SECTION of DOCUMENT:
[page number of print ed.: 42]
PRIVATISATION OF AGRICULTURAL PARASTATALS-
Zimbabwe has a well-developed agricultural institutional system. The institutional structure for research, extension, input supply and produces marketing has enabled both large scale and small scale farmers to achieve high levels of production and productivity. Government has played and continues to play an active role in the agricultural institutional development process in the country. Prior to the advent of the economic reform programme (ESAP) research, extension, credit and marketing institutions were government owned either as ministry departments or parastatals. A major component of the economic reform programme is the commercialisation and privatisation of these institutions. Given the strategic role that these various institutions have played in the past in the provision of support services to farmers, their future structure and functioning is of major interest to the farmers.
This paper discusses privatisation of agricultural institutions and gives an overview of the experience of smallscale farmers in the privatisation that has been made to date.
2. AGRICULTURAL PUBLIC ENTERPRISES
Agricultural parastatals were established in the 1930s primarily to serve the interests of large-scale commercial farmers. At the time of independence in 1980, a wide range of parastatals existed covering areas of research, finance and marketing. Table 1 shows the main parastatals that existed in the agricultural sector:
Table 1: Agricultural public enterprises
[page number of print ed.: 43]
As can be seen form the above table, government was heavily involved in agricultural marketing with a statutory marketing board for every commodity except pigs and poultry.
Although the agricultural parastatals were originally established to service the interests of large scale farmers and industrialists their role and mandate was widened to serve the needs of small-scale farmers after independence. The reorientation of services to address the needs of smallholder farmers had a positive impact on the development of the sector. The sector's contribution to marketed output increased tremendously for all commodities and in the case of cotton and maize to between 60 and 70%.
To date nine years after the advent of the economic reform programme, parastatals and former parastatals continue to play a pivotal role in the economies of smallholder farmers. The Agricultural Finance Corporation accounts for the largest loan portfolio of smallholder farm credit with the balance coming form the Cotton Company of Zimbabwe and recently from the Grain Marketing Board. The Grain Marketing Board, Cold Storage Company and the Cotton Company of Zimbabwe continue to play important roles in the marketing of smallholder farm produce accounting for over 80% of the produce delivered from the sector.
3. PRIVATISATION OF AGRICULTURAL INSTITUTIONS
Forty-Nine (49) public enterprises (PE) have been identified for privatisation within the ZIMPREST period. Within the agricultural sector six parastatals have been identified viz. Cotton Company of Zimbabwe (COTTCO), Dairiboard Zimbabwe (DZL), Pig Industry Board (PIB), Tobacco Research Board (TRB) and the Agricultural Finance Corporation (AFC). The Grain Marketing Board, Agricultural and Rural Development Authority (ARDA) and the Tobacco Industry and Marketing Board (TIMB) will be retained as parastatals as they are considered to be strategic to the development of the agricultural industry.
The former Cotton Marketing Board, now Cotton Company of Zimbabwe and the former Dairy marketing Board, now Dairiboard Zimbabwe are the only agricultural institutions that have been privatised to date. The other companies are at various stages of commercialisation as shown in table 2 below.
Table 2. Status of Agricultural Institutions targeted for privatisation
[page number of print ed.: 44]
The privatisation of the Cold Storage Company is likely to take sometime given its complicated asset structure as well as an overhanging debt of $1.5billion for which a satisfactory solution is yet to be found. The privatisation of the PIB and TRB is now in the balance given the ongoing debate on the merits of their privatisation. Both the PIB and TRB are research institutions, and many believe that their privatisation is not in the national interest. Privatisation of these two institutions is unlikely to attract investors whose major interest is maximising their returns. Although farmers are an obvious group that maybe interested in participating in the privatisation of these organisations, the structure of the tobacco and the pig industries presents a problem. Large-scale farmers control both pig production and tobacco production. Smallscale farmers account for less than 7% of tobacco production and 3% of commercial pig production. Large-scale farmers therefore are likely to be the only group of farmers who would be able to take up shareholding in these institutions. This will obviously affect research focus of these institutions in favour of large-scale interests and consequently access by smallscale farmers to research results.
Although the above mentioned institutions were the initial target for privatisation, calls have been made for the privatisation of the Cotton Research Institute and the Coffee Research Institute which are currently part of the Department of Research and Specialist Services.
