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OPENING REMARKS BY THE PRESIDENT OF THE MASHONALAND CHAMBER OF INDUSTRIES
His Excellency, the British High Commission
Privatisation has been pursued as part of economic reforms in many parts of the world for many years. The drive to privatise state owned enterprises has been influenced by the fact that state owned enterprises have failed to operate efficiently and have contributed significantly to the fiscal deficits which have stifled economic growth in developing countries. The results of privatisation have been mixed with the best examples of successful privatisation being that of the United Kingdom. In recent years large scope privatisation has been carried out in Eastern Europe. In the region, Zambia has succeeded in privatising a large proportion of state owned enterprises. Privatisation experiences to date show that strong state action is a prerequisite for successful privatisation. Where privatisation has been undertaken without commitment from the State and other stakeholders, the results have been that former state owned enterprises have been privatised and some of the enterprises that had been privatised have collapsed.
Narrowly defined, privatisation is any action that serves to dilute or eliminate Government equity ownership or managerial control of an enterprise. In its broader sense privatisation includes the elimination of government monopoly or monopsony and the reduction of government controls generally in factor or product markets.
In Africa the setting up of state owned enterprises was heavily influenced by deeply rooted statistic attributes and structures of the colonial periods as well as the anticapitalist and socialist ideals cherished by many countries after the demise of colonilise. There was a pervasive belief that the State should be the major instrument of economic development and the major guarantor of social welfare and equity. African Governments perceived a need to control the commanding heights of the economy in order to protect themselves from imperialists and multinational predators. The private sector was almost non-existent in the early part of the century and African Governments felt a desperate need to compensate for this inadequacy.
Apart from the economic reasons, political considerations were also important for the growth of the parastatal sector. State owned enterprises proved to be very useful in generating loyalty and support, for constructing patron-client networks and as sources of extractable resources for political and private gain.
Both pull and push factors have influenced moves towards privatisation in Africa. The major pull factors have been significant budgetary drains and sever foreign exchange scarcity in conjunction with fiscal and debt crisis, general economic decline as well as the demonstrated economic inefficiencies of state owned enterprises.
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The Chief push factors for privatisation has been considerable external pressure from multilateral donor such as the IMF and World Bank. Donors believe that providing assistance without major macro economic policy and structural changes would not be beneficial to the recipients whose economic performance would not improve such that they would not require assistance in future. Privatisation is one of the conditions that donors have insisted on for provision of aid.
The aim of any privatisation programme is to achieve economic efficiency. Economic efficiency form privation comes in two forms. The first is productive efficiency when a given level of output can be produced at a lower cost. The second is allocate efficiency which is achieved when resources can be reallocated to better meet economic and social objectives.
In Zimbabwe, public enterprise reform was launched in 19991, as part of the Economic Structural Adjustment Programme. The objective of the reform of public enterprises was to improve efficiency of their operations so that they would cease to be a burden on the fiscus.
The state enterprises sector at the start of reforms consisted of forty enterprises. Public enterprises were classified according to the type of action required to achieve the objective of weaning the enterprises from State financial support. The following classifications were proposed: -
Progress with privatisation ahs been very slow. To date only five parastatals have been privatised. These are Dairiboard Zimbabwe Limited, Cotton Company of Zimbabwe, Zimbabwe Reinsurance Company, Commercial Bank of Zimbabwe and Rainbow Tourism Group. The Government realised about $760 million from the privatisation of the Dairy Marketing Board (DMB) and the Cotton Marketing Board (CMB) Eight major parastatals including ZESA NOCZIM, ZRZ, CSC and ZISCOSTEEL generated loses amounting to $10.7 billion. By June 30, 1999, major parastatals had accumulated losses amounting to $14.8 billion. Parastatals continue to
impose a heavy burden on the fiscus and the privatisation Agency has just been established and it is hoped that this will assist in accelerating the privatisation process.
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Privatisation parastatals will release a substantial amount of resources for use in needy areas such as education and health. The efficiency gains from privatisation will be quite substantial and will boost economic growth. Experiences with the privatisation of the five parastatals indicate that the obstacles to privatisation are of a political nature than economic.
There is need to overcome these political hurdles for the privatisation process to proceed at greater speech. Indigenous communities have participated effectively in the privatisation process and they are beginning to reap the benefits of their investment.
