Partial Privatization Of State Owned Firms Might Not Be A Bad Thing After All…

Whenever discussion turns to privatization government-owned firms such as NetOne the reaction in the public domain is not welcoming. When Government announced the reforms of parastatals back in April and announced that 12 government-owned parastatals will be getting partially privatised there was no excitement. In fact, most shared a common feeling that full privatisation will be a better route to take.

The cold feet that the public have are not unfounded. After years of an abusive relationship with the government, Zimbabweans are not quick to trust the same people who have put them through many ordeals. In fact, locals are now of the belief that the further an entity is from the government, the higher the chances of that entity actually making it out on the other side. When it comes to partial privatisation, however, I think the government has good intentions and contrary to popular belief there could be a lot of good to come from the partial privatisation of state-owned firms. Let’s weigh the pros and cons…

Pros

Secure the bag

A report on the partial privatization of state-owned firms in India between 1990-2000 found that “the impact of partial privatization remains positive and statistically significant when we control for changes in competitive conditions.” A 10% decrease in government ownership increased annual sales and profits by 13% and 10% respectively. Why does partial privatisation usually lead to a turn around in the fortunes of struggling entities?

Partial privatisation is attractive to better leaders

Partial privatization usually comes with some staff shake-ups, especially in the administrative divisions of companies and these usually lead to better performance. The quality of leaders available for recruitment to partially-privatized firms is more encouraging as certain people with the skills to turn these entities around would never work for these companies whilst they are still entirely under government control.

Think of it this way; if the government were to head-hunt a brilliant CEO to lead ZIMPOST and as this individual was researching on Zim they stumbled upon the stories of Reward Kangai and Lazarus Muchenje it is only logical that something like that would end up being a deterrent. Regardless of who was wrong or right in both situations, government interference in those cases certainly proved that leaders do not have the power to execute your mandate as a new CEO or whatever position you’re given. With partial privatisation, state interference is lessened significantly though it’s not entirely ruled out. This is great because, private owners are more likely to emphasize market skills over political connections in the selection of managers, and I’m sure that’s welcome.

Less borrowing from the Government

When names such as NetOne and Telecel become synonymous to the word losses it is concerning because it also means the government is haemorrhaging money. Borrowing from the government appears to have a negative impact on revenues. While this result could be interpreted as evidence of political interference, it may also be the case that financial support is directed to poorly performing firms. Telecel is a perfect example. Year after year the network provider does nothing notable. The only things that are a constant at Telecel are stories of board struggles. You may think I’m being harsh but take a moment to think of the fact that Telecel only brought 4G to their service in 2017. 2017!!! Let me not waste another word on Telecel.

The government servicing losses of companies such as Telecel is especially dire in Zimbabwe where the government was already dedicating around 91% of its budget to salaries (as of 2016). This means there’s not much else to go around in terms of development but once we take into account the effects that may come about as a result of the more effective leadership and the loss-making companies turn their fortunes around, the government has more funds to spend on other things.

Creation of a local investment culture

I’m not talking about FDI… There is a high chance that whichever entities end up getting partially privatised will also get listed on ZSE. The Former Finance Minister acknowledged that this was the goal:

Where partial privatisation is to take place, Government will explore opportunities for using the Stock Exchange to promote involvement and ownership by the public/population through share ownership schemes.

Though this is not a definite thing you can see how partially-privatised companies such as NetOne and Telecel may one day want to compete with Econet on the ZSE. This is the creation of new smaller economies that currently do not exist and also with the rise of entities such as C-Trade all these factors play into each other and create a healthier economy.

Middle of the road

There are some issues that fall into a grey area depending on how the government approaches them. These issues could be seen as positives or negatives, depending on some different factors. What are these?

Employment issues

It’s a known fact that the government is employing more people than it should be. Partial privatization may not solve this problem entirely. In the case that better leaders take control of state-owned entities and they start turning profits or they start losing considerably less money than they have been, the government may not cut the jobs they are required to. Why? Because jobs are a political instrument and being the one who lays off the thousands of workers who need to lose their jobs in order to turn the economy around will not be a popular decision.

Even in the event that state-owned firms are turning profits and the job market has shifted, the government will probably still use jobs as a political tool to get votes in the next election.

This is one of the biggest challenges that come with partial-privatisation. Government will always use their influence in these firms especially when votes are on the line. This means in the long-run companies may never achieve their true potential, as they are being leveraged for purposes that are not entirely in line with whatever services they offer.

This is an especially tricky issue especially once you consider how intense the job market is in Zim.

Revenue collection

In normal circumstances, revenue collection is a great thing but in the context of Zim, it’s a bit more cloudy. No one trusts the government and without structures in place to ensure funds are not abused companies may change leadership and turn profits for years on end without the life of regular Zimbabweans changing. There have been murmurs of oil being discovered in Zimbabwe but most people are already exasperated by this new. Why? Because everyone feels there will be hope and stories of how oil could change things before billions vanish and we are back to square one. We have trust issues when it comes to our government and rightfully so…

Anyway, to cut the long story short, partial privatization addresses the managerial rather than the political view of inefficiency in state-owned enterprises.

Externalisation…

Partial privatization should be an insurance against incidents where foreigners come in, create good companies and then put money in briefcases and send them back to their countries of origins. In fact, state involvement goes a long way in ensuring that this doesn’t happen.

This being Zimbabwe, however, we could have a situation where officials are at the forefront of externalising.  What you’ll see with a lot of things in this grey area is that we shouldn’t be really having conversations about them but because no one really trusts the government, we’ll have to wait and see.

Investment spending may decrease

Due to two factors; politically motivated spending is reduced and improved monitoring by new leadership may lead to invest more shrewdly and thus increasing productivity. For me, this is more of a positive than a negative in the Zimbabwean context. The government hasn’t “invested” in much in the country, so though this may be applicable in other countries, here we would actually see an increase in investment spending.

Cons

Political Interference

Of course, politics and business can’t be entirely separated but the lesser government is involved the better. With partial privatisation, politics and business will always be intertwined… As mentioned earlier; when times get tough and we edge closer to elections there is no guarantee that the government will limit their interference in these firms and use these to manipulate the votes.