The state of Corporate Governance in Zimbabwe’s State Enterprises: Can the situation be rescued?

The state of Corporate Governance in Zimbabwe’s State Enterprises: Can the situation be rescued?


Keynote Address by

The Minister of State Enterprises and Parastatals

Honourable Gorden Moyo (M.P)

At

IIA Annual Conference

Elephant Hills Resort

Victoria Falls

13 September 2012

Chairperson, Organisers of the Conference, Captains of the Business Sector, Distinguished Guests, Ladies and Gentlemen.


It is my pleasure to be part of this important conference and am grateful to the organizers for the invitation to address delegates on the very topical subject of corporate governance as it relates to State Enterprises and Parastatals in Zimbabwe. This invitation is coming at a time when the Government is implementing a number of reforms aimed at transforming the Parastatals sector so that they efficiently deliver their respective mandates.

Ladies and Gentlemen, it is important to note that State Enterprises and Parastatals, are a entities created by Governments all over the world to carry out certain activities, which by their nature do not attract investment from the private sector either due to the fact that the return on investment is minimal, takes long to recoup, or the infrastructure required is expensive to construct and maintain. At the same time the activities are such that they cannot be ordinarily carried out by a Government Department efficiently.

State Enterprises and Parastatals provide diverse services to both the public and corporate institutions thereby providing a platform upon which other economic activities can ride and grow such as telecommunications or ICTs, transport services and infrastructure, energy and power, these are activities that facilitate the creation of wealth through the industrial and manufacturing sectors including the financial and retail sectors. Provision of electricity generation and water reticulation in developing economies does not readily attract private capital investments for reasons related to costs including tarrifs.

In essence Ladies and Gentlemen SEPs are key enablers that facilitate economic growth and sustainable development.

Ladies and Gentlemen, these entities, despite their strategic importance, have not been performing to expectations due to a number of well known constraints ranging from very limited flow of foreign direct investment and a very difficult operating environment characterized by liquidity constraints arising from a number of conditions including the adoption of the multi-currency system.

This situation has been compounded by general weaknesses arising from weak corporate governance enforcement mechanisms.

As a result, institutions have been established and countries, as well as groupings of countries have developed corporate governance standards to improve the way corporations are governed and controlled as well as mitigate against occurrences of failure.

Some of the most prominent efforts so far include the following:

• Corporate Governance Framework for State Enterprises and Parastatals

• Malawi Code

• The Organization for Economic Co-operation and Development (OECD) Principles of Corporate Governance (2002);

• The King Report on Corporate Governance for South Africa (1994) including King II (2002) and King III (2009);

• State Owned Enterprises Governance Act of Namibia (2006);

• The New Economic Partnership for Africa’s Development (NEPAD): African Peer Review Mechanism (2003).

Some initiatives have also been made through the Pan African Consultative Forum on Corporate Governance, The United Nations Economic Commission for Africa (UNECA), The African Development Bank, African Union, The Common Market for Eastern and Southern Africa (COMESA), SADC, and ECOWAS.

The turn of the century witnessed the stunning collapse of a number of business organizations worldwide. Most prominent among these, being the extensive corporate (financial) sector failure in South –East Asia (1997) and more recently a number of major corporations have failed in the United States such as Enron (2001) and AIG (2008) corporations. The majority of failures in both regions have been attributed to an absence or dereliction of efficient corporate governance. In Zimbabwe a number of corporate failures has been recorded especially in the financial sector, which are still to be resolved by way of Judicial Management.

As Minister responsible for Cross-Cutting policy issues related to the administration of SEPs, I note, with great concern that will still have some SEPs which continue to ignore the requirements of the law as provided for in the enabling pieces of legislation as well as the provisions of the Corporate Governance Framework launched by the Government in November 2010 particularly the requirement to hold Annual General Meetings (AGMs).

Annual General Meetings are critical in keeping company performance under scrutiny and in defining strategic issues covering, among others, further development of the business. The AGMs create an opportunity for Shareholders to interrogate the performance of the entity and approve new projects.

Ladies and Gentlemen, let me appreciate the recent holding of the first Annual General Meeting in 81 years by the Grain Marketing Board. This is a positive development and is in line with the Corporate Governance Framework for State Enterprises and Parastatals.

