Govt policy flip-flops a hurdle to turnaround

Shakeman Mugari


LAST week Finance minister Herbert Murerwa announced that government was going to privatise seven parastatals to ease the burden on the fiscus and improve their operations.


Murerwa admitted t

hat parastatals and local authorities were an “impediment to economic growth and a drain to the fiscus”. He also conceded that some of the turnaround strategies being implemented were inadequate.


“Government has, therefore, decided on the restructuring of some of the public enterprises through strategic alliances and joint ventures that facilitate the injection of additional equity capital, as well as access to modern technology and equipment,” Murerwa said.


Seven parastatals are earmarked for privatisation through what the minister called joint ventures, strategic alliances and concessioning. Zimbabwe Power Company (ZPC), Tel*One, Net*One and Air Zimbabwe will be privatised through strategic partnerships while the National Railways of Zimbabwe (NRZ) will be commercialised through what the minister called concessioning.


Zisco will be privatised through a joint venture or a management contract. The minister said the state would sell part of its stake in the troubled Cold Storage Company (CSC) which would be listed on the Zimbabwe Stock Exchange.


Murerwa said government was going to sell its shareholding in other parastatals to raise capital. “In order to raise resources, especially foreign exchange and to ensure wider indigenous participation in the economy, government will also divest some of its shareholding in other companies.”


Analysts say most of the collapsing parastatals require foreign currency which government has been battling to generate over the past five years. Selling parastatals to locals would not change their fortunes because they do not have foreign currency to meet import requirements, analysts say.


Many of the companies earmarked for privatisation are crumbling because they lack foreign currency to acquire new technology. The NRZ’s wagons and rail systems are falling apart because of lack of foreign currency. Net*One and Tel*One’s network systems are congested for the same reason. The ZPC’s power generators at Hwange and Kariba are not being repaired because there is no foreign currency to acquire spare parts.


Most problems in parastatals are a result of perennial foreign currency shortages and only foreign direct investment (FDI) can inject forex and new technology.


Government will therefore need to dispose of its stake in state companies to foreign investors who have the capital to resuscitate them.


It is however the ability to attract offshore investment that might prove a major stumbling block for a government that has earned a dubious reputation for disregarding the rule of law and property rights. Investors are still worried about Zimbabwe’s high political and economic risk, analysts say.


While the proposed changes suggest that government is moving towards a market-driven economy which it dumped in 2000 at the height of the land crisis, analysts say the new measures are piecemeal and might not amount to privatisation in real terms. They say although government is signaling that it wants to divest from the parastatals, history shows that there is no political will to relinquish control over companies like Air Zimbabwe, the ZPC, Tel*One and the NRZ.


The state has in the past used these companies to provide sheltered employment for cronies and are fertile grounds for corruption.


Prices of their goods and services are controlled by the government which wants to be seen to be doing something to cushion the public. The ZPC and Tel*One are not allowed to review their tariffs without cabinet approval. The state also has a say in what the NRZ charges for its services.


Analysts say that while strategic partnerships, management contracts and joint ventures are all forms of privatisation, their effectiveness depends on government’s level of interference in their operations. Strategic partnership means that government will sell part of its shares to inject fresh private capital.


This means that while government might retain a controlling stake, operations are shared with a private investor.


An economist with a local bank said unless government totally relinquishes control of the companies, all suggested models would not work. “Judging by Murerwa’s statements, it seems government wants to have its cake and eat it,” he said. “It wants private capital to resuscitate state firms but still wants to maintain a dead man’s grip on their running.”


The history of privatisation in Zimbabwe is littered with examples of failure, especially where government has a political interest, often described as the “national interest”. Zimbabwe United Passenger Company (Zupco) is a clear example where a strategic partnership with the government has failed. Despite the joint ownership with Zimre, which has a 49% stake in the transport company, government uses its 51% shareholding to make arbitrary decisions.


Government uses Zupco buses for state and party functions. During elections and national days, Zanu PF uses Zupco buses to ferry its supporters to rallies.


Government has also insisted on making political appointments to the board and management.


Political fingerprints are also apparent in botched privatisation deals. For instance, the privatisation of Tel*One, a state-run fixed telecommunications company, should have been completed last year had government not meddled.


Tel*One’s privatisation had reached an advanced stage two years ago when cabinet backtracked at the last minute after two bidders had been shortlisted by Trust Bank, then the local advisors to takeover the company.


The privatisation policy has also been modified extensively since 1990 when government adopted the Economic Structural Adjustment Programme (Esap) on the advice of the International Monetary Fund. Esap required government to offload parastatals to reduce its bloated expenditure. Companies such as Dairibord and Cottco were privatised under the programme but the policy was terminated in 2000 when government dropped Esap.


In 2002 government inexplicably announced that it was not privatising anymore but commercialising the remaining parastatals. A classic example of a botched privatisation deal is that of Astra Industries, a company which was demerged into three entities — Cairns, Astra and Tractive Power. Government had invited bidders to take over the companies but later shifted goal posts when it decided not to privatise. Ukubambana Kubatana Investments (UKI), a company owned by Mutumwa Mawere, is still fighting to get the shares after it won the bid.


All these, analysts say, will work against government when it starts the privatisation process. The major stumbling block apart from lack of political will, is that local investors no longer have confidence in government policies.


Offshore investors are likely to be put off by both government’s policy flip-flops and Zimbabwe’s high political risk.

It will be difficult to persuade outsiders to invest in a country with no respect for property rights as amply demonstrated in the seizure of white commercial farms without paying compensation and the ongoing Shabani Mashaba Mine saga with Mawere. The current battle in which Trust Bank and Royal Bank shareholders are challenging the takeover of their assets by government through the Zimbabwe Allied Banking Group paints a vivid picture of the risks of losing huge investments.