LONG OVERDUE LEAF ESWATINI MUST TAKE FROM ZIM, MOZ

MBABANE – To help plug ballooning budget deficits, governments of other neighbouring countries are selling, commercialising or privatising their State owned companies – something which is worth emulating by Eswatini.

The countries have embarked on either selling or privatising their public companies because they have noted that some of them are a financial drain as they are bankrolled or circumvented because they fail to break even.

The countries include but are not limited to Zimbabwe, Mozambique, Lesotho and South Africa.
Of the above,  Zimbabwe is inviting bids for stakes in up to eight loss-making State-owned enterprises, including its national airline and power utility, to help plug a ballooning budget deficit, its deputy finance minister said on Wednesday.

President Emmerson Mnangagwa, who took over from Robert Mugabe, is under pressure to deliver on his promises to ease spending pressures on the budget and revitalise the economy, which collapsed especially after violent and chaotic seizures of white-owned commercial farms in the early 2000s.
Zimbabwe’s budget deficit hit E23.6 billion (US$1.82 billion) or 11.2 per cent of GDP in 2017 from an initial target of E5.2 billion (US$400 million), while its economy hardly grew in 2016.

failed to cut its deficit

Over the last four years, Zimbabwe has failed to cut its deficit despite promises to do so, mainly due to high government spending on public sector salaries, which accounted for more than 90 per cent of the 2016 budget.

The Finance Deputy Finance Minister Terence Mukupe told Reuters that the Zimbabwean Government is diluting its shareholding in those entities and their shareholding might go to zero per cent in some entities.

Zimbabwe either partly or wholly owns 92 companies, most of which have been making losses for years due to mismanagement, high operating costs and old equipment. In 2016, 38 such parastatals ran losses totalling E3.5 billion (US$270 million), according to a report from the president and Cabinet office last October. National airline - Air Zimbabwe, which runs four aircraft, is sitting on a more than E3.9 billion (US$300 million) debt pile while railway operator National Railways of Zimbabwe recently received a E5.2 billion  (US$400 million) recapitulation from South Africa’s Transnet. Another struggling entity is power utility ZESA, which has struggled since 2000 to generate enough electricity to meet demand and power outages that have hurt businesses in recent years.

Another country that took a bold step to bolster its economic growth through the reduction of public companies is Mozambique.  The neighbouring country announced last year that it would sell 40 State-owned companies to the private sector and/or close them down because they are not financially viable. According to daily newspaper, Notícias, the companies were part of a group of 64 companies that can no longer compete in the market.

The business sector of the Mozambican State is currently made up of 13 public companies, 109 subsidiaries and two State companies, 45 of which are viable and 64 others are in the process of disposal, liquidation and dissolution.
 
Privatization IN LESOTHO
Lesotho privatized most State-owned enterprises (SOEs) following the adoption of the Privatization Act of 1995, including telecommunications, banks, and the government vehicle fleet. The government did not privatize the electricity and water utility companies, which enjoy monopolies in their respective sectors.
Currently, Lesotho has the least number of public companies compared to Eswatini, Namibia, Botswana, Mozambique, South Africa and Zimbabwe. It has about nine SOEs. Eswatini has over 40, Namibia has over 35 and Botswana has over 26 SOEs.  

Of the over 45 public enterprises, 29 are designated category ‘A’ public enterprises, the remaining are designated category ‘B’ public enterprises. Category ‘A’ public enterprises are those enterprises which government owns wholly or has a majority interest or which are dependent on government subventions.

Category ‘B’ public enterprises are those enterprises in which government has a minority interest, which monitor other financial institutions or which are a local government authorities. Category ‘A’ enterprises provide most of the national infrastructure and services which include water supplies, electricity, telecommunications, rail and tertiary education institutions.

In Eswatini, category ‘A’ public enterprises account for seven per cent of formal sector employment and about 22 per cent of public sector employment. These public enterprises’ contribution to GDP is approximately eight per cent. They enjoyed an average profit margin of over 7.2 per cent.

 financial performances
Although the financial performances of public enterprises have been deteriorating over the last few years, some individual enterprises have recorded good performances in terms of operating profits and return on capital employed.

Total debt across all public enterprises represents 11.5 per cent of total external debt in Eswatini.
Eswatini has a Privatisation Policy which spells out how it should be carried out. The objectives vary from government to government and from enterprise to enterprise and include the reduction of the financial burden on government.

The policy was also aimed at raising revenue through sale receipts, and more importantly, the cash generated from post privatisation taxes of which economically productive asset can be used to service public sector debt, which is a drain on the public resources, to introduce competition and market discipline. It was also aimed at funding growth.

partially privatised

A number of commercialisations and privatisations have occurred in almost two decades. In 2000, the Eswatini Dairy Board’s dairy plant was partially privatised.

 In this process, the Board’s regulatory functions were segregated from its commercial operations and assumed by the Eswatini Dairy Board. The privatisation of the commercial arm was finalised in the fourth quarter of 2001 resulting in the shareholding structure in the privatised entity, Parmalat Swaziland.

After the partial privatisation, Parmalat owned 60 per cent, Tibiyo got 26 per cent and government got 14 per cent, which is held on behalf of Eswatini farmers.
Furthermore, the partial privatisation of the Royal Swazi National Airways (RSNA) resulted in a joint venture between Airlink South Africa and Government of Eswatini resulting in the creation of Airlink.

Again, services of a consultancy firm were retained to make recommendations on the restructuring of the Eswatini National Trust Commission (SNTC). The report was expected to be submitted to SCOPE in the first quarter of 2002.

Performance Contract

The EswatiniWater Services Corporation (EWSC) entered into a performance contract with government in April 1997 and has been operating without subvention from government from April 2000 as agreed in the contract.

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