Monday, March 26, 2012

Opportunities for Investment in Zimbabwe‘s State Enterprises and Parastatals Zimbabwe Euromoney Investment Conference Thursday 22 March, 2012 Harare Hon. G. Moyo Minister of State Enterprises and Parastatals


The Minister of Economic Planning and Development Hon. T. Mashakada
Chairperson,
Organisers of the Zimbabwe Euromoney Investment Conference 2012,
Captains of the Business Sector,
Colleagues from Zimbabwe,
Distinguished Guests
Ladies and Gentlemen

It is a great pleasure for me to be part of this event, the Euromoney Conference, and hopefully to share some ideas in the next few minutes on State Enterprises and Parastatals in Zimbabwe.

SEPs , as demonstrated in both developed and emerging economies, have an important role to play in attaining sustainable economic growth.To this end, in Zimbabwe we have adopted strategies aimed at restructuring of public enterprises.

These key economic reforms will strengthen the role played by the public enterprises sector in economic growth and development. The vision of Government with regards to restructuring is guided by the following principles:
·        enhancing the efficiency and effectiveness of public enterprises;
·        attracting foreign direct investment;
·        mobilizing capital and expertise from the private sector;
·        reducing the public sector borrowing requirements;
·        accessing globally competitive technology; and
·        creating export market for newly restructured entities
The initial phases of the privatisation in Zimbabwe were fairly successful as evidenced by the restructuring success stories that saw successful completion of privatisation of Commercial Bank of Zimbabwe (CBZ), Dairiboard Zimbabwe Limited, AICO (formerly Cotton Company of Zimbabwe), Zimbabwe Renaissance Company, Caps (Pvt) Ltd and recently Ziscosteel.

It should however be noted that when the relative stability in the economy was achieved in 2009, Government renewed its commitment to the implementation of restructuring as part of its policy on public enterprise management. The recently launched Zimbabwe Mid Term Plan 2011-2015, underscores restructuring as a policy aimed at turning around the performance of State Enterprises and Parastatals (SEPs).

As part of these efforts the Government made two decisions, one, it approved the Restructuring Framework and Procedures for the SEPs reform process, and secondly in April 2011 identified 10major Parastatals that were then prioritized as first candidates for restructuring on a case by case basis.  

The entities included in the priority list are; Cold Storage Company (CSCL),Air Zimbabwe, National Railways of Zimbabwe (NRZ),Agribank, Zimbabwe Electricity Supply Authority (ZESA)-(ZPC),Grain Marketing Board (GMB),NetOne, TelOne, Ziscosteel and Noczim.

These entities targeted for restructuring are key players in the sectors they are operating in particular:  energy and power generation, steel production, beef processing, banking, petroleum, infrastructure and distribution, grain distribution, transport and telecommunications.

Great opportunities present themselves for consideration by both local and foreign investors wishing to take the lead in establishing partnerships/joint ventures with the first 10 Zimbabwean SEPs identified for restructuring. Firstly, in the energy sector there are opportunities to partner Zimbabwe Power Company, a subsidiary of the Zimbabwe Electricity Supply Authority (ZESA) in power generation and distribution. The current generation capacity does not meet the national demand for power but Zimbabwe is endowed with a wide variety of conventional energy sources for electricity generation, of which the main ones are coal, hydro and coal-bed methane.  The demand for power in Zimbabwe has grown significantly since the last major investment in 1986. At present, the maximum demand is over 2200MW against the domestic supply of around 1300MW. As a result Zimbabwe is struggling to meet its energy requirements, at a time when industrial demand for electricity has increased.

The Zimbabwe Power Company (ZPC) has been mandated by the Government to implement the generation capacity expansion projects of 600MW at Hwange Power Station and 300MW at Kariba South Power Station. ZPC has also identified a number of power generating projects which require at least an estimated USD 3.5 billion as per the last feasibility studies.

KSPS is currently comprised of six generating units each with the capacity of 125MW, giving a nominal installed capacity of 750MW. The Power Station extension is a vital addition to the Zimbabwe power system as it will add 300MW of capacity to ZPC which, when operated with the existing plant, will bring KSPS to allow KSPS to operate as a 1 050MW peaking power plant.
The estimated cost of the Engineering Procurement and Construction (EPC) is US$550 million (estimated within +/-40%).  The project is considered viable and has a lead-time of three years.