In privatising its former parastatals Government seeks to: -
4. SMALLHOLDER FARMER EXPERIENCE WITH THE PRIVATISATION PROCESS
Upon privatisation of the Cotton Company of Zimbabwe and Dairiboard Zimbabwe government allocated 20% and 5% of the shares respectively to smallholder farmers. The 20% share allocation in COTTCO to smallholder farmers was in recognition of the fact that the sector accounts for 70% of national cotton production. Smallholder farmers however account for less than 3% of commercial milk production. As a group, farmers had been allocated 30% of the shares in Cottco and 15% in DZL, which would have made them significant shareholders in the two companies. Large-scale producers did not however take up their shareholding in Cotton Company nor did they make any arrangements for warehousing. It is reported that their shareholding was taken up by Old Mutual that is also involved in the warehousing of the DZL shares on behalf of the large-scale producers. The luke warm response by large-scale producers to the COTTCO issue could be attributed to the fact that they had established their own cotton marketing company, COTPRO just prior to the privation of COTTCO.
[page number of print ed.: 45]
Table 3: Initial Proposed Shareholding structure of Cotton Company of Zimbabwe
The various share allocations are currently held by the following institutions either in their own capacity or in a warehousing capacity: GOZ (25%), NSSA (10.32%), Old Mutual (10%), NSS (national Pensions) 10%, HIB Asset Management (6.71%), Employees Trust (5%), TMB 4.06%, Security Nominees 3.15% and National Discount House (1.36%).
Table 4: Proposed final shareholding of Dairiboard Zimbabwe
The various share allocations are currently held by the following institutions either in their own or in a warehousing capacity: GOZ (25%), Old Mutual (10.3), Employees Trust (10), Trust Merchant Bank (10%), HIB Asset Management (8.9), TMB Nominees (7.2%), NASSA (5%), Remo Nominees (1.3%), other (10%).
4.1 Farmers Objectives in participation in the privatisation process
In participating in the privatisation process the objectives of smallholder farmer were inter-alia: -
[page number of print ed.: 46]
identified as a strategy to invest in the former parastatals which they considered "their companies"
4.1 Financing the participation process
It was clear right from the beginning that smallscale farmers were not going to be able to subscribe for their allocated shares within the time period that the share offer was open to the public. This was largely due to the fact that growers had already marketed their crops and many did not understand the concept of investing in shares. It was therefore necessary to develop a warehousing arrangement for these shares. The warehousing agreement that was entered into with the National Social Security Authority (NSSA) had the following features: -
This warehousing arrangement was favourable to small-scale farmers for the following reasons:-
4.2 Performance of the warehousing scheme
A major education campaign was launched by the ZFU in conjunction with Cotton Company of Zimbabwe to educate farmers to take up their allocated shareholding. At the end of this exercise about 11.000 growers had registered for the Cottco shares.
[page number of print ed.: 47]
Actual payment of the shares was going to be over a three year period through stop orders on their produce delivered through Cottco. At the end of the 1997/98 season about 8.000 growers actually honoured their pledges allowing about $7.5 million to be collected form the growers. This allowed shares worth about $8 million to be purchased back from NSSA (the amount had risen due to interest rate gains). No money was collected from growers during the 1998/9 season largely due to the fact that COTTCO declined to facilitate stop orders sighting the high cost of administering the scheme. Little interest was however shown in the DZL shares with shares worth only about $100.000 having been redeemed todate.
At this rate it is clear that smallscale farmers will not be able to redeem all their allocated shares at the end of the five-year period. The slow uptake of shares can be attributed to the following factors: -
5. FUTURE PERSPECTIVES
One of the objectives of privatisation was to ensure that the indigenous people, in particular smallholder farmers in the case of agricultural parastatals, participated meaningfully in the economy by acquiring a substantial proportion of the shares in newly privatised parastatals. The progress registered todate in the case of COTTCO and DZL shows that new approaches are required in order to facilitate participation by marginal groups. The following approaches could have been used to facilitate smallholder farmer participation in the privatisation process:-
[page number of print ed.: 48]
Given the performance of smallscale farmers to date in taking up their allocated shares the following conclusions cane be made: -
The experience of smallholder farmer participation in the privatisation process shows that new initiatives are required to facilitate the participation of disadvantaged groups in the privatisation process.
[page number of print ed.: 49]
One participant wanted to know what Government was recommending for farmers with respect to privatisation. Reply to this was that proposals have been made to cater for the special needs of small-holder farmers.
Definition of small-holder was one other question that was raised. The presenter said that this refers to people in communal, resettlement and small-scale farms including the small-scale purchase areas.
