Zim@38: Closer look at parastatals

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THERE is no doubt that almost all parastatals in the country are in a sorry state 38 years after independence.
At Cold Storage Company (CSC), which at one time was the largest meat processor in southern Africa, there are no cattle for slaughter.
The National Railways of Zimbabwe (NRZ) and Zimbabwe United Passenger Company (ZUPCO) seem defunct.
At Zimbabwe Iron and Steel Company (ZISCOSteel), there is no progress.
Thirty eight years after independence, this is the state of some of Zimbabwe’s state-owned enterprises.
On Wednesday, Zimbabwe commemorated independence under a new leader for the first time in 38 years.
But the majority of Zimbabweans will also testify that economic benefits that should have come with political liberation have been elusive.
However, the new dispensation under the leadership of President Emmerson Mnangagwa, is putting in place reforms to help revive the country’s long-beleaguered economy.
One such big move is the state-owned parastatals reforms.
Government recently announced efforts to turnaround non-performing parastatals which have been hurting economic recovery through perennial bleeding of the fiscus.
According to the reforms, 12 parastatals, including CSC, Grain Marketing Board (GMB) and NRZ will be recapitalised through several initiatives while the boards of ZETDC, ZPC and ZESA will be dissolved to pave way for a single ZESA board.                                  
The Minister of Finance and Economic Development, Patrick Chinamasa, who unveiled the reforms last week, said four state-owned utilities including Zimglass, Motira and Kingstons will be liquidated in line with the Cabinet resolutions on parastatal reforms.   
Five parastatals, including Allied Insurance and Surface Investments, will be privatised.                          
Petrotrade, ZIMPOST, ZUPCO, IDBZ, Willowvale Mazda Motor Industry, Deven Engineering and POSB are among the 13 state-owned firms targeted for partial privatisation.          
Mergers also loom with POTRAZ and BAZ being expected to amalgamate; ZimTrade, ZIA and SEZA will also merge, according to the reforms.                   
Seven state enterprises, among them, New Ziana will be absorbed as ministerial departments.       
Industrial Development Corporation (IDC) will retain its shares in non-performing entities such as Zimbabwe Grain Bag, Allied Insurance and Zimglass.
The original IDC was set up to nurture new industries and as soon as they were viable and profitable, sell them off, preferably through the stock exchange and use the cash raised to start other new concerns.
In other words, IDC was to be a venture capital concern rather than the permanent owner of a bunch of inefficient industries.
Zimbabwe has a total 107 parastatals spread across all sectors of the economy.
While expectations are that they should contribute the bulk of the country’s Gross Domestic Product (GDP), they are constantly making losses due to weak internal controls.
In fact, Zimbabwe has not realised the true value of its parastatals since independence in 1980.
Audits showed that 38 parastatals surveyed made losses totalling US$270 million in 2016 and 70 percent of them were technically insolvent or illiquid.
Parastatals are grappling with high overheads, inter-parastatal debts, mal-administration, under-capitalisation, corruption and lack of good corporate governance which have negatively impacted their operations.
Some are only known to exist during workshops, conferences and trade exhibitions but have no successful and tangible projects to show that can benefit the country.
And yet these have the potential to contribute 40 percent to the country’s GDP.
Instead, most parastatals have failed to make meaningful contribution to the economy and are essentially draining the fiscus.
Currently, the contribution is around 12 percent.
The CSC, NRZ, as well as ZUPCO are some of the worst performing parastatals despite having little and in some cases, no competition.
The NRZ requires in excess of
US$2 billion to turn around its fortunes by replacing its old infrastructure, including railway tracks, telecommunication signals and wagons, which have outlived their lifespan.
The restoration of NRZ will help cut the cost of bulk freight which has pushed up the cost of production.
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.
The resuscitation of NRZ will also come as good news to the manufacturing industry as well as exporters as they will enjoy comparative advantages derived from low production costs through transportation of raw materials and finished products using railway transport.
As has been the case with developed economies, the recapitalisation and retooling of NRZ infrastructure will be the bedrock on which the Zimbabwean economy is set to be built upon as the initiative will have positive downstream effects in the economy.
