EXECUTIVE SUMMARY


• Introduction

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Introduction

From 23 – 24 November, 1999, the Confederation of Zimbabwe Industries (CZI) in conjunction with the Friedrich Ebert Stiftung held a one – and – a half-day workshop at the Harare Sheraton Hotel. The purpose of the workshop was to

• To increase awareness on public enterprises, the privatisation process and the preparatory work involved during the privatisation process from 1990 to date;

• To promote a smart partnership between executives in the public and private sector and the economic society as they share privatisation experiences , views and opinions on the way forward;

• To enhance the participants’ knowledge and experience in the various approaches and techniques in the management of privatisation policy;

• To provide participants with an opportunity for inter-agency and cross – country experience in the area of privatisation

  The workshop was attended by public and private sector chief executives, economists, lawyers, bankers, members of the Zimbabwe Economic Society; academia, researchers, government officials, consultants and all those who were interested in the privatisation programme.

Mr Phineas Chiwota, President of the Mashonaland Chamber of Industries provided the introductory remarks. In his opening remarks, he briefly touched on the reasons for privatisation, from pull to push factors and how they have influenced privatisation in Africa. Examples for pull factors included budgetary drains and severe foreign exchange scarcity in conjunction with fiscal and debt crisis, general economic decline as well as the demonstrated economic inefficiencies of state owned enterprises, whereas push factors included external pressure from multilateral donor agencies such as the IMF and World Bank.

He provided a brief on how the parastatals have been classified i.e. as strategic public enterprises, non-strategic viable or potentially viable commercial or industrial public enterprises-, non-viable public enterprises with no strategic or social function and public enterprises with a social or developmental role. He also pointed out the need to overcome political hurdles if the privatisation process is to proceed with speed, as well as the need for more commitment by the state to privatisation in order to address economic problems currently prevailing in the country.

Following this presentation was that by Dr Felix Schmidt, Resident Director of the Friedrich Ebert Stiftung, who gave the welcome remarks. In conjunction with the Confederation of Zimbabwe Industries (CZI), FES had organised this workshop in order to come up with policy proposals for submission to the Government through various channels, including the National Economic Consultative Forum. He briefed participants on the fact that the FES is a non-governmental German political Foundation whose main objective is to contribute to the building of democracy and peaceful development all over the world. 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, hence this workshop that seeks, among other things, to promote dialogue between parliamentarians, business community, labour

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movement, the media and civil society. Dr Felix Schmidt welcomed the established of the Privatisation Agency and hoped that the privatisation process should now proceed as originally envisaged.

His Excellency, the British High Commissioner Mr Peter Longworth, officially opened this workshop. In His Keynote Address, he highlighted the need for Government to be clear about its objectives as regards privatisation. He echoed the need for authorities to attract investment and raise capital for the institutions concerned. He also highlighted the benefits of privatisation that include among other things, stability in the economy, introduction of competition and the dynamism brought about by privatisation. There is therefore, the need to have a coherent approach from the Government, consistency, and transparency within the regulatory framework that will promote efficiency.

He also highlighted the factors that lead to successful privatisation such as existence of an efficient regulatory authority, transparency and employee share ownership schemes. He pointed out that there is no one single privatisation model that satisfies everything since privatisation is a commercial process and thus decisions made must be in line with the business process and objects.

Following his address were presentations on Zimbabwe’s experience by the Chief Executives of already privatised public enterprises vis Dairiboard Zimbabwe Limited (DZL), The Cotton Company of Zimbabwe (COTTCO) and Zimbabwe Reinsurance Company (ZIMRE).

Mr A Mandiwanza- The Chief Executive Officer of Dairiboard Zimbabwe Limited (DZL) presented a paper on Privatisation in Zimbabwe – The Experiences of the DZL. In his presentation, Mr Mandiwanza gave a coverage on the operational performance of DZL over time since privatisation, the challenges they have faced as an organisation such as milk supply deficits, growing the wealth of the shareholder, increasing productivity and profit margin as well as the challenge of training and rightsizing staff in order to be able to meet the new challenges of a privatised entity.

New developments at DZL since privatisation include the fact that DZL is now compliant with tax legislation, in particular, payment of corporate tax as well as dividends to the shareholders and Government being one of the shareholders, has enjoyed this benefit. Other developments by DZL are the massive local and foreign investments undertaken in Malawi for instance.

Operational performance of DZL since privatisation has been a function of the following; improved managerial skills, above average Research and Development (R&D), very reliable milk supply base, very good product quality which has improved due to brand development and timeous decision making. Consequently, DZL has had the ability to drive the company and Zimbabwe forward.

