Source: Privatisation of parastatals: Analysts urge transparency – The Zimbabwe Independent January 12, 2018
WITH government set to sell off or dispose controlling stakes in defunct and loss-making state enterprises through a privatisation initiative, there is need to ensure the process is corruption free, while comprehensive evaluations of the parastatals are undertaken.
By Tinashe Kairiza
Government should ensure that it maintains a stake in strategic state enterprises, while also ensuring that private investors do not acquire the stakes for a song.
Some state-owned companies are performing badly owing to corruption and mismanagement, meaning a move to commercialise them and ensure sound management and good corporate governance can turn them around.
The government also needs to ensure parastatals are not stripped of assets by corrupt officials.
Last year, government invited bids for the private sector to buy stakes in 24 parastatals. The government is disposing of major shareholding in state enterprises as part of measures to plug the country’s ballooning budget deficit.
Parastatals earmarked for privatisation include the Cold Storage Company (CSC), National Railways of Zimbabwe (NRZ), Forestry Commission of Zimbabwe and Air Zimbabwe which have perennially operated at a loss while consistently relying on government for financial bailouts to avoid collapse.
Already, some of the state enterprises have caught the attention of suitable suitors, with the National Social Security Authority (Nssa) expressing interest to acquire a controlling stake in the meat processor, CSC.
The other state enterprises earmarked for privatisation include CAPS Holdings, National Oil Company of Zimbabwe (Noczim), Chitungwiza Garment Factory, Olivine Holdings, and a handful of subsidiaries under the Industrial Development Corporation which include Zimglass (Pvt) Ltd and ZimChem Refiners.
Most of the struggling state enterprises are tottering on the brink of collapse, mostly due to decades of mismanagement, corruption and an unforgiving economic environment. The majority are saddled with enormous debt overhangs.
Zimbabwe has 92 state enterprises, the majority of which are incurring massive losses due to mismanagement, poor corporate governance, escalating operating costs, and obsolete equipment.
Zimbabwe’s experiment of commercialising and privatising state enterprises dates back to 1997 when government disposed of 75% of its equity in Dairy Marketing Board, now Dairibord Holdings, to private investors.
The entity went on to list on the Zimbabwe Stock Exchange (ZSE) and posted positive growth.
Between 1997 and 2002, Dairibord registered firm growth, with the dairy processor snapping up a 60% stake in Dairibord of Malawi, a move which indicated that struggling state enterprises could be transformed into profit-spinning firms through privatisation.
In 2002, Dairibord Limited acquired a 40% stake in Charhons.
Rhodes University visiting lecturer Mike Mavura said before shedding off its controlling equity in state enterprises, government should first undertake a robust forensic audit of the parastatals targeted for privatisation.
The forensic audit, Mavura said, should determine the size of debts choking the state enterprises.
“I would have expected a situation where we send in auditors first to each and every parastatal so that we know the state of affairs. The public has a right to know the financial state of Air Zimbabwe, Noczim and other parastatals.
“The audit should answer questions on the assets the parastatals have and what debts they have, so that feral tongues will not run amock should entities be sold for a song because we will know from the audits what to expect,” Mavura said.
He said the process should be transparent and that the government should disclose the reasons for privatising each of the entities and what criteria were used to choose beneficiaries.
“The commission and commissioners in charge of this process should also avail to the public the rationale for selling, the identity of every bidder they sell to. These are public enterprises and the public has a right to know but what should underpin this process is the national interest not private interest,” Mavura said.
“For checks and balances, we could also have an independent body of citizens as part and parcel of the process just to make sure that the process is open and transparent.”
He said Zimbabwe could also draw lessons from other countries which have sold off key state entities.
In the late 1980s, Russia, under the presidency of Mikhail Gorbachev, passed sweeping reforms that transferred control of public enterprises from the state to employees and management.
In the 1970s, Margaret Thatcher, who had made history by becoming Britain’s first female Prime Minister, sold off key British-owned entities in a bid to arrest inflation, raise revenue, thus reducing public sector borrowing.
Economic analyst Muchesa Chatsama said the government should ensure transparency in its privatisation drive.
He said the companies identified for privatisation should be audited while government should also “publish the accounts of the parastatals” set for privatisation.
“We need first to have the accounts of these parastatals published for public scrutiny. We hear most of them never prepared financial statements. That should be the starting point. Financial statements provide a true basis upon which true valuation of these entities can be derived,” Chatsama said.
“A proper due diligence has to be carried out upon which informed decisions should be made. Government has not yet demonstrated its commitment to deal with corruption in a decisive manner. Already, the process seems to be shrouded in secrecy. For instance, how did they come up with the list of 24 state enterprises and what were the considerations?”
Zimbabwe, cautioned Chatsama, could also consider commercialising some of the loss-making state enterprises without disposing them through privatisation.
He said it was also imperative to cultivate a culture of sound corporate management at the state enterprises.
“Some of these firms can just be commercialised and ensure the right people are deployed to man them with clear terms of reference and performance monitoring tools,” he said.