The Sunday News
Economic Focus Butler Tambo
Introduction
GOVERNMENTS the world over are being challenged by the demands of the global economy as new information and technology calls for greater participation and democracy. The demands are pushed by multilateral development institutions, donor organisations, parliaments, the private sector, non-governmental organisations, citizens and the media.
Whether it is calls for greater accountability and transparency, enhanced effectiveness of development programmes in exchange for foreign aid, or real results of political promises made, governments and organisations must be increasingly responsive to internal and external stakeholders to demonstrate tangible results.
The reports that came onto the media space in Zimbabwe in what has been termed the “Salary gate scandal” shook everyone when it was exposed that some State Owned Enterprises bosses were pocketing between $20 000 and an obscene $500 000 per month at a time when the same institutions were failing to pay ordinary workers meager salaries averaging $300.
It is in light of this development that there is need to review the role of the State in the economy and how State Owned Enterprises (SOEs) and parastatals have fared in Zimbabwe and how these institutions can be revived and made to operate profitably especially using corporate governance as the flagship for economic development and revival of the country’s economy.
Role of the State in the economy
No private sector, the world over, can successfully prosper without the enabling and supportive shoulder of a functional and effective public sector. A dysfunctional public sector has the venom to crowd out and thwart progressive private sector participation in economic growth and development (Gono, 2004).
A key role that the public sector plays is to fill in the gaps that typically arise due to various dimensions of market failure. Strategic sectors like electricity, coal, urban water provision and railway transportation are often shunned by the private sector, due to the huge financial outlays that are required to start up, run and maintain these often “social” projects. It is with this in mind that SOEs were created to solve market failure
From independence in 1980 the number of SOEs has grown from 20 to 78. The “social” nature of the SOEs arises in the sense that they are typically basic necessities by their nature, and because of the huge capital outlays, often a delicate line has to be followed in coming up with the appropriate pricing regimes. Overnight re-alignment of prices to market levels, for instance, may have adverse short to medium-term effects on social welfare, as this may push the essential services out of reach of the majority of members of society. It is management of these intricacies that calls for unquestionably refined corporate amplitude within the public sector (Gono, 2004).
Benefits of Good Economic Governance
Good economic governance exists in those economies where the institutions of Government have the capacity to manage resources efficiently; formulate, implement, and enforce sound policies and regulations; can be monitored and be held accountable; in which there is respect for the rules and norms of economic interaction; and in which economic activity is unimpeded by corruption and other activities inconsistent with the public trust. The key elements contributing to an environment of good economic governance are transparency, accountability, an enabling environment for private sector development and growth, and institutional development and effectiveness (Economic Commission for Africa, 2002).
Good economic governance is necessary in order to enhance the capacity of the state to deliver on its economic mandate. That mandate includes eradicating poverty and improving economic growth. However, the majority of African countries now lack the capacity to meet that mandate due to deficiencies in their economic governance structures. Those deficiencies include the lack of an appropriate institutional framework to guide economic policy-making and execution; a weak civil society unable to hold Government accountable for its actions; a similarly weak or uninterested parliament; and the lack of consultative mechanisms for engaging the private commercial interests for inputs into sectoral planning or other national economic decision-making processes (Economic Commission for Africa, 2002).
The Parastatal community, if not speedily reformed and managed through sound corporate governance norms, will continue to impose a heavy toll on the economy, at the detriment of collective growth and developmental objectives. The Government is pumping out huge sums of money to prop ailing parastatals, including the troubled National Railways of Zimbabwe and the collapsed Redcliff-based integrated steelmaker, Ziscosteel.
Information obtained from the Auditor general’s Report of 2014 indicates that seven State-owned enterprises received $110 million between 2012 and last year, draining Treasury which last year failed to pay civil servants’ bonuses until the workers threatened strike action early this year.
In 2013, the Ministry of Transport, Communication and Infrastructure Development advanced $5,5 million to the NRZ, $11,5 million to Air Zimbabwe, $4 million to Tel One and $10,5 million to the Civil Aviation Authority of Zimbabwe (CAAZ), according to details of a 2014 Audit on Parastatals. The Industrial Development Corporation (IDC) and Ziscosteel received close to $14 million from the Ministry of Industry and Commerce in 2013.
PSMAS Mega Salaries and its Impact on the provision of Health Care
More than 350 000 people living with HIV and Aids might fail to access anti-retroviral drugs as Zimbabwe could face a $227 million deficit by 2018. As of 2012, the gap was about S$10 million and by 2018 it will be $227 million and about 358 000 people who will need treatment will not be able to afford it (National Aids Council 2012). All this is happening at a time when one of the largest medical insurers in the country Premier Service Medical Aid Society (PSMAS) was paying more than $1,1 million per month to 14 of its executives. The amount of money these top bosses were paying themselves is enough to save and alleviate the suffering of more than 61 111 people suffering from HIV and Aids who can have ARVs bought for them every month with these huge salaries. These obscene salaries were also being paid out of medical aid funds which are contributed by mostly civil servants who can never dream of ever earning just a single month’s salary (i.e.$500 000) that Mr Cuthbert Dube (former head of PSMAS) earned in their entire lives especially after taking into cognisance the fact that average civil servant earns $350 per month. What this means is that Mr Dube’s monthly salary could pay up to 1 428 civil servants every month and as he was paid this sum, PSMAS has been failing to pay suppliers and service providers debts of up to $38 million thereby forcing most pharmacies, doctors and other health care professionals to refuse to accept PSMAS health care insurance card holders and many have even died after failing to cough up the huge cash payments demanded by the former (Hadebe, Ncube and Mutondoro in Mandaza (ed.) 2015).
