The perennial underperformance of most “commercial” state-owned enterprises has been attributed
to poor corporate governance practices and an ownership model that does not lend itself well to
effective supervision of the institutions.
Required
Discuss the challenges arising from Zimbabwe’s current SOE ownership model
The persistent underperformance of most state-owned commercial enterprises has been attributed to
poor corporate governance practices and an ownership model that does not lend itself well to effective
institutional oversight. The legal instruments for establishing and governing state-owned enterprises
are divided into two categories. These are separate Acts of Parliament that create and regulate public
corporations called parastatals and the Companies Act that establishes corporatized entities called
state-owned companies. The country follows a decentralized ownership model for its state-owned
companies. This ownership model is characterized by the fact that the ownership structure of stateowned companies is distributed across the respective ministries. Line ministers have a responsibility
to exercise direct control over the SOEs under their jurisdiction (Ministry of Finance: Medium Term
Fiscal Policy Review, 2015).
Ownership and control affect corporate governance in terms of designing rules and incentives to align
manager behavior with owners' interests . In the decentralized model, the responsibility for each SOE
lies with a responsible line ministry. In this case, SOEs could often be perceived publicly as an extension
of the ministerial powers of the ownership ministries. In the decentralized model, various actors
(ministries) assume responsibility for managing and monitoring the companies. There may be multiple
needs and relationships with other parts of the administration. It is frequently believed that SOE board
positions are awarded based on political or personal connections rather than solely on merit. As a
result, there is a risk that SOE boards will become politicized. This risk frequently affects the senior
management members who are appointed, and it can lead to business decisions being made for
political reasons rather than for the benefit of the company's performance.
In Zimbabwe, the managers and boards of SOEs are failing to uphold the shareholder’s interests as
the shareholder (government) could not enforce rules and regulations especially where the rot
involved ministers, senior government officials, political leaders and board members. A sense of
ownership as well as stewardship should be inculcated in the heads of SOEs and stakeholders including
managers and employees.
The reality on the ground demonstrates that the majority of SOEs are underperforming and have been
recording ongoing losses. For instance, companies like Air Zimbabwe Holdings, NRZ, ZBC, CSC, PSMAS,
GMB, City Councils, and CAAZ are battling massive debt loads and extremely constrained production
capabilities. This average to poor performance is attributed, among other things, to the following
difficulties: poor infrastructure and equipment condition, lack of critical skills and expertise,
noncompliance with good corporate governance practices, insufficient fresh capital injection from the
shareholder, inability to access lines of credit, low capacity utilization and market penetration, high
operating costs, particularly the wage bills, inadequate debt recovery strategies, debt legacy, and high
inter-personal debt.
The following are this model's main flaws: • According to OECD (2005b) and Vagliasindi (2008), the
roles of owner, regulator, and public policymaker are combined into a single figure. • Cross-cutting
operational and governance policies lack consistency in terms of structure and timetables; monitoring
systems are fragmented and piecemeal (Shirley, 1989). • Political meddling is present (Vagliasindi,
2008). • Transparency is lacking (Guberna, 2014). • There is a lack of management capacity
(commercial, financial, etc.). • The model suffers from a deficiency in group monitoring and oversight
as well as a thorough strategic approach.
Performance Challenges in SOEs under the Decentralised Model (Adapted from Nellis
(20050
Inadequate capitalisation
Inadequate capitalisation SOEs rely on debt and finance to fund basic operations, but this may not be
enough to fund capital intensive projects especially rehabilitation and upgrading of infrastructure in
the utilities and network industries. A common challenge remains the undercapitalisation of SOEs.
Some SOEs are indebted because of a number of obligations imposed by the State, including delivering
on service obligations at below costs (to appease consumer voices), while maintaining overemployment, and lacking strategic investment. However, there is less of a practice in the region for
SOEs to seek financing from the market, i.e. through debt financing, or through capital markets. A lack
of developed capital markets make it difficult for SOEs to turn to private funding as an alternative.
Undercapitalisation has had perverse consequences for some SOEs affecting their ability to participate
as viable counterparts in PPPs and joint ventures, especially in large undertakings in the infrastructure
sector.
Defining the role of public policy in rationalising the purpose of SOEs and their role in social and
economic development. One of the most pressing challenges faced by SOEs in the region is how to
achieve sustainable balance sheets while also meeting socioeconomic objectives that are requested
by the government. For some countries, the problem is in the establishing legislation for SOEs, while
for others the challenge is the lack of clear separation between social/developmental and commercial
objectives.
Developing effective, coordinated and transparent ownership arrangements given the size and
volume of SOEs.
The categorisation of SOEs is fundamental to determine the role of the ownership function, and the
legal status of SOEs. The size and volume of SOEs is considerable in some countries, which poses a
governance challenge for the ownership function(s). The sheer volume and coordination capacities
required to manage such large portfolios may have an impact on the optimal configuration of the
ownership function (i.e. central, dual or decentralised). It also highlights the need to clearly classify
commercial versus non-commercial SOEs given the sometimes multiple and competing objectives
SOEs are faced with
Defining the role of public policy in rationalising the purpose of SOEs and their role in social and
economic development. One of the most pressing challenges faced by SOEs in the region is how to
achieve sustainable balance sheets while also meeting socioeconomic objectives that are requested
by the government. For some countries, the problem is in the establishing legislation for SOEs, while
for others the challenge is the lack of clear separation between social/developmental and commercial
objectives.
Below-cost pricing/cost recovery
Tariff structures may need to be revisited if tariffs are kept artificially low and prevent full cost-recovery
by SOEs. Compensation may be required for non-commercial services
Remnants of poor investment decisions
Remnants of initial investment decisions in industrial and commercial SOEs; lack of ability to adjust to
changing market conditions.
Collection deficiencies
SOEs have been underfinanced partly because they have not been able to collect on services
(historically).
Inadequate reporting systems
Inadequate reporting and monitoring does not allow for transparency and accountability surrounding
SOE cost structure. It further does not help expose where SOEs may be over or under financed, and it
ultimately shields SOE from misuse of public budgets, corruption, and from revealing where
inefficiencies may exist.
Deficient boards of directors
SOEs’ boards may require further professionalization and shielding from the political apparatus. .
Board nomination and appointment is beset by political interference, including cases of dismissal and
reappointment of the board where there is change in government. There is a clear disconnect between
policy makers on the one hand, and SOE directors (particularly government nominees) as to their
respective roles, the challenges that they face, and how they might better interact.
Curbing corruption and corporate ethics.
Addressing the issue of anti-corruption and ethics is multi-dimensional, but it necessarily starts with
good SOE governance practices. One of the challenges for the region is to ensure that corruption risks
are identified. The role of independent boards of directors and their respective committees play a key
role to ensuring reporting, disclosure and compliance with codes and policies on company ethics.
Other shortcomings
Encouraging and attracting talent in SOE boards and in SOE management. Upgrading or downsizing
SOEs to ensure efficient functioning.
Overview of Zimbabwe’s SOEs’ Performances
Identify and explain the alternative SOE ownership models at Government’s disposal.
Assess the SOE ownership models and recommend one you consider to be the best alternative to the
one employed by Zimbabwe.