The resuscitation of ZISCOSteel cannot be over-emphasised.
The continued closure of ZISCOSteel, beyond doubt, has contributed to the delay in getting the economy back to the highs of the 1990s.
At its peak, ZISCOSteel was the mainstay of the steel industry and other downstream industries.
The collapse of ZISCOSteel had serious ramifications for the well-being of companies like Lancashire Steel, NRZ, ZESA and Hwange Colliery Company which had a symbiotic relationship with the giant steel-maker.
Since its closure, companies, mainly those involved in the production of steel products, have been affected, forcing them to downsize and others to completely close shop due to lack of cheaper raw-materials.
Between 2011 and 2014, some 4 610 companies linked to this sector closed down, resulting in 55 443 job losses.
Capacity utilisation declined from an average 57 percent in 2011 to 44 percent in 2012 and 39 percent in 2013.
This is the same story with industries in Bulawayo, once the country’s industrial hub.
The CSC, in particular, used to be a leader in the processing and marketing of the country’s beef.
At its peak in the 1990s, export sales were more than 25 000 tonnes with the European Union (EU) importing 9 000t, Angola 12 000t, Indian Ocean islands
3 000t and Switzerland 1 500t.
The viability of the parastatal took a severe beating when the EU suspended beef imports from the country in 2001 following the Land Reform Programme.
Prior to the illegal sanctions imposed on the country by the West, the company would earn over US$150 million per year.
While resumption of operations is the immediate objective, a return to the export market should be the ultimate. 
Health concerns related to meat products coming from a major producer like Brazil provide a window of opportunity.
Resuscitation of CSC has the capacity to provide employment for thousands of people but adopting a lean structure to extricate the company from its collapsed state is needed initially.
At its peak, CSC employed more than 2 000 workers.
Since independence, progress with privatisation has been very slow.
To date, only five parastatals have been privatised.
Dairiboard Zimbabwe Limited was the first to be privatised in June 1999, from a portfolio of about 40 public enterprises back then.
The counter has since then notched good results.
Other entities to emerge out of the privatisation programme include COTTCO, CBZ Holdings, Rainbow Tourism Group and the diversified financial services group, ZimRe Holdings Limited.
In China, parastatals produce most of the goods and services, while in Zimbabwe it is the opposite – they drain the fiscus.
The current drive by Government to revamp SEPs can be spurred by plucking a leaf from China’s reform of its own state-owned enterprises (SOEs), which have been the bulwark of the world’s fastest growing economy.
China, which has a record 150 000 SOEs spanning the breadth of the economy from the service industry such as tourism to heavy industry, managed to transform performance of its SOEs using a phased approach.
The Chinese SOEs reform process had four phases, namely; expanding SOEs autonomy (1978-1984), separating ownership and management (1985-1992), establishing the modern corporate system (1993-2002) and the state-owned asset management system (2003-2015).
Chinese SOEs account for 30-40 percent of total GDP and about 20 percent of China’s total employment.
This shows that public sector reform process is not done overnight, it is an ongoing process.
The Chinese, much like Zimbabweans, have always thrived on finding home-grown solutions to their problems and their methods have a track record of success.
As Zimbabweans celebrate 38 years of independence, they should not be hoodwinked by Western-schooled capitalists who want to reap where they did not sow.
As the agricultural and mining sectors recover, Zimbabwean manufacturers will have ready access, at reasonable cost, to many diverse manufacturing inputs.
Despite the many skilled Zimbabweans who have taken up employment elsewhere in the region or further afield, the country still has a considerable resource of skilled labour.
Considerable, currently under-utilised, industrial infrastructure exists (especially so in Bulawayo), notwithstanding that much of it needs upgrading or renovation; and there are many other factors conducive to Zimbabwean industrial recovery and growth.
The country’s geographic location is such as would provide industrialists with access to a domestic market and export markets, aggregating to more than 420 million customers.
Soon and very soon, Zimbabweans will enjoy economic benefits that should have come with political liberation.

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