One of the issues that are of concern to Government and other stake holders in privatisation is how to maximise the benefits from the process. Experiences in other countries show that the benefits from privatisation are much more than the proceeds which the State realises from the disposal of its assets. In the former East Germany, the proceeds from privatisation feel short of expectations. Yet the efficiency gains from privatisation are outweighed the lower than expected privatisation proceeds.
There is a need for much more commitment by the state to privatisation. The country is going through serious economic crisis, which has had negative effects on all sectors. A connected and resolute effort to privatise state enterprises would be a significant contribution to alleviating this crisis. I hope that the discussions over the next one and half days will bring for the viable recommendations that will be useful to the policymakers in charting the future course for privatisation.
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WELCOME REMARKS BY DR. FELIX SCHMIDT,
Your Excellency Mr Peter Longworth, The British High Commissioner
Honourable Members of Parliament
Mr Chihota, President of Mashonaland Chamber of Commerce
Distinguished Guests and Participants
It is my great pleasure to give some welcome remarks at todays seminar, which in my view is furthering continuos, dialogue between parliamentarians, business community, labour movement, the media and civil society. My foundation feels greatly honoured to have been associated with this workshop whose importance can not be over emphasized.
I note that some of you may be attending a seminar at which my foundation is involved for the first time, and a few words of introduction would be appropriate.
The FES is a non-governmental German political foundation whose main objective is to contribute to the building of democracy and peaceful development the world over. It is named after the first democratically elected German Republican President, Friedrich Ebert, who put all his energy into the building of a peaceful and prosperous social democratic German society. The Friedrich Ebert Foundation is the oldest political foundation in Germany. It was founded more than seventy years ago as the legacy of President Friedrich Ebert after his death in 1924. The central philosophy of the foundation is that peace and social justice can only be attained if society involves all groups of people in the formulation of policy. In other words political decision-making should not be the exclusive preserve of the rulers alone but should be a process in which all key groups of society participate.
Such an approach underscores the foundation conception of democracy as not only the holding of periodic marginalised groups of society to enable them to participate in policy formulation. A key example of such a programme is the foundations support to the trade union movements in many countries. In Zimbabwe, para-legal training and other trade union issues are crucial areas of support. However the foundation is also involved in assisting important groupings in society as they seek to create and enhance a more open and democratic society.
I indeed think that there is a link between an open, democratic society and the privatisation process. Individual decision making, be it in the economy under private ownership or be it in the free choice of political alternatives are interlinked.
This seminar we are holding today can be seen as a follow up to a three day workshop held in early May this year in Nyanga jointly organised by the ZNCC Parliamentary Advocacy Office consisting of the ZNCC itself, Parliament of Zimbabwe and the Zimbabwe Congress of Trade Unions, the Zimbabwe Council of Churches and the
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Friedrich Ebert Stiftung. The title of that workshop was Zimbabwes Debt Crisis and its Impact on Development. The meeting agreed that the debt burden was one of the most pressing problems facing Zimbabweans and one that need to be tackled on both the domestic and foreign front. Possible solutions were debated and all stakeholders present at Nyanga unanimously agreed that the solution needed to get all stakeholders getting involved.
Here are brief highlights of that workshop:-
I have deliberately repeated the highlights of the Debt Crisis workshop not to bore you but to emphasize tat the six key issues raised ten are still with us - only that the situation is getting worse. For example
I am please to note that the board of the National Investment Trust is now in place and working and the chairman of the NIT will be making a presentation tomorrow morning. The Zambian experience with privatisation by a senior official from Zambian Privatisation Agency should provide a useful lesson for Zimbabwe. We all know the famous saying by President Friedrick Chiluba of Zambia - he does not mind the colour of the cat as long as it catches the mice.
It is also pleasing to note the announcement by the Minister of Finance that the government has finally established the Privatisation Agency. This will hopefully speed up the privatisation process by providing the technical services. However once again it is disappointing that the senior officials from the Zimbabwean Privatisation Agency have turned down an invitation to present a paper at this very important seminar. I hope that it is not bureaucracy that is already affecting this new organisation.
I hope that over the next one and half days all the participants will think through the privatisation experiences made so far and come up with the way forward. I wish you well in your deliberations.
