When a dividend is not a ‘dividend’

By Admire Mavolwane


“IRRATIONAL exuberance” is a phrase that was once used to describe activities on the stock market, ahead of the now infamous “dotcom” crash, by the highly respected Alan Greenspan, the former United States Fed chairman.



When the same term was applied to the Zimbabwe Stock Exchange, in April 2005 ahead of the first quarter monetary policy review, investors understandably ran for cover.  At the time when the words were uttered on  April 15, 2005, the market was recording two percentage point gains everyday and the bulls were firmly in the ascendance. The industrial index had in those eleven trading days gained 30,4% to enter the new realms of the post 3 million points.

As of this Wednesday, the industrial index had gained 80% in nine trading days to reach the dizzy heights of 174 245,25 points (re-based) leaving commentators short of superlatives. If the April 2005 bull run was a sure sign of “irrational exuberance”, how can one then appropriately describe the current bull run, which at this point is showing no signs of relenting. The sceptics, who by Friday were looking for converts to their doomsday cult predicting the market had gone up too fast and was bound to come to a screeching halt, were forced to eat humble pie. Granted, the momentum has slowed down, but the bull-run is still on course. The big question now is; what or who is going to upset the apple cart?

The other much debated topic after the merits, or de-merits of removing the zeros from our currency, the stock market and the $2,5 billion NEDPP, is the “beyond redemption” situation some of the state owned and run companies are now in. According to the Reserve Bank’s supplement on its quasi-fiscal interventions it is said that local authorities and parastatals contribute 40% of gross domestic product (GDP).  No wonder, the economy is what it is today because you cannot have a sector that contributes two fifths to national income being in a sick state that the parastatals and local government obviously are and expect the overall economy to be in good health. 

This is the justification — probably — for the setting up and subsequent distribution of approximately $6 trillion under the Parastatals and Local Authorities Reorientation Programme (Plarp) facility set up last year. In addition to these disbursements, the total debt stock of this state supported sector stood at $76,43 trillion as at the end of June. Of the $6 trillion dished out by the RBZ, Zesa absorbed 24,02%; Air Zimbabwe, 21,57%; Zisco 34,1%; IDC, 7,34% with the balance split amongst ten other entities. The irony of the situation is that those entities that got the bulk of the funds have made little if no repayments of the facility. Zisco, Zesa and Air Zimbabwe have not repaid a single cent (both new and old currency) and at this point do not seem to be in a position to ever repay the funds. 

Zesa, of the “Moto Muzhinji” fame, had in the 2004 fiscal year incurred net losses amounting $50,2 billion. Twelve months latter the losses at operating level had ballooned to $8 trillion. In one year the utility made losses which where greater than the $6 trillion budget deficit (8,6% of GDP).  Something is obviously amiss because our intuition tells us that the budget deficit should have included the parastatal’s losses in the first place. For the first half of 2006, we are told that notwithstanding the turnaround blueprints that the utilities had to produce before accessing Plarp funds a year ago, heavy losses were incurred, particularly at NRZ, Zisco, Air Zimbabwe, Zesa and Arda and these, again, are not included in the budget deficit figures for the first half of 2006.

Despite their embarrassing situation, as we approach the Heroes’ and Defence Forces holidays, the state utilities will be falling over each other flighting congratulatory messages both in the press and electronic media. Even the Cold Storage Company which has been failing to pay wages for the past three months will most probably not be left out. Some will even opt for the more expensive full page colour adverts.

All hope is not lost though as it appears that one or two parastatals have achieved the enviable status of having “turned around”. Zupco, we are made to understand is now fully capitalised with a new fleet of rapidly aging Chinese buses and has repaid its loan from the Reserve Bank of Zimbabwe. In addition, it has even gone on to pay dividends to its 51% shareholder, central government, the latest payment being a $20 billion cheque handed over at a ceremony held in the capital recently. Curiously enough, the other 49% shareholder ZHL has not received a dime of the latest “dividend” or even the previous ones, which brings into question whether it’s a real dividend payout or a loan repayment.  Otherwise, shareholders of ZHL are being unfairly prejudiced or discriminated against.

Not to be left out, but a little bit late to the party, the Agriculture Bank of Zimbabwe, is reported to have handed over a “dividend” cheque for $38,5 billion to the Minister of Finance. We are not sure whether the dividend is an interim one or not, seeing that the bank is due to announce its six months to June 2006 results. It could be the final dividend for 2005, but the results statement published in March this year indicated that the bank could not pay a dividend due to the fact that its capital adequacy ratio at 9% was below the statutory 10% minimum. In fact, government had to inject $45 billion, in order to bring the bank to conformity with the banking regulations.

The board even hinted that the bank might fail to meet the $1 trillion minimum capital required as at September 30 2006. As an alternative, the board was formalising its conversion into the Agricultural Development Bank.

First, it was the condolence and congratulatory messages and now the latest craze for parastatal companies seems to be the payment of dividends to government. Zupco led from the front seat, followed by Forestry Commission and lately Agribank. The public only gets to know the dividend paid figure, with no other financials being revealed. No details of the revenues and how much profits were realised, distributed and retained etc.

We will not be surprised if CSC becomes the next one to hold the coveted dividend cheque handover ceremony. Then congratulatory advertisements from fellow — most likely broke  parastatals will occupy acres of space in the press and probably read: “The board and management of XXX holdings and subsidiaries would like to congratulate YYY for paying a dividend to government…. blah blah”.

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