Kudzanai Sharara Taking Stock
Last week Finance and Economic Planning Minister Patrick Chinamasa presented the country’s 2018 National Budget that was seen by many as progressive and capable of addressing some of the major challenges bedevilling the economy.
Some of the issues that were addressed by the minister include but are not limited to the revision of the Indigenisation and Economic Empowerment Act to say the 51/49 percent threshold now applies to only two minerals, diamonds and platinum.
It also touched on the issue of land saying Government is also undertaking measures to strengthen the legal standing of Offer Letters and 99-year leases. Bankers have since said they are happy to accept the 99-year leases.
While most people were in agreement that the budget offers new hope and believe that the country’s economy can take off once again, that should not blind us to think all is now well. There are still areas that still need major attention if the economy is to realise its full potential.
The issue of the country’s debt overhang is one such issue. The country’s debt obligations have already reached unsustainable levels and adding on more debt will regress whatever gains that might be achieved elsewhere.
According to Minister Chinamasa, Government issued Treasury Bills worth $1,75 billion for the 9 months to September 2017.
The minister however, said more Treasury Bills amounting to $940 million would have been issued by the end of the year. Now as much as the minister admitted that the continued issuance of TBs does not only lead to mounting interest payment obligations, but also poses significant risk of resurgence of macro-economic instability, what is important is to put a stop to continued borrowing at Government level.
What is of note is that some of the debt obligations are to fund quasi-Government institutions that have been a drain to the fiscus for years.
Worse still, most of these Government-owned institutions are in these sorry positions because of incompetence, mismanagement and even corruption.
As much as there is no disputing that most state owned enterprises are in a dire state and in need of a lifeline, taking over their debts should not be an option.
For most of the enterprises, constant Government bailouts and re-capitalisation efforts have not brought any meaningful change. A good example is that of Hwange Colliery where Government is the major shareholder alongside businessman Nicholas van Hoogstraten.
This year, Government issued Treasury Bills worth $58,3 million in its efforts to recapitalise the company. This is in addition to other debt guarantees that have been extended to the company and yet there hasn’t been any signs that the company is about to turnaround.
Instead, along other parastatals, they continue to put pressure on the country’s fiscus, pushing Government debt into billions.
Over the years there has been no will-power to act and stop the rot at parastatals. It is however, encouraging that Government is no longer in denial and recognises that one of the biggest cause of the country’s economic and financial challenges stem from how it has been treating state owned enterprises.
Minister Chinamasa admitted that bailing out parastatals “has proved to be one source of pressure for foreign currency and Nostro bank balances.” However, what has been lacking is actual action to stop the rot. It is thus encouraging that Government has started walking the talk, telling the Infrastructure Development Corporation (IDC) that its request for an $83 million bailout will not be granted. More of the same should be extended to other parastatals, even ones like the Infrastructure Development Bank of Zimbabwe (IDBZ) which has been given a $20 million recapitalisation fund in the 2018 National Budget.
Instead of asking for bailouts from Government, some of the state owned enterprises have the capacity and should be able to “develop bankable projects and programmes that can be funded from the market, through market instruments such as bonds”.
Government’s only role when it comes to help fund these institutions must be restricted to the creation of an enabling operating environment as well as providing necessary incentives.
Issuing bonds is one way of raising funds, and we carried an article in last week’s Business Weekly, saying bonds could be an alternative to funding projects. The other option is to list some of the entities on the stock exchange. Listing provides many opportunities to raise capital, but for this to work, government must be willing to introduce good governance and probably let go control of some of the companies.
If listing is not accompanied by introduction of good corporate governance, then it will be just another Hwange, listed but continues to bleed the fiscus.
Apart from looking at how these institutions can be recapitalised, there is also need to have a re-look at the personnel running such institutions. Management at state owned enterprises must be appointed on merit to qualified and experienced individuals.
Further, President Emmerson Mnangagwa’s administration should move away from ways of the past where executives involved in corruption scandals were retained or redeployed to other equally important institutions. It has been common to see executives, and even ministers, who would have presided over failing institutions being kept in the job and enjoying obscene packages.
The country’s Auditor-General Mildred Chiri has exposed instances of governance failure at parastatals, but no due attention and action has been taken. Given that what she has unearthed is just a tip of an iceberg, it is clear that Government is losing billions probably more than the $15 billion that has dominated media space for years.
Gross mismanagement at parastatals has no doubt undermined social development while at the same time limiting the potential economic contribution state owned entities.
Hopefully President Mnangagwa’s administration will make sure management at parastatals are made accountable.