Political interference destroying parastatals

HARARE - In his book, The Politics of Africa’s Economic Recovery, renowned author, Richard Sandbrook, makes the undeniable point that political interference in the running of parastatals tends to be extreme in sub-Saharan Africa, of which Zimbabwe is part.

In principle, parastatals should operate autonomously to enable them to effectively discharge their mandates. In Zimbabwe and, indeed, in many other countries, this principle exists only on paper: In practice, it is the exact opposite.

Treasury revealed last year that only five out of the more than 70 State-owned enterprises in Zimbabwe had declared a dividend to government. The rest are haemorrhaging owing to heavy losses, expensive debt, unviable pricing structures and mismanagement.

As if this is not enough, there is a pervasive problem of political interference across all parastatals, whose cost outweighs all the other elements that are constraining these institutions.

Going by Sandbrook’s observation, there is empirical evidence to support the notion that the prevalence of political interference in the day-to-day running of parastatals “undermines the technical, and hence efficiency of affected parastatals”.

A classic and most recent example of political interference came to light in the wake of the wrangling that led to Allied Timbers Zimbabwe (ATZ) group chief executive Joseph Kanyekanye’s exit in February 2015.

Kanyekanye claimed key government officials in the Environment ministry would bark orders to him directly — and bypassing the board — which shouldn’t be the norm for good corporate governance.

Not a single of the directives added any value to the business; if anything they flew in the face of management’s efforts to grow the business.

For chief executives (CE), it’s a typical zero sum game. If you take the orders, you run the risk eroding shareholder value. In the end, you put your job on the line and destroy your career as well. Standing firm has its consequences too, as Kanyekanye found out. You become the number one enemy of politicians; an offence which is punishable by dismissal.

Corporate governance expert Tsitsi Mutasa says parastatal bosses must be loyal to the organisation they work for and not seek to please the appointing authorities, even when it’s clear that they are pursuing sectional interests.

“One’s responsibility is to the organisation and not to certain individuals. It is also important to note that those appointed should have the character to steer the ship forward,” she argued.

As for Kanyekanye, resisting political pressure culminated in their “mutual separation” after almost a year of intense wrangling and smear campaign by politicians, through their proxies.

Following his resignation, reports suggest that AT’s has hit hard times, which means the once profitable business might have finally succumbed to the disease afflicting most State-owned companies. The company has gone for several months without paying salaries, with employee morale running on empty.

As a result, ATZ is slowly losing its market share, forest area and product presence to competition, with a company that Kanyekanye is now consulting for reportedly gaining significant ground at its expense.

Kanyekanye is not at all the only CE who has been a victim of political interference — a common ailment that has brought many strategic State enterprises down on their knees.

Air Zimbabwe (AirZim), for example, has had the highest turnover of CEOs, numbering about 10 in a space of two decades.

Eric Chang and Sonia Wong from the University of Hong Kong make the observation that the notion that political interference in enterprise decision-making is detrimental to corporate performance is well documented throughout the robust body of theoretical studies on corporate governance.

“It is frequently argued that by maintaining control over enterprise decision-making, politicians can use enterprises to pursue so-called higher national goals, (e.g. employment maximisation, regional development, industrial policies). They may also seek to control enterprises to achieve their own political and personal goals (e.g. increasing their political support and power). Their pursuit of such goals may result in shareholders’ inability to maximize wealth and thus in less favourable corporate performance.”

“...Most of the existing evidence for how political interference affects corporate performance comes from studies that document the poor performance of state-owned enterprises (SOE) compared with the performance of non-State-owned enterprises. The logic is that corporate governance structure of SOEs is associated with a higher degree of political interference and… political interference damages corporate performance.”

In Zimbabwe, examples abound.

The National Railways of Zimbabwe (NRZ) has for years been on a perilous path, recording an accumulated loss of $105,5 million between 2010 and 2011. Its debts have ballooned to $54 million.

The financial haemorrhage has created a situation whereby NRZ is now stuck with antiquated equipment. Its dilapidated equipment comprises 30 grounded diesel locomotives out of 55; 15 redundant electrical locomotives and 73 shunting locomotives that are nearly half a century old.

Shunting locomotives are normally decommissioned after 25 years in service. Most of the equipment, purchased in the 1960s, frequently breakdowns, pushing the maintenance costs to unsustainable levels.

NRZ last bought new equipment 26 years ago. The equipment has since become obsolete because it requires manual operation at a time when the parastatal cannot afford to employ.

At 27 percent capacity utilisation, NRZ is operating well below the break-even point. NRZ is currently moving only 2,6 million tonnes rail cargo against a possible 9,6 million tonnes.

The Cold Storage Company (CSC), which used to be the largest meat processor on the continent, handling up to 150 000 tonnes of beef and associated by-products per year and raking in over $50 million, is another perfect example.

CSC has fallen on hard times owing to a myriad of challenges, including political interference, difficulty in raising adequate working capital, cattle disease outbreaks, decline in the commercial herd, huge debt and aged transport fleet.

CSC last exported beef in 2007 because of serious uncontrolled outbreaks of foot and mouth diseases. Since the ban of beef exports, CSC has been on a financial free fall.

It is the same old at AirZim, which is battling debts of nearly $300 million, a bloated workforce and obsolete planes in its portfolio.

The Zimbabwe Broadcasting Corporation (ZBC), the Zimbabwe United Passenger Company, Zesa Holdings and the Zimbabwe National Water Authority, among others, find themselves in similar circumstances.

Instead of contributing significantly to the fiscus, these parastatals have become a burden to Treasury.

Renowned lawyer Canaan Dube believes parastatals should not be run as extensions of government ministries.

“State owned enterprises should be run as businesses and not as extensions of government ministries. Line ministries should appoint board members based on merit to ensure that parastatals are led by people who can at least afford to carry out self-introspection to establish whether they are maximising the shareholder value,” he said recently.

To have senior civil servants meddling in the affairs of parastatals under their ministries defeats the purpose of parastatals being semi-autonomous.

Many parastatal chief executive officers spend the bulk of their time serving at the mercy of unscrupulous politicians who often use parastatals for personal gain and because of their connections some chief executives wield more power than the boards they serve.

The losers have always been the parastatals themselves and the nation as a whole because these State enterprises end up operating as soup kitchen, dependent on government bailouts.

*Gumbi is a local scholar. He writes here in his personal capacity.

Comments (1)

Well written cde. Straight to the point. I enjoyed this

al fayes - 27 April 2016

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