eBusiness Weekly
Kudzanai Sharara
Last week’s announcement by Government that it plans to privatise State-owned entities was not a surprise. In fact privatisation and sale of state entities is long overdue. For years parastatals have not only been a drag to economic development, but also a drain to the national fiscus.
According to the 2018 National Budget, public enterprises remain a draw back through their inefficiencies, with their contribution to the economy down from around 60 percent to current levels of about 2 percent.
The budget also shows that 70 percent of these entities are technically insolvent, representing an actual or potential drain on the fiscus.
When we talk of State-owned entities being a drag to economic development, we are talking about how their inefficiencies are costly to the ease of doing business in the country.
Looking at those companies that are into the provision of infrastructure such as telecoms firms, transport firms, energy firms (such as ZESA) etc, their inefficiencies have meant businesses have had to contend with erratic and unreliable supply of services something we know is costly to business.
The unreliable provision of such key services has meant businesses have had to use alternative service providers at an unsustainable cost.
Take all those companies that have had to transport coal and minerals by road instead of rail, the gap in costs is huge.
Another example is that of businesses that have had to turn to alternative sources of energy because the inefficiencies at ZESA, coupled with a top heavy executive including several boards, has meant the power utility cannot meet its costs, resulting in erratic and expensive power supply.
All this is supportive to the latest, but long overdue decision to privatise state owned entities (SOEs). Unreliable, erratic and high costs of infrastructure has meant goods that are produced locally cannot compete with products that are made in other countries both in the local and international markets.
For four years, Delta suffered from both volume and revenue decline and one of the major reasons was that its products were facing stiff competition from cheaper and similar products made from outside our borders. The country had to come up with SI64 in an effort to support the local industry, but if we are to be honest, one of the reasons why local companies could not or cannot compete with imports is that they have had to deal with unreliable and expensive costs of infrastructure and utilities among others.
Failure by SOEs to make meaningful contributions to Government coffers has also meant Government has had to rely on taxation to fund its operations.
In 2014, the Labour and Economic Research Institution of Zimbabwe (Leritz) revealed that Zimbabwe has the highest taxes in Sub-Saharan Africa. According to Leritz, taxes accounted for 93,9 percent of total revenues during the period January to June 2014, and 28,4 percent in 2013.
Because of the need to fund struggling and yet mismanaged SOEs, has meant Government has had to put in place numerous taxes and government levies on business in an effort to raise government revenue.
Against this background, there is no sense in not privatising state entities as keeping them and worse still funding their losses, means we have to increase the tax burden on other economic players.
The multiplicity of taxes however, restricts the ease of doing business and competitiveness within the private sector and in the process exacerbating de-industrialisation in Zimbabwe.
Taxation is one of the factors leading to the high cost of doing business in Zimbabwe but if we take out funding of parastatals we might lesson the burden by lowering taxes.
The issue of privatising struggling and yet mismanaged SOEs cannot be overemphasised as the results and benefits are immense. In the past two decades or so, most of the SOEs have had negative contributions to the national coffers.
In fact most of them have been bailed out by Government, but still have very little to show in terms of contribution to the nation. Some of them have been given Government guarantees to acquire debt, but all they have done is to give Government the bad name of being a bad debtor.
Sadly it does not end there, it also means there is further fiscal risks arising from debts assumption, re-capitalisation requirements and called-up guarantees. The risk premium for offshore loans also goes up for any local businesses be it public or private owned.
In his 2018 National Budget, Finance and Economic Planning Minster Patrick Chinamasa also made reference to the fact that continued bailout of parastatals was causing financial risk.
“Treasury has also been inundated with requests for direct Budget support for recapitalisation by State-Owned Enterprises and, in most cases, such requests lack adequate justification and hence, only pose further fiscal risks,” said Minister Chinamasa.
If a cost benefit analysis is to be made, Government has no reasonable ground to continue to hold on to the bulk of the parastals.
The biggest benefit from the whole exercise, if implemented, is that it will (we hope) help in the reallocation of existing public finances to other key areas such as health, education, research, exploration among others.
It will also help in poverty alleviation as some of the resources can be channelled towards social grants. Billions of dollars have been spent on struggling SOEs, but imagine if those entities did not require public finances to bail them out and sustain them, those billions would then be reallocated to other deserving programmes as mentioned above.
While Government is not clear on when exactly the reforms will be implemented we hope it starts now, unless Government wants to carry the mark that creates and sustains stunted economic growth by misusing and failing to redirect public finances from areas (SOEs and unnecessary government departments) where they are wasted into areas where they can make a difference — the people.
How to go about it?
Walter Mandeya, an economist also shares the same sentiments arguing that Zimbabwean Diaspora is looking for ways to inject money and that would be a perfect and transparent way to do it.
“The state has to trust that investors who will invest in these enterprises have the same objectives as the state, which is to grow the businesses to offer quality services to Zimbabweans and export those services and products to the country’s advantage.
“The sooner they get these enterprises reformed and listed the better for the country, because we are paying more for products and services that we can produce ourselves through these state parastatals,” said Mandeya.
He however, added that any reform should be able to address the issues to do with catching up with the current world market leaders and surpassing them using local human resources, materials and innovation.
“Most parastatals are actually essential and with better management or supervision, they can contribute meaningfully to the country’s GDP. What is needed is to deal with legacy issues, basically, restore legacy, by cleaning up their balance sheets and allowing ordinary Zimbabweans to own and dictate how these enterprises should operate.
For those SOEs that will not be sold off, according to human resources expert Memory Nguwi, the best reforms are where people who run such entities are selected on merit and judged on their performance.
