Salvaging NRZ, Zisco and Hwange Colliery from total collapse

Continued from last week

Meanwhile, the minimum wage levels in the rest of the region only increased at average annual rates way below that level — 19 percent in Zambia, 6,3 percent in South Africa, 5,9 percent in Mozambique and only two percent per year in Botswana over the same period. While wage levels increased disproportionately in Zimbabwe, regional trading partners experienced currency depreciations ranging from 6,9 percent (Zambia’s Kwacha) to 17,9 percent (Botswana’s Pula). Likewise, the large increases in labour costs observed in Zimbabwe do not appear to be justified by growth in Gross Domestic Product (GDP) per capita.

In this regard, wage increases need to be aligned with productivity levels for the economy to remain competitive, and the current labour code and practices translate into salary increases expected and upheld by law for all employees regardless of their performance and productivity. It will be necessary to have productivity based salaries where employees in these three companies are paid according to their production and not Poverty Datum Line (PDL) related salaries, the latter which seems to favour employees’ well-being without taking into cognisance affordability of companies to pay and the profitability of enterprises.

While all businesses are subject to logistical costs, the incremental costs Zimbabwean firms pay relative to their neighbours, particularly on imports, represent a very significant competitive disadvantage. According to the World Bank, the costs of shipping for exports of a 20 foot container from a warehouse outside Harare to Durban (the most frequently used port by all the countries compared) is US$3 765. That figure is between 20-25 percent higher than the also land-locked Botswana and Zambia, and the gap is much larger with South Africa.

At US$5 660 per container, Zimbabwe costs are roughly 36 percent higher when compared to its landlocked neighbours. Expressed as percentage of freight value, Zimbabwean businesses can expect to pay 18,8 percent to export, and 28,8 percent of freight value when importing. These comparative figures place Zimbabwean businesses at three to five percentage point disadvantage vis-a-vis Botswana and Zambia when exporting, and more than 10 percentage points when importing. When compared to South Africa, the costs of exporting are nearly double and three times those of importing, all of which highlights the need to take action to help reduce this wide gap. Costs and time to trade Rail freight is about 40 percent cheaper relative to road transport. However, unpredictable delivery times and the poor maintenance of the network (because of the collapse of NRZ) restrict its use to high-volume low value items that are not time-sensitive. Poor road infrastructure is part of the higher transport costs. Of the country’s total road network of nearly 90 000 kilometers, the proportion of those considered to be in fair to good condition has declined from 73 percent in 1995 to only 60 percent in 2011, according to the African Development Bank. In turn, the poor state of the roads makes it dangerous to travel by night. According to stakeholders in the freight forwarding industry, the charges per day of delay range from US$250-US$500. Ending corruption and mismanagement It has been noted that most if not all of Zimbabwe’s parastatals have not performed to expectations, especially from the 1990s. Instead of playing a pivotal role in national economic development and in the provision of accessible and affordable public services, parastatals have actually been a drain to treasury and a burden to taxpayers. The financial support has hardly yielded the corresponding benefits in the form of economic development or efficient services delivery. While a number of reasons could account for some of the parastatal shortcomings, it is undeniable that corporate governance deficits remain partly responsible for the under-performance, opacity and rent seeking behaviour in the sector.

No private sector, the world over, can successfully prosper without the enabling and supportive shoulder of a functional and effective public sector. A dysfunctional public sector has the venom to crowd out and thwart progressive private sector participation in economic growth and development. A key role that the public sector plays is to fill in the gaps that typically arise due to various dimensions of market failure. Strategic sectors like electricity, coal and railway transportation are often shunned by the private sector, due to the huge financial outlays that are required to start up, run and maintain these often “social” projects. The “social” nature of these sectors arises in the sense that they are typically basic necessities by their nature, and because of the huge capital outlays, often a delicate line has to be followed in coming up with the appropriate pricing regimes. Overnight re-alignment of prices to market levels, for instance, may have adverse short to medium-term effects on social welfare, as this may push the essential services out of reach of the majority of members of society and because of this it becomes necessary to revamp NRZ, Ziscosteel and Hwange Colliery. Public disclosure of parastatal activities There should be transparency in parastatal activities that include recruitment procedures and practices as well as transparency in deals and contracts. Citizens’ awareness of these three companies’ corruption and ways of minimising it is possible when there is public disclosure of their activities. The same principle of “publish what you pay” for private companies should apply to parastatals in terms of what was received and how it was spent.

Since most corrupt practices are associated with the tender system and the award of contracts, it is important to make these as transparent as possible. The Zisco-Essar deal shall remain a reference point of how not to negotiate contracts in parastatals. Because of the lack of transparency in what was once referred to as the best deal for the country, it turned out that the country risked potential loss of national wealth perhaps tenfold.

One would advocate for a move towards performancebased and time-bound contracts for all top managerial posts in public enterprises. This would serve to drain away any mentalities of entitlement, where officials may fail to see the merits of good corporate governance, blinded by the opium of assured permanency of their jobs. This should make it easier to hire and fire poorly performing executives and in also putting a cap to their salaries or pegging salaries against the performance of their entities. Share options are also other ways of motivating better performance of executives. Membership and composition of parastatal boards Membership in several boards has been identified as a practice that hampers effectiveness of boards while increasing political patronage, especially ministerial interference. In addition to transparency in selection to boards and remuneration procedures, there should be a limit to the number of parastatal boards that a member could serve in concurrently.

In other countries, the use of independent directors strengthens the capacity of boards to deliver on their mandates. The public should know the targets of the particular boards and whether or not they meet the set targets. It is also critical that ministers and permanent secretaries desist from routinely intervening and meddling with strategic decisions and operations of public enterprise boards and management. Raising the cost of corruption in parastatals Countries that have stamped out excessive corrupt practices in the public sector like China or Singapore have raised the premium on corruption. In Zimbabwe, as long as corruption continues to be treated like any ordinary crime the temptations shall remain high for corrupt practices, especially in parastatals. Because these are crimes that ordinary citizens perceive as sanctioned by the politically powerful, not much effort is put by citizens to help stem out the rot. Corruption in parastatals is corruption of a certain kind masked under bureaucratic niceties and political protection usually run by syndicates in various state agencies. In certain circumstances, the corruption is done in connivance from some in the private sector and even some ordinary citizens. The penalty for corruption should be severe and no one should be exempted. Zimbabwe needs a special police force in the mould of the Hawks and Scorpions in South Africa in order to fight white collar crime. If the above can be addressed and done one believes the interlinked NRZ, Ziscosteel and Hwange Colliery can be brought back to their former glory.

Butler Tambo is a Policy Analyst and can be contacted on butlertambo@gmail.com