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KEYNOTE SPEECH BY THE BRITISH HIGH COMMISSIONER,
A great privilege for me to be invited to make this keynote speech on privatisation. Also something of a challenge.
I am not an economist, not a businessman and, above all not a Zimbabwean.
Why should a foreign diplomat, a fully paid-up member of the public sector, venture to comment on highly specialist issues, particularly when the thrust of the argument for privatisation must be that business knows what s the best for business?
And is privatisation here any of MY business? Particularly in view of the admirable speech to last weeks Constitutional Conference by the Commonwealth Secretary General in which he cautioned that there is a well-founded suspicion in Zimbabwe, and Africa as a whole of anything smacking of superior wisdom from outside."
This is not a text I would choose if I were giving a sermon.
So I should like to use this speech, not to preach the joys of privatisation, nor to comment on the firm position which the IMF is taking on this issue with regard to Zimbabwe, but to offer some thoughts on the process based on the British experience, in the hope that this might be helpful to those who are embarking on privatisation in this country.
It is difficult to recall that 15 years ago the term privatisation did not exist. There was the occasional de - nationalisation as the British Conservative governments reversed the compulsory purchases made by their Labour predecessors, but it was not until the 1980s when the UK embarked on a systemic programme aimed at placing the management of public enterprises into the hands of private entrepreneurs.
Today, privatisation is in progress in nearly every country in the world, and even in the small number of countries, which continue to resist its advance, there is an expectation that their turn will come.
So is there any point in making a case for privatisation? Perhaps, in case doubts remain, it is worth recalling pre-privatisation Britain where loss-making public enterprises, not only drained the national exchequer, but also put a dead hand on innovation and progress in British industry.
Today the British Economy is one of the most successful in the developed world and an important factor in this success has been the recognition that it is not a function of government to run businesses, neither is it within governments competence to run them effectively.
The benefits, which the UK has drawn from privatisation, are varied:
But to be honest, this is only the picture as it has emerged over the period. The process in the UK has had its setbacks. Mistakes were made. I suspect that if the privatisers of the mid - 80s were starting today with the advantage of hindsight they would go about the process very differently.
So against this background I should like to focus on some points which I believe need to be put straight from the onset.
Privatisation is not a quick fix for countries with deficit problems. It must be seen as one part of a more general economic reform and in particular it must be part of the process of bringing greater competition into the business sector.
One lesson from the UK experience was that in privatisation some of Our utilites we did too little at the time (and subsequently) to introduce competition. This was particularly true of gas privatisation, and to a lesser extent of electricity privatisation also. Not only does it reduce the effectiveness of the enterprise, but transforming a public monopoly into a private one is difficult for the public swallow.
There are big gains from getting competition into what were previously monopolistic industries, both in terms of immediate consumer advantages (reducing prices and improving service) as well as the dynamics of an industry. Industries will change more quickly where they are fully subjected to competition, and for vital infrastructure services this can often be critical to the other parts of the economy dependent on them.
These are very specific practical issues, which must be considered by all Governments involved in a privatisation process, although the details will differ from country to country. For example, in Zimbabwe, the whole question of stakeholder participation brings in the very complex issues of indigenisation and it is not for me to comment on this here.
But I think the core issue is that in any country the authorities need to accept the full logic of privatisation from the outset. It is not a matter of tinkering with the system, it requires a fundamental change in macroeconomic thinking. Industry needs to be unshackled from politics if it is to run effectively and create the wealth the nation requires - and politicians need to be relieved of the politics of managing public enterprises: for in the list of their priorities, the temptation will be to rate the politics above the economies of the enterprise.
The trick in safeguarding the public interest is not through managing the enterprise; it is through establishing the regulatory framework within which it operates. And here the balance must be struck between public imperatives and the entrepreneurial need for a satisfactory return.
It follows from all this that the implementation of a programme of privatisation is resource intensive. And this is why I am particularly pleased that the British government, through their Department for International Development are providing over Z$120 million towards the running of the governments Privatisation Unit. We believe that success in the privatisation process will be one of the key to Zimbabwe achieving its economic potential.
© Friedrich Ebert Stiftung | technical support | net edition fes-library | August 2001