However, DZL expressed concern over the fact that Government had largely affected company operations through sending of wrong signals. The 2000 Budget was cited as a case in point where sense of direction or vision for the economy had not been provided, and no clear -cut business decisions had been made on deficit reduction.

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For the business community, he argued, this makes planning difficult thus operations are adversely affected.

Privatisation in Zimbabwe – The Experiences of the Cotton Company of Zimbabwe (COTTCO) was the title of a paper that was presented by Mr S Nguni – The Chief Executive Officer of COTTCO. In his paper, Mr Nguni presented a brief history of the company, dating back from 1960 right through privatization to date. Mr Nguni outlined how the Cotton Company progressed through the commercialisation process, culminating in the actual privatisation of the company between October and December 1997. Before the actual privatisation, COTCO had to go through organisational restructuring which entailed manpower and capital restructuring. In other words, they changed the company from what it was to what they wanted it to be. The balance sheet was also looked at through assistance from government. Government assisted particularly with addressing the deficit situation prevailing in the organisation and this was done through a debt takeover.

Mr Nguni outlined the profile of organisations that played a pivotal role in the privatisation exercise and these ranged from the Attorney General’s Office, The National Economic Planning Commission, the Ministry of Finance (which was very central especially with respect to deficits and how they were to be addressed), Cabinet (for final approval and other policy issues)- all from the public service. From the private sector, consultations were made with other institutions such as stockbrokers, financial advisors, private lawyers, public relations agencies, external auditors, the POSB and banks. The re- engineering of the organization resulted in right sizing of staff from 2000 to 1500 permanent staff only. The whole exercise was done on a voluntary basis. Many people left because the severance package was very attractive to an extent that the process went smoothly and unnoticed by many.

Mr Nguni mentioned that the privatisation process meant a number of teething problems not only for COTTCO but the Government as well since both were going through the exercise for the first time. The major problem that COTTCO encountered whilst dealing with government was lack of proper documentation other than the Economic Structural Adjustment ESAP) blueprint. This was the only publication that had some coverage on Government policy on commercialisation but lacked clear-cut policies. COTTCO had to use own ingenuity to commercialise and subsequently take the company through the privatisation process. Another problem was lack of clear-cut objectives of privatisation, and this posed problems for COTTCO.

He concluded his paper by providing an outline of the sequence of events leading to privatisation, beginning with how COTTCO facilitated the introduction of competition in the sector, to changing the financial year to run from January to December, registration as a company under the Companies Act in 1994, the transfer of assets to the new company and the listing on the Zimbabwe Stock Exchange in December, 1997. New Capital projects developed after privatization were Kadoma, and Gokwe Ginnery.

Mr A J Nduna – The Chief Executive Officer of the Zimbabwe Reinsurance Company (ZIMRE) presented a paper on Privatisation in Zimbabwe – The Experiences of ZIMRE.

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ZIMRE was privatized in September 1998 during ZIMPREST period. At the time of privatization, 49% of Government shareholding was offloaded. The privatization process was made possible by a team composed of financial advisors, bankers, underwriters, transfer secretaries, stockbrokers and the POSB. Various meetings and seminars were held to drum up support as well as explain what ZIMRE was all about.

The main concerns on the ZIMRE issue were Government retention of 51% shareholding. This was viewed as lack of commitment to privatization. There was also concern over the use of the „Over the Counter" route versus the use of the Stock Exchange. This route was not preferred for lack of transparency There was concern that the share price should have been reduced by skeptical investors. On March 29, 1999, privatization was concluded with the presentation of a cheque of Z$276 million to the Ministry of Finance – an event that was seen as a moment of harvest of Z$2.5 million given to ZIMRE 15 years ago.

Mr Nduna advised that his organisation had been satisfied to note achievement of the Government objective of raising revenue. Unfortunately that objective of increasing capitalisation of the company was not addressed. This problem is even more so now in view of the fact that the operating base of the company should be in foreign currency in order to reflect the strength of the company.

The post –privatization of ZIMRE indicates increased strength from time to time, which has been realised through growth in diversity. ZIMRE is now into consultancy, a lot of property investments, and establishment of Zimre-Zambia. However, reinsurance remains their core business. Despite the fact that company reserves are still inadequate, the company is making profits and declaring dividends. 70% of ZIMRE business is local with 30% being foreign in South Africa, Zambia and Malawi.

