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State firms crumbling

Fresh data detailing the rot in state-owned firms has emerged, with experts pointing out that their contribution to the country’s Gross Domestic Product (GDP) has plummeted from a high of 40% during boom times to the current 12%.


Experts told a seminar organised by Cabinet to discuss the operations of state enterprises last week that parastatals were poorly resourced to operate profitably.

They said government-run firms also lacked oversight and qualified board members, a situation that has continued to undermine their growth.

The meeting heard that ways to help state firms enhance their operations to return to their previous capacity must be explored.

Finance minister Mthuli Ncube told Standardbusiness after the seminar that the experts had identified several handicaps undermining the state of state-owned enterprises (SOEs).

“The current model is what you call a ‘decentralised model’ where the parastatals or SOEs are controlled or owned through the line ministry,” Ncube said.

“They (experts) have highlighted that perhaps what is happening here is that the line ministries do not have the adequate resources to even exert the right level of oversight on these parastatals and then the boards as well.

“Perhaps they are not adequately trained, I don’t know.

“We have not been able to exert adequate oversight in terms of governance work on these parastatals and this shows in their performance.

“In some cases, we have got some managerial challenges and it shows in the performance which has not been up to scratch.

“Really, the parastatals used to contribute 40% to GDP in the past and now we are down to 12%. If you look at 2017, we were expecting them to make a profit of over US$200 million, but we got a loss of over US$340 million.

“Clearly, it’s quite clear that there is something wrong that needs to be fixed.

“But then, we are migrating to this new model that we are looking into which is much more centralised, where we expect to then exercise better and more effective control on these state enterprises.”

Zimbabwe has over 107 SOEs and parastatals.

Most of these are potential key anchors and enablers of the economy.

However, the parastatals have for years been bleeding the fiscus and thus short-changing the taxpayer.

In its 2017 annual report, the Zimbabwe Revenue Authority stated that parastatals owed it US$491 million in unpaid taxes.

President Emmerson Mnangagwa called for a complete overhaul of SOEs and parastatals by looking at models used in other countries and recommended by international financial institutions like the World Bank and African Development Bank.

“The review of the ownership model has been necessitated by the need to overhaul the corporate governance and management culture within state enterprises and parastatals in our quest to ensure their productivity, efficiency, accountability, profitability, and relevance in the context of Vision 2030,” Mnangagwa told the seminar.  

It was revealed that a better model for Zimbabwe would be a dual SOE and parastatal ownership strategy.

“From all the discussions that took place today, I think the likely migration will be towards the dual ownership model where you take the two extremes and moderate and see what is done to adapt to our situation,” said Canaan Dube, a veteran lawyer who moderated the seminar.

According to a March 2008 World Bank report titled ‘Governance arrangements for state-owned enterprises’, a dual SOE and parastatal-owned model is: “One where the responsibility is shared between the sector ministry and a ‘central’ ministry or entity, usually the Finance ministry or Treasury.”

It said in the dual model both sector ministries and a “common” ministry are responsible for exercising ownership rights.

“The “common” ministry is usually the Finance ministry (or the Economy and Finance ministry) due to the importance of the SOE sector to the state’s overall economic and financial objectives.

“Both ministries may have the right to nominate representatives for the board of directors,” the World Bank said.

“Dual responsibilities often also include the approval of major transactions and strategic plans.”

Mnangagwa said there were numerous examples of countries that had successfully transformed SOEs and parastatals through the adoption of appropriate ownership models which government ministries could learn from.

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