HomeBusiness DigestEric Bloch Column: Parastatals constraining economic recovery

Banks grapple to recover from economic crunch

The constraints range from afflictions of nature, with climatic conditions negatively impacting upon agricultural production necessary to feed the nation and generate export revenue, to the numerous economic recovery hurdles created by politicians.

The hurdles include major deterrents to investment created by Zimbabwe’s ill-conceived indigenisation and economic empowerment legislation and policies, instead of pursuing the attainment of comprehensive economic indigenisation and economic empowerment through constructive enabling policies.  The hurdles also include excessive bureaucracy, lack of administrative devolution, unaccommodating tax legislation, pronounced corruption and political instability.

However, one of the main economic recovery constraints is the paucity of service delivery by Zimbabwe’s parastatals.  Energy supplies, vital for the effective operation of industry and commerce, mining, agriculture and other economic activity and for the morale and wellbeing of the populace, are inadequate and extremely erratic.  The same applies to the provision of other essential utilities, and to the operations of the National Railways of Zimbabwe, Air Zimbabwe, TelOne, and many other parastatals. 

The tendency of the population is generally to attribute the deficiencies of the parastatals to negative management. However such management is mostly unduly blamed for every attempt is made, albeit unsuccessfully, by such management to maximise service delivery.  However, they are grievously hampered from achieving optimum service delivery they know is required by circumstances beyond their control.  Those circumstances are generally created by government which fails to acknowledge its culpability and counterproductive policies.

First and foremost Zimbabwe’s governments over many years have failed to provide parastatals with the capital resources essential for viability of operations.  Businesses cannot operate productively if they are not adequately capitalised, and that is so of almost all Zimbabwe’s parastatals. In the absence of capitalisation they struggle to exist with ever-increasing accumulation of debt and attendant burdensome finance costs, inability to retain capable and competent personnel. They also fail to maintain, rehabilitate, refurbish and upgrade their operational infrastructure, plant, machinery, vehicles and other assets essential to continuing sound operations.  They are also frequently hampered by ill-considered interventions of the political hierarchy.

Hardly anywhere in the world have parastatals been able to provide excellence of service on an ongoing basis. This is due to the absence of continuity of control given periodic changes in governments, ministers and those of the public service that handle the state’s interactions with parastatals.  This was so several decades ago with telecommunication, rail and other services such as British Gas, British Airways, British Rail, and many other parastatals in the United Kingdom.  It applied similarly to many of the parastatals in the United States, France, Italy and elsewhere. 

But, with very rare exception, the parastatal enterprises were radically transformed and became successful and effective once they were constructively privatised.  That was also the case when, in the 1990s, the Zimbabwean government temporarily recognised the need and desirability for privatisation with the then successful and effective privatisation of Zimbabwe Reinsurance Company, Dairy Marketing Board (now Dairibord Zimbabwe Ltd), and a few others. Tragically, despite the successes of those privatisations, government reversed its privatisation policies resulting in the retention of many parastatals, most of which are in dire straits, unable to meet the needs of the economy and the populace. 

Recently there has been talk, and limited action, in pursuing privatisations of the parastatals (including the possible, but repeatedly on/off disposal of Ziscosteel).  The Minister of State Enterprises, Gorden Moyo, must be commended for his sound judgment in recognising the need for privatisation, although others in government continue to place obstacles in his endeavours to pursue such action.  The time has come, and is actually long overdue, for his government colleagues to recognise realities. 

 

They must become willing to release the reins which they have so determinedly sought to retain over the parastatals, whilst concurrently with retaining total ownership of the parastatal enterprises, they have failed to provide the necessary funding required.  If the malfunctioning parastatals are not expeditiously remedied by privatisation, the recovery of Zimbabwe’s economy is, at best, doomed to attain only very miniscule growth and more likely to recede and contract yet again.  For such privatisation to be successful:

Private sector investors must have not only the resources to assure  recapitalisation to an adequate extent, but must also have the technological knowledge, or have ready access to such knowledge to enable comprehensive technology transfer to the parastatals.

 

The stake in the parastatals to be acquired by the private sector investor must be not less than 51% so as to accord that investor effective control.

The intending investor must be accorded unhindered ability to conduct a comprehensive due diligence evaluation of the parastatal, to such extent as the investor requires, so as to ensure that such investor is wholly aware of all features of the enterprise, its attributes, constraints, requirements and potential.

Government must assume the totality of the large accumulated debts of most parastatals, for investors are ill-disposed towards investing in insolvent enterprises, and to have those enterprises confronted with debt-recovery litigation, or to lawful attachment by creditors of the assets of the parastatal enterprises that they are investing in.  Admittedly, such assumption of debt would be another immense fiscal burden for the debt-ridden government. 

 

However, in part the debts would be eliminated by offset between amounts owing by some parastatals to others, and applied in the other parastatals to the liquidation of such amounts due to them.  Concurrently, government should give security to those to whom monies are owed by the parastatals by creation of programmed, interest-bearing, tradeable bonds, which bonds must be accorded Prescribed Asset status for financial institutions investing in such bonds.

To achieve the expeditious and effective privatisations, government needs to resurrect the Privatisation Agency which, during its short life in the 1990s, enabled several successful privatisations effected to materialise.

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