State-owned concerns need new solutions

17 Mar, 2023 - 09:03 0 Views
State-owned concerns need new solutions

eBusiness Weekly

The general run of State-owned enterprises and local authorities came in for serious criticism by President Mnangagwa yesterday when he announced the top awards for last year in the Integrated Results-Based Management System, the performance contracts signed by ministers, permanent secretaries, heads of State-owned enterprises and vice-chancellors of State universities.

Most in the private sector would agree with the President, and have been horrified at lack of delivery of services and the sort of money pumped into these by Government or themselves for some time with so little coming out.

The fact that Harare Institute of Technology, an engineering university, was the top State-owned enterprise tells us a lot, as does the second place for Zimdef, an entity that collects a special tax and then uses this to sponsor technical training, and was largely set up so that those private sector enterprises who do train are not wiped out by the enterprises that just poach staff later.

Neither would be listed as a State-owned enterprise by many, although technically they are, but they are not among the companies and parastatals that most of think of when we think of the State business sector.

HIT reached the top place because it has pushed the stress on innovation hubs and applications of practical technical research the furthest. IT has not only been doing practical research for some time, and engineers tell us that if research is not practical it is not engineering, but has gone several steps further.

Several universities now have modest units applying research by offering commercial products and services but HIT has companies that it oversees technically, and must maintain at least some shareholding, but has brought in high-grade business managers to run and do the marketing. The medical oxygen plant at Feruka was among the first of these incubated concerns set up.

This makes sense, to incubate the new enterprise, do the research and ensure the technology and engineering work, but not try and run commercial businesses out of an annexe to the vice-chancellor’s office.

HIT, unlike many State-owned enterprises, pushes its strengths without creating a bureaucracy to reinvent a wheel, which it might not do that well in any case. As a technology university its research will be good and original and will work.

A majority of staff might well be engineers and members of professional engineering institutions but it will have a good leavening of pure scientists: mathematicians, physicists, chemists, material scientists, information scientists and the like. These can not only back up their engineering colleagues with crucial aspects of research, but also ensure graduates not only know how engineering techniques work, but why they work, so they are useful in a fast developing world.

Zimdef was created to cope with the rising number of complaints from the responsible business sector, those who hired school leavers and put them through apprenticeships, with the extra costs of technical college fees as the hidden costs of having to release them for their courses, and those who hired brand new university and college graduates and with practical training and experience turned them into very useful employees, but having to pay them throughout that crucial experience period.

These companies thought it incredibly unfair that competitors did zero training and then hung around the company gate to snap up the trained and experienced staff that others had matured. The manpower levy is paid by all but those who do serious training get a lot of it back, and sometimes more than what they pay in, to cover the costs of so much of their training.

Since then Zimdef has gone a bit further but it is regarded as one of the better run parastatals being efficient.

But much of the State-owned sector that is supposed to be commercially orientated and supposed to be self-financing and providing critical services and products does not really perform. Many State-owned enterprises appear to exist in order to exist, and provide a handful of decent jobs and nice company cars to those who are posted to run them.

Some of this is inherited. Several State-owned companies were taken over when they collapsed through ineptitude by their previous private owners and the loss of jobs, products and services could not be tolerated. In this group can be included a batch of companies owned by foreign companies that applied sanctions after UDI, were potentially a lot more viable, and were taken over by the Industrial Development Corporation after UDI to keep them running with supplies coming from less fussy companies and less fussy countries.

This tended to negate the original purpose of the IDC, which was supposed to be more of a venture capital concern when set up shortly before UDI, accelerating industrialisation by helping create and open critical new companies that were not immediately of interest to investors because the first returns were not immediate, but which were inherently viable and profitable.

The idea, as will all venture capital concerns, was to be ready to float the companies or otherwise sell them off, at a significant profit, once they were generating profits and then use these capital gains to set up new concerns. Instead it became a permanent holding company, for good reasons but not really effective.

Other State-owned companies were Government departments or parastatals that were commercialized as a company with the possibility, rarely realised, of being privatised later. Some of these conversions never really made sense. CMED appears to be one example as it is difficult for a company with one customer, the Government, which sets a lot of its pricing to be a real company.

In the general run of commercialising and even privatising agricultural parastatals fortunately did not include the Grain Marketing Board, which under an efficient ministry has now been revitalised as an effective parastatal  with the core job of channelling inputs to farmers and acting as a guaranteed buyer of all that is on offer, so settling prices.

It has two functions, the maintenance of reserves beyond the next harvest and eventually to export from those reserves, and its own value-added commercial business, Silo, within Zimbabwe. But the reserve function has to be Government funded, the GMB being in effect a contractor providing facilities, and Silo is a business that has to compete profitably with the rest of the private sector and has been legally separated from the GMB.

But there are other major concerns, starting perhaps with the National Railways of Zimbabwe, where the conversion into a private company has never really been seen as a wonderful idea. The railways were, in fact, once a private company and in its private days was in fact a group of companies that Cecil Rhodes and the BSA company set up, all owning different sections of the line and having first and second mortgages on their track in one of the most complex financial schemes seen in southern Africa.

Eventually the bits were put together and financed with a new issue of bonds, just before the Great Depression, but the bond holders only got their money back when the Government nationalised the company and took over the debt. Under Government ownership it flourished, for a while, helped by the ban on bus services between the towns on the line of rail and the single-lane difficult roads.

Eventually the rebuilding of the highways to “wide tar”, the advent of decent trucks, and then the dearth of capital investment after the middle 1960s except the emergency Rutenga-Beitbridge line after Mozambican independence and the electrification of the Harare-Gweru line after our independence, killed off the railways.

Very largely from the middle 1960s onwards the railways have been running down locomotives and rolling stock without much replacement until now there is so little left.

The private company model appears not to have worked very well. There are others in the same position although in theory whether such entities are parastatals, with annual financial reports to Parliament, or companies, with annual financial reports to Government that Parliament can see, should not matter; one problem is no reports to anyone.

One would have expected the management of many of these State-owned enterprises would have been far more active, with some even suggesting that their job was abolished, and so we can understand the irritation of the President. But he is correct, many of these enterprises need to be rebuilt, or sold off to new investors, or have State shareholder diluted with new investors, or returned to full Government control or closed down. Existing to exist is no longer an option.


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