Zimbabwe: Govt to Quicken State Enterprises Reforms

Zimbabwe is now speeding up the reforms of selected state-owned enterprises (SOEs) after concluding the contracts with transactional advisers, an official has said.

This was after the Government adopted the SOEs reform agenda in 2018, which entailed various options including liquidation, full or partial privatisation, transformation of some of the entities to assume regulatory roles, merging and de-merging, as well as departmentalisation into line ministries.

Under the initial phase, the Government targeted the privatisation of 11 SOEs including six subsidiaries of the Industrial Development Corporation and 17 Zimbabwe Mining Development Corporation subsidiaries. It also proposed liquidation and merging of 11 entities and departmentalisation of some SOEs into line ministries.

The reforms also entailed the centralisation of the ownership model for SOEs to eliminate inconsistencies in governance and ministerial interferences. Zimbabwe has a decentralized SOEs ownership model, where the Government shareholder function is spread across different line ministries.

The ownership model has been associated with several challenges including inconsistencies in governance practices, ministerial interferences, delays and or reversal of the Government approved state enterprises reforms due to vested interests within some line ministries, and generally weak and passive oversight function, among others.

The reforms were meant to enhance the viability of SOEs and reduce government spending through bailouts.

There has, however, been slow movement as the process of contracting financial advisors was slowed largely by changes to the currency regime and delays related to Covid-19, chief director (communications) in the Ministry of Finance and Economic Development Mr Clive Mphambela said last week.

For instance, the Government had to engage the World Bank’s International Finance Corporation to be transaction advisors of its telecommunications companies NetOne and TelOne after canceling a contract it had signed with Price Waterhouse Coopers.

“I would say for two years, there wasn’t much progress due to Covid-19 while for some contracts that had been signed, we had challenges due to the change in the currency regime. But the process is now gaining more traction because most of the contracts have been signed and (are) now at various stages of implementation.

In June 2019, Zimbabwe switched to the Zimbabwe dollar as its mono currency after scrapping the multiple currency regime introduced in 2009 after the value of the previous local currency was severely eroded due to devastating hyperinflation.

But in March 2020, the Government allowed people with free funds to use their foreign currency to pay for goods and services, alongside domestic currency consisting of the electronic Real Time Gross Settlement dollar, bond notes, and bond coins.

Mr Mphambela noted it was critical to have “competent and reputable” advisors given the nature of the transactions. “State enterprises are very large and complex and due care must be taken,” he said.

Economics professor Gift Mugano said despite the SOEs being a burden to the fiscus, their underperformance was badly choking the entire economy. “They are economic burdens, not only because they are sucking public resources; taxpayers’ money, but also undermining sectors that rely on their services,” Prof Mugano said.

“For example, the underperformance of the National Railway of Zimbabwe is undermining the viability of the manufacturing and mining sectors. “Companies in these sectors are incurring huge transportation costs and this negatively impacts the viability of these firms. And you can also imagine how many jobs these entities would be creating assuming SOEs are contributing 40 percent to the GDP (like before).”

In almost every sector where they operate, SOEs are facing several challenges including lack of capital, low productivity, and unsustainable debt. Services have deteriorated substantially and even the welfare of their employees is often in jeopardy.

The majority of these entities are technically insolvent, according to several reports by the Auditor General, presenting an actual or potential drain on the fiscus, owing to weak corporate governance practices and ineffective governance control mechanisms.

Finance Minister and Economic Development Prof Mthuli Ncube previously said the Government recognised the need for scaling down on unsustainable fiscal interventions.

Fiscal risks had also arisen from debts assumption by the Government, re-capitalization requests, and called-up guarantees of public enterprises and local authorities.

“State enterprises are key enablers and achieving the aspiration of the National Development Strategy 1 would not be possible if these entities are not operating efficiently,” Jacob Musara, a development economist with a local private university said.

NDS1 is a five-year economic blueprint that succeeded the Transitional Stabilisation Programme (TSP), which ended on December 31 after coming on stream in October 2018.

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