Zambezia (1998), XXV (i).PUBLIC ENTERPRISE REFORM AND PRIVATISATION INZIMBABWE: ECONOMIC, LEGAL AND INSTITUTIONALASPECTSTEKAUGNE GODANA* AND BEN HLATSHWAYO***Department of Economics, University of Zimbabwe**Department of Public Law, University of ZimbabweAbstractThe public enterprise reform which earnestly started in the early 1990s withthe commercialisation of a number of parastatals has entered a new phasewhere the commercialised government companies are being privatised andthis process is expected to gain added momentum after the successful June,1997 public flotation by Dairibord Zimbabwe Limited, the first by a formerparastatal. However, there has been very little public debate and still lessacademic discourse on such a major policy issue of reassessing the role ofthe state in the economy. This article discusses the pertinent issues of publicenterprise reform and privatisation in Zimbabwe and, based on lessons frominternational experience, suggests a conceptual, institutional and legalframework for the way forward.INTRODUCTION AND BACKGROUNDSINCE ITS INCEPTION, the state has played a crucial role in the economic lifeof nations. Without the state upholding property rights, enforcing contractsand determining rules and regulations for market transactions, generalisedvoluntary exchange as we know it today would have been impossible. Thisminimal role of the state has never been in contention. The state as aguarantor of property relations has placed a lower limit on the scope ofstate activity in the economic system. However, in the modern era, thestate has not limited itself to its minimal scope. In fact, the concept'minimal state' itself has been changing over time to reflect new demandsand new challenges in a complex society.Today, the scope for the 'minimal state' includes not only the area oflegal framework but also provision (not necessarily production) of essentialsocial services, economic stabilization and equitable distribution. But thestate has not limited itself even to this expanded scope of a modernminimal state. In this century, governments all over the world have beenactive in many spheres of economic activity by engaging in directproduction and distribution of a variety of goods and services. However,the level of state involvement in the economy has varied from country tocountry and over time.2 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEThe role of the state in direct economic activities outside infrastructuraland extractive industries was very much limited until the RussianRevolution of 1917 when a large chunk of the European economy fell understate ownership and management. After the end of the Second World War,state ownership as a dominant form of organising the economy spread toseveral East European countries, Central Asia and China. Thus a newglobal economic system based on state ownership and guided by a centralplan emerged as the antithesis of the world market economy basedprimarily on private ownership and basically guided by the pricemechanism. The emergence of a new social, political and economic orderon the global scene exerted significant influence on the course of socio-economic development worldwide for the last half a century or so.The initial success in industrialisation and high economic growthespecially in the less developed regions of socialist countries significantlyboosted the image of the state as a superior form of organising andmanaging the economy than the market. The 1950s and 60s and the firsthalf of the 70s were periods of intense political and economic competitionbetween two different economic systems. It is not accidental that the roleof the state in economic activities expanded very rapidly in many countriesprecisely in this period. The anti-colonial struggle in many African andAsian countries developed understandably a strong dislike to the economicsystem of the Western colonial powers which was rightly blamed for theextreme economic exploitation of the colonies. Many looked to the Eastfor support and inspiration.Apart from the demonstration effect of planned economies, therewere other important objective conditions which forced many countriesin the developing world, especially in Africa, to opt for greater involvementof the state in the economy. Though specific objectives might have variedfrom country to country, the desire for economic independence, lack ofindigenous entrepreneurship, severe regional and sectoral imbalancesand highly skewed distribution of wealth were important considerationsin many of the countries which gained independence in the early 1960s.The expanded role of the state in the economy globally cannot beunderstood without taking into cognisance this historical episode.Conversely, the privatisation drive world-wide since the late 1980s cannotbe properly comprehended in isolation from the fundamental political andeconomic changes which have taken place in the former socialist block.These two historical episodes must be kept in mind when assessing thegrowth and decline of public enterprise globally. If the present wave ofprivatisation and commercialisation is to a large extent the result ofconformity to present ideological trends rather than a serious appreciationof the advantages and disadvantages of the market system, policy reversalin the future is most likely.T. GODANA AND B. HLATSHWAYO 3From the mid-1960s to mid-80s state enterprises dominated theindustrial sector in much of sub-Saharan Africa (Pryor, 1976; Short, 1984;Nellis, 1986). By the mid-1970s, however, serious problems started toemerge in the state enterprise sector in many countries. Most were makinghuge losses that had become a major cause of economic instability. Thequantity and quality of service provided by the public enterprise sectorfell below consumer expectations and the enterprises were insensitive toconsumer demands and preferences. Inefficiency, sheer incompetenceand corruption became so widespread that it seriously threatenedeconomic and social stability.A major source of problems encountered by state owned enterprisewas the nature of the relationship between government and the enterprise.Multiple and contradicting objectives set by government, excessive andad hoc control or absence of any meaningful control, distorted input andoutput prices which were far from reflecting the relative scarcity ofresources, deliberate policies of protecting state enterprises fromcompetitive pressure, all precluded any meaningful assessment of theefficiency or inefficiencies of the public enterprise sector as there was noway to disentangle the effects of internal firm operation from the effects ofexternal-to-the-firm policy constraints and opportunities.Added to this, political appointments for managerial positions turnedthe public enterprise sector into an instrument of political favouritism andpatronage rather than an instrument to facilitate efficient resourceallocation. Competence in managing enterprises was accorded less andless value in appointments to leading management positions. Onceappointed to a managerial position, the security of tenure did not in anyway depend on how efficiently or inefficiently the enterprise was run buton changes in political alliances and allegiances. There were no incentivemechanisms by which good performance could be rewarded or badperformance penalised.PUBLIC ENTERPRISE REFORM: EARLY ATTEMPTSFaced with severe financial viability problems and the generally perceivedinefficiency of the public enterprise sector, there were attempts to findways of addressing the sector's problem. The first wave of measuresstarted in the mid-70s and was primarily directed at restructuring thestate enterprise sector without any significant change in ownership. Thesemeasures included: changing the organisation form, increased managerialautonomy, redefinition and re-focusing of enterprise objectives, making aclear demarcation between business and social objectives and the costsassociated with each of these components, increasing transparency in theflow of funds between the government and the state enterprise sector andimplementation of different incentive systems.4 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEThese changes in organisation, control and management of the sectorhad temporary or negligible effect on the performance of state enterprises.Shortly after the reform exercise, things went back to the old situation.This failure at reform in the mid-70s and early 80s is being presented asevidence that the sector's problems cannot be solved short of completechange of ownership.1 However, this conclusion is probably too hasty andnot based on a full analysis of the facts.For a more balanced evaluation of the early attempts of reforming thepublic enterprise sector, the following facts must be considered. First, inmany instances the reforms were either not implemented at all orimplemented half-heartedly. Secondly, which was of decisive significance,there was little change