Will the Zimbabwe Privatisation Agency be a one-stop-shop for privatisation? In reply to this question, the presenter said that it is understood that this will be the case since the ZPA is in the Office of the President and Cabinet so that they can respond timeously to Cabinet decisions. The staff is supposed to have clout, which enable them to demand information and thereby implement Cabinet decisions timeously.
One participant wanted to know the role of the National Economic Planing Commission. This was summarised as that of undertaking the final appraisal of privatisation proposals.
One participant made a recommendation that the ZPA be made an independent body. Another recommendation was that we come up with recommendation on how Government can deal with the fear of losing control over the going zone".
[page number of print ed.: 50]
THE ROLE OF PRIVATISATION IN INFRASTRUCTURE DEVELOPMENT:
WHY DO WE NEED PRIVATE SECTOR PARTICIPATION?
HOW ARE THE INTERESTS OF ORDINARY ZIMBABWEANS TO BE PROTECTED?
WHAT HAVE ZIMBABWEANS TO GAIN?
[page number of print ed.: 51]
SQUARING THE CIRCLE: CAN CONDITIONS TO ATTRACT INVESTORS BE RECONCILED WITH CONSUMER INTERESTS?
EXAMPLE: ELECTRICITY SECTOR REFORMS
ZIMBABWE Electricity Regulatory Commission
Composition, Appointment & Tenure: Chief Executive Officer, ex officio, plus six part-time members, appointed by Parliamentary Committee on the Electricity Supply Industry (which also selects Chairperson). Five year-term of office for part-time Commissioners. At least three Commissioners are to be re-appointed (for a maximum of one additional term) to ensure continuity.
Autonomy: ZERC is to be an independent body, accountable only to Parliament.
[page number of print ed.: 52]
Functions & Responsibilities:
)Extent of privatisation: through an orderly process, all electricity sector assets are to be privatised in unbundled form (it is intended that the majority of such privatisations will be completed by the end of 2004).
) Strategic investors: particularly in areas where high level technical skills are important, foreign strategic investors are to be welcomed. Subject to negotiation, a strategic investor may hold a majority stake in an enterprise. Zimbabwean investors (people with technical skills and prior experience in the electricity industry becoming entrepreneurs) should in due course be involved.
) Employee ownership: all employees are to be offered shares in enterprises being privatised, if possible on a leveraged basis, making the best use of whatever tax or other invectives may be available.
) Ownership mix: typical ownership mix is to embrace strategic investor with requisite technical skills (foreign and/or local); local portfolio ownership; some foreign portfolio ownership, if the company is listed on the Zimbabwe Stock Exchange and, in some cases, foreign stock exchanges; employee shareholding; government shareholding to remain (with golden share") only in the transmission enterprise.
[page number of print ed.: 53]
) International competitive bidding: strategic investors are to be chosen on the basis of the results of international competitive tendering procedures.
) Fair price: to ensure that a fair price is offered and received for state assets, tariffs are to be maintained at economic levels without political interference.
) Prevention of cross-holdings: to ensure competition through the industry, the regulatory authority is to prevent investing firms from acquiring holdings across different aspects of the electricity industry (or an excessive share of any one aspect).
) Division of privatisation proceeds: the split in privatisation proceeds between government and the electricity industry is to take into account past contributions by taxpayers and electricity consumers in the build-up of capital within the industry, including any recent contributions government may have had to make to prepare the entity for privatisation.
Source: Draft Electricity White Paper, November 1999.
There was general concern over the question of unbundling ZESA before privatisation. In particular was the fear that this will create problems down the line. In reply to this, the presenter advised that this was the most out- reaching method that caters for individuals, institutions and investment funds.
[page number of print ed.: 54]
FINANCING OPTIONS AND ROLE OF FINANCIAL INSTITUTIONS
CHALLENGES OF FINANCING PRIVATISATIONS
CONVERSION OF DEBT TO EQUITY
FINANCING OF PRIVATISATIONS - THE ZIMBABWEAN EXPERIENCE
[page number of print ed.: 55]
ROLE OF FINANCIAL INSTITUTIONS
EXAMPLE - ROLE OF BANKS IN PRIVATISATION OF COTTCO
COTTCO Example: Cont;
THE WAY FORWARD
The paper was general well received and participants raised not so many questions for instance, the presenter was asked to explain what leverage financing was, the presenter said that this was debt finance.
Asked to respond to the question of what mechanism is in place to minimise insider trading by bankers since they have access to a lot of information, the presenter said that there is no law against insider trading.
© Friedrich Ebert Stiftung | technical support | net edition fes-library | August 2001