Vested interests blocking parastatals reforms

ZIMBABWEANS should not expect wholesale state enterprises and parastatals (SEPs) reforms anytime soon as the plans continue to face strong resistance and frustration from line ministries that own them.

If implemented, the reforms can lead to state firms’ improved contribution to economic development.

In a damning assessment of progress made under the State Enterprises Reform Framework (SERF) that was approved by government in April 2018, the Ministry of Finance and Economic Development highlighted a number of reasons why planned SEPs reforms have not taken off as expected.

Failure to implement SEPs reforms will leave investors questioning Government commitment to the programme and may possibly create difficulties in securing meaningful takers of other investment opportunities in the SEPs sector.

This will in turn perpetuate further delays in implementation of the SEPs reform programme, Treasury says.

SEPs are a key component for economic development and growth and without reforms, it leads to retarded growth.

Implementation of the State Enterprises Reform Framework is centred on, among other things, promoting good corporate governance practices at SEPs.

It is also meant to review the ownership model of some of these entities and plans were announced that some of them would be privatised, some sold, while others would be refocused as has been done to institutions such as Agribank, Grain Marketing Board and the Civil Aviation Authority of Zimbabwe among others.

But these are only a tiny fraction of the SEPs reforms that needed to be done at entities and institutions such as ZESA, TelOne, NetOne, Petrotrade, Willowvale, Chemplex, Protraz, ZMDC, POSB, IDC, ZUPCO, IDBZ among others.

Among reasons why there has been slow progress in the reform execution are vested interests at line ministries that own them.

As the owners of the SEPs, line ministries carry the responsibility of driving the reform implementation process. However, they are instead pushing for reversal of approved reforms.

“Tendencies to protect vested interests of line Ministries, SEPs Boards and management are working to reverse some approved reforms,” reads part of the Economic and Fiscal Report for Year 2020 released by Treasury this week.

Allegations that vested interests are blocking SEP reform progress come as no surprise as parastatals have in the past faced serious funds abuse from those given the mandate to run them.

The list of officials who have since been named for abuse of public funds for personal gain, some with cases before the courts, range from former ministers to directors.

Some of the parastatals are in serious debts as a result of vested interests as well as poor corporate governance practices by cabinet ministers and directors.

The huge debts are also part of the reason why the bid to bring in new investors has not found traction.

According to Treasury, legacy debts for some of the entities have compromised their attractiveness to investors for reform.

Given the country’s high debt stock, it would take innovative ways of reform to deal with the debt overhang, Treasury says.

Just to highlight the rot and state of financial coffers at these institutions, most of them failed to raise money to pay transactional advisors leading to cancellation of some of the tenders.

Government, which has been bailing out SEPs for years is this time around not in a position to fund them hence the prolonged implementation of SEPs.

Just as inefficient as SEPs are with their service provision and use of financial resources, some of the SEPs bungled the procurement of transactional advisors. The process to engage transactional advisors has been met by procedural challenges leading to delays, Treasury says.

Parastatals also failed in their choice of potential investors. Lack of proper seller’s due diligence to determine the buyers’ financial ability resulted in some potential investors failing to deliver on their investment proposals.

“Some transactions were cancelled after establishing that the investors lacked the required capital,” Treasury says.

The Finance Ministry is now hoping an enabling legal framework for privatisation will be put in place in order to avoid some of these implementation challenges.

Failure to reform SEPs, means they will continue to rely on Government for “implicit subsidies, regular bailouts or re capitalisation.”

“. . . delays in the implementation of SEPs reforms present costs to the SEPs, Treasury and the economy at large.”

Without the necessary reforms, Government will also lose out on revenue flows to Treasury through taxes and dividends and exposure to fiscal risks associated with under-performing SEPs.

According to Treasury delays in implementation of the reforms deny SEPs benefits that come from creation of new market frontiers, access to modern technology, all of which would propel the SEPs into profitable performance.

Without reforms SEPs will remain in the under-performance mode and a drain on the fiscus, Treasury says.

Underperforming SEPs will also reduce their contribution to national development objectives and the provision of goods and services.

To avoid all these challenges, Government is, therefore, reviewing the current SEPs Decentralised Ownership Model with a view to adopt a more centralised ownership model.

“This is envisaged to provide support for effective SEPs overall performance oversight and implementation of reforms,” Treasury says.