State enterprises need urgent reforms

14 Feb, 2020 - 00:02 0 Views

eBusiness Weekly

Elias Pacheso

In Zimbabwe whenever you mention the word parastatal, it is quite rare to find it used with any positive words like profitable, innovative, growing, life changing or largest contributor to Government revenue. In fact the word is most associated with loss making, burden, scandal, corporate governance failure, leakages, fiscus draining and “strategic”. Parastatals are also known as State Owned Enterprises (SOEs) and in Zimbabwe according to a Government department that manages them there are about 107 such enterprises in Zimbabwe.

Following the 2017 audit of parastatals by the Auditor General, significant findings were made and pointed to the need to strengthen governance structures and bring accountability in the parastatals.

They are funded by the taxpayer who is already burdened by the general rise in the cost of living. The irony of it all is that parastatals should be serving the taxpayer and creating value, yet they have often been a drain on the fiscus and are seen costing future generations through accumulated debts if no conscious efforts are taken to address maladies and weakness in governance structures.

The government has a step to invite experts to apply to sit on the boards of these enterprises. The Government invited its nationals from all over the world to join the database in which it was targeting 3 000 names.

The exercise has been oversubscribed. This is evidence of interest by Zimbabweans to see these enterprises being well governed. SOE reforms require a cocktail of measures and it is interesting to see that studies have been done of what needs to be done but execution is not moving as fast as it should.

If you are bleeding as most of our SOEs are, surely you must stop the bleeding urgently in order to avoid further complications or indeed certain death.

In recent weeks there have been calls to channel additional funds to parastatals. Channelling pension funds to SOEs has been suggested as a way of rebuilding the economy. I would like to caution against this approach in view of the state of pension funds as well as the state of the SOEs. Pension funds have traditionally supported Government projects by purchasing prescribed assets and obtained very little if nothing in terms of returns owing to the fact that the returns are often capped while inflation continues to rise over time.

This is not sustainable and weakens the economy in the long term as people retire to earn unviable pensions, putting further pressure on the social welfare system.

While the call to rebuild the economy is a noble, care must be taken to ensure that any funds channelled to SOEs do not fall into a black hole and are used to create above average returns to ensure that pensioners and the economy benefit in the long term. In 2015, SOEs received US$129 million ($2,5 billion) Government support, while contributing just US$7,8 million ($135 million) in dividends. This is worrying to say the least. In recent years this situation would have worsened as there has been very little movement in the privatisation of SOEs.

As things stand, pension funds are struggling and in need of above average investment returns — something SOEs in their current state are not capable of delivering.

Up to September 2019, Pensions funds had assets of $10,8 billion (US$700m). Looking back to more than three decades ago, the Government successfully privatised a number of SOEs, among them Cottco and Dairibord. Many pension funds invested in these and got good returns. Not all SOE investments are bad but there is a need to create new value in these enterprises so as to encourage further investment.

It is worth listing the SOEs here in order to help us evaluate and advise the Government on the best course of action to take on them. The SOEs operate in all sectors of the economy from education, tourism, banking, manufacturing, mining among other sectors.