in the economic policy environment in thosecountries. Increased market competition was not encouraged, enterpriseboard members and management remained political appointees, formalinterference in the day-to-day operations was replaced with equallydevastating informal interference; enterprises continued to have easyaccess to the state budget in the event of financial difficulties. Thus thepreconditions for the success of the reform were completely lacking.The economic as well as the socio-political environments are of crucialimportance when assessing past failures and future prospects of publicenterprises. Performance is highly dependent on institutionalarrangements, market conditions and a host of other constraints andopportunities. The performance of a public enterprise under a regime ofstrict administrative control, political interference and complete absenceof market signals cannot be a yardstick to judge what that firm'sperformance will be under a completely liberalised economy, enhancedenterprise autonomy and a well functioning market system. The form ofownership may not be decisive in itself. Rather, it is the way the ownershipright is exercised which has the greatest influence in determining thebehaviour and performance of an enterprise. One needs to be cautious inmaking a sweeping generalisation about the inefficiency of publicenterprises irrespective of the prevailing economic and policy environment.The lesson one should draw from the failure of reforms in the 70s and80s is that any reform measure in one sector without fundamental changesin the overall economic and political environment is doomed to fail. Thereforms would have been more successful had they been undertaken in amore conducive policy environment. It should also be noted that economicand political conditions in the mid-90s are fundamentally different fromthose which prevailed in the mid-70s to mid-80s. All this should be born inmind when assessing the prospect for current reforms of the publicenterprise sector.1 In the words of Lee and Nellis (1990) 'The most telling fact is that the numerous reformsshort of ownership change have not produced sufficient or enduring benefits.'T. GODANA AND B. HLATSHWAYOTHE PRIVATISATION DRIVEInternational experienceThe 1980s were years when liberal and extremely market friendly viewsgained significant ground. The political expression of these views wereThatcherism in England and Reaganomics in the USA. In Britain the Thatchergovernment implemented a huge privatisation programme which is usuallydescribed by its proponents as a resounding success both in its processand its outcome. It was then followed on a limited scale in France, Italy andSweden. But the main privatisation stride was made after the collapse ofthe East European economic system at the end of the 1980s. Theprivatisation programme in Germany after unification, in particular, hasbeen extremely rapid.2 Poland, Czechoslovakia and Hungary have beenamong the major privatising countries in the former Eastern block. Themain driving forces of privatisation in UK and the former East blockcountries have been political and ideological, i.e., economic objectiveswere subordinated to the overriding ideological and political goal.In the developing world some 2 000 enterprises were privatised duringthe 80s. However, most of this privatisation was in Latin America.3 In otherparts of the developing world there has been very little divestiture. In astudy of seven developing countries, it was found that "only 98 enterpriseshave been (totally or partially) privatised through sales or leasing, out ofa total of 2 000 SOEs" (Adam et al, 1992).4 In sub-Saharan Africa (SSA),privatisation in the sense of transfer of ownership has been even morelimited:privatisation in SSA countries displays a poor record, both at aggregateand sectoral level, with liquidation and closures predominating thedivestiture strategy (Fontaine and Geronimi, 1995, p. 149).Though the past decade can be characterised as an era of globaleconomic liberalisation, significant privatisation of public assets has takenplace in a relatively few countries, most notably in East Europe and LatinAmerica. In most other countries the process is only starting and willperhaps gain momentum in the coming years.2 In two years the Treuhandsanstalt (an organisation exclusively set up to expedite theprivatisation o( 12 500 firms) managed to privatise more than 800 companies for a total ofUS$18 billion (Rondinelli and Lacono, 1996).3 Nine hundred public enterprises were privatised in Mexico alone. Argentina has alsodivested more than 200 state enterprises (Rondinelli and Lacono, 1996). Another bigprivatiser in Latin America is Chile which reduced the size of the public enterprise sectorfrom 39% of GDP in 1973 to 16% in 1989 (Galal and Shirley, 1994).4 Even in Malaysia, a country often cited as a vanguard in the privatisation drive in thedeveloping world and where the State Owned Enterprises (SOE) sector output is estimatedat 25% of GDP, proceeds from privatisation for the period 1984/89 constituted only 0.1% ofGDP. The norm in Malaysia has been divesting only part of the shares and retainingmajority or retaining minority interest with a 'golden share'.6 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEAfrica is the region where privatisation has yet to start earnestly. TheEconomic Structural Adjustment Programmes initiated and supported bythe IMF/World Bank have invariably included privatisation as an importantpolicy measure.5 As Young (1995) observed:Given the troubled economic circumstances of many African states andtheir intensified aid dependence, the role of external agencies inpromoting privatisation has been considerable (p. 167).The rationale for privatisationIn the debate on privatisation, apart from the political-ideological motivedominant in European privatisation, two motives stand out as the mostimportant: relieving the financial burden on the state budget and improvedenterprise efficiency.The argument for increased efficiency rests on the premise that theprivate owner is interested in high profits and one way of achieving thatobjective is by reducing costs through efficient allocation of the firm'sresources and effective utilisation of human and physical capital. Of course,this premise is valid only if two further assumptions are made.The first assumption is that the market is so competitive that the onlyway to increase profits is by improving technical and allocative efficiency.This assumption is highly inappropriate for most developing countries asmany firms do posses significant market power that enables them toincrease profits even in the face of deteriorating enterprise efficiency.Unless the market can be made competitive, a mere transfer of ownershipmay not contribute to improved efficiency. If the market is madecompetitive, improved efficiency may be achieved even without any transferof ownership of assets rendering the efficiency argument for privatisationsuperfluous.The second assumption is that when ownership is private, the ownerswill be the ones who run the firm and pursue their profit motives andhence strive for maximum efficiency. This scenario is unlikely for mostpublic enterprise firms that are almost by definition large firms. Largefirms are in most cases run by professional managers (Berle and Means,1934; Burch, 1972) and it is unlikely that these managers always strive tomaximise the wealth of the owners. In fact, there is sufficient theoreticalargument as well as empirical evidence that managerially controlled firmsdo not behave as profit maximisers or allocate enterprise resources in anefficient manner.6It has been noted that 70% of all structural adjustment loans made during the 1980scontained a privatisation component (Cook and Kirkpatrick, 1995). Most African countriesreluctantly accepted or were made to accept the policy of privatisation but very few havepursued this policy vigorously (with the exception of Ghana. Gabon and recently Zambia).The whole school of managerial economics which deals with the behaviour and performanceof large corporations managed and controlled by salaried managers argues and empiricallydemonstrates that the behaviour of such firms differs from that of firms controlled bvowners (Baldwin, 1964; McKean and Kania, 1978; Redice, 1971; Williamson 1967)T. GODANA AND B. HLATSHWAYO 7To date there is very little empirical evidence on the efficiency-enhancing effect of divestiture due to the short period most firms haveoperated after being privatised. In fact, the divestitures were precededand/or accompanied by fundamental changes in the internal and externalenvironment of the enterprises which makes it extremely difficult todisentangle the effect of the ownership change from those of other changestaking place.There is some evidence in the UK that generally performance increasedin privatised firms. But it was also noted that the same improvement hasbeen achieved even in