Ladies and Gentlemen, allowing SEPs, for whatever reasons, to operate without boards creates not only a leadership vacuum, but also legal constraints for the validation of policy decisions and approval or authorisation of programmes. It is worrying for State entities to operate without boards for long periods because management are then left to operate without accountability, a situation which may compromise the efficiency and effectiveness of an entity due mainly to the absence of an effective oversight function. This calls in some instances for changes in leadership structures and renewal in SEPs for better performance, financial reporting and audit systems.

Ladies and Gentlemen, the question is, “Can the Corporate Governance situation in our State Enterprises and Parastatals be rescued?”

The answer is, yes, the situation can be rescued and it can be done if every one of us with a hand in the running of SEPs play their part and if all institutions play their respective roles and behave as good corporate citizens.

This requires a paradigm shift and movement away from traditional ways of selection of both Boards and Management to the adoption of systems that take cognisance of the need for the right skills mix, professionalism, the introduction of public accountability and self monitoring mechanisms. This is precisely the reason the Government has therefore introduced Board Performance Agreements and Performance Contracts for CEOs of SEPs.

Ladies and Gentlemen, enhancing transparency and accountability in SEPs is central for improving the corporate governance compliance. It is one of the efficient entry points for governance reforms. It is also a central recommendation of the Organisation for Economic Co-operation and Development (OECD) Guidelines. The Government needs to be kept accountable for the way it exercises its ownership rights: “The state should act as an informed and active owner ensuring that the governance of state-owned enterprises is carried out in a transparent and accountable manner, with the necessary degree of professionalism and effectiveness" (OECD Main Guideline, Chapter II, p. 13).

Ladies and Gentlemen, corporate governance developments both locally and around the world have reaffirmed the board’s responsibility for ensuring the effectiveness of their organisation’s internal control framework.

These developments have highlighted the key role that internal audit can play in supporting the board in ensuring adequate oversight of internal controls and in doing so form an integral part of an organisation’s corporate governance framework.

The key role of internal audit is to assist the board and/or its audit committee in discharging its governance responsibilities by delivering:

• An objective evaluation of the existing risk and internal control framework.

• Systematic analysis of business processes and associated controls.

• Reviews of the existence and value of assets.

• A source of information on major frauds and irregularities.

• Reviews of operational and financial performance.

• Recommendations for more effective and efficient use of resources.

• Assessments of the accomplishment of corporate goals and objectives.

• Feedback on adherence to the organisation’s values and code of conduct/code of ethics.

However in attempting to adequately discharge their responsibilities, internal auditors often find themselves in an anomalous position. They report to senior management within the organisation, yet are expected to objectively review management’s conduct and effectiveness. The only satisfactory solution to this problem is for internal audit to report primarily and directly to the board and its audit committee rather than to senior management.

In the UK, a report by Sir Robert Smith on the Combined Code Guidance for Audit Committees (the Smith Report) states that “…management is responsible for the identification, assessment, management and monitoring of risk, for developing, operating and monitoring the system of internal control, and for providing assurance to the board that it has done so – except where the board is expressly responsible for reviewing the effectiveness of the internal control and risk management systems.”



In Australia, the ASX Principles of Good Corporate Governance has a bet each way. It recommends that internal audit “…should report to management and should have all necessary access to management and the right to seek information and explanations.” However, the ASX Principles then go on to suggest that “…companies should consider a second reporting line from the internal audit function to the board or relevant committee.” Under the ASX Principles it is also recommended that the audit committee have access to internal audit without the presence of management.

If we look to the financial services industry, we also find that the Basel Committee makes no distinction in its guidelines as to the natural reporting line for the internal audit function except to note that “…the principle of independence entails that the internal audit department operates under the direct control of either the organisation’s CEO or the board of directors or its audit committee”.

Ladies and Gentlemen, the structure and reporting lines adopted for the internal audit function should promote independence, objectivity, consistency and business understanding. This can be achieved by combining the concept of a clear reporting line to the board/audit committee with an organisational structure that allows internal audit to operate independently of other functions within the organisation.

The Internal Audit function is one management tool that, if given its proper place, would propel our State Enterprises and Parastatals to greater heights as one of the biggest problems in the entities is one related to wastefulness, leakages and improper management of both financial and material resources.