These adversities, if unchecked, have the capacity to derail the economic turnaround programme, Zim Asset given the intricate synergies and dependencies of the private sector on infrastructure and other strategic services provided by the public sector. The economy needs enough energy, reliable communication systems, an efficient transportation system, and equally important, a predictable operating environment, free of corruption and its vices (Gono, 2004). If the Corporate Governance Code can be effectively implemented and such vagaries as the ones enlisted above can be curbed then the country can get technical partners for the resuscitation and restructuring of SOEs.
History of Corporate Governance in Zimbabwe
The noble idea of corporate governance in Zimbabwe is not a new phenomenon because after a series of public corruption cases the Justice Smith Commission was set up in the 1980s and it recommended measures through which to address corporate governance problems with respect to the SOEs, particularly the need to curtail the purview of “ministerial responsibility” and its associated ills, political patronage and mismanagement. This led to the Parastatals Commission Act, 1987, a regulative act designed initially to deal with oversight issues of the operations and conditions of service in Parastatals, dismissal of workers from services within these bodies, disciplinary proceedings and settlement of disputes (Mandaza, 2015).
Although short lived (1988-1990), the Parastatals Commission managed to institute the following with respect to the operations of State Owned Enterprises (SOEs) in Zimbabwe; and these are pertinent also because it was their decline and demise in the course of the subsequent decades that turned the SOE sector into a quagmire of rampant patronage, corruption, mismanagement and unparalled loss–making and even virtual collapse of most of these enterprises (Mandaza, 2015). The Parastatals Commission produced guidelines on the relationship between the parent Ministry, the board and the chief executive officer of the SOE. While the Minister retained his/her role and status of “ministerial responsibility” under the Act of Parliament establishing the SOE, the new guidelines sought to translate this into an institutional framework through which such powers could be mediated and complemented;
(a) through a Board appointed on the basis of such professional and managerial criteria as were relevant to the nature and functions of the SOE; and
(b) a CEO (and managerial structure) appointed by the Board on the basis of professional, technical and managerial criteria, after the requisite advertisement of the post and a transparent exercise towards such an appointment.
Curbing Undue Ministerial Interference and Creating the Requisite Separation between Minister/Ministry and the SOE
The Parastatals Commission ensured this through the:
Appointment of Boards of SOEs:
On the basis of well-researched criteria relevant to the nature and functions of the SOE, the Parastatals Commission recommended to the President the appointment of the chair and members of the board, after due consultation with the Minister responsible under the Act. But “consultation” was not synonymous with approval by the Minister.
The Commission was bound only to inform the President of the content and outcome of the consultations held with the Minister, as part of its submission and recommendations but, in all cases, this was to ensure that meritocracy, rather than ethnic politics or patronage, prevailed in the appointment of the chair and members of the Board.
Likewise, in the removal or replacement of such appointments, the Parastatals Commission had to satisfy itself that the due processes and inquiries were concluded before recommending this to the President, especially since, as was often the case, it would have been the Minister/Ministry who would have initiated action, invariably following a fall-out between the Minister and Chair of the SOE.
Permanent Secretaries and/or Ministry officials precluded from being Members of the Boards of SOEs.
This sought to emphasise the virtual and desirable “separation of powers” and functions between Minister/Permanent Secretary/Ministry on the one hand, and on the other, the Board/Management. Since the latter had to submit reports and answer to the Minister/Permanent Secretary/Ministry under the provisions of the Act, it would make a mockery of such a process if the accounting officer of the ministry were also an actor in the SOE. Not to mention the potential for abuse of power, influence and even corruption, as the “salarygate” saga, for example, is testimony, a Permanent Secretary and Government officials being members of the Board of PSMAS and receiving “fees” in the region of allegedly $50 000 per month!
Appointment of chief executive officer of a parastatal
This was the responsibility of the Board of the SOE, after a (public) advertisement which outlined in detail the nature and function of the post and the required qualifications and experience of the person to be appointed. Both the job description/advertisement and the selection of the CEO had to be cleared with the Parastatals Commission whose responsibility was simply to ensure that the due process has been followed before endorsing and recommending the same to the Minister (in consultation) and for approval by the President. Otherwise in all other material respects, the CEO was answerable to the Board which could, in turn, also recommend the removal or replacement thereof.
The Relationship between the Board and CEO/Management of the SOE
The CEO was responsible for the day to day functions of the SOE, reporting to the Board on a regular basis i.e. at scheduled Board Meetings — but essentially being the accounting officer of the SOE. Since the Chair and members of the Board are non-executive, their functional relationship with the CEO/Management is through the Board Meeting and the functions of such sub-committees as Audit and Financial, and Human Resources.
Therefore, the current practices, where some chairpersons of boards even have a desk and operate within the offices of the SOE, were anathema and outlawed during the tenure of the Parastatals Commission. Not to mention similar malpractices such as irregular appointments at the behest of Minister, Permanent Secretary or Board Chair; and, of course, the extent to which SOEs are now the source of either an “extra allowance”, exorbitant fees or another vehicle for the Minister, Permanent Secretary, Board Chairperson or all three and more! President Mugabe, however ,dissolved the Parastatals Commission in January, 1990.
To be continued
- Butler Tambo is a Bulawayo-based policy analyst who can be contacted on [email protected] or +263776607524 or by liking the Facebook Page Public Policy Research Institute of Zimbabwe for more interactions with the author.
