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Privatization needed to rebuild Zim economy
Gilbert Muponda, GMRI Capital
September 28, 2008

http://gmricapital.com/index.php?option=com_content&task=view&id=43&Itemid=1

Sub-Saharan African states urgently need expanded and more dynamic private sectors, more efficient and effective infrastructure/utility provision, and increased investment from both domestic and foreign sources. Privatization is one way to address these problems. But African states have generally been slow and reluctant privatizers; a good percentage of industrial/manufacturing and most infrastructure still remains in state hands. Given prevailing public hostility towards privatization, and widespread institutional weaknesses, such caution is defensible, but nonetheless very costly. The long-run and difficult solution is the creation and reinforcement of the institutions that underpin and guide proper market operations.

Regarding the impact of privatization, clear benefits from privatization have been recorded in terms of the contribution to government financial flows and at the enterprise level where there is a definite trend for privatized enterprises to improve performance, largely as a result of new investment, which has a delayed positive effect on employment.

Ten countries account for most of the privatization in Africa so far: Mozambique, Angola, Ghana, Zambia, Kenya, Tanzania, Guinea, Madagascar, Nigeria (federal government only) and Uganda. A study points to the surprising difficulty of obtaining transaction data in many countries and the failure of most governments to establish monitoring procedures so as to be able to track and evaluate enterprises? post-divestiture performance.

The trend of the privatization process in Africa reflects some of the problems: lack of political commitment, poor design, insufficient resources, weak management, and corruption. The trend is a cause of concern because privatization is a one-off opportunity not only to reduce the fiscal and administrative burdens of a large public enterprise sector but also to stimulate private sector development, to instill greater government accountability, and to contribute to the fight against poverty; and that opportunity has been grasped by few governments. Zimbabwe has had several stop-start-stop attempts at Privatization programmes. A few entities have been successfully privatized such as Cotton Company and Dairibord .The current economic situation will require tough choices to be made and allow Privatization and commercialization of several so-called 'strategic' entities.

Parastatals such as Zisco, ZESA, CSC, NRZ and Air Zimbabwe are leading candidates for Privatization from which the State can raise a substantial amount of capital to finance infrastructure and other social services. Given the attractiveness of some of these assets the State can include requirements to dispose of these assets in the much needed foreign currency provided local and indigenous partners are somehow accommodated. Foreign partners normally help to strengthen the talent base and access to foreign markets and a stable financial base .

African governments' commitment to the process was generally half-hearted. The controversy starts with why African governments have privatized. The study maintains that the evidence suggests that most governments have privatized reluctantly and not for the reasons set out in policy statements. Rather, it is other, non-stated factors that have motivated the process; and this is particularly relevant now that major enterprises are being privatized and corruption is surfacing as an issue.

Governments have not made efforts to sell the process to the people. So, programs have tended to stagger along, prompted by the Breton Woods institutions and other donors. Zimbabwe may be faced with a similar situation very soon.

Case studies indicate that the following have been the principal incentives for African countries to divest: Political change; The need for World Bank, IMF and donor financial assistance; The need to generate proceeds; The precarious state of some public enterprises; The need to maintain employment levels; and At times, the need to satisfy vested interests An important claim is that, despite an expressed desire to broaden ownership, in practice little has been done to accomplish this objective.

It is not an end in itself, but it is a key tool for improving the efficient allocation of resources, for mobilizing investment, and for stimulating private sector development. Privatization does this because it: brings into the open the inefficiency of state run businesses; makes investment opportunities available; highlights the need and becomes the catalyst for capital market development; and contributes towards openness by forcing government dialogue with the public.

There is growing pattern of flawed classification of enterprises as strategic and non-strategic ( monopoly utilities have invariably been characterized left out of the privatization program), non-establishment of important operating policies, non-transparent use of proceeds, weak mobilization of potential investors, weak privatization agencies and the lack of appropriate legal authority.

The lessons of experience are being applied center on the following : demonstrate commitment; pay greater attention to securing consensus; ensure transparency; invest more in design and preparation; put institutional building blocks in place before launching a program; and do more to broaden ownership

Now that most countries have gained experience of the process and have developed their capacity to manage it, privatization has entered its main phase. This phase has four noteworthy features which have important implications for the privatization process: emphasis on large enterprises; increasing demand for public information and accountability; creation and growth of capital markets; and Much greater efforts are underway to stimulate private investment. Indeed, with new investment in many of the privatized enterprises, we are seeing improved performance, expansion and new jobs being created. And that is the message that we must get across to labor leaders and politicians. They know that privatization will focus attention on poor resource allocation, inefficiencies, and weak corporate governance. But they must also understand that it is bringing in: the investment that is needed in new technology, people and marketing; better value products and services which benefit local consumers; better working conditions and pay; and, in the longer term More sustainable employment.

Many of the Asian economies had characteristics similar to African economies today. Foreign investment and investment in developing human capital were crucial elements to success. Local participation and skills transfer were also central. Africa can now do likewise with the added advantage of being able to use much cheaper and advanced information technology to skip a generation in development .An economic recovery strategy for Zimbabwe should be centered on the private sector playing a leading role in mobilizing capital , skills and other resources .Its expecting too much from any government to be able to lift the country after years of deep recession .The key is therefore for the state to create a conducive environment in addition to divesting from state enterprises and create more room and opportunities for Private sector participation .

*Gilbert Muponda is a Zimbabwe-born entrepreneur. He can be contacted at gilbert@gmricapital. This article appears courtesy of GMRI Capital. More articles at www.gmricapital.com

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