Therefore Mr. Chairman, Internal Audit Units should not only focus on risk management and control systems, but also dedicate attention to the whole spectrum of governance issues as well as keeping abreast of new developments and standards on the subject.

So, full implementation of best practices in corporate governance coupled with other reform initiatives in the management of SEPs, I am convinced Ladies and Gentlemen, should bring back the “engines of growth” status to our SEPs.

Ladies and Gentlemen, to reduce the occurrence of corporate governance failures in our entities, let us all embrace and inculcate into all our institutions a culture of good corporate governance practices, revive the African philosophy of Ubuntuism that fosters togetherness, righteousness, a sense of belonging and mutual accountability for the achievement of community objectives and the desired well being of society.

I have reflected on the roots or sources for the development of a culture in corporate governance context and taken the conclusion that, for any particular mode of behaviour to become part of a culture, that behaviour must be a product of not just commitment but also passion.

A culture of corporate governance means that the principal players, the directors, care deeply about the corporation and about its governance processes. The mode of behaviour of the principal players in governance systems, i.e. the directors, shareholders, officers (and other stakeholders) must reflect a deep and abiding commitment to good governance principles and a strong desire to be associated with good things, and the promotion of good morals in individual institutions and society at large.

Various initiatives such as the restructuring of SEPs with the view of establishing joint ventures, review of the regulatory and operational environment and strengthening of performance Management systems are equally important for the successful transformation of our SEPs.

With regards to restructuring of SEPs, the Ministry, through State Enterprises Restructuring Agency (SERA), is working closely with line Ministries to identify and effect appropriate restructuring options for SEPs.

The adoption of restructuring strategies for public enterprises is one of the key economic reforms that will strengthen the role played by the public enterprises sector in economic growth and development.

I would also want to assure you that, since the adoption of the Corporate Governance Framework for State Enterprises and Parastatals in November 2010, there have been positive developments in the way corporate governance practices are being embraced. We have seen new Boards being appointed timeously with the appropriate skills mix, and the number of SEPs holding AGMs has increased.

Ladies and Gentlemen, compliance with the Corporate Governance principles benefits both the Shareholders and employees of companies as it increase transparency and disclosure. When a company is doing well every stakeholder benefits in one way or another. Also, adopting good Corporate Governance practices leads to a better system of internal control, thus leading to greater accountability thereby improving access to capital and financial markets.

Many businesses seeking new funds often find themselves obliged to undertake serious corporate governance reforms at a high cost and upon the demand of potential investors. When the foundations are already in place investors and potential partners will have more confidence in investing in or expanding the company’s operations.

“If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country suffer the consequences.” (Arthur Levitt, former chairman of the US Securities & Exchange Commission)

Overally, Mr Chairman, there has been a significant improvement in as far as compliance and performance reporting is concerned giving the Government the confidence that our SEPs can be brought back on track in one form or another for the benefit of all Zimbabweans.

In closing I would like to point out that Corporate Governance must be taken seriously at all levels, the Government, through its various arms must take a lead in ensuring that good corporate governance becomes a culture in SEPs. In instances where there are no Boards and substantive Chief Executive Officers, these must be appointed as a matter of urgency since the absence of these institutions in an organisation diminishes its ability to execute its mandate and brings into question issues of legitimacy and validity of decisions made under such circumstances.

Until the launch of the Corporate Governance, it was not a requirement for Parastatals governed by individual Acts of Parliament to hold Annual General Meetings. It is however good practice that they do so, and is now a requirement in terms of Section 4.1.1 of the Corporate Governance Framework.

Ladies and Gentlemen, when fully implemented, good corporate governance ensures that SEPs are well-run institutions that earn the confidence of investors and lenders. The practice safeguards against corruption and mismanagement, while promoting fundamental values of a developing democratic society.



Philippians 4v8 “ Finally, brethren, whatsoever things are true, whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report; if there be any virtue, and if there be any praise, think on these things.”

