Parastatal bailouts suspended…resistance expected

Source: Parastatal bailouts suspended…resistance expected | The Financial Gazette October 6, 2016

By Phillimon Mhlanga, Business Reporter

TREASURY is pushing to suspend support to perennially loss-making parastatals as it seeks to bolster austerity measures meant to reign-in an out-of-control budget, which continues to skyrocket despite dwindling revenues, the Financial Gazette’s Companies & Markets (C&M) can report.
But the move is reportedly facing resistance from senior government officials and ruling party bigwigs, who perceive the State-owned institutions as part of the ruling ZANU-PF’s patronage system.
Sources said the move by Treasury is in line with a fiscal policy review statement issued by Finance and Economic Development Minister, Patrick Chinamasa, early this month. It is also said to be part of commitments made to international creditors by Zimbabwe under its debt clearance strategy.
Sources in government said although the policy position had already been supported by Cabinet, which is chaired by President Robert Mugabe, it was likely to encounter hurdles in implementation.
But they said it was unlikely government, which has been accused of inconsistency in the implementation of policies, would stick to this new measure ahead of national elections scheduled for 2018.
There was a possibility government would be forced to continue propping up the Grain Marketing Board (GMB), to shore up its political strategy to feed millions of starving rural folks devastated by an El-Nino induced drought that affected the country this year, the sources said.
They also pointed out that Air Zimbabwe, which flies President Mugabe to his international trips, would not be allowed to collapse and was therefore likely to remain under fiscal cover.
A 2015 report by the auditor-general (AG) said Air Zimbabwe was also getting support from a number plate fund which paid over US$30 million to the airline last year. Between 2012 and 2013, the fund made several other payments to the airline, even without authority from Treasury.
Analysts supported the move by Treasury, saying it would be a very sound decision were it to be implemented, considering that the majority of public enterprises have been draining the fiscus for years.
They said most of the parastatals had been weighed down by corruption, and there were mounting concerns over poor corporate governance within the institutions.
Economic consultant, John Robertson, said it was unlikely government would suspend support for parastatals.
“It’s very difficult for the State to abandon State enterprises and parastatals,” he told C&M. “If it’s going to happen, it will be in line with promises made in Lima last year to resolve Zimbabwe’s debt crisis to International Financial Institutions.”
Prosper Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe, agreed that while the intention to wean parastatals from the State was noble, government did not have the will to do so.
“I don’t think (this will happen),” said Chitambara about the suspension of support to State-owned enterprises, arguing that parastatals were “key vehicles for patronage”.
“As we approach elections (in 2018), government will not commit itself to such things that will weaken patronage. Such reforms will not be implemented as government now has one eye on the elections,” he said.
Robertson said government needed to commercialise the enterprises first before courting investors to buy the companies. This, he said, would ensure survival of the businesses and their support to economic growth.
He admitted “nothing of that sort could be happening”.
Most of the nearly 100 ailing State enterprises continue to undermine the economy through perennial dependence on the fiscus, with cash-strapped government pumping out huge sums of money to prop up the parastatals.
Several parastatals are technically insolvent. They are also grappling with high overheads, inter-parastatal debts, mal-administration, corruption and lack of good corporate governance which have negatively impacted on their operations.
Chinamasa said earlier this month during his fiscal policy review that State-owned entities were “bleeding the economy and we have taken a position to suspend all bailouts of SEPs (State enterprises and parastatals) that are not supported by approved specific and measurable recovery plans that comply fully with remuneration framework and public corporate governance law”.
Chinamasa said government was implementing State enterprises reforms in order to eliminate their high dependency on the fiscus, which among others is crowding out capital requirements for private sector and community development.
As part of sound corporate governance, SEPs are required to produce timely audited financial reports.
But only 26 out of 97 parastatals have managed to produce their 2015 audited financial reports while the rest are still struggling to do so, according to information from the AG.
Government once came up with strategies to restructure and dispose of shareholding in some State-owned enterprises, but has failed to implement these measures over the years.
Privatisation of State-owned enterprises has failed to materialise despite several promises by government to accelerate the process in order to stem the drain on the fiscus.
Only a few firms have been privatised since Zimbabwe liberalised its economy in the 1990s.
These include Dairibord Holdings Limited, which was the first to be privatised in June 1999, from a portfolio of about 40 public enterprises back then.
Other Zimbabwe Stock Exchange counters to emerge out of the privatisation programme include the flourishing CBZ Holdings, Rainbow Tourism Group and the diversified financial services group, ZimRe Holdings Limited.
Ailing parastatals include the National Railways of Zimbabwe (NRZ), Air Zimbabwe and GMB.
NRZ requires in excess of US$2 billion to turnaround by replacing its old infrastructure, including railway tracks, telecommunication signals and wagons, which have outlived their lifespan.
Its resuscitation would increase the movement of goods by rail within Zimbabwe and in the region, earning significant revenue in the process and helping in efforts to grow the economy. Air Zimbabwe has also been a chronic loss-maker.