Government promises to act on parastatals, again

Source: Government promises to act on parastatals, again | The Financial Gazette June 22, 2017

GOVERNMENT has set up a committee to explore cost cutting measures in State enterprises and parastatals (SEPs), which are impeding economic recovery through perennial dependence on the fiscus, Finance and Economic Development Minister, Patrick Chinamasa has said.

Speaking at the launch of the World Bank’s Zimbabwe Economic Update in the capital yesterday, Chinamasa said the committee is made up of officials from the Office of the President and Cabinet (OPC), Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe (RBZ).

“Parastatals and State enterprises remain a burden on the exchequer. I don’t care about them not making profit, but they should at least break-even. They always form a beeline, all coming to Treasury for bailouts to sustain their operations. We cannot continue to pour money into poorly managed State entities,” said Chinamasa.

“Last week, I presented a paper in Cabinet about SEPs. I am happy to say that Cabinet is in support of what we want to do. We have set up a committee that comprises the OPC, Ministry of Finance and Economic Development and the RBZ to look at the cost structures in State enterprises and how they can improve revenue generation,” charged Chinamasa.

He said most parastatal executives were awarding themselves hefty increments, despite the poor performance of their institutions.
“In those poorly managed State enterprise, you see top management increasing their salaries not considering that their entities were insolvent. Those executives should be fired without fail. It’s actually criminal to do that,” he said.
In 1980, Zimbabwe inherited about 20 SEPs.
But the number has since increased to 107.

Of this number, about 43 are commercial enterprises that operate on a cost-recovery or for profit basis.
Commercial entities include those in the energy, transport, communications and agricultural sectors, where they both provide essential public services and implement government policies.
SEPs have over the years failed to make any meaningful contribution to the economy.
They are grappling with high overheads, inter-parastatal debts, maladministration, undercapitalisation, corruption and lack of good corporate governance.
These factors have negatively impacted on their operations.

Consequently, they have failed to contribute to Zimbabwe’s economic development.
Parastatals and State enterprises are currently contributing about 6,9 percent to gross domestic product, according to a study done by the World Bank and released yesterday.

World Bank economist, Marko Kwaramba, said the “expensive or unavailable financing, low rates of revenue collection, and operational inefficiencies have prevented some State-owned enterprises from covering their long-run marginal costs”.

“Morover, the recent deterioration of the macroeconomic environment, combined with weak State enterprises governance and oversight, has further undermined their performance,” Kwaramba said.
Kwaramba added that parastatals were draining public finances, saying taxes and dividends paid by commercial State enterprises had declined significantly.

Tax liabilities had grown and bailouts from government to State enterprises had increased, he said.
The absence of effective oversight has allowed State enterprises to accumulate liabilities through extensive financial linkages and complex cross-debt, which intensify systemic fiscal risks.
Aggregate annual expenditures averaged US$3,5 billion during 2011 to 2015, according to the World Bank.
State enterprises, overally, moved from close to the breakeven point in 2011 to reporting combined losses of just under US$340 million in 2015.

In general, the aggregate working capital position is precarious, the World Bank said.
Twenty five of the 43 commercial State enterprises have become illiquid, with current liabilities exceeding current assets and seven are insolvent, said the World Bank.

Chinamasa also revealed that Cabinet last week approved the Public Entities Corporate Governance Bill meant to clean up the mess in the State enterprises and strengthen oversight.