Zimbabwe misses privatisation targets

Zimbabwe has largely missed its privatisation targets nearly three years after Government embarked on reforms of state—owned entities to enhance their performance. 

The re-engineering of the parastatal sector, which used to contribute 40 percent to the gross domestic products (GDP), is meant to reduce costs to the fiscus, enhancing service delivery and improving accountability. 

In almost every sector where they operate, SOEs are facing a number of challenges including lack of capital, low productivity and unsustainable debt.  Services have deteriorated substantially and even the welfare of their own employees is often in jeopardy.

About 70 percent of these entities are technically insolvent, presenting an actual or potential drain on the fiscus, owing to weak corporate governance practices and ineffective governance control mechanisms.

The reform agenda entailed various options including liquidation, full privatisation, transformation to regulator, merging and de-merging and departmentalisation into existing ministries. This was to happen between 2018 and 2020.

Under the initial phase, the Government targeted the privatisation of 11 SOEs including six subsidiaries of the Industrial Development Corporation and 17 Zimbabwe Mining Development Corporation subsidiaries.

It also looked at liquidations, merging of 11 entities and departmentalisation of SOEs into line ministries. 

“The agenda remains alive but it’s clear that most of the targets have been missed obviously for different factors including Covid 19 pandemic, lack of finding for transactional advisors and lack of investor appetite for some of the assets,” a senior official in the Ministry of Finance and Economic Development, who declined to be named because he is not allowed to talk to press told Business Weekly this week. 

Finance Minister Prof Mthuli Ncube did not responded to text messages seeking a comment. 

However, Mthuli previously said the Government recognised the need for scaling down on unsustainable fiscal interventions and a resort to Government guarantees by public entities and local authorities.

Fiscal risks had also arisen from debts assumption by the Government, re-capitalisation requests and called-up guarantees of public enterprises and local authorities.

“The snail pace is worrying,” said Carlos Tadya, an analyst with a local research firm.

“This will derail implementation of other programmes such as NDS1 (National Development Strategy 1) given that some of these state owned entities are key economic enablers.” 

The Government is also looking to adopt a centralised ownership model for SOEs as part of the reforms to eliminate inconsistencies in governance and ministerial interferences. 

Zimbabwe has a decentralised SEPs ownership model, where the Government shareholder function is spread across different line ministries.

The ownership model has been associated with a number of challenges, including inconsistencies in governance practices, ministerial interferences, delays and or reversals of Government approved SEPs reforms due to vested interests within some line ministries, and generally weak and passive oversight function, among others.

Under the centralised ownership model, a single government institution carries out the role as shareholder in all companies controlled by the State.

There is general consensus among key stakeholders that parastatals and local authorities are a missing link in terms of national development given the centrality of the roles they play. – Business Weekly