The project to develop Units 7 and 8 at Hwange Power Station was identified as a least cost and therefore should be the first to be implemented in Zimbabwe amongst the large scale base load generation projects. The HPS expansion project envisages the addition of two units of 300MW each on existing site which already has six units with total capacity of 920MW, bringing total generation capacity at HPS to 1 520MW. The estimated EPC cost of the HPS expansion is US$1.32 billion at a +/-40% accuracy level. The design specifications will determine the accuracy of the EPC cost estimates. I therefore would like to invite you as investors to partner with us in these history defining infrastructure projects.   

Secondly in the pipeline is the Batoka Gorge Hydro Electric Plant Project which will involve the construction of a dam together with hydro power plants on the Zambezi River, 54km downstream of the Victoria Falls. It is estimated that the project would have a capacity of 1600MW, to be shared between Zimbabwe and Zambia, and for Zimbabwe this would be covered by constructing four generating units of 200MW each. The project is estimated to cost US$2.2 billion.  The two governments are already engaged in a search for investors for this regional project.





Third, there is even greater scope for serious investors that can partner with the National Railways of Zimbabwe (NRZ). In the past decade, the capacity of the railway network to provide services has been severely eroded. Track infrastructure, signalling and telecommunication system deteriorated over the years due to lack of regular repairs and maintenance because of financial constraints of NRZ. Investment opportunities exist in the Parastatal for the purchase of new locomotives and wagons, repair of the rail system, repair and replacement of the signalling system among other investment opportunities. The restructuring proposal for NRZ envisages the split of the entity into three distinct self-financing entities i.e. Infrastructure, Freight and Passenger Companies whose operations and management will be totally divorced from each other.  This option is meant to foster accountability, efficiency and economic and financial viability of each of the entities as cross subsidisation will be eliminated. Rehabilitation of the network and rebuilding the services offered by the rail network is therefore a major priority of the country with a strategy of allowing private players.

Fourth, in the aviation sector the national carrier Air Zimbabwe has been battling to remain competitive owing to financial constraints that have faced the Airline over the years. The airline requires financial injection to acquire new aircrafts and other operational expenditures, for the airline to raise the needed capital from internally generated resources it has proved to be difficult and therefore the airline requires a strategic partner who comes in with fresh capital injection. Air Zimbabwe has been unbundled into Air Zimbabwe (Pvt) Ltd and National Handling Services (NHS).  An interim Board has been appointed to establish the new airline which should resume operations as soon as possible.

Fifth and in the same sector, the Civil Aviation Authority of Zimbabwe (CAAZ) will require substantial additional resources to build a sustainable company with a clear competitive advantage through provision of world-class facilities and customer service. The work plan will involve the rehabilitation and upgrading of aviation infrastructure at the airports and the restructuring programme to attract much needed private sector funding for rehabilitation and upgrading of airport facilities to accommodate the projected growth in passenger and freight movements.  The Government is already working on a restructuring process that entails the splitting of CAAZ into two companies responsible for Civil Aviation Regulation and Airports Management Company in line with international aviation trends.

Sixth, the fixed telecommunication provider Telone is facing an uphill task of rehabilitating the telecommunication infrastructure and to expand the network as well as bringing modern technologies in the sector in line with global trends.
 TelOne has historical financial challenges that have hindered the expansion of its network, as its landline network connects around 300 000 customers out of a population in excess of 12 million people.  TelOne was recently granted a Global System for Mobile communications (GSM) mobile permit and will be the fourth mobile operator in a market of some four million subscribers.In this regard, the fixed network company will be looking for strategic partners.
 Seventh, NetOne, the mobile company needs financial and technological capacitating through strategic partnerships to catch up with its competitors in the subscriber base and technology. 
Eight, recently, the Government has approved the Agribank`s recapitalisation through engagement of a strategic partner(s), which provides opportunities for investors targeting the banking sector in Zimbabwe. The Bank therefore intends to be capitalised through engagement of a strategic partner or partners. The proposed capital raising exercise will be achieved through restructuring and broadening of the shareholder base of the bank by incorporating a Strategic Investor/Investors. The Bank would expect the Strategic partner to provide equity finance and be able to mobilise lines of credit in order to return the bank to profitability and to be self financing.   

The Tender documents for the engagement of legal and technical advisors have been approved by the State Procurement Board (SPB).  The Tender documents have since been advertised in the media and gazetted on the 16th March, 2012.  Government will fund the Transaction Costs.

