Kudzanai Sharara Taking Stock
This week, newly appointed Finance and Economic Development Minister, Dr Ignatius Chombo, literally declared war on the country’s parastatals which for years have been a drag to treasury. Parastatals have continuously been bailed out with not much to show in return.
“As Government, we are simply not in a position to keep on bailing-out under-performing entities or those which have outlived their usefulness. Nothing can justify this squandering of (public) funds. These are public funds and use thereof must be fully justified and must at all times be accurately and transparently accounted for, said Minister Chombo:”
One would not have wished for a better statement from Minister Chombo. For a very long time, we have witnessed worrying trends of governance failures, corruption and operational inefficiency at these entities.
These have become chronic occurrences that result in eventual need for government bailout at most parastatals.
Undoubtedly Government-owned companies have, over the years, developed a poor reputation, and through bail outs have become a major fiscal risk to the country, eroding the little confidence we might have in the country’s economy.
According to figures from institutions such as the African Development Bank, Zimbabwe loses up to a $1 billion annually from inefficient parastatals.
This is not simply from a foreign agent’s perspective, but many Zimbabweans themselves frequently attest to having been victim to structural pressure exerted by defective parastatals. As a result, one thing that is lacking in this country is market confidence!
Authorities have also confirmed this with the RBZ admitting that the issue in this country “is about confidence and we need confidence building policy measures to win this war”. To support this point, the RBZ named its Monetary Policy Statement presented in February this year, “Stimulating Economic Growth and Bolstering Confidence.” This was not the first time to hear this kind of statement as in his September 2016 MPS, the governor also introduced policy measures that were meant to boost productivity which is very vital or imperative “to restore trust and confidence”.
So the fact that, as a country, we have a crisis of confidence cannot be over emphasised. But as Dr John Mangudya said, it takes more than monetary authorities to restore confidence.
There is need for a corresponding movement on the fiscal side or maybe even beyond that – the law enforcement side, as corruption is also sapping out confidence.
As highlighted earlier, an area of significant concern has been that of parastatals, which remain as leakage to the economy’s fiscal capacity. We have seen state owned companies getting bail outs but with nothing to show in terms of return, apart from seeing executives enjoying unfettered packs.
Minister Chombo has since revealed that 93 of State-owned companies raked up $270 million in losses in 2016 while their contribution to gross domestic product plummeted from 40 to 2 percent.
This means their operations are being funded by Government or Government guaranteed debt.
In other words State-owned companies have a negative impact on the country’s growth rates and yet growth is what this country needs for it to meet the needs of its citizenry in a sustainable manner.
It is the fiscal squeeze that is taking a hold not only on business markets, but socio-economic responsibilities. If we keep this strain on confidence, investors will look elsewhere as has been the case in the last couple of years with Zimbabwe attracting less than 5 percent of investment flows into the region over the last five years.
As Minister Chombo rightly put it, low levels of investments cannot sustain the envisaged average growth rates of 7 percent.
It is against this background that Minister Chombo’s statement is welcome, but what we really want is for him to be a man of his words. The fact that State-owned companies ignored Government recommendation to fix salaries and allowances for senior executives of public entities at $6 000 monthly in 2014, means that more needs to be done than just words. Preaching transformation can win votes but it does not win investors. Only action will.
Continued financial deterioration of major State-owned companies is a clear and substantial danger to the public finances, hence, the loss of confidence when we see them continuing on a loss making path.
However, action can win back confidence. The inertia in Government towards real state entity reforms has been a depressant to many economic observers. Bills and legislation are inadequate without effective implementation and protective enforcement from continued deviation by State entities.
It’s time the rug is pulled out from under parastatals to make sure that they are exposed to market forces. There is no reason why Government must suffer from a budget deficit and yet funding the shortfalls of State-owned entities. State enterprises, not Treasury, must be exposed to shortfalls as that way allows their issues to be solved separately.
So while it is good to know that the State has plans, hope is that we will see such plans being implemented. We would also appreciate feedback now and again in terms of plans that would have been announced, as we would need to see if they are yielding fruit.
A bit of feedback will introduce confidence if plans are working. Minister Chombo must create a feedback trail for observers to build confidence in his indicated path of action!