REFLECTION: Government Unveils Reform Strategy for Parastatals

This may be one of the biggest news in Zimbabwe if anyone is looking for hope of a better Zimbabwe. There have been questions left, right and center about the sustanability of our parastatal and the possibility of the nation benefiting much more from these businesses if their services were provided in the private sector. Let's break it down.

Background

Detailed plans for the restructuring of State-owned Enterprises (SOEs) have been prepared, with 41 entities lined-up for privatisation, departmentalisation and listing on the Zimbabwe Stock Exchange. Other firms would be commercialised, merged while four will be guillotined. It is expected that 13 parastatals would be privatised while 12 are set for ZSE listing. This is all being done to turn SOEs into profitable firms to avoid reliance on Government handouts for survival, is being done as part of efforts to achieve “Vision 2030” which seeks to turn the country into an upper middle-income economy with a per capita gross domestic product (GDP) of $3 500 and decent jobs for citizens.

Institutions lined-up for privatisation include the Infrastructure Development Bank of Zimbabwe (IDBZ), Zupco, Agribank and some subsidiaries of the Industrial Development Corporation (IDC). Firms scheduled for ZSE listing are Petrotrade, Willowvale Motor Industries, Chemplex Corporation and Deven Engineering. Thirteen firms; the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) and the Broadcasting Authority of Zimbabwe (BAZ); Powertel, ZARNet and Africom; and the Boxing and Wrestling Boards, are earmarked for mergers. The Competition and Tariff Commission (CTC) is set merge with the National Competitiveness Commission (NCC), while the Zimbabwe Investment Authority (ZIA), Special Economic Zones Authority (SEZA) and the Joint Ventures Unit (JVU), will also be bundled together. ZimTrade, the country’s premier trade promotion body, which was expected to be merged with ZIA, JVU and SEZA, has survived due to “changed circumstances”.

Government had hoped to harmonise all investment and trade institutions to eliminate duplication of roles. The Zimbabwe Mining Development Corporation (ZMDC’s) 17 subsidiaries, the Grain Marketing Board (GMB) and the Civil Aviation Authority of Zimbabwe (CAAZ) will be unbundled to separate their regulatory and commercial functions.

Reflections

1. Increased Competition

In the business world, competition is a good thing. Competition drives entrepreneurs and service providers to innovate the products and services they offer and work to make their offerings more appealing to consumers than their competitors'. When the government is the sole provider of a service, there is no impetus to consistently innovate or serve the consumer – resident under the government's jurisdiction – better than he was being served before. Competition pushes service providers to lower their operating costs, which can mean the savings are passed onto consumers. Greater efficiency cuts down operating costs, which in turn benefits consumers by serving them promptly.

2. Immunity From Political Influence

In Zimbabwe we have a lot of politics, in fact we are rich in politics. When a public service is privatized, it can become immune to political influence. This is because instead of having companies and special interest groups vie for favor from the government office in charge of the service by making strategic campaign contributions and providing vocal support, the private provider is focused on profit. That doesn't mean there's no chance for corruption, though. In some ways, privately operated public services have a greater corruption risk than services provided by the government.

3. Tax Reductions and Job Creation

By providing public services more efficiently and at a lower cost by privatizing them, governments can lower the taxes they impose on residents. In some cases, privatizing a public service like a prison can create job opportunities for residents in an area, increasing the quality of life for them and strengthening the local economy.

4. Less Transparency

One important disadvantage to recognize is the opportunities for bribery and corruption that come with privatization. Typically, private companies are less transparent than government offices, and this reduced transparency paired with a drive for profit can be a breeding ground for corruption.

5. Inflexibility

There is also the issue of inflexibility that can come with privatization. Typically, governments sign lengthy contracts with private service providers. These contracts can span for decades, locking residents into one service provider for lifetimes. Although a private company might make itself attractive to win a contract, its service can take a quality nosedive once it's in place and its consumers are complacent.

6. Higher Costs to Consumers

Although privatization is usually promoted on the basis that it will reduce consumers' costs, it can also drive costs up. According to nonprofit consumer advocacy group Food & Water Watch, a proposed private water service would cost residents 59 percent more than they were paying for public water service.

As you can see, many privatization pros and cons are effects of the same cause. Privatization is driven by private entities' need for profits and governments' need to operate efficiently. All of privatization's advantages and disadvantages are, directly or indirectly, the result of this drive for profit.

Opportunity

As the buckologist, we see this as an opportunity for both local and foreign investors to tape into the Zimbabwean market with a huge opportunity for making good returns. The businesses being Privatised already have their clientele. Most of the businesses are monopolies currently and would enjoy that brand loyalty built over all these years post privatisation. We will be following this move closely.