Another Government owned bank that will follow soon in the restructuring process is the POSB.As Government we need POSB to contribute to the fiscus in the form of dividends as other commercial banks are operating profitable. We are therefore looking for a strategic partner who will introduce more capital and lines of credit.

Nineth, there are also investment opportunities in the Grain Marketing Board (GMB) commercial operations.  The Agro-processing and Farmer Support Services, Business Unit provides opportunities in the manufacturing of stock feeds and coffee processing.  While, the Commodity Trading Business Unit has the potential of marketing grain to local and international markets if investors provide the necessary capital.

Tenth, still in the agricultural sector, the Cold Storage Company (CSC) provides investment opportunity in meat processing. CSC is also considering a joint venture with a partner who has the capacity to provide capital on the basis of the joint venture business to be operated from selected CSC abattoirs.
 The CSC will facilitate access by the JV to selected CSC abattoirs through a ease arrangement.

Given the attractiveness of some of these assets, the Government has considered engaging investors who will assist in strengthening the technological base, access to foreign markets and a stable financial base. With new investment in many of the privatised enterprises, it is expected that entities will improve their performance, realise their expansion drive and create new jobs.

Government is fully aware of the vast investment opportunities in the public enterprises and hence it has committed itself to unlocking value in these enterprises. The unveiling of new investment opportunities in infrastructure expansion and rehabilitation is one of the key areas where foreign investors are being called to explore through strategic partnerships and Public Private Partnerships (PPPs).
The Government is currently crafting Public Private Partnerships Regulatory and Legal Framework that will see the creation of the PPP Unit as a central unit responsible for coordinating, implementation and monitoring of Public Private Partnerships (PPPs) projects in Zimbabwe.


The Government has noted the need to improve the legal, institutional and regulatory arrangements and has therefore started reviewing of the legal and institutional framework for State Enterprises and Parastatals aimed at improving the effectiveness, autonomy and accountability of these SEPs.

In this regard, Government promulgated the Corporate Governance Framework for State Enterprises and Parastatals which gives the guidelines on how SEPs are directed and controlled. The framework emphasises the need for Boards to adhere to principles of Good Corporate Governance which include the following among others; accountability, transparency, openness, responsibility and fairness.

In conclusion, I reiterate that Government has once again rekindled its desire to restructure SEPs in order to stimulate economic growth. As the country follows the principles of a democratic developmental state, government promulgated various macroeconomic policies which afford investors, both local and foreign, vast opportunities for investment ready for take-up.   I therefore call upon interested investors to seriously consider and urgently express their interests in these sectors which in essence form the economic backbone of our country . 

Let us all unite to revive our SEPs for the restoration of our economic glory and assume our rightful position among progressive nations.




I Thank You


Hon. Gorden Moyo
22 March 2012

Tuesday, March 20, 2012

Paper presented at SAPES Trust Thursday 8th March 2012 Zimbabwe's New Economic Agenda : The Future of Parastatals

Chairperson, Organisers of the workshop, Captains of the Business Sector, Colleagues, Distinguished Guests, Ladies and Gentlement.

It is my great pleasure to be invited to this important symposium and present on this intriguing subject on Zimbabwe`s New Economic Agenda: The future of Parastatals”, given the renaissance a new economic thinking in the contemporary world of an economic development path that hinges on State Enterprises and Parastatals (SEPs). SEPs are used by governments in both developed and developing economies to facilitate growth and progress that comprises the economical and social dimensions that reflects directly and positively on its citizens by way of raising their standard of living and providing better life and well-being.

Mr. Chairman, the recent global economic crises has rekindled discussions on the role of the state in economic development. During the global crisis, the Obama Administration introduced a fiscal stimulus package of $787 billion for the US financial market. In the UK, the state injected £37 billion to bailout its financial institutions. Furthermore, various Western governments had been pivotal in reviving their economies with bailouts packages for banks, the automobile industry and other parts of manufacturing. All these actions and reactions by the states attested to the relevance and increasing role of the state in economic recovery and development.