Agribank, ARDA, Agricultural Marketing Authority (AMA), Agricultural Research Council (ARC), Air Zimbabwe, Allied Timbers (Pvt) Ltd, Bindura State University (BSU), Broadcasting Authority of Zimbabwe (BAZ), Chinhoyi University of Technology (CUT), Chitungwiza Garment Factory, Civil Aviation Authority of Zimbabwe (CAAZ), CMED Private Limited, Cold Storage Company (Ltd) (CSCL), Competition and Tariff Commission (CTC), Deposit Protection Corporation (DPC), District Development Fund (DDF), Environmental Management Agency (EMA), Finealt (Pvt) Ltd, Food Standards Advisory Board (FSAB), Forestry Commission, Grain Marketing Board (GMB), Great Zimbabwe University (GUZ), Harare Institute of Technology (HIT), Health Services Board, Hwange Colliery (Pvt) Ltd, Industrial Development Corporation of Zimbabwe (IDCZ), Infrastructural Development Bank of Zimbabwe (IDBZ), Insurance and Pensions Commission (IPEC), Kingstons (Pvt) Ltd, Liquor Licensing Authority, Lotteries and Gaming Board, Lupane State University (LSU), Medicines Control Authority of Zimbabwe (MCAZ), Midlands State University (MSU), Minerals Marketing Corporation of Zimbabwe (MMCZ), National Aids Council of Zimbabwe (NAC), National Archives of Zimbabwe (NAZ), National, Arts Council of Zimbabwe (NACZ), National Biotechnology Authority of Zimbabwe (NBAZ), National Competitiveness Commission (NCC), National Gallery of Zimbabwe (NGZ), National Handcraft Centre (NHC), National Handling Services (NHS), National Indigenization and Economic Empowerment Board (NIEEB), National Library and Documentation Service (NLDS), National Museums and Monuments of Zimbabwe (NMMZ), National Oil Infrastructure Company of Zimbabwe (NOIC), National Pharmaceuticals Company of Zimbabwe (Natpharm) and NRZ

As can be seen the list of parastatals is very long. It is important to list them so that we can put the discussion into context. According to a report published by the Auditor General in February 2019, covering the period from January 2019 to December 2019, many parastatals fell short of meeting the required standards of managing their finances. To say this a cause of concern is an understatement and points the need for the Government to overhaul processes and operating procedures in these organisations.

This list includes National Social Security Authority (NSSA, National University of Science and Technology (NUST), NetOne, New Ziana (Private) Limited, People’s Own Savings Bank (POSB), Petrotrade, Pig Industry Board (PIB), Postal and Telecommunications Regulatory Authority (POTRAZ), Powertel, Printflow (Pvt) Ltd, Radiation and Protection Authority of Zimbabwe (RPAZ), Rainbow Tourism Group (RTG), Research Council of Zimbabwe (RCZ), RBZ, Road Motor Services (RMS), Scientific and Industrial Research and Development (SIRDC), Securities and Exchange Commission of Zimbabwe (SECZ), Small and Medium Enterprises Development Corporation (SMEDCO), Sports and Recreation Commission (SRC), Standards Association of Zimbabwe (SAZ), State Procurement Board (SPB), TeOne, Tobacco Industry and Marketing Board (TIMB),Tobacco, Research Board (TRB), Traffic Safety Council of Zimbabwe (TSCZ), Transmedia, UDCORP, UZ, Verify Engineering (Pvt) Ltd, ZB Holdings, ZESA Holdings, Zimbabwe Academic & Research Network (ZARNET), ZBC, Zimbabwe Consolidated Diamond Mining Company (ZCDMC), Zimbabwe Council of, Higher Education (ZIMCHE), Zimbabwe Defence Industries (ZDI), Zimbabwe Energy Regulatory Authority (ZERA), Zimbabwe Institute of Public Administration and Management (ZIPAM), ZITF, Zimbabwe Investment Authority (ZIA), Zimbabwe Manpower Development Fund (ZIMDEF), Zimbabwe Mining Development Corporation (ZMDC), Zimbabwe National Family Planning Council (ZNFPC), Zimbabwe National Road Administration (ZINARA), Zimbabwe National Statistics Agency (ZIMSTAT), Zimbabwe National Water Authority (ZINWA), Zimbabwe Open University (ZOU), Zimbabwe Parks and Wildlife Management Authority (ZIMPARKS), Zimbabwe  Revenue Authority (ZIMRA), ZIMSEC, ZTA, Zimpapers, Zimpost, ZIMRE Holdings, Zimtrade, Ziscosteel (Pvt) Ltd, and ZUPCO.

We must go back to basics when it comes to ensuring that SOEs are well managed and giving value to the taxpayer. I came across a very important document produced by the SERA which spells out what needs to happen in managing SOEs and am encouraged that such thinking is there. However, this is not enough. The measures must be implemented if we are to ensure that much needed resources are channelled to developing the economy.  The document is entitled “The Performance Guidelines for State Enterprises and Parastatals in Zimbabwe.” It is available online and spells out how SOEs should be governed.

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