Zimbabwe has 92 State Owned Enterprises (SOEs) or parastatals as they are otherwise known. That’s a huge number of entities under the government’s control and the state has decided to go the privatization route.
The Zimbabwean government has realised it might not be best placed or equipped to run these entities and is therefore inviting bids to buy stakes in some SOEs. The government wants to dilute its shareholding in some of the SEOs and also to totally disinvest from some.
The Deputy Minister of Finance and Economic Planning, Terence Mukupe said,
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There is a lot more that is going on, we are diluting our shareholding in those entities and our shareholding might go to zero percent in some entities.
We all are aware that most of the SOEs have been making losses for years. The struggles of the National Railways of Zimbabwe (NRZ) and Air Zimbabwe (Air Zim) have been covered extensively. Audits showed that 38 SOEs surveyed made losses totaling $270 million in 2016.
There were 93 SOEs in 2016 and the audits carried out showed that 70% of them were technically insolvent or illiquid.
The government is now selling off its shareholding in Air Zim, ZESA, NRZ, ZB Holdings, Agribank and Zimre Holdings. Government says more entities will be added to the list.
This move where a government sells of its shareholding in SOEs is called privatization, the opposite scenario where a government acquires control of an entity is called nationalisation. This privatization was first mentioned in the budget by Finance Minister Chinamasa and is being administrated by the State Enterprises Restructuring Agency.
Is privatization the solution?
Privatisation is often lauded as the answer to failing SEOs but it is not the only way to revive struggling parastatals. In Zimbabwe’s case I think it cannot be argued against privatizing some of the parastatals, some would want all of them to be privatized but that would not be wise.
In emerging countries like Zimbabwe, the government has to ensure a balance in social equity and enterprise efficiency is achieved. The role of the government is to promote development and also to step in to provide some services which the private sector may be reluctant to cover for whatever reasons, e.g high capital requirements. Where the private sector is capable and willing to cover, the government is better off privatizing.
Much like now, Zimbabwe vigorously privatized in the 1990s and that did not go well. The privatization led to mass retrenchments. Local authorities that outsourced or commercialized some services saw reduction in service quality as well as increases in prices.
In Russia, the privatization program led to increased economic inequality, as assets were stolen and agglomerated among a select few. In Mexico the privatized entities abused their market power and the country was worse off after the privatization.
That does not mean privatization won’t work this time. It is generally thought that in Zimbabwe in the 1990s, privatization failed because the socio-economic, institutional and legal framework then was not appropriate to support it.
Success of privatization programs is dependent on the proper regulatory structure and strong institutions. Success will not come simply because the government disinvests in certain entities.
It has been done in many countries successfully leading to productive efficiency, profitability, sales, operating efficiency and increases in capital investment. The success stories outnumber the failures and Zimbabwe should have learned from the 1990s failures to get it right this time.