SOUTHERN AFRICAN Association Conference [SAFA] Two Oceans Aquarium, Cape Town

1. SOUTHERN AFRICAN Association Conference [SAFA] Two Oceans Aquarium, Cape Town 18 – 20 January 2012

2. PRIVATIZATION IMPLICATIONS IN BOTSWANA:LESSONS FROM PRIVATIZATION CASES IN ZIMBABWE By Rhodgers Hove Department of Accounting and Finance University of Botswana

3. Agenda • Introduction • Definition and general privatization objectives • Zimbabwe privatization experience • Impact of privatization in Zimbabwe • Privatization in Botswana • Impact of privatization in Botswana • Conclusions and recommendations

4. INTRODUCTION • Privatization is a common trend embraced by many developing countries. • Policy promoted mainly by the IMF and the World Bank as vital for economic development • Privatization policy was adopted and implemented in Zimbabwe in 1991 under the Economic Structural Adjustment Programme (ESAP). • Botswana government has not been obliged to take up the privatization policy like other developing countries

5. The problem • After more than a decade of implementing privatization, only five major state owned enterprises have been privatized. • Botswana adopted the privatization policy in 2000 and is still debating on the implementation processes. • Broad objective of privatization: reducing fiscal deficit and improved enterprise efficiency.

6. Objectives • Has Zimbabwe achieved the broad objectives of privatization as imposed or as government policy • What lessons can Botswana learn from Zimbabwe’s experience and • Can Botswana proceed in view of the Zimbabwe privatized enterprise cases.

7. Definition of privatization • Covers great range of ideas and policies but there is no commonly agreed definition. • “the transfer of productive asset ownership and control from the public to the private sector.” Fundaga and Mwaba(1997) • “the transfer of what are currently state-owned assets to the private sector”. Zimbabwe official documents definition.

8. General privatization objectives(Only 5 discussed) 1. Economic efficiency: Private firms operationally more efficient than state enterprises. (IMF, 2000 and Starr, 1988). Premise:- private owner is interested in high profits by reducing costs. Debatable: Consider interests of owners and management?

9. General privatization objectives • Financial fiscal deficit: Raising government revenue to reduce budget deficit by actions prior to sale, sale process & privatization regime. (IMF, 2000). Consider debt payment? • Attracting foreign investors: Major problem in developing countries is inadequate domestic capital to buy shares or assets in divested firms. Consider diminished sovereignty/nationalism

10. General privatization objectives 4. Community empowerment: black/community empowerment. Shares to be reserved for employees, public (poor, rich). May increase unemployment, trade unions’ concern. Zimbabwe situation not impressive, massive retrenchments.

11. General privatization objectives • Political practice: Privatization in Third World means denationalization – transfer of control to foreign investors or managers. (Starr, 1988). Privatization may change the underlying political values, understandings, and capacities for action in society. Consider the implications of Zimbabwe’s ‘Indigenous and Empowerment Act 2008?

12. ZIMBABWE PRIVATIZATION EXPERIENCE Background • > 60% parastatals established before independence & expansion was through new investments and creation of state bodies • About 90 public enterprises & 15 statutory bodies covering many economic activities, manufacturing, agriculture, mining, energy etc • Programme started as part of the 5 yr ESAP in 1991 to eliminate the large budgetary burden & make parastatals economically efficient

13. Background • Shortfalls of ESAP included; no comprehensive policy statement & transparent legal framework. • In first 8 yrs, implementation of programme was piecemeal and slow leading to the formation of the Privatization Agency of Zimbabwe (PAZ) in Sept 1999 to speed up & improve efficiency

14. Privatized companies • Dairibord Zimbabwe Ltd. (DZL) Partially privatized in 1997, government 25% & 75% sold, raised Z$295m for govnt. Turned around from Z$60m to Z$110m 1999. Saved about Z$25m through staff retrenchment from 3 500 to 1 500 Exports increased 24 times

15. Privatized companies • Cotton company of Zimbabwe (Cotto) Went through commercialization process and privatized Dec. 1997 Profit increased Z$8.4m 1994 to Z$1.1b 2001 Fulltime staff from 2000 to 1500 Seasonal staff from 510 1996 to 650 2001

16. Privatized companies • Zimbabwe Reinsurance company Ltd (ZIMRE) Privatized in 1998 govnt sold 49% shares, raising Z$276m for govnt. 30% business is foreign • Rainbow Tourist Group (RTG) In 1999, govnt offered 70% shares to institutional investors, employees public 2nd largest hospitality chain and performing well