enterprises which were not privatised. It is alsocontended that the observed improvement in privatised enterprises ismainly due to the pre-privatisation restructuring and less to change ofownership. In some of the privatised UK companies, financial performancegreatly improved not because of increased internal efficiency but due tohigh prices and deterioration in service quality7 (exercising privatemonopoly power) accompanied by massive cuts in the work force. Afterreviewing the available evidence Yarrow (1993) concludes:The hypothesis that privatisation per se will quickly lead to substantialimprovements in the performances of inefficient state-owned enterprisesis not supported by the data (p. 76).Adam et al (1992) after reviewing the empirical evidence on the effectof ownership on firm performance both in the developed and developingcountries emphasise the influence of the regulatory and competitiveenvironment on enterprise performance rather than the mere change ofownership.The other strong argument forwarded in support of divestiture is theexpectation that this will raise revenue for the government that can beused to reduce the budget deficit and/or public debt. It is not that obviousthat this will be the case in all instances. If the capital market is efficient,the value of the assets to be sold must equal the discounted net flow ofearnings from those assets in the future. In fact, this is the valuationmethod preferred to determine the sale price of public enterprises. If thesale can fetch such a price, selling public assets is just an immediatecapitalisation of future earnings. In the long-term the net budgetary impactof privatisation is neutral (Adam et al, 1992). Of course, capital marketsare far from perfect, especially in developing countries. Thus it is mostlikely that the sale price will not fully reflect the future stream of earnings.High prices and deteriorating service were also observed in the Telephone Company ofArgentina (Rausch, 1993). In Bangladesh, divestiture had not improved performance orimproved technology (Muhith, 1993). Potts (1995) based on his study of a governmentowned Tea Company in Tanzania observes: 'Given adequate resources, favourable conditionsand financial and managerial autonomy, public sector estates can perform as well as anyprivate sector estate.'8 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEIt has become more the rule than the exception that public assets areusually grossly under-priced in almost all countries.8 With such under-pricing, selling profitable or potentially profitable public enterprises willnegatively impact on the budget in the medium to long-term.It is mostly the profit-making firms which are attractive to the privatesector and easier to privatise while the loss-making ones remain underpublic ownership. This change in the composition of the governmentasset portfolio will lead to an overall deterioration of the financial positionof the public enterprise sector. As Jomo (1995) notes,the sale of the government's most valuable assets, while it is obliged toretain those less profitable activities and assets of little interest to theprofit-seeking private sector, contributes to the self-fulfilling prophecyof the unprofitability of public sector economic activities (p. 239).Due to the perceived inefficiency of public firms, actively propagatedby the seller itself! Š the government Š public firms' assets will not onlybe grossly undervalued but different kinds of sweeteners to the privatebuyer must be offered to make them saleable and hence reducing therevenue gain from privatisation.Another factor to be considered is whether the new buyers assumethe old debts of the enterprises to be privatised or the government assumesall debts and sells the assets. In Zimbabwe the government assumed thedebts of three parastatals to the tune of Z$4 billion. The financial burdenof the state enterprise sector is mainly the result of the huge debt of thesector. The cleaning of the balance sheets of public enterprises is simply away of transferring their debts to government and leaving only the assetswith the enterprises. Selling productive assets will offer very little budgetaryrelief if these debts are assumed by the state. The sale of public assetsmay bring small and temporary relief to the budget but by no meansaffects the overall budgetary position of the government. If we also considerthe costs of privatisation like the fees to evaluators, marketers, legaladvisors and executors, retrenchment packages and the creation of specialfunds, even the short-term relief on the fiscus becomes extremelyminuscule.Generally, there is little to suggest that sale of state enterprises willmake any significant contribution to the budget in the medium to long-term. It may be argued that the firms will be more efficient in privatehands, become profitable and ultimately generate tax revenue. We havealready argued that this roundabout contribution of privatisation to thebudget through improved efficiency is highly questionable.It was noted in the UK privatisation that government assets were hugely underpriced asevidenced by the enormous windfall gains made by those who purchased the sharesT. GODANA AND B. HLATSHWAYO 9Approaches to privatisationPrivatisation is often understood as a mere transfer of ownership of publicassets to private hands. The privatisation drive we gave a historical accountof above is exclusively of ownership transfer type. It is usually this narrowconcept of privatisation which is being advocated by multilateral financialorganisations and donor countries alike.A more fruitful approach to privatisation is to conceive it as a set ofpolicies and measures which are intended to make enterprise decisionsresponsive to market signals, market opportunities and constraints. Themeasures may entail complete or partial change of ownership, redefinitionof enterprise tasks and re-focusing of tasks, expanding the role of theprivate sector, and more broadly, creating a conducive environment for afree play of market forces.Privatisation should be understood in the context of a broader conceptof public enterprise. Public enterprise as the name suggests has twodimensions: the public dimension which expresses public ownership,public purpose and public guidance to achieve that purpose and theenterprise dimension which expresses the businesslike operation andmanagement of the publicly owned firm (Fernandes, 1981). Thus, relievingthe enterprise of its public purpose and allowing it to function as anyother private enterprise pursuing exclusively financial objectives(commercialisation) for all practical purposes is privatising though notransfer of ownership would have been effected. One can privatise without'privatising in the narrow sense' by changing the objectives, control andmanagement of public enterprises.If privatisation is conceived as a broader process of economic changegiving more and increasing room for greater play of market forces, therehas been tremendous privatisation on a truly global scale during the lastdecade. The process of privatisation has been greatly speeded up andexpanded in the wake of fundamental political and ideological changes.The process has also been pushed further by economic hardships facedby many developing countries and the carrot and stick policy ofinternational financial organisations and donors. Today, there is hardly asingle country which has not freed prices, liberalised foreign trade andforeign exchange, encouraged private entrepreneurship, changed theorganisation and management of the state enterprise sector, stressedcommercial objectives instead of vaguely and badly conceived socialobjectives. This process of privatisation has also included partial orcomplete transfer of ownership of assets.The debate on privatisation and privatisation policy must be freedfrom the strait jacket narrow concept of divestiture and directed towardsthe most fruitful broader concept of privatisation. If such a broaderapproach is taken, transfer of ownership would be viewed as only one10 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEmeans of achieving the objectives of privatisation. The relative desirabilityof different forms of privatisation must be judged case by case. The choiceof privatisation measures should of course, be dependent on the specificityof each country Š the breadth, depth and absorptive capacity of the assetmarket, the competitiveness of the industry, distribution of economicpower in the country, the specific objective of the privatisation programme,the financial health of the enterprise to be privatised and no generalprescription applicable to all countries, sectors or enterprises should bemade.Each privatisation measure has its advantages and disadvantages,demands and constraints.THE PARASTATAL SECTOR IN ZIMBABWEEmergence and expansionZimbabwe inherited at independence a large number of parastatals. Morethan 60% of the parastatals were established before