimpost’s postal charges, Tel*One’s charges, the CSC’s beef prices and Zesa’s accelerated increases in charges for electricity and encroachment upon the constrained foreign exchange resources of its customers. In contrast, competition within the private sector usually helps to minimise, to some extent, the degree of price increases, although in a hyperinflationary environment, frequent increases in prices are unavoidable.

And it is impossible to rationalise the minister’s statement that privatisation “is at odds with the spirit of indigenisation”. That spirit is not supposed to be indigenisation by proxy, ownership vesting in the state for and on behalf of the populace. It is supposed to be indigenisation by economic empowerment of Zimbabweans, and that is facilitated by privatisation. Successful privatisations to date have enabled many employees of the enterprises to become shareholders and, via the Zimbabwe Stock Exchange, thousands of others have been able to invest directly into the privatised enterprises, and tens of thousands to do so indirectly via the investments of pension funds, insurance companies, unit trusts, and the like.

Admittedly, upon privatisation, it is often a consequence that some ownership of the venture transfers to non-Zimbabweans, but does so in exchange for foreign currency capital injection, yields access to state-of-the-art technologies, and often provides entry into lucrative export markets and access to essential inputs.

If government’s repeated declarations of a genuine objective of indigenous economic empowerment have foundation, the Minister of Industry and International Trade needs to appreciate that far greater economic empowerment is achieved by Zimbabwe’s indigenous population being able to have a slice of the cake, even when some of the cake is owned by others, than for all of the cake to be owned by government. This is especially so when, in the hands of government the cake only grows stale, mouldy and tasteless, whilst in the hands of the private sector it is full-bodied, tasty and with a “cherry on the top”.   

At the same time, the consumer is beneficiated by cost minimisation as a result of technological enhancement, personnel motivation, competition instead of monopolistic operation, and like factors. So, government gains by way of unlocking of value and reduction of debt, the indigenous population gains by way of employee and public equity participation and consideration of consumer attitudes, and the economy as a whole benefits. However, government will undoubtedly be as myopic to these attributes of privatisation as it is to any other measure which thwarts its attempted total control of all Zimbabwe and its economy.

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