17. Privatized companies • Commercial bank of Zimbabwe (CBZ) In 1991 govnt saved Bank of Credit & Commerce Int. Holdings Ltd from collapse by acquiring 100% shares to create CBZ Govnt then sold 25% shares to technical partner Amalgamated banks of S.A. (ABSA) Fully privatized & listed on ZSE on 29.06.1998 4th largest commercial bank in Zimbabwe

18. Impact of privatization in Zimbabwe • Comparative analysis All 5 cos show good growth in profitability, attributable pre-privatization ‘dressing up’ like capital injections & debt take-over by govnt. In the short-term period, performance good The long-term period will give a more realistic picture of the impact of privatization.

19. Impact of privatization in Zimbabwe • Slow pace Sluggish progress due to the diverse of state enterprises & regulatory structures under different line ministries complicates the structural & final privatization. PAZ is not autonomous & independent Privatization concentrated in trading in shares on the ZSE compared to selling bus entities like what happened in Zambia

20. Impact of privatization in Zimbabwe • Impact on other public sector activities Accompanied by retrenchments as well as changes in employment conditions e.g., 300 retrenched when Air Zim. was commercialized in 1994 Most retrenched forced into the informal sector to survive. Is this what we want?

21. Current position & people’s views • Government targeting 10 major state-owned enterprises for privatization to drive towards a substantive & enduring economic recovery • Provocation of very conflicting reactions from diverse sectors of the Zimbabwean population both supportive and opposing • Fear of excessive prices, loss of state control • Failure due to lack of political commitment, poor design, resources, weak mngt. & corruption

22. PRIVATIZATION OF BOTSWANA Background • At independence in 1966, very little private sector presence in industrial & commercial activities, so government had to initiate such functions through setting up parastatalsby an Act of Parliament • There are only 30 parastatals & the stated policy is that they should be managed & made to perform along commercial lines

23. Developments towards reforms • Privatization policy: Adopted Privatization Policy (the Policy) in 2000. • Signal of commitment to implement economic reforms to strengthen role of private sector in the economy & reduce public sector role in providing marketable goods & services

24. Developments towards reforms • Privatization Master Plan: Developed by the Public Enterprises Evaluation & Privatization Agency (PEEPA) to screen public enterprises for suitability for privatization using the criteria of desirability & feasibility. • Draw up action plan for the selected parastatals & public services for early privatization & commercialization.

25. Implications of Botswana privatization • Groundwork, i.e., approving the Policy in 2000, establishment of PEEPA in 2001, approval of Master Plan in Dec. 2004 is evidence of commitment in the right direction. • Employees & trade union leaders fear privatization resulting in job losses & contributing to greater unemployment.

26. Implications of Botswana privatization • Excess labor cannot be a result of privatization rather privatization corrects for it. • Privatization can improve employment in the long-run as it contributes to the improvement of the economy’s growth prospects and thus generates additional job opportunities.

27. Debate on privatization in Botswana • Trade unions in general, ideologically opposed to the process of privatization but seeking to engage government & other stakeholders through social dialogue emphasizing on the protection of workers and poor society. • “To privatize is tantamount to putting public funds into foreign hands”. Magoma (MP), contributing to the debate on privatizing air Botswana said.

28. Debate on privatization in Botswana • Former President Mogae, at a PEEPA conference on 24.08.2004 said that there was no national consensus on the privatization reform intention, its likely outcome & impact on the people. THESE ARE POINTERS TO WHAT NEEDS DONE

29. CONCLUSIONS AND RECOMMENDATIONS • There have been both successes and failures more than a decade since the implementation of privatization in Zimbabwe. The 5 study cases indicate improved performance and efficiency as measured by profitability soon after privatization. • The concept of privatization has been accepted and adopted throughout the world and so Botswana cannot be an exception.

30. CONCLUSIONS AND RECOMMENDATIONS • Parastatals’ operational form has at most time exhibited inefficiencies, a hindrance to efficient service delivery and the development of the economy. • Lessons from the Zimbabwe situation as reflected by the 5 study cases and other events can help Botswana move in the right direction in terms of privatization. • Any weaknesses identified should be improved upon to build a strong case for a faster implementation privatization process.

31. THANK YOU