Parastatals bleed Zimbabwe’s coffers dry

Published: 26-OCT-04

The abysmal performance of Zimbabwe’s parastatals, many run by relatives of President Robert Mugabe, is pulling the country even deeper into the financial mire. By Thabo Masemola

Zimbabwe’s government is spending money it does not have on under-performing parastatals, thereby adding to the country’s already unmanageable budget deficit.

Industry players and economists argue that moves to save under-performing entities are unsustainable and likely to further bloat the national debt. It is also likely to put paid to any lingering prospects for foreign investment.

Of Zimbabwe’s Z$1,2 trillion domestic debt, 60% is owed by parastatals. If they were listed companies, analysts would label them “dogs”. But instead of euthenasing these perennial losers, the Reserve Bank of Zimbabwe (RBZ) has set up a concessionary loan facility to lend them money: US$25bn to the Agricultural and Rural Development Authority, $20bn to the National Railways of Zimbabwe (NRZ), $10bn for Zupco, and $7,5bn each to Air Zimbabwe and Zimbabwe Broadcasting Holdings. It also regularly supplies the National Oil Company of Zimbabwe with foreign currency to finance fuel exports.

None of the companies is likely to pay back the money. Some are untouchable because they are being run by the president’s relatives. Of the eight or so parastatals, only one, Wankie Colliery, operates profitably.

The performance of Wankie, a coal mining company listed on the Zimbabwe, Johannesburg and London Stock exchanges in which the government holds 40% shareholding, is the only bright spot among the mediocrity of state owned companies. In the half year to June, the company made an operating profit of $25bn compared to $921m the previous year.

Others, such as the Zimbabwe Iron and Steel Company (Ziscosteel), Zimbabwe Electricity Supply Authority (Zesa) and meat processor the Cold Storage Company, are in desperate need of recapitalisation. The RBZ has given $20bn to Zesa and will increase it to $50bn by the end of the year after finding that the company was technically bankrupt.

The company underwent a restructuring exercise that created five companies, creating huge overheads for new management. While the subsidiary companies have put in place boards of directors, the holding company has been running without one, with an executive chairman, Dr Sydney Gata, in charge. Dr Gata is President Mugabe’s brother-in-law.

In an effort to improve accountability, the RBZ asked all parastatals in need of support to produce audited accounts and credible turnaround plans. Only four of them met the deadline for the end of August. Zesa, Zimbabwe Broadcasting Holdings, Tel One, Zimpost, Industrial Development Corporation, Civil Aviation Authority of Zimbabwe, Road Motor Services, Air Zimbabwe and National Railways of Zimbabwe have since submitted their accounts. Two of them, Air Zimbabwe and the NRZ, were found to have inflated their balance sheets.

In NRZ’s case, Ministry of Transport permanent secretary Karikoga Kaseke said its $10bn monthly wage bill was higher than its turnover and the parastatal has failed to pay its workers on time for much of the year. Some of the companies, such as the National Social Security Authority, a government pension agency to which all employees have to contribute, have been operating on an unapproved budget for five years.

Plans to dispose of the Cold Storage Company, NRZ and the Posts and Telecommunications Corporation have failed due to huge debts that have been accrued over the years by the three companies.

Some of the companies that have been successfully privatised include Dairibord Zimbabwe Limited, the Jewel Bank, Zimbabwe Reinsurance Company, Rainbow Tourism Group, the Cotton Company of Zimbabwe, CAPS Holdings Limited, Zimchem Refineries and Munyati Mining Limited.

To allow the parastatals to move forward, government would have to take over the debts of some of them. It has already retired debts of $12bn for TelOne and Net One to pave the way for an ultimately unsuccessful attempt to privatise them. It also took over a debt of $3bn for CSC in an attempt to commercialise the company earlier this year.

However, after the domestic debt doubled from $600bn in December last year, government suspended debt underwriting for parastatals to meet its budgetary targets.

The acting Minister of Finance and Economic Development, Dr Herbert Murerwa, said government will no longer guarantee loans for unpaid debts incurred by the utilities to encourage selfsufficiency and that it will avoid large quasi-fiscal obligations such as debt takeover, price subsidies and loan guarantees. He said access to commercial bank credit for parastatals would now be based on acceptable business practices and production of externally audited accounts and a viable pricing system. But the move appears to have caught some of them off guard and some, like Zimbabwe Broadcasting Holdings and Ziscosteel, have applied to the State to take over their debts before commercialisation.

Reserve Bank governor Dr Gideon Gono says there is need to bring sanity to the government- owned companies because of the continued dependence on the fiscus.

He said: “Specifically, the parastatal sector should evolve into contract systems for engagement of top management, where each contract is renewable upon satisfactory performance with remuneration being performance related.” The central bank has made all its senior management team sign five-year contracts, which are renewable upon good performance. Dr Gono added: “For meaningful investment to flow into the country, particularly in the strategic parastatal community it is imperative that as Zimbabweans we rid ourselves 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.”

The RBZ has insisted on quarterly reports of progress towards implementation of turnaround plans and that the parastatals should publish their accounts every half year. Whether this will have any effect remains to be seen.

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