LADIES AND GENTLEMEN, I THANK YOU FOR YOUR ATTENTION

ADDRESS BY HON. G. MOYO, MINISTER OF STATE ENTERPRISES AND PARASTATAL AT THE ZIMBABWE MINING INDABA 2012; 12 - 14 SEPTEMBER 2012: HARARE INTERNATIONAL CONFERENCE CENTRE, RAINBOW TOWERS, HARARE, ZIMBABWE

ADDRESS BY HON. G. MOYO, MINISTER OF STATE ENTERPRISES AND PARASTATAL AT THE ZIMBABWE MINING INDABA 2012; 12 - 14 SEPTEMBER 2012: HARARE INTERNATIONAL CONFERENCE CENTRE, RAINBOW TOWERS, HARARE, ZIMBABWE






‘State owned mining enterprises as drivers of a modern developmental state’

1. I am very delighted to have been invited, not only to be part of this special occasion, but also to be given an opportunity to share views and ideas at this Mining Indaba, at a time when debate on the developmental role of state enterprises has gained worldwide prominence. In the mining sector, the subject has also received wide publicity due to its social, economic and political significance. Indeed policy pronouncements in this sector impact on multinational corporations’ relevance across the world as well as in national economies and the well being of the country’s citizens.



2. Over the past years, the degree of government’s interest in the mining sector reflects to a large extent the cyclicality and success of the sector. In the 1960s and 1970s, the developing countries pinned their hopes on the socioeconomic development potential of mining, based on the industry’s economic performance over the preceding decades, the period between the Second World War and the mid-1970s was a period of growth in metal production and metal prices. In this period, ferrochrome, nickel and copper, to name a few, were considered strategic for the reconstruction of Europe and Japan after the Second World War and the industrialization of the Soviet Union. With independence, developing countries recognized the importance of the mining sector as a source of revenue to fund national development projects. This triggered nationalizations of mining companies toward the end of boom period to the mid 1970s.



3. From the mid 1970s, reconstruction demand decreased, and the next 30 years saw metal prices in an almost continuous decline. Profits fell and the industry could no longer meet its societal responsibilities and, in some cases, became a burden to the fiscus. Mining state enterprises were now being described as inefficient and poorly managed and ought to be privatized. Indeed a number of state mining enterprises were privatized during this period of downturn.



4. Thus developing country governments entered the industry when the prices were high and exited when the prices were down.



5. Now today, metal price have been on the increase from about 2003/2004. The impact of the financial crisis in 2008 was shot lived, as recovery of metal prices continued from late 2009 through today. Demands for an increase in the sharing of the profits are now coming from civil society groups, political parties, trade unions in almost all developing countries. The renewed political interest is being expressed in several ways:

• increase in taxes and royalties in several countries including industrialized countries;

• legislation to transfer ownership in the interest of broad based empowerment;

• concerns over security of supply of metals and minerals;

• discussions and actions to limit foreign ownership of strategic resources;

• re-negotiation of mining agreements;

• establishment of state mining development enterprises to function as an alternative to the private enterprises; and

• Review of mining legislation.



6. State ownership of a mining enterprise is not necessarily bad. At independence, Zimbabwe considered it prudent to create two state mining enterprises, one responsible for the control and promotion of marketing activities for all minerals produced in Zimbabwe with the exception of gold, with the objective of improving revenues to the country; and the other responsible for mining activities particularly to take advantages of those mineral deposits which were considered unattractive for private investment, and yet strategic for industrial development. Today the Zimbabwe Mining Development Corporation is very active in diamond mining operations, in gold mining, platinum and chromium development among others. Government, in partnership with private investors, is also in coal mining.



7. Policy makers now need to focus on developmental strategies that will achieve national goals through improved contribution from both private and state mining enterprises to ensure equitable and sustainable growth.



8. Distinguished Guests, Ladies and Gentlemen, let me emphasise that state enterprises in developing economies are the engine that drives national economic growth, and state mining enterprises have an important role in macroeconomic development and stabilization. Indeed, developing countries are now emphasizing the need for minerals to be further beneficiated within their countries to add value before export, to create employment opportunities, and support industrialization based on minerals as raw materials and also to support local supplier industries.



9. The success of state mining enterprises is determined by the governance framework/structure, assets, and capital base. In this regard, the Ministry of State Enterprises and Parastatals has developed and produced two important policy documents; The Corporate Governance Framework for State Enterprises and Parastatals and The Restructuring Procedures Manual.



10. The Corporate Governance Framework addresses issues of reporting lines, responsibilities and relationships among key stakeholders in the management and administration of State Enterprises and Parastatals. There is no more room for indecision and policy vacillations on our part and, therefore, state enterprises’ managers have no excuse either.



