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SOE privatisation lessons from Margaret Thatcher

Ceteris Paribus:eben mabunda

Margaret Thatcher, the former and late British Prime Minister (tenure: 1979-1990), is known to Zimbabwe for the role she played in the 1979 Lancaster House agreement which brought an end to colonial rule in Zimbabwe. In British history, while she received her fair share of criticism, she is regarded as a heroine for her durable economic legacy as she succeeded at revitalising a sluggish British economy with market-based reforms.

Her government cut marginal tax rates, repealed exchange controls, tamed belligerent labour unions and privatised several British State-Owned Enterprises (SOEs). Markedly, Thatcher popularised the word “privatisation”, and she oversaw the disposal of numerous major businesses, including British Airways, British Telecom, British Steel, and British Gas in what some historians term “the privatisation revolution” — as her model was copied and pasted by other Western and Eastern economies.

Coming back home, Zimbabwean SOEs have over the past two decades been bleeding the taxpayer of billions of dollars, necessitating a pressing need to privatise them. A 2017 Auditor General’s report exposed that 70% of SOEs were technically insolvent after collectively incurring an aggregate U$$270 million in losses in one year. At that rate, the SOEs have probably cost Zimbabwe nearly US$3,1 billion since 2009 — enough to clear government’s principal arrears to multilateral lenders.

In late 2018, Finance minister Mthuli Ncube announced that 11 SOEs, six IDC subsidiaries, and 17 ZMDC subsidiaries would be privatised under the government’s public enterprises reform framework for 2018-2020 while some would be liquidated, merged or departmentalised. Treasury had planned to dispose of all or part of 35 state enterprises by December 2020. However, many of the transactions have not materialised as SOEs could not afford advisory fees; compounded with an apparent lack of investor support. As attestation, the proposed sale of stakes in TelOne and NetOne, POSB, Zupco and Petrotrade failed to take off as the firms could not afford transaction fees.

In the recently launched National Development Strategy paper (2020-2025), Treasury, indicated plans to privatise SOEs:

“In the interim, Government will expedite SOEs reforms targeting improved governance, provision of services at viable prices, full or partial privatisation, demergers, outright disposals and amalgamations of some SOEs into existing government departments.”

Notwithstanding, the privatisation rhetoric has been in the corridors of Zimbabwean economics for the past two decades with no results, due to a lack of political commitment compounded by strong opposition from entrenched vested interests.

Using Britain as a template, numerous privatisation methods have been used in Britain and subsequently in transformation elsewhere. The foremost method has been share issue privatisation. British Aerospace was privatised in 1981 with an IPO of 52% of its shares, with remaining shares unloaded in later years. A second privatisation method is a direct sale, which involves the sale of a company to an existing private company through negotiation or competitive bidding.

In the ensuing years, the British government proceeded with large public share offerings in Gas, Steel, electric utilities, and other companies. In the gas privatisation, two million individuals who bought shares had never held corporate equities before. This is not alien to Zimbabwe. Remarkable privatisation stories dating back to the 1990s are a part of our economic history! The Dairy Marketing Board was privatised in 1997 to form Dairibord Zimbabwe while the Cotton Marketing Board was commercialised in 1997 to form Cotton Company of Zimbabwe (Cottco). In 1999 the government sold its controlling stake in ZimRe Holdings and the entity fruitfully unbundled to give birth to Fidelity Life and NicozDiamond. In 1997, the government sold off its majority stake in the Bank of Credit and Commerce (Now CBZ Holdings) — the group is now the largest ZSE-listed firm by market capitalisation.

Such success stories show that private shareholders can easily turn around ailing state entities and reduce the current burden on taxpayers while studies have found that opening industries to competition is important to maximise the productivity gains. Considering this common economic sense has not been locally employed in 20 years, the clamours for privatisation must grow louder

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net.

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