independence. Inparticular, almost all the marketing boards date back to the pre-independence period. The expansion of the parastatal sector afterindependence was not accomplished through expropriation ornationalisation of private assets but through new investments and creationof new parastatal bodies. This is in contrast to what happened in mostAfrican countries where massive nationalisation and expropriation wasthe rule rather than the exception. This distinct nature of the expansion ofthe sector makes disposal of state assets easier as there are no privateclaimants to the assets owned by the state.Both the emergence and expansion of the public enterprise sector inZimbabwe is quite different from the experiences in many other Africancountries. The role of the state in the economy has grown gradually overa very long period without any sudden change. It seems ideology hasplayed a very minor role in this gradual process. Zimbabwe, in the earlyeighties was one of a few countries in Africa where private ownership wasa highly dominant feature in industry.The parastatal sector in Zimbabwe today encompasses a wide varietyof economic activities. It is represented in almost all sectors. Most notablyin agriculture, manufacturing, mining, transport, energy, communicationand finance. All in all there are about 90 public enterprises and about 15statutory bodies. In about 85 of them government is the sole owner, inanother 10 government is a majority shareholder and in about 10government holds substantial minority ownership. The IndustrialDevelopment Corporation GDC) alone has ownership interest in 45enterprises more than half of which are fully owned by the corporation.In terms of legal status, some parastatals are public corporationsestablished under special Acts of Parliament like most of the agriculturalT. GODANA AND B. HLATSHWAYO 11marketing boards before their commercialisation in the past couple ofyears. Others are incorporated under the Private Companies Act with100% government ownership like Affretair, ZISCO and IDC. There are alsoa few which are joint ventures with foreign companies like some of thesubsidiaries of ZMDC in the mining sector.The parastatal sector is also very diverse in terms of objectives. Someare purely developmental and promotional like ARDA, AFC; some arestrategic like GMB, Zimbabwe Defence Industries, ZIANA and some arepredominantly commercial like ZISCO, MMCZ and most of the subsidiariesto ZMDC and IDC.The legal and institutional framework for public enterprises (PEs) as itis now, imposes constraints on their effectiveness, autonomy andaccountability. For example, from the point of view of alleviating thebudget deficit, parastatals are urged to compete effectively and turn outprofit, pay income and capital gains tax and dividends to the government.However, from an administrative point of view, parent ministries continueto regard their PEs as coming under the relevant Acts of Parliament insuch areas as labour law, investment, borrowing, reporting, supervisorymechanism as well as rules and regulations governing public procurement.Public enterprise reform in ZimbabweIn the Framework for Economic Reform (1991-95) (hereinafter called 'theEsap Document') the Government of Zimbabwe undertook to implement apublic enterprise reform programme, aimed at eliminating the largebudgetary burden9 of the PE sector and making the PEs more efficient. Theenvisaged PE reform programme was broad and its objectives were setout as:Š efficiency improvements and economic development through attractionof foreign investment, technology and know-how, and the harnessingand encouragement of local entrepreneurial skills; andŠ generation of revenue from sales and leases;To achieve these objectives utilization of a full range of optionsincluding outright sale of shares and assets, leasing and managementcontracts and contracting out of services was recommended. However, inthe actual implementation, the PE reform programme seems to have beennarrowed down to privatization in its most restricted sense. Thus, theactual sale of shares previously held by the state or the state's stake inPEs and the revenue raised therefrom seem to have become the acceptedmeasure of success or failure of the reform programme.The PE reform programme as spelt out in the ESAP Document abovehad some obvious shortcomings. For example, no particular requirement,9 For the period 1986/91 subsidies and advances to some 12 parastatals and governmentcompanies exceeded $2 billion.12 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWElike the setting up of a special capital account, was stated for the utilizationof revenue generated from the disposal of state assets. However, the morefundamental weaknesses of the programme were the failure to develop acomprehensive policy statement and the lack of an efficient and transparentlegal framework for the implementation of the reforms.Since the start of the reform programme, several enterpriserestructuring measures have been undertaken in preparation for fullprivatisation. PEs which received earlier restructuring programmes includethe National Railways of Zimbabwe (NRZ) and the Zimbabwe ElectricitySupply Authority (ZESA). In the case of the NRZ, the restructuringconcentrated on its core business and shedding off non-core activitiessuch as the Road Motor Services, now a private company. As for ZESA, a$6 billion agreement with a Malaysian company, YTL Corporation Berhad,was signed for the privatization and expansion of the Hwange Thermalpower station. Under the deal there would be established a joint venturecompany in which the local PE utility, ZESA, would have a 49% equitywhile the majority shareholding of 51% would be held by the Malaysiancompany.Significant reforms were made in the former Agricultural MarketingBoards (CMB, CSC, DMB and GMB) and they focused on rationalizationand restructuring to achieve efficiency. The government agreed to takeover the $4 billion debt of three major agricultural PEs (CSC, CMB, GMB).At the same time three agricultural PEs (DMB, CMB and CSC) were put ona fast track towards more profound reform. These PEs have moved frombeing statutory or public corporations under public Acts of Parliament toincorporation under the Companies Act, thereby becoming privatecompanies though with 100% share capital still owned by the government.The PEs thus incorporated under the Companies Act have become knownas Dairibord Zimbabwe Limited (DZL), Cotton Company of Zimbabwe(Cottco) and Cold Storage Commission (CSC). The deliverables of thesecompanies, buying of milk and milk processing, buying of cotton andginning, and buying of livestock and meat processing, have been liberalizedwith the entry of competition. In 1997 both Dairibord Zimbabwe Limitedand Cottco were privatised through public share offers to institutions andprivate investors.Three PEs operating in the mining sector Š MMCZ, ZMDC and theRoasting Plant Corporation have been the subject of legislation permittinga new form of corporate structure with private sector involvement. Underamended enabling legislation they have limited liability and provision forshare capital, although no capital has yet been issued. At all times thepresent legislation allows at least 51% of the shares of ZMDC, and theRoasting Plant Corporation and 75% of the share capital of the MMCZ to beheld by the state. Some of the PEs in the mining sector have submittedtheir privatization proposals for approval by government.T. GODANA AND B. HLATSHWAYO 13With the successful launching of the first privatisation exercisegovernment seems to be determined to move faster than before. The PTCis soon to be fully commercialised once its regulatory functions aretransferred to other bodies. ZBC is also to see major changes in itsoperations and to lose its broadcasting monopoly.As privatisation is gathering momentum, concern has been raisedabout the effect of the privatisation on wealth distribution in the country,particularly, on the indigenisation of the economy. The government hastried to allay the fear that foreign interests and non-indigenous groups willfurther consolidate their economic power by establishing the NationalInvestment Trust to warehouse some shares in privatised companies forfuture disposal to indigenous groups. Another measure suggested is thecreation of Employee Stock Ownership Schemes (ESOPs). As ESOPs andthe National Investment Trust have been presented as a way of usingprivatisation as a vehicle of indigenisation, it is necessary to look into theprivatisation-indigenisation connection.Indigenisation and privatisationIn any privatisation exercise in the developing world, the major problemhas been the lack of adequate domestic capital to buy the shares or assetsin divested firms. In particular, the sale of large state enterprises has inmost cases required significant foreign capital involvement. In Malaysia,foreign involvement accounted for 40% of total sales value (Adam et al,1992). Even more