Parastatal reforms to spur economy 

Parastatal reforms to spur economy 

Source: Parastatal reforms to spur economy – Sunday News October 21, 2018

Dr Gorden Moyo

Dr Gorden Moyo

Dumisani Nsingo , Senior Business Reporter
THERE is a need for Government to expedite State Enterprises and Parastatals (SEPs) reforms so as to ensure the entities contribute effectively to the growth of the country’s economy, analysts have said.Former SEPs Minister and Public Policy Research Institute of Zimbabwe executive director Dr Gorden Moyo said well functioning public entities could play a pivotal role in turning around the country’s economy.

The country has 107 SEPs, categorised into three major divisions, namely commercial entities, regulatory bodies and non-commercial entities, including educational, research and developmental institutions.

“Well functioning parastatals and State enterprises are vital for the economic revival in Zimbabwe. At their high point these public entities have the potential to contribute above 40 percent of Gross Domestic Product (GDP),” said Dr Moyo.

He said the country’s parastatals’ performance have over the years been affected by high levels of corruption perpetrated by board and management members as well as gross maladministration and mismanagement by the same.

“Zimbabwe should deploy skilled, experienced and erudite personnel at the apex of parastatals. That’s a management that will drive technological innovation in these institutions. Again, Government should nip corruption in the bud. In fact, parastatals have over the years nourished the culture of corruptocracy, kleptocracy, lootocracy and adhocracy all of which are inimical to reform and transformation,” said Dr Moyo.

He said there was a need to put in place a new financing model as well as imploring good corporate governance principles so as to breathe life into the public entities.

“Innovative financing instruments such as joint ventures, securitisation of future flows, and diaspora bonds can easily be deployed as a rescue operation for Zimbabwe parastatals which are currently in comatose.

“Strict adherence to the corporate governance principles as well as the Public Finance Management Act (PFMA) should be enforced. Anyone violating the PFMA should be made to dance to the legal music,” said Dr Moyo.

He also said there was a need for the Government to adjust the salaries earned by chief executive officers and management members of parastatals and State enterprises as these were weighing down on the entities’ operations.

“Government should as a matter of urgency scrutinise the salaries, board fees, and other allowances offered to board members and management members. Most of these allowances are undue and some salaries are unrelated to the performance of both individuals and entities. Ministers should not approve extortionary salaries and allowances in entities under their jurisdiction,” said Dr Moyo.

He said the country should take a leaf from the emerging economies of Brazil, Russia, India, China and South Africa (BRICS) that are turning around their economies through SEPs.

“The emerging economies of the BRICS countries especially China, are generally driven by state-owned companies which are investing heavily in the African economies,” said Dr Moyo.

Renowned economist Dr Bongani Ngwenya said the under-performance of SEPs has culminated in bloated Government expenditure and unsustainable deficit and thus there is a need to privatise them.

The majority of non-commercial SEPs are either mainly or wholly dependent upon the fiscus for their operating costs, including the payment of salaries and benefits. But over the years the Government has been encouraging them to fund some of their salaries and operational budget from their own resources.

“Interventions by Government result in bolted Government expenditure and unsustainable budget deficits. To overcome these challenges most Governments would normally commercialise and eventually privatise their state enterprises so that they are self sustained and make meaningful contribution to the countries GDPs. Zimbabwe cannot ignore the importance of its state enterprises and the need for their transformation as part of the greater economic reforms that are needed to turn around the fortunes of Zimbabwe’s economy,” he said.

In his presentation at the Confederation of Zimbabwe Industries annual congress recently State Enterprises Restructuring Agency executive director Mr Edgar Nyoni acknowledged most SEPs were performing dismally.

“Operating optimally, the SEPs have the potential to contribute about 40 percent to the GDP. The reality on the ground shows that most SEPs are operating sub-optimally hence posting financial losses and their contribution to the GDP has drastically declined to around 15 percent. The performance of the commercial SEPs leaves a lot to be desired,” said Mr Nyoni.

The SEPs Performance Report (2011-2015) shows an overall $309,5 million loss with only 12 SEPs recording profit before other comprehensive income.

In the same period, seven commercial SEPs were found to be both illiquid and insolvent, and a further 19 were illiquid.

“The inability of the commercial SEPs to generate profitable returns is poses a fiscal risk to the Government. This risk comes in the form of explicit contingent liabilities as well as transfers from the Government to SEPs,” Mr Nyoni.

The Government transfers for 2015 amounted to $ $129 million as compared to $85 million in 2014. This resulted in a significant disparity with dividends-received which totalled only to $7,8 million.

Mr Nyoni said the major challenges that are cited for the dismal performance of SEPs are non-compliance to good corporate governance practices, huge debt overhang, under-capitalisation due to lack of capital injection and no access to lines of credit, poor debt recovery strategies, flight of skilled manpower and inability to attract and retain replacements due to poor salaries in specialised sectors and unsustainable salary, allowance and benefit packages for board members, chief executives and other senior managers, at the expense of service-delivery.

“It should however, also be noted that the generally poor performance of the SEPs is also a reflection of the economic wide challenges prevailing in the country characterised by liquidity constraints and forex shortages,” he said.

Mr Nyoni said efforts to turnaround SEPs are a requirement as espoused by the Section 195 of the Zimbabwe Constitution with the Cabinet having approved the Short to Medium Term SEPs Reform Framework (SEPs-SMTF) in April.

The SEPs-SMTF provides for a raft of SEPs reforms which are being implemented over the period 2018-2019 and include privatising 16 entities, merging 13 entities, liquidating two entities and absorbing five entities as Ministerial Departments.

“Implementation of the SEPs-SMTF is already underway and is at various stages for all the candidates identified.

Transactional Advisors for the privatisation of the eight entities are currently being engaged in a transparent and competitive manner as provided for in the Public Procurement and Asset Disposal Act.

“Further, there are seven SEPs identified for Performance Reviews under the Institutional Support for State Enterprise Reform and Delivery Project that is financed through the African Development Bank, and three under European Union Natural Resource Programme,” said Mr Nyoni. — @DNsingo