The government recently embarked on a Public Enterprises Reform Programme aimed at reviving, privatising, or jettisoning perennial loss-making parastatals as it wants to stop haemorrhaging the Treasury while freeing up funds for other productive sectors.
With public sector wages and other recurrent expenditures eating up more than 90% of government revenue, the Treasury has virtually crowded out funding for capital projects, thereby retarding economic growth.
Official figures show that at their peak, parastatals accounted for nearly a fifth of GDP. Those were the days when institutions like the Cold Storage Company (CSC), the Grain Marketing Board (GMB), Air Zimbabwe, the National Railways of Zimbabwe (NRZ), and ZESA Holdings were the pride of the nation.
Most of them are now on their knees as they have lost out to new entrants from the private sector. Nearly four decades after independence, the parastatals have become a pale shadow of their old selves due to rampant corruption, mismanagement and interference by parent ministries.
This has prompted President Emmerson Mnangagwa’s government to take a different approach towards the stuttering entities. Under the banner of the Public Enterprises Reform Programme, the government is taking a ruthless approach to non-performing parastatals.
The government has so far approved a raft of reforms that include dissolution, liquidation, absorption, mergers, partial privatisation, and full privatisation to improve efficiency.
The World Bank and Afreximbank are offering technical support for the reforms.
So far asset valuations have been done at Agribank, Chemplex, Petrotrade, Allied Timbers, TelOne, NetOne, Grain Marketing Board, Zupco, National Railways of Zimbabwe, Zesa, and Infrastructure Development Bank of Zimbabwe.
Leading the crusade is Finance Minister Mthuli Ncube, who two weeks ago announced that the government was dissecting GMB into two entities, namely Grain Reserve, and Silo Food Industries.
Grain Reserve will deal specifically with issues regarding the country’s strategic reserves, while Silo Food Industries will largely be a commercial outfit responsible for producing cooking oil and mealie-meal, among other products.
The government will retain at least 26% equity in Silo. In total, the company will need US$54.7m and ZWL$40m to finance its operations over a five-year period.
“The process of appointing the Silo Food Industries board will be expedited to give the necessary strategic guidance and oversight to the entity, and funding proposals from potential strategic partners will be submitted for consideration and approval by the government,” noted the Cabinet recently.
Edgar Nyoni, the CEO of the State Enterprises Restructuring Agency, says so far the government is in the right direction with regards to the changes.
“It is a process, but I must say it has been largely successful because we are beginning to see some partnerships bearing fruits, while in other parastatals there has been positive re-organisation,” he said.
With regards to the CSC, the government is already in negotiations with the UK-based Boustead Beef Limited for a US$130m deal, which will see CSC going into a smart partnership with the investors.
Lands Minister Perrance Shiri is at the centre of the company’s revival negotiations. If the deal goes through, Boustead will use the CSC infrastructure dotted around the country to process beef for export while financing the rehabilitation of some of the company’s farms where cattle fattening used to take place. Recently, the company said it would introduce at least five new products into the local and export markets, among them ox-tongue tinned, stewed steak meadows, and corned beef.
CSC was once one of Zimbabwe’s biggest meat companies, but it has been struggling financially of late. The new products are part of the company’s resuscitation efforts.
At its peak, CSC produced beef for the European Union market, earning foreign currency for the country. The company also dominated the local market. It might take time for it to regain its status with the advent of strong local competition and rising imports, particularly from South Africa.
As for Zesa Holdings, the Cabinet approved the merger of all the different units into a single vertically-integrated company, with the subsidiary companies becoming divisions of the new enterprise.
The Electricity Act will be amended to cater for the changes, while a reputable human resources consultant would be hired to help in the restructuring exercise. Powertel will be moved from Zesa Holdings and merged with ZaRNet and Africom.
Through the Ministry of Transport and Infrastructure Development, the government is rebuilding the national airline, Air Zimbabwe.
The Cabinet resolved to proceed with the acquisition of four Boeing 777 aircraft from Malaysia and to work on the expeditious delivery of an Embraer aircraft purchased in the USA.
Khutula Sibanda, the chief economist of the Infrastructure Development Bank of Zimbabwe (IDBZ) believes there are chances that the companies might regain their lost glory, but there is the need for commitment on the part of the government and management of the enterprises that survive.
“Everything boils down to three factors, namely efficiency, effectiveness and sustainability,” Sibanda said.
“In the case of Air Zimbabwe, there is the need for the airline to understudy the fortunes of South African Airways. Our South African counterparts are running losses, but the company is there for strategic reasons.
“The unfortunate situation at the moment is that most of the parastatals are relying on government subsidy for their operations and that is not sustainable. The
other factor which militates against the public entities is the macro-economic environment that might not be favourable.”
In his presentation on Policy Framework and State Enterprises and Corporate Governance Reform on Tuesday, the permanent secretary for State Enterprises Reform, Corporate Governance and Procurement, Willard Manungo, said it needed a synchronised approach between the entities themselves and the central government.
“Despite the centrality of public enterprises in urban development, their continued poor performance has impacted negatively on their expected contribution to this role,” Manungo said. “In this regard, there is compelling need for the government to come up with measures aimed at improving efficiency and effectiveness of public enterprises in order to enhance their contribution.”
He said in the last decade, government has developed various reform measures which, however, were implemented with little success owing to various challenges, chief among them lack of political will.
Manungo said the political will to undertake public enterprises reform under President Mnangagwa’s government was a “manifestation that reforms can be done and will be done”.
Already, there have been certain developments on the ground. The Russian
fertiliser producer, Uralchem, is in talks to take part in the privatisation of Chemplex Corporation, a company that produces phosphorus fertilisers.
Chemplex is the largest fertiliser and chemical manufacturing company in Zimbabwe. It has six companies under it, namely ZimPhos, Dorowa, Chemplex Marketing, Chemplex Animal & Public Health, and GD Haulage.
The Postal and Telecommunication Regulatory Authority of Zimbabwe and the Broadcasting Authority of Zimbabwe would be merged, while the Special Economic Zone, Zimbabwe Investment Authority, ZimTrade, and the Joint Venture Unit will also be collapsed into a one-stop shop for potential investors.
The National Handling Services will not be privatised, but ZimPost, Post Office Savings Bank, IDBZ, TelOne, NetOne, Telecel, Zupco, Willowvale Mazda Motor Industry, Chemplex Corporation, and the subsidiary mines of the Zimbabwe Mining Development Company will either be partially or wholly privatised.