disturbing is the finding that African privatisation haveinvolved greater foreign capital participation than privatisation in EastAsia (Cook and Kirkpatrick, 1995). This seems to be one of the reasonswhy governments are reluctant to speed up the privatisation process.Political power in almost all countries rests in the hands of indigenousgroups at least nominally. Thus, state ownership of assets is by definitionindigenous ownership. Privatising these assets cannot make suchownership more indigenous but less so, as sooner or later part or most ofthe privatised assets will end up in foreign or domestic non-indigenousgroups. Therefore, divestiture cannot be a vehicle for indigenising theeconomy in the sense of increasing the share of the indigenous populationin asset ownership. Whatever indigenisation is attempted during thetransfer of state assets into private hands, it can only be defensive and notan offensive measure to expand indigenous ownership. It is due to theweak financial and managerial capacity of the indigenous population thatsuch defensive measures as National Investment Trusts have been foundnecessary.Privatisation and indigenisation are not mutually supportive measuresbut impose constraints on each other. If indigenisation is of paramountimportance in privatisation, the revenue objectives and probably even14 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEimprovement in efficiency need to be sacrificed. This trade-off must beborne in mind in any policy on privatisation. How much of revenue andefficiency can be traded for achieving the goal of indigenisation need to bemade explicit.ESOPs and privatisationIn almost all divestitures involving sale of shares a certain percentage ofthe share is reserved for the employees to be distributed either freely orto be purchased at preferential prices. Employee share participation hasbecome an integral part of any privatisation plan. However, in most casesthe share allocation to employees has been relatively small, ranging from5% to 10%. The main motive for allocating shares to employees hasinvariably been to diffuse employee opposition to the privatisation planthan to give employees a real influence in the enterprise. A special schemeof employee ownership, ESOP (Employee Stock Ownership Plan), isincreasingly being considered as a way of spreading asset ownership indeveloping countries including Zimbabwe.Employee Share Ownership Plan (ESOP) is a scheme first introducedin the US which requires special institutional, legal and tax incentivearrangements. Basically, ESOP is an institutional arrangement where allemployees in a firm buy a block of shares at fair market value under a loanarrangement guaranteed by the employer repayable with future dividendearnings on the block of shares.The scheme can only work if the employer is willing to guarantee sucha loan and if expected dividends are higher than the expected interest tobe paid on the loan. To make employers willing to institute such a schemeand financial institutions to lend money for the scheme, a host of taxincentives for firms and financial institutions must be introduced. Thoughthe originators of ESOP and its strong supporters have a wider politicaland ideological objective of creating "popular capitalism",10 the primaryconcern of employers and creditors is the scheme's immediate financialbenefit.Tax legislation plays a decisive role in encouraging ESOPs and such alegislation must precede any ESOP scheme. ESOP is not something whichcan be appended to privatisation without prior preparation of theinstitutional, legal and tax framework. Today, such a framework does notexist in Zimbabwe or any of the other privatising African countries. Even ifsuch a framework is worked out as a matter of urgency, there are a host oftechnical questions which need to be addressed before the scheme can beimplemented.10 As to the nature ol ESOPs, the US presidential candidate Bob Dole has put it bluntly when hesaid, 'I don't know much about ESOPs, but I do know that property owners vote forconservatives and I am all lor that' (quoted in Jeffery Gate's (the originator ol ESORspeech, Lima, January 1996).T. GODANA AND B. HLATSHWAYO 15Most importantly, ESOP can only be implemented in a stable enterpriseenvironment: good profitability or potential profitability, relatively stablelabour force and a relatively well established working relationship betweenthe work force, management and owners. A firm which is about to beprivatised does not provide such a conducive environment for institutingESOP.Once the institutional, legal and tax framework is worked out, thegovernment could proceed to implement ESOPs in major commercialisedstate enterprises which provide a much better stable environment for thescheme. Such a measure would prepare the ground for gradual participationof other private interests in commercialised parastatals and also set thepace and modalities for the introduction of ESOPs in the private sector ofthe economy. Thus, the non-divestiture options of privatisation are moreappropriate for such gradual and careful implementation of employeeparticipation both in ownership and control of productive assets.INSTITUTIONAL AND LEGAL FRAMEWORK FOR PE REFORMCurrent institutions and proceduresAmong the most critical indicators for assessing the performance ofprivatization programmes are:Š the depth and quality of programme design and management;Š appropriate legislation (a Privatization Law);Š the legal authority of a privatization authority which enables it toundertake its work with minimum political interference; andŠ transparency Š the steps taken to inform the public about theprogramme and to encourage their maximum participation in theprocess.11Weighed against the above indicators, Zimbabwe's privatizationprogramme fairs poorly compared to four other privatizing Africancountries, namely Malawi, Tanzania, Uganda and Zambia. All these countrieshave comprehensive policy statements on PE reform and privatization,adequate legal and institutional frameworks consisting of privatizationlaws and autonomous privatization authorities and transparentprivatization processes (Commonwealth Secretariat Interim Report, 1994)12The discussion below is based on the above report.MalawiFollowing a World Bank restructuring mission in 1994, a comprehensiveprivatization policy was developed and implemented which has put the1' "Privatisation in Africa: The Zambian Example", Findings: Economic Management and SocialPolicy (World Bank, October, 1996).12 "Privatisation in Africa: Experience, Impediments and Relevance of Mass Techniques",Commonwealth Secretariat Interim Report, 1994.16 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEMalawi privatization programme on the same league as that of the trend-setting Zambians. Since the Zambian privatization programme will beindicated below, what might be useful here is to reflect on the pre-1994Malawian programme as a warning to what might happen in Zimbabwe ifthe present non-transparent system is allowed to continue:A state enterprise divestiture scheme was first conceived in 1986 and,with the encouragement of the IMF and the international funding agencies,became operational in 1988, when the government started to divest itselfof a number of enterprises under the control of ADMARC, the stateholding company. The main aims were to improve liquidity as thesecompanies were a drain on the Treasury, to broaden share ownership,let the private sector return these companies to profitability and letADMARC go back to its core business of commodity marketing. With thesupport of a 90% counterpart grant from USAID, agricultural estates weresold to Malawians Š but only to wealthy farmers and landownerswith strong political connections. Other companies were sold either toexpatriate or international firms, many of which had minorityshareholdings, or to the PRESS Group of companies controlled by atrust run by the President. Professional valuations of the enterpriseswere carried out but transparency was not evident and many secretdeals were done (emphasis added).13TanzaniaThe parastatal reform programme is a key element in Tanzania's overallstrategy for economic reform and in this regard a Policy Statement waspublished in 1992 followed by a Privatization and Reform Masterplan in1993 which set out the government's reform strategy, method ofimplementation and an outline of a time phased divestiture programme.Responsibility for directing and implementing the programme lies withthe Parastatal Sector Reform Commission (PSRC), whose powers andresponsibilities are elaborated in the Public Corporation (Amendment)Act of 1993. The Act gives the PSRC substantial authority to carry out itsmandate. The PSRC is backed by a full compliment of 25 professional staffand consultants. The divestiture programme got off to a solid start, withthe PSRC in the very first year concluding 20 divestitures using a variety oftechniques, 22 liquidations and 117 businesses