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Privatisation in limbo as govt moves to control state firms

by Staff reporter
11 Dec 2020 at 19:01hrs | Views
EXPERTS say governments' decision to centralise control of State firms will destroy prospects of privatisation and might not be the panacea to challenges facing parastatals.

State-owned entities (SOEs) in Zimbabwe have been facing a plethora of challenges, including recapitalisation, antiquated machinery, investor flight and acute shortages of foreign currency.

In his 2021 budget, Finance minister Mthuli Ncube announced that the government would adopt a centralised ownership model for SOEs to eliminate inconsistencies in governance and ministerial interferences.

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

Zimbabwe has a decentralised State Enterprises and Parastatals (SEPs) ownership model, where the government shareholder function is spread across different line ministries and the 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.

While the centralisation model is expected to eliminate the challenges associated with the current model, analysts contend that governance inconsistencies and ministerial interferences can be optimally addressed separately without necessarily widening government bureaucracy.

An investment analyst, Enock Rukwarwa told businessdigest that while the current decentralised SOEs governance model has failed to galvanise necessary efficiency, the centralised ownership model might not be the panacea to government parastatal challenges.

"Economic systems have two extremes which are; perfect competition and government control; migration from the current governance model to centralised ownership is only an intense case of the same government-controlled system. Governance inconsistencies and ministerial interferences can be optimally addressed separately without necessarily widening government bureaucracy. Since the model will be applied for selected State-owned enterprises that are not earmarked for privatisation, the initiative is worthwhile for a trial run," he said.

Economic analyst John Robertson said the model was unnecessary and was posing a threat to privatisation given that the government is keen on remaining a major shareholder in state firms.

Robertson said the government should be adopting mechanisms that promote privatisation in most government entities to make them viable.

"It seems to me that it's a move that is entirely unnecessary and it is against government's intention to privatise some parastatals. I think it is an attempt to ruin privatisation. The fact that the government assumes control might scare away future investors. Maybe that is wrong but there is no way of telling what government will then do but the intention to remain shareholders jeopardises future privatisation plans for such entities," he said.

According to Ncube, the other supportive 2021 SEPs Policy Priorities that would be implemented simultaneously with the transformation of the SEPs ownership model would entail privatisation of 11 SEPs, six Industrial Development Corporation and 17 Zimbabwe Mining Development Corporation subsidiaries.

It would also entail merging of the remaining five entities, completing the dissolution of all subsidiary boards for Zimbabwe Electricity Supply Authority Holdings and allowing Zimbabwe Power Company to engage strategic partners for its power generation projects, as well as recapitalisation of the newly established Silo Foods through strategic partnerships is also on the cards.

Source - the independent