Government meddling responsible for poor performance by parastatals

A few years ago, workers at a quasi government agency were grounded when the two vehicles that had been donated to the agency by a United Nations organisation broke down.

The agency’s chief executive had three cars but workers could not use them even though their operations had been paralysed. The chief executive had a Mercedes Benz, which he rarely used preferring his latest four-by-four. The Nissan Sunny was now reserved for his wife to take children to school and for family shopping.

The agency was not making money. It relied on a government grant which had to be approved by Parliament every year. Everyone knew it was bleeding to death but Parliament kept approving the grant because the agency was of “strategic national importance”.

This scenario is typical of most state enterprises. Chief executives of these enterprises are competing one-on-one with chief executives of private companies that are making profits while their enterprises are bleeding the nation to death.

Their debts are mounting despite several pronouncements to turn them around. Acting Finance Minister Herbert Murerwa said recently parastatals owed 60 percent of the public debt.

Management consultant and president of the Zimbabwe National Chamber of Commerce, Luxon Zembe, said everyone knew what should be done to turn around state enterprises. People simply did not have the guts to implement it.

Even President Robert Mugabe admitted when he officially opened the current session of Parliament: “..our parastatals, once reformed and commercialised, and properly re-oriented, will be the cutting edge of our economic policy”.

Central bank governor Gideon Gono, architect of the current economic recovery programme, said for there to be meaningful turnaround strategies, it was imperative that Zimbabweans rid themselves “of the gross mentality of entitlement, where office bearers resist implementation of prudent turnaround strategies, clinging to the past, with no sound financial management norms”.

Gono said the parastatal sector should enter into contract systems for top management, where each contract was renewable upon satisfactory performance with remuneration being performance related.

He said parastatals should produce quarterly progress reports on the implementation of their turnaround plans. They should also publish their accounts every half year.

“It is one thing to plan but quite another to implement the plan,” Gono said. “As a country, we have acquired a reputation for excellent economic planning skills but a record of failure when it comes to walking our talk or implementing those economic plans.”

Zembe, however, felt the problem was not at management level but at board level. The boards were made up of political appointees. They reported to ministers and were therefore subjected to the political whims of the minister rather than to economic and business considerations.

“We need boards that are independent, boards that are empowered to make decisions, boards with competent people, boards that are accountable. This is what corporate governance requires,” Zembe said.

“The majority of board members must be independent people who do not have a direct interest in the enterprises. They must not be civil servants. We want independent people who can think independently and can act independently in the interests of the enterprise and not the individual.”

Zembe and Gono’s sentiments are not new. A commission of Inquiry into the Administration of Parastatals, recommended way back in January 1989, that parastatals should produce half-yearly reports within three months of the end of that half year, just like companies listed on the Zimbabwe Stock Exchange do.

The Commission also recommended that: “save in exceptional cases, permanent secretaries and other public servants not be appointed as members of a parastatal board”.

Zembe’s argument that the problem is not at management level but is because of government meddling is amply demonstrated by the exceptional performance of the few state enterprises that have been privatised, such as the Cotton Company of Zimbabwe and Dairibord Zimbabwe.

Sylvester Nguni and Anthony Mandiwanza were the general managers of the Cotton Marketing Board and Dairy Marketing Board before they were privatised. They were both perennial loss makers. But after being commercialised and privatised, they are started making profits.

The Cotton Marketing Board, now Cottco, which is still under Nguni, even managed to beat all competition and bought out its competitors. The company has also diversified into seed production with a major shareholding in the Seed Company.

Dairibord Zimbabwe, still under Mandiwanza, survived intensified competition and diversified outside the country. It now owns a plant in Malawi. It also bought out Lyons and has a stake in Charhons.

Zembe said the solution to turning around loss making parastatals was simple. If a parastatal was not making a profit, it should be privatised or commercialised. He brushed off fears that people would lose jobs while the enterprises would lose their national identity.

“A company can be privatised and still remain national,” he argued. “When you are running a business,” he said, “you have to constantly ask yourself: does this add value to the business? If it doesn’t add value, get rid of it. If it means some people have to lose their jobs, so be it. Once the business starts doing well it will create more jobs.”

Zembe said there was need for a paradigm shift because there was a mentality within state enterprises that they were not in business. “Everyone must realise that they are in business and they must operate like any other business. If you want to drive a Cherokee, you must earn it. It does not make any sense for anyone to drive an expensive car when the company is running at a loss.”

Apart from being control freaks, it is not clear why government is clinging onto loss making parastatals. Their value would be unlocked once they are commercialised or privatised.

State Enterprises that have been privatised have all added value to the government. When the government privatised the Commercial Bank of Zimbabwe, for example, and remained with only a 20 percent take, the value of that 20 percent was worth more than its entire stake before privatisation only one year later.

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