under review by the end ofthe year, well above the targets set in the Masterplan.UgandaFollowing the country's economic recovery programme launched in 1987the government published a Policy Statement on Public Enterprise Reform13 Ibid, 24-25.T. GODANA AND B. HLATSHWAYO 17and Divestiture in 1991, which outlined the government's privatizationstrategy. The Public Enterprise Reform and Divestiture Statute was passedin 1993 to give effect to the privatization strategy. The statute establishedthe Divestiture and Reform Implementation Committee (DRIC), comprisingsenior members of administration and headed by the Finance Minister tohave responsibility for implementing the policy. Thus in Uganda theprivatization policy is clear, the law and framework satisfactory.ZambiaIn 1992 a Privatization Act was passed with a programme to privatize andcommercialize state owned enterprises. The Act established the ZambiaPrivatization Agency (ZPA) to execute the programme reporting to theMinister of Commerce and Industry, who was given cabinet responsibilityfor the privatization programme. As an integral part of the privatizationprogramme, a Privatization Trust Fund was set up in 1994 to temporarilywarehouse shares which are later to be sold through public flotations.Zambia's programme has taken off dramatically with 97 deals worth US$ 119million concluded over the 12 months from June 1995 to June 1996.Zimbabwe stands alone in not having any of the above structures in place.Its institutions and procedures for privatization of PEs have developed inan ad hoc manner and are, therefore, cumbersome and non-transparent.The key institutions involved, their procedures and weaknesses arediscussed below.The public enterpriseThe PE itself, which may be in the process of restructuring, preparesprivatization proposals. This task is entirely entrusted to the managers inthe public enterprises without any participation by workers. The absenceof employee participation in the preparation for privatisation makes theprocess non-transparent and creates an atmosphere of worker hostility tothe whole exercise.Sector interestsThe PE invites inputs from sector interests (SI), e.g., from producers for anagricultural PE. However, management of PEs has self-interests in theprivatization process and is not likely to be objective or impartial in itsinvitation and assessment of sector and general public inputs. In makingrecommendations to the parent Ministry, PE management is likely tohighlight its own interests and underplay those of the sector and thegeneral public investors and consumers.The parent ministryThe parent ministry has to deal with privatization proposals at the precisemoment when it is experiencing its own identity crisis. First, the18 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWErestructuring and commercialization of its PEs reduces the power and theprestige the Ministry used to enjoy over the PEs. The roles are dramaticallyreversed in a manner akin to the tail suddenly wagging the dog as the PEs'greater resources compared to the Ministry's become all too obvious.Secondly, the Ministry has to adjust from a position where it controlledPEs, which in turn discharged the (selQ-regulatory activities of the sector(monopolized by the PE), to a situation where the Ministry itself has totake over the regulation of the sector and introduce competition whilerelying on the manpower expertise and resources of the PE.Thirdly, the Ministry has to adjust from the dizzy heights of super-regulator to its new role as just the sole shareholder (soon to be aminority or no shareholder at all) in a restructuring PE which has tocontend with competition introduced by the Ministry.Therefore, it is not difficult to see why the parent Ministry, presentedwith privatization proposals, will delay and prevaricate as it tries to adjustto the new situation.Working Party on PrivatizationThis is chaired by the Head of Planning of the National Economic PlanningCommission and consists of Permanent Secretaries of the ministries ofJustice, Lands, Agriculture, Mines, Industry and Commerce, Transportand Energy, Information, Defence and Directors in the Department of StateEnterprises and the Attorney-General's Legal Affairs section. The WorkingParty examines privatization proposals from the sector ministries andmakes recommendations to the Inter-Ministerial Committee onPrivatization.Inter-Ministerial Committee on PrivatizationIt consists of ministers whose ministries are represented in the WorkingParty, and is chaired by the Planning Commissioner. The Minister of Statefor State Enterprises and Indigenisation also sits on this Committee.Ministry of FinanceThe Finance Ministry has the critical role of approving privatizationproposals.The National Economic Planning CommissionIt is strategically placed to play a meaningful and consistent role in PEprivatization but it does not have legislatively granted powers andautonomy. It is envisaged that a Privatization Unit within the NEPC willcoordinate government work on privatization and commercialisation oPESpThe PU wlU derive its authority from the Inter-Minis^ a ^on Pnvat.zation. This arrangement will not give the PU theautonomy it requires to implement privatization.T. GODANA AND B. HLATSHWAYO 19The Ministry of State responsible for ParastatalsIt seems to have assumed a key role of general policy formulation in PEprivatization. However, its role is not clear in this regard given the strongroles of the parent Ministries and the NEPC. Nonetheless, most of thepronouncements on privatization and indigenisation of late have comefrom this Ministry.Cabinet approval is required for privatization proposals. The PlanningCommissioner, under whom the NEPC falls, is a full cabinet member and istherefore strategically placed to drive the privatization process. The StateEnterprises Minister is merely a Minister of State without Cabinet status.He only sits in Cabinet for specific issues of privatization and indigenisation.The apparently conflicting roles of NEPC and State Enterprises Ministry, ithas been suggested, could be reconciled by allocating the role ofprivatization implementation to the PU within the NEPC and the monitoringrole to the Department of State Enterprises and Indigenisation. However,we believe that a mere administrative allocation of roles will not suffice. Itis necessary to have enacted a privatization law clearly delineating andenshrining the respective roles.The President's Office and the ruling political party have significantformal and informal influence over privatisation policy formulation andthe eventual disposal of the assets. For example, addressing the secondZanu (PF) National Conference in Bulawayo on 14 December, 1996, PresidentMugabe told indigenous groups to start compiling names of 'trustworthyand honest' people who will buy shares in multinational corporations andother companies as part of the government's programme to economicallyempower the marginalised majority Blacks.14 Even the indigenous groupsthemselves were split in their response to this unorthodox approach toBlack empowerment. While the Indigenous Business Development Centre(IBDC) welcomed the announcement unconditionally, the Affirmative ActionGroup seemed to express some reservations on the manner of compilationof the list, preferring a single national list rather than several lists fromvarious groups. To the average citizen such an approach raises seriousconcerns of favouritism, political patronage, lack of transparency andpossible corruption.The role of the Zanu (PF) party seems to even extend to private sectordealings. For example, The Herald15 reported that the Zanu (PF) Secretaryfor Finance and Minister of Justice, Legal and Parliamentary Affairs, Mr.Emmerson Munangagwa, and the National Planning Commissioner, Mr.Richard Hove (who is responsible for public enterprise privatization), had14 The Sunday Mail, 15 December, 1996, 6.15 The Herald, 11 December, 1996.20 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEbeen talking to selected multinationals with extensive holdings in Zimbabweon how Blacks could buy equity in existing companies to speed up theindigenisation of the economy.Once agreement was reached on the sale of shares, the ministerresponsible for implementing government policy in the relevant sectorŠ mines, industry or agriculture Š was brought into the discussion aswell. In one of the first partial successes, Shabanie and Mashaba mineshad been bought by African Resources.As later reported by The Financial Gazette,16 a four-men indigenisationcommittee, chaired by Justice Minister Munangangwa, was set up byPresident Mugabe to promote indigenisation in private sector dealings:The indigenisation committee is made of Munangagwa, PlanningCommissioner Richard Hove, Mines Minister Swithun Mombeshora, andMutumwa Mawere, chairman of Africa Resources Limited which nowowns Shabanie and Mashaba mines and its subsidiaries.Given the above vague policies on PE