Find us on Google+

Monday, 17 August 2015

Broke Parastatals

An interesting statement from Finance Minister Alexander Chikwanda. He says only 7 parastatals are currently declaring dividends. The rest are loss making :
There are as many as forty State-owned enterprises. Of these, seven parastatal companies declared dividends..This is a small figure, meaning that the other parastatal companies are not performing to the expectation of the taxpayers who put money in these entities. We are, therefore, at liberty to show concern that so many State-owned enterprises are not declaring dividends... it would be logical to wind down the companies that are not doing well because the alternative would be to overburden the already over-extended taxpayers to find money to run the parastatal organisations. Therefore, I think that it is quite a reasonable proposition that companies that are not doing well, and may not do well in the foreseeable future be liquidated (Source : National Assembly)
The seven parastatal companies that declared dividends mentioned by Alexander Chikwanda are (a) Afrox Zambia Limited; (b) Kagem Mining Limited Company; (d) Mofed London; (e) Nanga Farms Private Limited Company; (f) Zambia National Commercial Bank (ZANACO); and, (g) Mulungushi Village Complex Limited.

In 2014 ZCCM-Investmet Holdings and ZAMPOST also declared dividends. Earlier this month, Indo-Zambia also declared dividends. So our view is that the "current" figure is actually around 10 parastatals. Of course that does not change anything. The government is broke. It needs to get rid of the loss making parastatals.

People are always constantly saying Zambian Economist does not provide solutions on how to tackle the deficit and reduce the vast size of government. But we have been giving many solutions which are actually well known. There is simply no political will.

So let us repeat one solution. How about we privatise some of these loss making parastatals? The government clearly has failed to run them and is in fact broke. Chikwanda agrees this is reasonable, so why is GRZ not doing anything about it?

Here is a full comprehensive of all parastatals that are currently NOT declaring dividends :
• African Reinsurance Corporation
• Contact Haulage Limited
• Development Bank of Zambia
• Engineering Services Corporation
• Indeni Petroleum Products Limited
• Indo-Zambia Bank Limited
• Kariba Mineral Limited
• Lusaka Trust Hospital
• Medical Stores Limited
• MOFED (Tanzania) Limited
• Mpulungu Harbour Corporation
• Mukuba Hotel
• Mupepetwe Engineering Company
• National Airports Corporation
• National Housing Authority
• National Savings and Credit Bank
• Nitrogen Chemicals of Zambia Limited
• Tazama Pipeline Limited
• Tanzania Zambia Railways (TAZARA)
• Times of Zambia
• Zambia Forestry and Forests Corporation (ZAFFICO)
• Zambia – China Mulungushi Textiles of Zambia
• Zambia Daily Mail
• Zambia Education and Publishing House
• Zambia Electricity Supply Corporation (ZESCO) Limited
• Zambia National Broadcasting Corporation
• Zambia National Building Society
• Zambia Printing Company
• Zambia Railways Limited
• Zambia State Lotteries Board
• Zambia Telecommunication Corporation (ZAMTEL)
• Zamcapitol Enterprises
• Zambia State Insurance Corporation (ZSIC) Group

All of these companies are loss making. We should move to sell these companies urgently. A proper audit is needed to value the assets and assess how much money can be made to pay down on our debts.

Some parastatals like ZESCO should be broken up with parts sold off. Others should be sold completely to raise money. But even if there is no money to be made, at least by getting rid of them GRZ will now cut down on waste. That will enable it channel resources to much needed areas. Right now we are borrowing from abroad to keep useless loss making companies like ‪#‎Zambia‬ Daily Mail afloat. It is economic suicide.
So, where should we start the sell off?

AUTHOR
Chola Mukanga
Copyright © Zambian Economist 2015

 You can also comment and read other contributions on this topic via Facebook.

5 comments:

  1. I didn't find anything in the post on the level of losses in these parastatals.
    Some may be of some national interest but I can't see what the government is doing in the newspaper and media industries. Governments should run health services, education and some other things and the removal of loss-making parastatals would allow more expenditure in these more critical areas.

    ReplyDelete
  2. Liquidating non performing parastatals - does that include ZESCO? A more enlightened approach would be to deal with the factors that make them under perform!

    ReplyDelete
  3. " So our view is that the "current" figure is actually around 10 parastatals. Of course that does not change anything. The government is broke. It needs to get rid of the loss making parastatals. "

    If the government is broke, it has nothing to do with owning parastatals.

    It has everything to do with following the neoliberal prescriptions and borrow instead of tax the mines. Which they also don't own anymore and guess what - the government is broke and missed out on the biggest bull run in copper in living memory. Courtesy of the IMF/World Bank. And now we're supposed to take more of their advise and privatise the rest of the parastatals?

    ReplyDelete
  4. Kariba Mineral Limited is own by ZCCM-IH (around 1 year)

    ReplyDelete
  5. The post makes good reading but I personally feel it has not brought out sufficient information to help me back its conclusions.Apologies if I come out too naive because I am not an economist but I allow me to just use my head and whatever little knowledge I have about economics. A different perspective will reveal that the government has shares in all businesses, formal and informal, that operate within Zambia. The state collects either dividends or some tax either directly or indirectly from these businesses. The tax may be in the form of corporate tax, PAYE, VAT or some levy or duty. The informal sector has a role to play in our economy. I think economics should not limit itself to the obviously noticeable and recordable transactions but should be also alive to multiplier effects of which even non-informal players have a huge role. A company that does not declare dividends may seem uneconomically viable if you ignore the fact that it probably breaks even after contributing to the economy through its employees' PAYE contributions, VAT payments and possibly through informal businesses started by its thieving workforce not to mention other benefits that could be societal or even political. The extreme case is to label all civil service operations as unproductive because they appear to be net consumers of hard-earned tax revenues. I would expect the Zambia Economist to shed more light before rushing to their conclusion. A lot of questions need to be asked. What if no buyers are available? What if eventual buyers find ways of making their profits while avoiding paying taxes to the state while externalizing huge amounts through operations related transactions such as overpriced capital expenses and shady external consultancy agreements. What if they employ huge numbers of citizens with incomes way below tax thresholds? Isn't it obvious that the mining industry's major contribution to the treasury was through PAYE and not corporate tax? The world financial crisis of 2008-2009 so the USA coming up with stimulus packages that ran in hundreds of billions of dollars which were more than trippled in 2010 under Obama's economic stimulus package. I expect the Zambia Economist to tell us which of these parastatals can serve as vehicles of economic stimulus with multipliers greater than 1. The post says little about why the companies are underperforming. A company that merely underperforms because of insufficient capitalization probably has its solution in adequate capitalization. As things stand our government borrowed and continues borrowing huge sums of money and the real problem is in whether these funds end up in projects promising the highest possible multiplier for our economy. Finding a buyer for something indirectly points to its possession of value, more so if it is expected to retain its employees and continue operations after injection of capital. Our problems probably lie in poor leadership skills of those in charge of the economy. My guess is that even those parastatals that recorded dividends could do much better in a better business environment.


    ReplyDelete

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.