I read an interesting article on the way State Owned Enterprises in Zimbabwe are looking to raise finances: read the link http://www.theindependent.co.zw/business/29679-soes-bourse-faces-resistance.html . I can understand the attempts by some poor civil servant in the policy department of the responsible ministry wishing to raise funds, but some of the policies coming out of the economic ministries in Zimbabwe right now are very myopic. Don't get me wrong, I am not challenging the intelligence of the civil servants, but 10 years of sanctions has had an effect on the caliber of ideas coming from the ministries. I guess it is because a lot of the civil servants no longer get exposed to working economic systems. This is because depending on who you may believe, sanctions or economic mismanagement has seen the government fail to hold onto experience.
Until a few years ago I was one of the policy makers in Zimbabwe and I understand the difficulty they are facing in crafting policy. However, the direction they wish to follow in attracting investment into the Parastatals (state owned companies- SOCs) is not in my humble opinion the correct one. The thought right now is to create an alternative index to attract funds from the stock market to refinance many of these organisations. This may well achieve the goal of raising finances for the enterprises, but it will not be enough to be successful and here is why I feel this.
1. Zimbabwe's stock market is currently capitalised to the tune of $4.5 billion. I feel this market is grossly undervalued, but due to tight liquidity in the market, the values will probably not pick up until the economy recovers from the near death blow dealt by hyperinflation that essentially eradicated all forms of savings in Zimbabwe. Because the much hyped flood of foreign investment did not materialize, yet, the market will have to depend much on local savings.
2. Many of the stock market investors that the alternative index will target are sophisticated investors or fund managers. These investors are looking for quality stocks to do two things in the current environment: grow value and pay out dividends. These criteria will see many parastatals lose out on recapitalisation.
3. The proposed reduced listing requirement will not correct the major problems that have caused these enterprises to get into the state they are in. Poor corporate governance and financial controls.
4. Because a number of these statutory bodies always had recourse to the treasury / printing mill in the past, many of them have a culture of destroying entrepreneurial ideas from succeeding (this is the lifeblood of any sustainable enterprise). CEOs for these parastatals had only to be politically correct to survive (profitability was not part of their brief).
To address the funding constraints of these enterprises, I believe the following steps need to be taken:
1. All state enterprise need to be removed from under the auspices of parent line ministries and will report directly to the presidium / one minister whose sole mandate is to ensure performance meets overall strategic role of of SOCs to the economy. The line ministries will only be responsible for regulating their sectors and enforcing acts of parliament. This creates a separation between regulators and players in a sector. I believe such an arrangement will also reduce the level of abuse of parastatals (SOCs) by ministries.
2. The SOCs must be held to the same standard of all publicly listed companies. This should be even more the case as we are all shareholders in the enterprises by way of being tax payers. It was our money that started them and our money that continues to prop them up. So every SOC must:
a. Publish salaries and benefits for all senior staff and board members.
b. Board members be held to their fiduciary duty.
c. Financial performance published and explained to the public.
d. The clear mission statement and role of the organisation must be written out in statute so no board and manager can misunderstand their role in the wider community.
3. All non strategic SOCs must be either sold completely or exposed to competition. And by strategic I mean companies that are key to national security and the well being of Zimbabweans. So certain entities should be sold to remove the burden from the fiscus. However, there must be a process to this. Firstly, the profitable SOCs must be either listed on the main index of the Stock exchange and then part of the company is sold to a strategic partner. Examples of this are NET One, ASTRA holdings, Industrial Development Corporation.
4. LArge SOCs must be unbundled to assist in creating efficiencies and then non strategic parts opened to compatition. So Zimbabwe Electricity Supply Authority or National Railways as a whole is not strategic, however, the infrastructure they sit on have too much of a strategic role to leave to private sector. Thus one should split the entire organisation into working units and some of those units sold. For example by splitting ZESA into power generation, electricity distribution and retail billing, the government took an important first step. However, government should have gone the extra step by privatising sections and keeping strategic ones. the Distribution company with all its infrastructure would be kept by government and open access offered to all new generators of electricity, they would then push power into the grid and sell at a competitive rate, government owns the strategic distribution network and private capital goes into generation of power. What tax is derived from the industry assists the state in spreading power to more remote areas of the economy, thereby creating more clients.
State owned companies are key to the development of the Economy of Zimbabwe. SOCs were created to meet the strategic growth path and are all interconnected. However, they have become a drag on the economy. Government cannot continue to bungle the reform of this sector otherwise the future of the country will never improve and Zimbabweans, no matter how hard working or entrepreneurial, will continue to wallow in poverty when we have the potential to create such riches!
'nuff said.
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