Zimbabwe's privatisation push stutters along

Tired of public enterprises’ perpetual strain on the national purse, Zimbabwe has put at least 34 public enterprises up for sale in a drive towards fostering a private sector led economy.  

It had been intended that these companies would be privatised by the end of 2020, but doubts have been cast as little progress has been seen. 

A shaky start

Currently, transaction advisers are being sought for the Agricultural Bank of Zimbabwe, Petrotrade, Tel-One, Net-One, People’s Own Savings Bank (POSB) and Zimbabwe Posts, with their sales slated to be finalised by the end of 2019. Zimbabwean officials hope that the privatisation of these enterprises will help cut the budget deficit from 12% of GDP to 5%. 

Edgar Nyoni, executive director of the State Enterprises Restructuring Agency, which oversees the privatisations, says only three companies will be fully privatised – Allied Insurance, Zimbabwe Grain Bag and Ginhole Investments – while the rest will be partly sold.     

“The thrust is not to realise proceeds from privatised entities but to recapitalise them, bring in new technology and management skills, especially those to be partially privatised. Dilution rather than disposal is the preferred route,” adds Mr Nyoni. 

According to the Transitional Stabilisation Programme (the current national economic blueprint), Zimbabwe has 107 public enterprises but 70% of these are technically insolvent, thus becoming a drain on the public purse. At the peak of their performance in the 1990s, public enterprises contributed about 40% of Zimbabwe's GDP, a far cry from the present 15%.

Poor reputation

First implemented in the early 1990s under the World Bank-prescribed Economic Structural Adjustment Programme (ESAP), privatisation in Zimbabwe is mostly remembered within the country for causing mass unemployment and rocketing prices. A second programme in the late 1990s brought about the privatisation of modern-day Dairiboard Zimbabwe, Cotton Company of Zimbabwe and hotel group Rainbow Tourism Group. 

Therefore, despite being a potential source of much-needed FDI for a troubled economy, doubts linger about the privatisation programme, given the catastrophic failure of similar attempts over the past 30 years.

University of Zimbabwe political scientist professor Eldred Masunungure says: “Privatisation was an integral part of ESAP from 1990 until it was abandoned and the reasons for its abandonment are probably still there. Politically it became a very costly exercise and that brings the question of political will. It was there then although the cabinet was divided, as it is now.”

Mr Masunungure adds that president Emmerson Mnangagwa has failed to convince the electorate that the government is fully committed to the privatisation programme, although minister of finance Mthuli Ncube is widely considered to be enthusiastic. “Mandarins in [ruling party] Zanu PF with political clout are questioning the wherewithal of the finance minister to propose, let alone implement, policies that are politically risky,” says Mr Masunungure. 

“It is one thing for a policy to be economically rational, but it is another thing to have an economically rational plus a politically rational policy. Privatisation is economically rational because the economy needs an overhaul, but it is politically irrational from the standpoint of those who govern,” he says. “There lies the risk of collapse of this privatisation agenda and that is why it has been on the table for a long time. I don’t have much confidence that this time around this privatisation agenda will take off and fly.”  

Better prospects

Alan Gelb, a senior fellow at the US-based Centre for Global Development, says studies of privatised firms in Ghana, Tanzania and Côte d’Ivoire have found that they tended to perform better than when they were in state hands. “They may shed labour as the new owners come in and restructure, but some have the possibility to turn around and grow again. These were usually regular commercial firms, not major utilities or infrastructure,” he says. 

In Zimbabwe, Mr Gelb says, some commercial firms may have better prospects with private ownership even though they will still need to operate within a very difficult business environment. He adds, however, that larger infrastructure and utility companies have been more problematic to privatise, and bringing in private owners may not improve them much because many of their difficulties are due to political interference – which will potentially still be there – or features of the regulatory and business climate that look set to remain unchanged.  

“Governments have often been reluctant privatisers. They try to sell firms, or parts of them, only when faced with insurmountable fiscal problems and large continuing losses by the firms. They see themselves as forced into privatisation, whether by their creditors, the IMF or sometimes the World Bank,” says Mr Gelb. 

He adds that owing to political and regulatory interference, it is often difficult for privatisation programmes to attract high-quality investors with the capital and expertise needed to restructure and recapitalise state firms. He says the success of privatisation depends to a large extent on the credibility of the government and its commitment to maintain rule of law, and a good regulatory and business environment – factors that Zimbabwe is not considered to have in abundance.  

“There are companies in some attractive sectors, such as telecoms, that have generally done well in Africa and these could find buyers. Without a more extensive and credible economic and governance reform, I doubt that too much can be expected from privatisation in Zimbabwe,” says Mr Gelb. 

A glimmer of interest?

According to Mr Masunungure, Zimbabwe's public enterprises could also struggle to find potential buyers because of their large debts and obsolete technology. This could, he adds, lead to them being sold to the ruling oligarchy for next to nothing.  

Evidently, many of the companies have not found buyers for extensive periods of time. But Mr Nyoni attributes this to protracted negotiations with shareholders who have the right of first refusal, rather than due to a lack of interest. 

He says the political will to privatise has been unprecedented in Zimbabwe, as shown by the country’s increased engagement of the international community in the past few years. But with the 2020 end point for the privatisation drive looming, more physical evidence of investor interest will be needed, and soon.