privatization and a cumbersomeinstitutional framework, it is no wonder why the pace of PE privatizationhas been sluggish. More than ten institutions, ranging from the PrivatizationUnit consisting of civil servants and consultants, to the ruling party withits political heavy weights, have significant roles in the privatization andreform of parastatals!As already argued, it is critical that a comprehensive PE privatizationpolicy should be formulated encompassing clear and measurableindications on employee share participation, local ownership,indigen.sat.on and employee welfare. In addition, an efficient andoos^Z IT/'1"/T' frame»ork must be put in place. To make thisoTnersh'- th ^^ and deePen wider and democraticownership ,n the economy, an appropriate legal framework must be put inA NEW INSTITUTIONAL AND LEGAL FRAMEWORKIn the light of the above discussionand an appropriate iSXTT^t1111"^,1^implementation of the Zimbabwe PE" frameW°rk 'S necessa.7 *°' ««ensure that the process is as tranl Ž Pro8ramme spec.hcally toare avoided, eVciency is eSncTd " T*^ ^^ °f LT^strengthened. In other words, 2Ten^ut ? accountab.lltjMsfacilitate the reform processes Surh g environment must be created towould include an Act of Parliament rJT '"Stitutional and legal envir°nmentsetting up of a privatization author^T/ *? ^? priVfZation'theuv and related bodies and organs.lb The Financial Gazette, 9 January, 1997, 2T. GODANA AND B. HLATSHWAYO 21Privatization LawThe PE reform programme should ideally be enshrined in an Act ofParliament. Such an Act Š let us call it a Privatization Act Š must, amongother things:(i) establish an autonomous privatization authority as the agencyresponsible for planning, managing, implementing and controlling theprivatization of PEs;(ii) contain a clear statement of objectives of the programme (We havealready commented on the paucity and inadequacy of the objectivesin the Esap I Document);(iii) include modes of privatization, which must give a privatizationauthority the widest freedom in recommending a method of disposalof state assets;(iv) authorize and limit use of proceeds from privatization to financeredundancy payments, privatization expenses, contribution to a fund(e.g. NIT) to promote broad based local participation in privatizationand funding capital investment and social projects;(v) grant management and employee buyout teams the right of firstrefusal for selected small companies to promote local ownership; and(vi) set out percentages of shares to be reserved for locals, employees,etc.The Privatization Authority(i) must have a Board of members nominated by their respectiveorganizations [e.g. the Zimbabwe Congress of Trade Unions (ZCTU),Employers' Confederation of Zimbabwe (EMCOZ), bankers', lawyers'and accountants' associations, etc.] and approved by Parliament toensure maximum autonomy;(ii) would have links with a particular Ministry, say, Industry andCommerce, to facilitate communication and reporting to Cabinet;(iii) would be headed by a Chief Executive and be supported by adequateprofessional staff and full-time advisers;(iv) must submit half-yearly progress reports detailing activities of theAuthority and giving enterprise specific information. These reportsmust be tabled before Parliament;(v) must be required in law to publish in the Government Gazette orother public documents such information as divestiture, bidders andbid prices, successful bidders and reasons for success, price of sharesand special conditions of sale;(vi) would be required to have negotiations done by independentnegotiators and valuations done by independent contractors whomust provide a certificate of valuation; and22 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWE(vii) must hold a monthly press conference and regular public fora givinginterested parties the opportunity to be informed about all aspects ofthe programme.National Investment TrustThe government established The National Investment Trust to ensure thata portion of the shares in privatised state enterprises is reserved forfuture sale to the indigenous population. However, the Trust is not yetoperational and its precise functioning remains unclear. If the function ofthe Trust is warehousing of shares for future sales, there is less need forsuch a new institution as such a function can be performed by any of theexisting financial institutions like NSSA, POSB or any of the governmentowned banks. In fact, Delta shares worth $200 million are alreadywarehoused with NSSA and POSB. If the Trust is meant to be an activeplayer in the asset market by managing a portfolio of assets the questionsof ownership of the assets and beneficiaries need to be addressed. Unlessthis is made clear, the NIT is no more than the government managing itsasset at arms' length. If the intention is to create a wider asset ownershipby indigenous people, several questions remain unanswered. Who iseligible? How much is each eligible person allowed to buy? What are theprices and conditions of purchase? Will the Trust be allowed to invest itsassets in private companies and thus grow?This fund should be set up under the auspices of the PrivatizationAuthority to primarily address the limited absorptive capacity of thedomestic market by, among other things, providing funding andimplementing schemes to promote broad-based local participation through,for example, warehousing arrangements and deferment of payment forpurchase of shares by employees, management and Zimbabweans. TheNIT as currently conceived hangs in the air as it lacks any organic link withsuch institutions as the proposed Privatization Authority and anappropriate environment to make its activities sufficiently transparent.Zimbabwe Stock Exchange ReformThere is a need to assist the ZSE to source funds to improve its capacity torespond to the demands placed on it by a wider ownership in shares etcand its suitability for aspects of the privatization programme.Tax IncentivesThe tax system should be made more responsive to, and supportive ofthe privatization drive. A clear example of the currently negative taxenvironment is the fact that employees who take advantage of employeeshare ownership schemes are subjected to income tax on the differencebetween the market value of the shares and the concessionary rate theyT. GODANA AND B. HLATSHWAYO 23would have paid. They are also taxable on gains made on any subsequentdisposal of the shares. Companies are not allowed any deduction in respectof concessions made or any assistance given for the purpose of purchaseof the company's shares by employees. In many tax jurisdictions, generoustax incentives are granted to facilitate employee share acquisition schemes.For example, in Australia there is a tax-free threshold granted to everyemployee in a share acquisition scheme. The requirement for a scheme toqualify for the tax incentive is that two thirds of permanent employees(with more than three years of service) need to be offered preferentialterms for acquiring shares.The tax system does currently provide a number of tax incentiveswhich will indirectly benefit PE restructuring and privatization schemes,e.g., the tax incentives for venture capital funds, private sector participationin infrastructure development [Build-Operate (BO), Build-Transfer (BT),Build-Operate-Transfer (BOT), Build-Own-Operate (BOO) schemes] etc.However, these incentives were not specifically granted with a view tofacilitating a PE privatization drive. Further specific tax incentives toexpedite PE privatization could be developed, e.g., exempting from taxredundancy payments which are devoted to acquisition of shares or stakein the privatization programme.Natural Monopoly RegulationThere exist monopolies among public enterprises which without someform of regulation of both prices and quality of service, the new privateowners of these enterprises may be able to charge excessively high pricesor provide low quality service with the undesirable consequences onefficiency and fairness to consumers.Although the Competition Act was enacted in 1996, it did notimmediately become operational as the Industry and Trade Commission itprovides for had yet to be established. Sources within the Ministry ofIndustry and Commerce had earlier indicated that the structures of theCommission were being finalized and the Commission would be operationalin early 1997,17 but the Commission was only put in place in February,1998, following the January 20-22 widespread demonstrations againstescalating prices of basic foodstuffs.The Competition Act gives the Commission powers to investigate anyrestrictive practices and monopolies and then take decisive action to stopthem.CONCLUSIONAlthough privatisation of state enterprises has achieved the status ofeconomic orthodoxy throughout the world, it still remains controversialThe Sunday Mail, 29 December, 1996.24 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWEin terms of the degree and extent it should go and the pace and the