adminButler Tambo
IN the last article, I looked at how Zimbabwe’s dilapidated infrastructure has made the country uncompetitive and this week I will focus on how public-private partnerships (PPPs) can lead to the upgrading of the much needed infrastructure.
Pre-requisites for PPPs implementation in a country
First, the operating environment for private investment in infrastructure services must be improved. Private investors will not join PPP arrangements unless the perception about the investment climate is positive. At the moment, Zimbabwe ranks very low on most international business environment indices. While the Office of the President and Cabinet has taken commendable steps to improve the doing-business environment through its 100-day rapid results reforms, and the rankings have improved, they remain low, indicating that much more work needs to be done.
Corruption in State Owned Enterprises (SOEs) and its impact on infrastructure rehabilitation
The deterioration and weakness of institutions pervades Government, local authorities and public enterprises such that they have become a major source of risks in the economy. The institutional weaknesses and corporate governance shortcomings have become recurrent issues in the Auditor General’s Reports and Budget Statements. As noted in the 2016 Budget Statement, “Clearly, we cannot grow our economy if our corporate management structures at both public and private entities are allowed to persist, demonstrate inefficiency and unaccountability over use of scarce resources.”
President Mugabe captured the challenges faced by parastatals in his State of the Nation Address to the joint sitting of Parliament and Senate on 25 August 2015 when he said:
“It is very clear that, over many years and due to a variety of reasons, the level of compliance with good corporate governance principles at many, if not most of our parastatals/state enterprises, has fallen to levels well below what might be regarded as even “minimally acceptable”. The extravagance of the remuneration packages and associated benefits which boards and management have blithely awarded themselves, borders on the obscene reflecting avarice, instead of the commitment to serve which we expect, indeed demand, of those appointed to such strategic positions. The launch, in April 2015, of the National Code on Corporate Governance and the current process of integrating the principles therein in the amendments to the Companies Act, indicate Government’s serious intent in this regard.”
A number of measures have been adopted to address the scourge of corruption and corporate misgovernance, including the Corporate Governance Bill to establish corporate governance and performance principles for State Owned Enterprises and amendment of the Public Finance Management (PFM) Act to include monitoring and oversight of SOEs and local authorities, with the PFM Amendment Bill gazetted on 23 November 2015. These include the proposed creation of a unit within the Accountant General’s Department to analyse audit reports, to enforce compliance on issues raised by the Auditor General and Parliament, and to promote accountability of ministries and departments and compliance with their obligations under the PFM Act regarding public resources.
As then Finance and Economic Development Minister Patrick Chinamasa observed in the 2016 budget statement, the challenge is “walking the talk”, with rhetoric running ahead of actual practice. Even the establishment of the Zimbabwe Anti-Corruption Commission in September 2005 has not deterred this scourge, with the institution remaining largely a paper tiger.
Additionally, the dominant role of State Enterprises in the provision of infrastructure services is an obstacle to an enlarged private sector presence in these areas, especially where services are heavily subsidised by the State. The policy framework and institutional arrangements that support the dominant role of State Enterprises in infrastructure service provision need to be revised. Key elements of a programme to reform this framework include pricing policies and cost recovery, competition policy, and the commercial orientation of the parastatals concerned.
Most, if not all parastatals engaged in provision of basic infrastructure services need to undergo some form of restructuring.
Continuation with the existing structures will leave large areas of uncertainty for potential private investors that, in turn, will undermine their willingness to consider entry into appropriate PPP arrangements with SOEs. The restructuring will involve increased emphasis on commercialisation and competition, and privatisation.
Indigenisation and Economic Empowerment
The Government will need to ensure that policies are formulated and implemented in a consistent and predictable manner in order to improve investor perceptions about Zimbabwe, especially with respect to safeguarding property rights. One area of concern relates to the Indigenisation and Economic Empowerment Regulations that became effective on 1 March 2010. According to the law, which was passed by Parliament in September 2007, all firms in the country with a value in excess of US$500 000 are required to have 51 percent of their equity held by indigenous persons. The regulations were met with some apprehension among local and international investors. Until the regulations are clear, foreign investors may be reluctant to commit large investment to Zimbabwe.
Bilateral Investment Promotion and Protection Agreements (BIPPAs)
Another concern relates to Bilateral Investment Promotion and Protection Agreements (BIPPAs) that have been signed by the Government. The agreements commit Zimbabwe to the protection of investments under international law. They contain clearly defined and enforceable property rights and disciplinary measures for breach of investment. In May 2010, for example, a BIPPA between the Governments of Zimbabwe and South Africa was ratified. It seeks to create favourable conditions for investments for South African investment in Zimbabwe. Anecdotal evidence suggests that South African investors remain sceptical, citing Zimbabwe’s past poor record of adhering to international agreements.
Strategy for Accelerating the Transition to PPPs
To lay the foundations for successful mobilisation of the massive resources needed in kick starting large infrastructure projects under PPPs, the Government will need to subject all parastatals involved in infrastructure service provision to technical and financial restructuring, strengthen the role of regulatory authorities in each of the infrastructure sectors, with emphasis on increased independence of these bodies and create an appropriate legal framework for the types of PPPs that will be required.
Restructuring of SOEs
The restructuring of State Owned Enterprises has been identified in Zim Asset as one of the priorities for reform. The need for reform of SOEs is an issue of long standing with a track record in terms of progress that has left much to be desired.
It was identified as an important policy issue at the launch of the Economic Structural Adjustment Programme in 1991.
Zimbabwe’s institutions and procedures for restructuring/privatisation and infrastructure development were developed in an ad hoc manner, are cumbersome, and in terms of public transparency requirements leave much to be desired. Many of the existing policies and legal frameworks were developed during the period of State intervention, and hence do not reflect the current context in which PPPs are to be given a role. It is extremely unlikely that large amounts of private investment can be mobilised for PPPs as long as the unsatisfactory financial and commercial status of many parastatals persists.
Strengthening the regulatory framework
There is a compelling case for strengthening the regulatory environment for infrastructure service provision in an environment in which there is need for movement away from service provision by state monopolies to PPPs. There should be a clear separation of regulatory functions from service provision and the location of these regulatory functions in independent regulatory authorities. It is proposed that there be created separate regulatory authorities for the transport, energy, water and communications sectors. The separation of regulatory responsibilities in these sectors will facilitate efforts to mobilise the required private investment for the decade ahead.
-Butler Tambo is a Policy Analyst who works for the Centre for Public Engagement and can be contacted on [email protected]
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