Mr Nduna said that his organisation takes cognizance of the fact that Government is committed to privatization. This has been evidenced by the fact that Government intends to reduce its shareholding from the originally envisaged 30% to 20%. He concluded by advising that privatization requires a lot of teamwork and emphasized the need to prepare a checklist of tasks to be done by each member of the team. Further advise was on the fact that company valuation should be perceived to be fair especially by the Government who wants the best price, pricing of services should be agreed to up-front, as well as repeal of the Act. Any delay in this process delays privatization because assets will not be transferred. The program should be clear and adhered to by all team members; otherwise team members lose interest.

Mr Andrew Chipwende, the Acting Technical Director of the Zambia Privatisation Agency presented a paper on The Zambian Experience with Privatisation. In his presentation, he gave examples such as the privatisation of Zambia Airways, which he said had to be done in order to address the drain on the fiscus, which was now going at $ 14 m per month. Other reasons were to address the problem of overstaffing and the need to open the doors to competition through removal of controls and regulations on the capital and the current account. The process was made possible with the efforts that were made with respect to drumming up political support, legislating the privatisation law and public awareness. Key to the Zambian experience was the fact that right from the onset, the authorities allowed direct foreign participation, tried to

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avoid perpetration of monopolies and created a warehouse of shares to be floated to Zambians. This process was followed by the creation of the Zambian Privatisation Agency, an independent body that was backed by an Act of Parliament.

Mr Chipwende advised that the Zambian Privatisation Authority reports directly to Parliament and briefs the press on a regular basis. The Authority was established with a Board of twelve members and that it is funded by the Government, the World Bank (mainly studies), and other donors such as USAID, Norwegians, British, Germans, Danes, and the Swedes.

Progress with respect to privatisation in Zambia to date includes the privatisation of 240 companies and units that have been sold. Approximately thirty more are to go. This does not mean the process was supported by all right through but that there were some people who were opposed to the exercise.

Ms Sue Haley of the International Capital Corporation (ICC) covered The Zambian Privatisation Experience: Lessons for Zimbabwe. She made a presentation on the lessons that Zimbabwe can draw from the Zambian experience. Highlights of her paper included the management of public enterprise debt. In the case of Zambia, this was negotiated as a package for all parastatals rather than deal with the debt problem on a case by case basis as is happening in Zimbabwe. Other lessons were to sell businesses and not shares; the need to be transparent and not to have interest groups take precedence over national priorities; the need to establish a comprehensive database on public enterprises; remove barriers to entry by foreign investors; establish Employee Share Ownership Schemes (ESOPs) even prior to privatisation etc. She also outlined some of the things that were not well done in Zambia as well as the mistakes made by Zambia that we should avoid repeating e.g. failure to set up a comprehensive data base on public enterprises.

Mr Patrice Chiwota of the UNDP provided a paper on the Critical Issue in the Privatisation Process: Best Practice with a focus on legal, political and social dimensions of privatisation. The presenter advised that the UNDP is actively involved in the privatisation process in Zimbabwe. The organisation undertook diagnostic studies on twenty-seven parastatals at the advent of privatisation with specific recommendation being made on the way forward. This privatisation has a bearing on the macro-economy.

The legal framework in Zimbabwe should be viewed in the light of international experience and it provides the laws and rules governing the conduct of business. Proposing best practice on the legal framework, he recommended that there be interaction between parties in privatisation e.g. owners, managers etc.

He pointed out that the legal framework in Zimbabwe is quite developed but it needs to be strengthened as Government moves from a regulated economic environment to a market based one. A new regulatory system that is supportive of privatisation is required. The State takes the liabilities of Public Enterprises (PEs) by guaranteeing them. Ministers have statutory powers to influence the operations of PEs. The Minster is therefore the guardian of the shareholders and the taxpayers. PEs are exempted from payment of taxes and duties and thus Government is found in a catch 22 situation whereby the PE that fails to perform is exempted from paying tax. Those

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that pay duty may end up exempting them but policy guidelines require that taxes and duties remain due and payable. Conflict between private costs and social obligations in PEs is another area of concern. Consequently balance is required between autonomy and accountability because this determines how a parastatal performs. Recommends that a common basis be adopted for appointing Board Members in PEs.

A Commission of Inquiry into Administration of PEs recommended that the President appoint Board Members in order to increase status and significance of Board Members. In S. Africa, Board members are publicly appointed following press advertisements requiring people to respond and identify persons who can be on the Board. Recommended that there be a balance between independence from the Minister with accountability.

Performance contracts vary from enterprise to enterprise but it was recommended that this be standardised. Probably something we can learn from the South Africans.

