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State-owned enterprises (“SOEs”) play an important role in an emerging economy, given that they are often the biggest employer as well as the largest contributor to the economy. The stalled growth through failure of SOEs is a big threat to political stability, and this has resulted in public pressure for Government to concentrate on creating an enabling environment that enhances economic growth.

Privatisation has become a central plank in the global move towards more competitive market economies. It is a method of reallocating assets and functions from the public sector to the private sector. This can be an effective way to bring about fundamental structural change only if governed and implemented in an ethical manor which enhances good corporate practices. These developments reflect dissatisfaction with the state as an owner of enterprises. This basically means the state has failed to motivate the firms in its portfolio to attain competitive standards in terms of good corporate governance, efficiency, productivity, innovation and orientation towards the consumer. Consequently, lengthy experiments with other governance mechanisms over the years for SOEs have led to a view that the persistent deficiencies of state ownership could only be addressed by the different forms of privatisation.

Up until recently, most of the privatisation plans have been left to gather dust in the bottom drawers. Hence, the new administration is working on serious attempts in an effort to get these entities back on track by formalising and establishing property rights which creates strong individual incentives.

High levels of transparency and accountability are at the heart of a successful privatisation process and lack of public disclosure can result in increased political and social costs by making the selection of buyers less efficient and undermining public confidence in the integrity of the process. These enterprises should be sold by public tenders and initial public offerings are the most transparent method of privatisation.

Therefore, the government should identify reputable independent consulting firms with strong international exposure in technical, marketing and financial expertise in the respective industries and in providing privatisation and financial restructuring advice to help in making the analyses and in finding the right strategic investors. The process also needs to be subject to independent oversight from an auditing body which is well resourced and independent from the public authorities engendering the privatisation procedure.

Very often, governance structures are reshuffled in preparation for privatisation. New boards, management and monitoring mechanism are installed. However, when strategic majority investors are anticipated to take over, such extensive managerial and governance restructuring might prove to be redundant. It is usually more efficient to let new owners perform these tasks as this is likely to bring the much needed expertise and diffusion of technology which would improve corporate governance and efficiency in the newly acquired companies. However, in most actual cases the foreign investors rely on the old management teams on very high managerial positions, which in some cases results in lower performance due to the lack of new experiences and management techniques. All this should be taken into consideration to ensure that the nation yields positive results of privatisation and post-privatisation.

As these entities privatise, a more robust corporate monitoring system should be adopted. Consequently, this would empower civil society and the market mechanism to evaluate the privatised entities on the basis of organisational practices and economic performance. Also, their financial and management practices should be placed under great scrutiny. This process is crucial to economic growth because it strengthens accountability and generates incentives for efficiency. Greater autonomy of the SOEs will relieve the Government from the financial and administrative burden of undertaking, maintaining and supervising public entities. Thus, the net effect would be a reduced fiscal drain by parastatals and this will further provide opportunities for the private sector to expand its role in economic productivity and development. Through higher efficiency gains and profits deployment, Government will also obtain additional revenue to finance other socioeconomic development initiatives.

Notwithstanding all the benefits of privatisation, it is not always a feasible option due to political and legal compulsions. As much as privatisation may contribute to improved efficiency and financial performance, it has negative effects on the distribution of wealth, income and political power thereby hurting the poor and the marginalised communities and further benefiting the already rich, powerful and privileged.

While some methods of restructuring are suitable in some cases, eg privatisation where competitive markets work, other cases still require an active role of the state and the promotion of public-private partnerships especially sectors of basic utilities and infrastructure. A thorough understanding among the choices of transparency and their implications will help the government better evaluate the durability of SOE reforms and at the same time improve the financial standing of these companies in the long run. Therefore the government should use a more cautious approach in making these decisions.

Therefore, despite its shortcomings, privatisation and ownership restructuring when accompanied by effectively designed corporate governance principles it can successfully serve as a powerful catalyst for economic growth in transforming the economy. Feasibility studies should however, be carried out so that a balance between social equity and enterprise efficiency is achieved.

This article is prepared by Zimcode (Joint Secretariat of ZIMLEF, IoDZ & SAZ). For more information on the Zimcode contact: [email protected]