As I have alluded to above, the involvement of governments in the planning and execution of social and economic policies is almost inevitable. Governments’ involvement in the economy in Africa has been more relevant in the absence of viable indigenous entrepreneurs especially soon after independence, as well as the threat posed to their entire economic structures by neo-colonialism. In Zimbabwe, like most African countries, upon attaining independence the Government observed that neither the public service it inherited nor the few scattered private enterprises controlled by some alien investors could produce goods and services that would satisfy the development aspiration of the country. It is from this background that the recent discourse on economic management is now premised on what kind of state should be set up to facilitate economic development in the country. In that regard, it is therefore discernable that the future of the Zimbabwean economy hinges on the role play by the Government through SEPs which are conduit through which government provide commercial and social goods.

Chairperson, SEPs have been, and will continue to be a dependable wand that governments use in embracing the principles of a new economic system of a Democratic Developmental State (DDS). In the recent years, there has been a debate among policy practitioners and academia on the adoption of the DDS model, as a successor of the once celebrated command and free market ideologies as a key to future of the developing world. In this vein, the United Nations Economic Commission for Africa (UNECA) has not deviated much from the revelation of DDS when it advocates for a state-led model of development intended to bring about industrialisation and entrepreneurship through intensive and deliberate effort by the state.

Chairperson, it is quintessential to note that the rise of the DDS paradigm had been motivated by world metamorphosis which culminated in new conditions which renders the old economic systems ideologies inapplicable for the policy making process though these old systems had produced some desired fruits at a certain time and place. These conditions facing the contemporary economic landscape include the rapid diffusion of new technologies, new holistic definition of development that incorporates needs and rights approach, regional and international integration pressures, the globalization of markets and pressure for democracy among others. Given these new economic developments, Zimbabwe is faced with an intricacy situation of either embracing DDS paradigm quickly or be forcefully eclipsed to a trivial consuming province by more powerful neighbours like South Africa.

The DDS model acknowledges the role of the state, through its conduits SEPs, as a economic facilitator in correcting market failures by providing necessary infrastructure in various sectors and other social requirements that cannot be provided by the private actors normally motivated to produce by the profit scent.
In that regard, government shall continuously implement comprehensive developmental programs through SEPs so as to activate and stimulate the national economy, raise its efficiency and growth rates.

Chairperson it is important to mention that SEPs shall continue to promote economic development and social progress in Zimbabwe through provision of important services and infrastructure in areas such as public transport, posts and telecommunications, energy, water supply, agriculture, health, education, tourism and so on. Recently the definition of economic development has been broadened to include a host of issues of needs and rights of citizens, a move that demands an active role of Government in facilitating development by providing collective goods (including social ones) that otherwise would be under-supplied by the market. 

Chairperson, it is worth reiterating that Government has a responsibility of ensuring that its citizens receive their needs through its SEPs. There are SEPs which are purely social and developmental in nature like ARDA and some are strategic like the GMB and Zimbabwe Defence Industries which have the responsibility of fulfilling specific social goals and providing employment. These SEPs are also used for correcting glaring social and economic imbalance between genders, classes, regions, and ethnic groups which is necessary for DDS.

Furthermore, SEPs are central especially in those areas where private entrepreneurs are reluctant to invest due to inadequate investment owing to scarcity of capital and high risk aversion coupled with poorly developed markets.  SEPs therefore utilise the available economic space for attaining economic development.

Some SEPs are commercial in nature particularly in the mining sector and can accelerate the growth in exports and can be champions in diversifying the country's export basket by supplying non-traditional export items. On the other hand, they also improve on import-substitution policies.

Mr. Chairman, the best strategy for sustaining growth and achieving developmental success in the future is the continuous reforming of the economic system to enable it to adapt to changing circumstances.  In that respect, restructuring of SEPs plays a central role in attracting foreign investment by restructuring of SEPs through strategic alliances and joint ventures with carefully selected foreign partners. This policy thrust on SEPs restructuring facilitates the increase in the flow of investments and technology so as to bring about dynamisms and diversification of the production base of our economy. In addition joint ventures and strategic alliance enables the country to access global markets given the rising of trading blocks that will block small economic players.

In addition, technological innovation which are brought about by strategic alliances and joint ventures shall prop the competing private businesses to develop new activities. This strategy will compel private players to be innovative, a move that will result in continuous improvement in product and/ or service quality.  Continuous improvement is a key element for the DDS for economies to survive in the new competitive global market.

Mr. Chairman, it is worth mentioning that opening up the economy to international markets and investment will help the country develop new ideas, acquire new technology and capital, and raise the level of productivity necessary for sustainable growth.


