A reflection of public administration crisis

Zimbabwe has about 78 state enterprises with a capacity to contribute 40% to the gross domestic product, which stands between US$8 billion and US$9 billion, but excessive debts, rampant mismanagement and corruption have instead seen them bleeding the economy.

University of Zimbabwe Graduate School of Management lecturer Professor Tony Hawkins said the huge inter-parastatal debt was a reflection of inefficiencies, both within and outside these institutions.

“For example, it is quite sad that Zesa cannot even run an effective billing system, and ultimately it is difficult to rely on what they tell us about the figures that they are owed by different people,” said Hawkins.

Hawkins said the whole issue eventually boiled down to poor governance, and ultimately the politics of the country. At the individual business level, Hawkins said the debts resulted in poor provision of services by the affected companies, while at national level the inefficiencies resulted in dead weight loss.

Strong calls have been made for government to dispose of state entities, but very few takers have been forthcoming given crippling nature of these debts. Zimbabwe has failed to come up with a viable commercialisation or privatisation strategy.

In Russia, for instance, the state paid off most bills by selling state-owned oil companies to the oligarchs while South American countries sold off state water companies, metal mines and fruit plantations to reduce their obligations.

However, in Zimbabwe the government has been reluctant to follow that path, arguing privatising state companies would be tantamount to surrendering the backbone of the country’s economy to foreigners.

Although Zimbabwean state enterprises have drastically lost their markets to new businesses after deregulation of the economy coupled with the decline of the overall industrial production, they still continue to enjoy privileged access to public financial resources and other forms of government subsidies.

State Enterprises and Parastatals minister, Gorden Moyo, said state entities were in serious debt, warning unless an urgent inter-parastatal debt strategy was developed to resolve the problem, they would continue to bleed the fiscus.

Moyo said inter-parastatal debt amounted to US$600 million but the cumulative figure could easily exceed US$1 billion if other debts were included. Finance minister Tendai Biti said recently government also owed state enterprises huge amounts –– US$72 million to Zesa and US$22 million to Zinwa.

Moyo said the inter-parastatal debt had become a major destabiliser to the economy because the situation where parastatals owed each other large amounts was affecting overall service delivery.

He said because of these debts strategic partners were shunning these entities. He cited national carrier Air Zimbabwe as an example of such entities with a huge inter-parastatal debt, saying it owed Zimra close to US$34 million, the Civil Aviation Authority US$15 million and TelOne US$500 000 bringing its total inter-parastatal debt to US$51 million.

An unnamed potential investor held talks with government last year over entering into a possible strategic partnership with Air Zimbabwe, but the talks collapsed because of a myriad of challenges facing the national flagship carrier.

The carrier’s ageing fleet and huge debt overhang owed to various creditors has been cited by economists as the reason the potential investor pulled out. Air Zimbabwe’s fleet comprised ageing Boeing 737-200 planes which pilots wanted retired saying they are too old and obsolete.

The government decided to disband Air Zimbabwe Holdings and constitute Air Zimbabwe (Pvt) Ltd to start operations on a clean slate with the hope of attracting investors, but to date there have been no takers since the government would remain the majority shareholder in the “new” airline.

The handling of the Essar deal in which the Indian company agreed to buy defunct steel-making giant Ziscosteel for about US$750 million, including inheriting its debts, further shows government’s inability to be a viable business partner.

The ministries of Industry and Commerce and Mines have been blaming each other for the near collapse of the deal just over a year since the government announced that it had been signed and sealed.

Moyo said the inter-parastatal debt had also generated negative spill-over effects into the whole economy since the contagion was far-reaching. The debt also means the enterprises cannot provide basic services they were set up to cater for the public.

The decline of the National Railways of Zimbabwe, for instance, has not only affected the parastatal itself and the transport sector in general, but the economies of Bulawayo, Hwange, Gweru, Kwekwe and surrounding areas, which depended on the rail carrier and associated activities.

Bulawayo industries depended on NRZ’s cheap transportation costs for the mainly steel products used in the city’s heavy duty industries from Ziscosteel in Redcliff as well as Zimasco in Kwekwe.

Coal from Hwange was also cheaply ferried to Bulawayo’s coal-fired thermal power station, which reduced the city’s power dependence on Zesa. But the thermal power station now stands quiet together with the city’s industrial hub of Belmont which has now been reduced to a mere ghost town.

As a result of the decline of NRZ, the country’s major roads have been damaged since this has now become the preferred mode of transportation. Moyo says his ministry will come up with a state enterprises and restructuring manual which will give detail on the processes of commercialisation and privatisation after a summit that will bring in international experts to help unlock all the bottlenecks impeding the restructuring process next month.

However, observers questioned whether summits would solve the problems bedevilling parastatals saying only the country’s policies held the key to unlocking their potential.

Economic analyst Eric Bloch said the government has to urgently deal with the inter-parastatal debt together with the entire national debt question. “The reality is that first and foremost, government must privatise these institutions,” said Bloch. “They need to first assume the entire parastatal debts and come up with a settlement programme for the debts that parastatals owe each other,” he said.

The debts have resulted in the inability of paratsatals to attract investment and debt funding and the longer term solution should be to completely privatise the parastatals so that they have some independent shareholding.

“One of the major problems has been operational inefficiencies emanating from poor ownership structures. New shareholders will demand that the management be restructured to avoid recurrence,” Bloch said.

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