form itshould take. There are different economic, social, political and ideologicalfactors which have led to the formulation, adoption and implementationof various privatisation programmes in the world.In Zimbabwe, as in many other developing countries in general andAfrican countries in particular, privatisation has been introduced as anintegral part of the IMF and World Bank economic reform packages.Unfortunately, so far privatisation programmes as such have not beensubjected to adequate consultation with, and scrutiny by, civil society ingeneral and academics in particular, prior to, during and afterimplementation.Among the most critical indicators for assessing the performance ofprivatisation programmes are: the depth and quality of programme designand management, appropriate legislative framework (Privatisation law),the legal authority of the privatisation body which enables it to undertakeits work with minimum political interference, and finally transparency,i.e., the steps taken to inform the public about the programme and toencourage their maximum participation in the process.Weighed against the above indicators, Zimbabwe's privatizationprogramme faired badly compared to international practices in general,and, in particular, four other privatizing African countries, namely Malawi,Tanzania, Uganda and Zambia. All the other countries have comprehensivepolicy statements on public enterprise reform and privatization, adequatelegal and institutional frameworks consisting of privatization laws andautonomous privatization authorities and transparent privatizationprocesses. Zimbabwe stands alone in not having any of the above indicatorsin place. Worse still, there is a proliferation of bodies and institutions withconflicting roles in Zimbabwe's parastatal reform process. To correctthese anomalies and bring the Zimbabwe privatisation programme intoline with the now internationally accepted standards, we recommend thata Policy Document on Privatisation should be drawn up by a tripartitecommittee of government officials, labour and the private sector. Thispolicy document should:Š outline the aims of privatisation within a broad policy framework;Š require the setting up of a transparent institutional and legal frameworkfor public enterprise sector reform, namely a Privatisation Law and aPrivatisation Authority;Š provide a definition of indigenisation and approaches thereto; andŠ regulate the participation of local and foreign investors in, as well asuse of proceeds from, privatisation.Privatisation is a means to an end and not an end in itself. Therefore,in the policy document proposed above, privatisation must be conceivedin its broadest sense if it is to serve national objectives of growth withT. GODANA AND B. HLATSHWAYO 25equity. The narrow approach to privatisation which is primarily divestitureshould be explicitly abandoned for a broader concept of privatisationwhich is primarily of a non-divestiture and incremental type. It should beemphasised that the non-divestiture options offer several advantages overthe divestiture options. Incremental privatisation through gradual andpartial divestiture, sub-contracting, leasing, management contract, BOT,BO, ESOP are better ways of indigenising the economy which allow thedevelopment of skills and financial strength. Supported by appropriatefinancial and training facilities, incremental privatisation could create aconducive environment whereby the indigenisation of the economy, workerparticipation and a broad asset ownership can be achieved smoothly,with greater certainty and at least cost.In those cases where there is a prima facie case for immediatedivestiture, clear guidelines should be put into place pertaining totransparency and accountability in the processes leading up to andincluding the actual disposal, use of the privatization proceeds andemployee welfare.In order to be able to choose appropriate forms of privatisation froma large number of available options, policy objectives must be sector andenterprise specific rather than general. This requires an in-depth analysisof each sector and each public enterprise.Finally, in choosing any particular option of transformation for aparticular enterprise, clear guiding criteria need to be spelt out. Thesecriteria should include the strategic (social or economic) importance ofthe sector and the enterprise, existence or absence of competitive market,potential for indigenous participation, effect on employment and workers'welfare and the financial health of the enterprise.ReferencesADAM, C, CAVENDISH, W. AND MISTRY, P. S., Adjusting Privatisation (London,James Currey/Heinemann/Ian Randle, 1992).BALDWIN, W. L, 'The motives of managers, environmental restraints andthe theory of managerial enterprise', Quarterly Journal of Economics,May 1964.BERLE, A. A. AND MEANS, G. C, The Modern Corporation and Private Property(N.Y, Macmillan, 1934).BORCHERDING, T. E., POMMERHENE, W. W. AND SHNEIDER, F., "Comparing theefficiency of private and public production, the evidence from fivecountries', in D. Bos, R. A. Musgrave and J. Wiseman (eds.), PublicProduction (Wien, Springer Verlag, 1982).BOWIN, 0., 'Privatisation in Czechoslavakia', in V. V. Ramandham (eds.),Constraints and Impacts of Privatisation (London, Routledge, 1995).BURCH, P. H., 77ie Managerial Revolution Reassessed, Family Control inAmerica's Large Corporations (London, Lexington Books, 1972).26 PUBLIC ENTERPRISE REFORM AND PRIVATISATION IN ZIMBABWECLARKE, T. AND PITELIS, C, The Political Economy of Privatisation (London,Routledge, 1993).COMMONWEALTH SECRETARIAT, Commonwealth Secretariat Interim Report,Privatisation in Africa: Experience, Impediments and Relevance of MassPrivatisation Techniques, 1994.COOK, P. AND KIRKPATRICK, P. (eds.), Privatisation Policy and Performance:International Perspectives (London, Prentice Hall/Harvester, WheatSheaf, 1995).FERNANDES, P., An Approach to Performance Evaluation of Public IndustrialEnterprises (Viena, UN1DO, 1981).FONTAINE, J. M. AND GEROMINI, V., 'Private investment and privatisation insub-Saharan Africa', in P. Cook and C. Kirkpatrick (eds.), PrivatisationPolicy and Performance: International Perspectives (London, PrenticeHall/Harvester, Wheat Sheaf, 1995).GALAL, A. AND SHIRLEY, M. (eds.), Does Privatisation Deliver? (Washington D.C, Economic Development Institute, WB, 1994).GODANA, T., 'The Behaviour and Performance of Public Enterprises: ATheoretical and Empirical Analysis' (Stockholm, Stockholm University,Ph.D. thesis, 1991).GOVERNMENT OF ZIMBABWE, Framework for Economic Reform (1991-95).JOMO, K. S., 'Malaysia's privatisation experience', in P. Cook and C.Kirkpatrick (eds.), Privatisation Policy and Performance: InternationalPerspectives (London, Prentice Hall/Harvester, Wheat Shei*, 1995).KIKERI, S. NELUS, J. AND SHIRLEY, M., 'Privatisation, lessons from marketeconomies', World Bank Research Observer, (IX), (ii).LEE, B. AND NELUS, J., 'Enterprise Reform and Privatisation in SocialistEconomies' (WB Discussion Paper No. 104, 1990).MUHITH, A., 'Privatisation in Bangladesh', in V. V. Ramandham (eds.),Constraints and Impacts of Privatisation (London, Routledge, 1995).MUNEKU, A. C, 'Privatisation in Zambia' (Nyanga, ZCTU/FES, 1996).NELUS, J. R 'Public Enterprises in Sub-Saharan Africa" (WB DiscussionPaper No. 1, 1986).POTTS, D. 'Nationalisation and denationalisation of estate agriculture inTanzania 1967-1990', in P. Cook and C. Kirkpatrick (eds.), PrivatisationPolicy and Performance: International Perspectives (London, PrenticeHall/Harvester, Wheat Sheaf, 1995).PRYO£ F.L.,'Public ownership: Some quantitative dimensions', in W. G.Shepherd (eds.), Public Enterprises (London, Lexington Books, 1976).RAUSCH, A. E 'Privatisation in Argentina', in V. V. Ramandham (eds),Constraints and Impacts of Privatisation (London, Routledge, 1995).Ž Ł i ?>ntrol type, profitability and growth in large firms: Anempirical study', Economics Journal (Sent 197H OJOCXlfE'^T^T0' ,Mr P°licieS «* Institutions for Managingtion: International Experience QLO 1996)TJLr-n77* %-°7*lWfc EnterPrises: An International StatisticalCJMFWM)" EnterPnse in Mixed Economies (Washington D.T. GODANA AND B. HLATSHWAYO 27WILLIAMSON, O. E., 'Managerial discretion and business behaviour', AmericanEconomic Review (Dec. 1963).WORLD BANK, "Privatisation in Africa: The Zambian Example", Findings:Economic Management and Social Policy (October, 1996).YAFFEY, M., 'Privatisation policy: The lessons of nationalisation in EastAfrica', in P. Cook and C. Kirkpatrick (eds.), Privatisation Policy andPerformance: International Perspectives (London, Prentice Hall/Harvester, Wheat Sheaf, 1995).YARROW, G., 'Privatisation in UK', in V. V. Ramandham (eds.), Constraintsand Impacts of Privatisation (London, Routledge, 1995).YOUNG, R. A. 'Privatisation, African perspectives' in P. Cook and C.Kirkpatrick (eds.), Privatisation Policy and Performance: InternationalPerspectives (London, Prentice Hall/Harvester, Wheat Sheaf, 1995).