11. It is, however, important that are all stakeholders are aware of their roles in the exercise of good Corporate Governance; stakeholders include Governments, Boards of Directors, Chief Executive Officers of enterprises among others; whose actions or inactions have an impact on the seven pillars of good corporate governance which are:



• fairness,

• responsibility,

• accountability,

• transparency,

• discipline,

• independence; and

• social responsibility.



I have always emphasized that, it is only when an organization observes these principles that it can be said to be practicing good corporate governance. Boards of Directors, as custodians of Corporate Governance, must ensure proper governance in the organizations they lead.



12. Boards of State Enterprises and Parastatals should therefore have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring Performance of senior management and the organization as a whole. Members of Boards are expected to act with integrity and should be held accountable for their actions.





13. Communications and reporting lines must be clear, and this is valid for all enterprises and not specific for the mining sector. The owner providing its input at the AGM and through its Board members. The Board must oversee that, the strategy of the enterprise and its plans for the future are developed and executed. Decision making power over the use of the cash flow should be the prerogative of the Board, and not the treasury department of the parent ministry. In the mining sector, it is particularly important that sufficient re-investments are made to secure the long term performance of the enterprise. It is equally important that the day-to-day management is placed in the hands of experienced and motivated professional managers.



14. Some governments, under certain conditions, believe that confidentiality and opacity or non-transparency are important to manage and operate a state enterprise. In the long run, the opposite is true. A state enterprise should be fully transparent and follow the most stringent reporting rules, even if it is not required to do so from a formal point of view. In fact, a state enterprise should be a model for private enterprises rather than the opposite.



15. Revenue from a state mining enterprise ought to be budgeted for by way of declared dividends, and not to cover budgetary deficits or other demands for money, skills or capital elsewhere in the national economy. Contributions to the national economy must be appropriate compared to the size and profitability of the enterprise. Mining, and in particular sustainable mining, demands re-investment in exploration and development to maintain current reserves and to provide for future production, which includes developing at least 5–10 years of ore reserves.



16. Once established, both state and private companies assume social responsibilities for the provision of public utilities, health facilities and road networks for the mine and the surrounding communities. It becomes the nucleus for development in those usually remote areas.



17. Our role, as Ministers, is therefore, to ensure that an independent Board of Directors consisting of members with sufficient experience and knowledge of the mining sector including mining financial engineering is constituted in a manner that is transparent, a prerequisite for success. If such persons are not available within the country they have to be attracted from abroad.





18. Ladies and gentlemen, mining is highly capital intensive industry with high risks of failure for a new project. If the enterprise does not have a sufficient size and capital base to attract the necessary expertise and to operate for a number of years without positive cash flow, it will fail. In order to be successful in an international competitive environment, only enterprises with the best management and resources will survive and this is regardless if the owner is a state or private investors. This bring me to the importance of The Restructuring Procedures Manual.



19. Restructuring of State Enterprises and Parastatals has been ranked high on economic reform agendas of many developing countries as a strategy geared at improving performance and efficiency of state enterprises in the production and delivery of public goods and services, among other reasons. The success story of democratic developmental states is premised on reformed state enterprises that respond to domestic and external pressures, and timely to meet the challenges of globalisation. In that regard, restructuring of state enterprises offers new management mechanism and new ownership structures that support more dynamic economic growth.



20. The broad objectives of restructuring include, among others: promoting economic efficiency by promoting competition; reducing the financial burden of loss-making enterprises, thereby releasing limited state resources for financing other demands; and to spread share ownership. For Zimbabwe, the restructuring of state enterprises is seen as a crucial step towards enhancing the contribution of state enterprises to economic growth through efficient service provision to other industries along the value chain.



21. Furthermore, restructuring help to attract new investment; particularly foreign investment, new technology and management skills, that can help transform the fortune of many of our state enterprises.



22. In that regard, my Ministry together with the State Enterprisese Restructuring Agency, has produced a Restructuring Procedures Manual with the main objective of providing various stakeholders with the requisite information on the process and basis on which the implementation of the programme can be assessed as well as to give investors the needed confidence to transact business with Government in a manner that is transparent to all.



23. Most mining state enterprises that are 100 percent state owned are in need of capital for exploration and development work. Thus for new and expantion projects, it would be of interest to create a mixed capital type of enterprise with a set timetable for gradual transfer of ownership from the state to private national entities and investors on a jointly agreed timetable.



