Eddie Cross
The record has been mixed but on the whole negative. Some of the largest corporates in the world are State-owned and controlled, Aramco in Saudi Arabia has only recently sold some of its equity on the market.
In Zimbabwe at Independence, 40 per cent of GDP was generated by State-owned and controlled business organisations, the Railways, the airline, the CSC, ZISCO, DMB, CMB and GMB, CMED – The list goes on and on. Today we have over 100 State Owned Enterprises (SOE) and their combined contribution to the national economy is estimated at 5 per cent or less, most are a burden either on the fiscus or the rest of us. What is wrong with this mode of control and management?
The short answer is, a lot! The long answer is more complicated. I worked in the State sector for 30 years. They were good years as we always had a really professional Board of Directors and top-class staff. I think we could have held our own with any business group in the world. We employed 25 000 staff and had a combined turnover of about US$3 billion. We competed globally, always paid our staff and suppliers on time and produced accounts on time and with a clean audit. We did not know how exceptional we were in the global world of State-controlled enterprise.
Independence changed all of that and one by one our SOE’s crashed. The reasons were quite simple really, we no longer appointed Boards or senior staff on the basis of their track record. Merit was not considered – where you came from, who you knew, and what interests you served, were all more important. Senior staff began to take advantage of their positions and employed people they knew or were related to. Ministers with little knowledge of business saw every SOE as a honey pot. If they wanted a car, a favour or even cash, it was made available.
Every rule in the management manual was broken. After 54 years of service to the cattle industry, the CSC collapsed, 5 500 staff lost their jobs, a turnover of US$500 to US$600 million a year was destroyed. ZISCO, the largest steel plant south of Cairo with 5 000 staff and a turnover of US$1,2 billion a year closed its doors after 6 decades. The Railways went from 25 000 staff and 20 million tonnes of cargo a year to where it is today – struggling to move 3 million tonnes and 6 000 staff and losing millions. Africa is littered with examples of abject failure and the total cost to the continent in both financial and human terms, is gigantic.
Just take the South African giant utility Eskom – at one time this huge organisation was a shining example of a well-run State owned enterprise. The CEO was a visionary who dominated the electricity industry, created a generation capacity of 45 000 megawatts and supplied energy to the entire region. All at a low cost and delivered to clients via a massive integrated transmission system. Now it is unable to even meet domestic demand, it has a huge debt overhang of US$35 billion and its two latest power plants have not even been commissioned despite being many billions of dollars over budget.
What went wrong? Again, just about everything – coal contracts handed out to people who could not manage a tuck shop, massive corruption, incompetent management and Board, dismissal of experienced and competent staff to make way for new appointees. The failure of Eskom now threatens the very existence of the most sophisticated economy in Africa. It need not be like this, but we need to learn from these expensive mistakes.
One of the outcomes of this failure is often felt in the poorest communities in our countries. I cite two examples, the Cold Storage Commission in which I was involved for 20 years. It provided a nationwide network of sales pens at which farmers could sell stock at market prices underwritten by the Commission. In drought years farmers in dry areas of the country could sell their surplus stock to the CSC at a decent price and buy back stock when their grazing recovered. Now the real market value of cattle stocks – nearly 6 million head, 90 per cent owned by smallholders, has halved, and there is no safety net.
Then take the example of a State-owned enterprise that was sold to our form of the Russian Oligarchs after Independence – Cottco. Built up over many years as a State-owned enterprise and handling 400 000 tonnes of cotton a year, produced by up to 200 000 growers. After “privatisation” the new owners behaved themselves for a few years and then began under invoicing exports. In 2021, the theft of money by this means ran to tens of millions of dollars and farm prices fell to below the costs of production. In 2022 we produced just 10 per cent of the crop at its peak and hundreds of thousands of small farmers fell into abject poverty.
Let me state at this point that there is nothing wrong with the State investing in business if they feel this will pursue their interests or the interests of the people they represent. However, we must learn from our mistakes of the past. In a private business with capital at risk the Board and Management have one supreme objective – stay in business. From my years in the private sector, I know that and also the often mentioned the need every month to “meet the payroll”.
These motivations keep private businesses in line and constantly seek to improve performance and profitability. I often say to people that the toughest democracy is a business where you have to win every election every day. In a retail business or a hotel, if your staff treat a client as less than royalty, the business will soon suffer. In a world of social media, this is even more true.
In a State-controlled enterprise, this is not true. Your payroll is guaranteed by big brother and if you treat a client or a supplier like a dog, often it makes little difference to your position because in many cases you have a monopoly. Nothing kills enterprise and initiative faster.
The only way you can remedy these shortcomings is to ensure that the Board and Management understand exactly what is needed to succeed. They must have had roots in private enterprise and be able to bring to their tasks that expertise. In addition, it is essential to have direct participation by stakeholders. I look at the many State institutions that are funded by levies on the private sector. Like ZERA, ZIMTRADE, POTRAZ, ZINARA, the Standards Association and so on. If we added up all the money involved it would run to many millions of dollars. I was one of the people who created Zimtrade. It collects money from the private sector and yet there is little or no oversight. What does it do? How does it spend my money?
This is the sort of thing that our Minister of State Enterprise should be looking at and pursuing excellence. The only problem is that line Ministers do not tolerate interference in their own SOE’s. As the Cottco experience has shown, privatisation may not be the answer. Perhaps this is one area where we can draw on the experience and policies of our predecessors in the Rhodesian era. Certainly, they seem to have done a good job and got decent returns for their money and effort.
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