Chairman, it is important to mention that the future of Zimbabwe on the implementation of the concept of Public Private Partnership (PPP). PPP arrangement is a tool of modern government which create value for money and reduced fiscal risk. The concept is based on the idea of constantly improving and finding more efficient ways of providing public infrastructure and services. Public Private Partnership is a live issue in many countries, and will continue to be, as long as governments continue to seek ways of modernising their public administration systems, in improving service delivery, tapping benefits of technological transfer, respond to domestic external pressures and meet the challenges of globalisation.

Economic development driven by PPPs depends on a reasonable balance between the public and private sectors at the local level and the use of private sector methods in local public management, keeping in mind that size and scale as important factors in considering the costs and returns of PPPs. Clear and comprehensive PPP Legislative framework being proposed by this Bill shall be crucial in adoption of this modern public management framework.

Mr. Chairman the attainment of a DDS status relies on the promotion of evidence-based decision-making which demands transparency and accountability from all state functionaries; and strives for social services provision mechanisms that are underpinned by the principles of efficiency, equity and sustainability. It is from this background that a culture of good corporate governance must be espoused at national level so as to promote DDS principles in the process. The Government through SEPs can spearhead the need of good corporate governance. The compliance of SEPs to good corporate governance principles on its own transmit a message to the private sector to comply.

In this regard, the Government promulgated a Corporate Governance Framework (CGF) for SEPs. Good corporate governance is a must, given the spreading of globalization driven by Information Technology (IT) as the local companies will be required to enter into business contracts with international suppliers that value good corporate governance. In addition, the pressure for international economic integration is another new reality that makes good corporate governance even more important. The Government through my Ministry shall continue to promote good corporate governance in SEPs which will have some ripple effects on the private sector.

Mr. Chairman, DDS is also about prudent regulations, rule enforcements, and accountability. The state advocates for governance of the economy mainly through regulatory agencies that are empowered to enforce a variety of standards of behaviour to protect the public against market failures of various sorts, including monopolistic pricing, predation, and other abuses of market power.

Mr. Chairman, the present SEPs sector institutional capacity requires to be strengthened through a SEPs Management Act so that SEPs will perform effectively and efficiently. South Africa, a good example of a country that follows DDS principles, has an empowered Department of Public Enterprise which effectively monitors the performance of SEPs. In this context it is imperative for Government to empower SEPs oversight body which is the Ministry of State Enterprises and Parastatal through a Legislative Framework so that it can effectively carry out its mandates.

It has been noted in this paper that restructuring of SEPs through strategic alliance and joint ventures play a pivotal role in technology transfer, financial investments and accessing of global markets which are key elements of a DDS. In this regard there is need of a SERA Act that compels transparency and discipline in the SEPs restructuring process. This envisaged Act will also speed up the process for the economy to enjoy full benefits of restructuring by reducing restructuring-lag encumbrance and bottlenecks.

It is however pleasing to note that the Government has approved the Restructuring Framework which has identified 10 State Enterprises that formed the first batch for restructuring on a case by case basis. These entities included in the priority list are the Cold Storage Company, ZISCOSTEEL, NOCZIM, Air Zimbabwe, Agribank, NRZ, ZESA, GMB, NetOne and TelOne. Progress is being been made in restructuring these identified SEPs and they are now on different stages of restructuring. To date two of these entities were restructured ZISCO now called New Zimbabwe Steel Company and unbundling of NOCZIM which saw the formation of Petrotrade and National Oil Infrastructure Company.

Mr. Chairman an appropriate regulatory framework which separates ownership and regulatory functions is a vital institutional scaffold for the economy to fully benefit from restructuring of SEPs which will culminate in the success of the DDS ideology. In that regard, there is need to come up with a proper regulatory framework in all sectors it does not exist, as it is a prerequisite in inducing the private sector participation. There shall also be need to strengthen rules for the existing agencies.

In addition, Government considers the creation of a multi sector regulatory agency against sector specific regulatory framework so as to benefit on skills sharing, reduce cost of regulation, ensure consistence in approach and foster independency. Best practice regulatory framework usually allows effective competition, set price cap to avoid cross subsidies and remove political influence on regulators. These principles must be considered in coming up with appropriate regulatory framework.

In conclusion, cooperative spirit in government and among all stakeholders proffers solutions to our economic challenges while uncoordinated economic responses are a source for turbulence and uncertainty in the economic recovery.

I Thank You
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