24. Listing of a state owned enterprise is another way to share the burden to raise capital particularly in countries where the government’s capital-resources are limited. A listing will also subject the enterprise to more stringent reporting.



25. A state enterprise must be subjected to the same competitive conditions as its international peers. Taxes, royalties and other fees should be levied as per the industry standards in the country. If a state enterprise is given exceptional treatment for example reduced environmental standards it will affect its competitive position and hence its ability, in the long term, to perform compared to the rest of the industry. A level playing field, as provided for by a conducive regulatory framework, is therefore of paramount importance.



26. In conclusion, ladies and gentlemen, restructuring policies and strategies to enhance efficiency and effectiveness of our state mining enterprises require continuous assessment to ensure relevance to prevailing social, economic and political environments. Given our current circumstances it is prudent to pursue inclusive restructuring policies and strategies that brings together strength from all stakeholders, in particular our abundant mineral resources and financial resources both from foreign investors and our own domestic savings.



27. In addition it is important that governments continue with intervention strategies in line with the need to promote exploration activities, the exploitation of strategic minerals, and the need to bring development in mineral reach remote areas of our regions.



28. It is my sincere hope that as we deliberate on matters that have a bearing on the effectiveness of state mining enterprises, we will not only come up with strategies for successful management of these entities, but also be able to link the strategies to concepts of the developmental role of mining enterprises.





29. “Finally brethren, whatsoever things are true. Whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report, If there be any virtue; and if there be any praise, think of such things and work for such things”. I will add believe in such things and work to achieve them (Philippians 4 vs 8)







Hon. Gorden Moyo

Minister of State Enterprises and Parastatals

PRESS BRIEFING ON PERFORMANCE AGREEMENTS BY THE MINISTER OF STATE ENTERPRISES AND PARASTATALS, HON. GORDEN MOYO

PRESS BRIEFING ON PERFORMANCE AGREEMENTS BY THE MINISTER OF STATE ENTERPRISES AND PARASTATALS, HONOURABLE GORDEN MOYO

Pursuant to the need to ensure improved service delivery, public accountability and improved performance in our Parastatals and State Enterprises, the Ministry of State Enterprises and Parastatals is urging all Boards of State Enterprises and Parastatals to enter into Performance Agreements with the Chief Executive Officers of the State Enterprises and Parastatals they preside over and these must cover the current year.

The Government as the majority shareholder in State Enterprises and Parastatals would like to see improved service delivery by SEPs. Boards of State Enterprises are key agents of transformation of our state enterprises. They have the mandate to ensure that an effective management team is in place for the respective entities they lead. Boards also have the duty to monitor and evaluate the management team’s performance on a regular basis.

In this regard, a Performance Based Contract (PBC) template for CEOs of State Enterprises and Parastatals, has been distributed through a Cabinet Circular to all State Enterprises and Parastatals for implementation.

The objective of these Performance Agreements is to clearly lay down the Board’s expectations from the outset, agree on performance targets and indicators as well as modalities for the evaluation of the performance of each public entity with the ultimate intention of performance improvement and delivery of quality goods and services to the people of Zimbabwe.   

The Performance Agreements are informed by the respective mandates, strategic plans of the entities as well as work plans for an agreed period usually a financial year or budget year.

In addition, the Ministry of State Enterprises and Parastatals, in conjunction  with the Department of Modernization and Administration in the Office of the President and Cabinet, is in the process of finalising a Performance Agreement template that Line Ministries will use to enter into performance agreements with the Boards that fall under their respective jurisdictions. The agreements between Boards and the respective Ministers are intended to provide for a broad understanding and commitment  between the parties of what is to be achieved annually and during the tenure of office of each Board.

A circular to this effect will be dispatched to all State Enterprises and Parastatals through their respective line Ministries in due course.

I would like to urge all SEPs to review their Strategic Plans with the view to re-energize themselves for the wider agreed targets consistent with the Government Medium Term Plan, Restructuring Policy and Corporate Governance Framework.

 Management of our public enterprises competently, with integrity and with due regard to the interests of all the citizens of this country is a key priority for Government.

Honourable Gorden Moyo, (MP)

Minister of State Enterprises and Parastatals

25 July 20

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 16^th 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

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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