Recommendations made following the presentation were that:

• Government should make clear its privatisation policy;

• Define government policy and role in privatisation;

• Establish the Privatisation Agency with clearly defined structures and functions;

• Maintain discipline in restructuring PEs for privatisation;

• UNDP is interested in playing a role in the privatisation process especially the element dealing with privatisation with a human face.

Mr Emmerson Zhou, an Agricultural Economist presented a paper on Privatisation of Agricultural Parastatals – Small holder farmers’ Experience. Mr Zhou gave a brief history on how public enterprises were established and for what purposes as far back as the 1930s. In particular, he looked at agricultural parastatals, and how, nine years after the advent of the economic reform programme, parastatals and former parastatals have continued to play a pivotal role in the economies of small-holder farmers. He gave an outline of the privatisation of public enterprises in Zimbabwe as well as the objectives for privatisation . For instance, privatisation objectives are the need to raise revenue for Government, enable the public acquire a significant stake in the growth and profitability of the companies, indigenise ownership of the economy, relieve financial and administrative burden on the fiscus and to shed off state assets and allow for private sector participation.

Furthermore, Mr Zhou provided a brief on small-holder experience with the privatisation process. For instance, the 20% share allocation in COTTCO to small-holder farmers was in recognition of the fact that the sector accounts for 70% of national cotton production. Small-holder 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. Following listing on the Zimbabwe Stock Exchange (ZSE), share holding in agricultural parastatals is by the Government, the National Social Security Authority (NSSA), Old Mutual, NSS (National Pensions) HIB Asset Management, Employees Trust, TMB, Security Nominees and National Discount House

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Small-holder farmers’ objectives in participating in the privatisation process were outlined as well as how the financing of the exercise was arranged, which was done through a warehousing arrangement. The warehousing agreement was entered into with the National Social Security Authority (NSSA). He concluded the paper by highlighting that small-scale farmers have shown limited capacity to acquire shares under a market based financing vehicle, and that the bulk of the shares allocated to small-scale producers will not be redeemed from the warehouse. Ownership of the shares will transfer to the financing institution at the end of the five-year period unless an alternative arrangement is put in place. The experience of smallfarmer participation in the privatisation process shows that new initiatives are required to facilitate the participation of disadvantaged groups in the privatisation process.

Dr Peter Robinson, Zimconsult looked at The Role of Privatisation in Infrastructure Development. Dr Peter Robinson began by outlining the rationale for involving private sector participation in infrastructure development, how the interests of the ordinary Zimbabweans are to be protected as privatisation unfolds, what Zimbabweans will stand to gain in the process. Picking on the power sector for his example, Dr Robinson discussed electricity sector reforms – the case of the Zimbabwe Electricity Supply Authority (ZESA). The reforms ranged from the need for reform given ZESA’s bankruptcy, the problems of load shedding & threat of blackouts, no resources for investment & inadequate framework to attract private investors yet 65% of the population is without access to electricity. Other reforms entail the establishment of competent regulatory body (Zimbabwe Electricity Regulatory Commission) in terms of a new Electricity Act and the commercialisation, unbundling and privatisation of ZESA as well as the need for comprehensive electricity sector privatisation policy.

Dr Robinson also outlined the objectives of setting up a regulatory authority such as protecting the interests of users, particularly in respect of ensuring reliable supplies at least cost; the functions and responsibilities of the regulatory body such as issuance of licenses for companies to generate, transmit and distribute electricity in Zimbabwe etc; staffing issues, financing as well as an outline of the Electricity Privatisation Policy.

Mr Morgan Nyamukondiwa of the First Merchant Bank (FMB) presented a paper on Financing Options and Role of Financial Institutions in the privatisation process. Mr Nyamukondiwa outlined the major challenges of financing privatisations vis the existence of underdeveloped capital markets, unstable economic environments, having privatisation linked to economic empowerment and having privatisations targets being large entities. The financing options available ranged from the Zimbabwe Stock Exchange, debt, and conversion of debt into equity and trade sale. He went further to provide detail on the role that is played by financial institutions in the privatisation process, i.e. to provide advise, be underwriters, financiers, as well as preparation of concept paper, to development of financing options, advise on necessary restructuring seek approvals from Government, prepare documentation / prospectus, promote share issue through road shows, advise on valuation and pricing of shares, arrange debt financing for employees and farmers etc. He concluded by proposing that the financing of privatisation be opened up to foreign funds.

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The seminar was concluded with a very concise brief on Recommendations on The Way Forward by Dr R. Dhliwayo (University of Zimbabwe) and the closing remarks were made by Mr Bernard Mufute of the CZI. The Workshop Evaluation Report at the end of this report provides detail on the views of the participants about the seminar.