SOEs reforms: Nothing to show four years later

THE country is still stuck with inefficient and badly run state-owned enterprises (SOEs) four years later after vowing to reform them and concluding contracts with transactional advisers.

In 2018, government adopted the SOEs reform agenda, 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.

With the phenomenon still lingering on, economist Dr Prosper Chitambara, this week said the country needs to resolve this issue quite urgently as it has sucked money for far too long and with nothing to show for it.

Chitambara added; “Our parastatals are in need of reforms as they are currently a major financial risk as many of them are facing operational and financial risk. The SOEs have been perennially making losses and in some instances negative equity.”

The reforms also entailed the centralisation of the ownership model for SOEs to eliminate inconsistencies in governance and ministerial interferences. Zimbabwe has a decentralised 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.

If you read the IMF Article IV of April 2022, it was reviewed that SOEs accumulated losses of about 5 percent of GDP between 2011 and 2018 and central government has supported these failing institutions through various ways to the tune of 11 percent of GDP.

“We really need to expedite the restructuring or the reform of our parastatals in order to really address these risks and concerns that are arising as a result of losses being made and other issues such as their governance.

“Our hope is to see traction this year regarding this issue but the word on the street is that line ministries are resisting the reform agenda of these inefficient SOEs,” Chitambara concluded.

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

Economist, Enoch Rukarwa, believes the issue of SOEs is being neglected if the efforts on other issues such as infrastructure and agriculture is anything to go by.

“Inefficiencies at State Enterprises and Parastatals have been noted at a glaring scale. In as much government do have a privatisation strategic plan in place, procrastination and lack of implementation have been major downside risks.

“The Government is making good progress in road rehabilitation and construction, similar effort and prioritisation needs to be accorded to parastatals as they are key enablers for GDP growth,” Rukarwa said.

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-capitalisation requests, and called-up guarantees of public enterprises and local authorities.

Entities targeted

The Government of Zimbabwe launched an initiative in 2015 to re-engineer the parastatal sector by “reducing costs to the fiscus, enhancing service delivery and improving accountability,” former Minister of Finance and Economic Development, Patrick Chinamasa said in his 2016 budget presentation.

As a first step, the Government prioritised 10 parastatals and begun to undertake audits of the first few. They include:

◆ Industrial Development Corporation of

Zimbabwe (IDCZ)

◆ Zimbabwe National Water Authority

(ZINWA)

◆ Civil Aviation Authority of Zimbabwe

(CAAZ)

◆ Agricultural and Rural Development

Authority (ARDA)

◆ Air Zimbabwe, Cold Storage Company

(CSC)

◆ Grain Marketing Board (GMB) ◆ National Railways of Zimbabwe (NRZ) ◆ TelOne, Zimbabwe Iron and Steel Com

pany, and

◆ Zimbabwe Power Corporation (ZPC). Industrialists have also noted that without constant, cost effective electricity, running water, efficient telecommunications, reliable cost effective transport infrastructure, Government's vision of rapid industrialisation and flow of foreign direct investment will be difficult to achieve.

This will also dampen any plans to increase production, plans to increase exports both to regional and international markets as well as job creation.

Apart from foreign currency shortages, local industry has also bemoaned poor infrastructure and erratic utilities supplies as some of the key challenges affecting competitiveness of local production. However, some of these challenges are being addressed and Government has since embarked on massive rehabilitation of both urban and trunk roads.

The bulk of utilities and services are needed by industry are provided by state enterprises and parastatals such as ZESA, Zimbabwe national Water Authority (ZINWA), National Railways of Zimbabwe (NRZ), Zimbabwe National Road Administration (ZINARA) and Zimbabwe Revenue Authority (ZIMRA).

Contribution to GDP

Government is concerned about poor performance of some State entities and parastatals whose contribution to the Gross Domestic Product (GDP) has plummeted to less than 10 percent from around 40 percent in the 1990s, calling for their urgent reforms.

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