Time to consider burying loss making state enterprises

By Ranga Mberi

Ask any driver across Southern Africa, and each of them will have a story to tell about their encounter with commuter bus drivers.

We have all been there. You’re minding your own business driving down a city street, observing all the road rules as the law-abiding citizen that you are. And then, out of nowhere, you’re being run off the road, sworn at and hooted at.

To the kombi driver, you are not a fellow road user, but a distraction on the road. You really have no right to be there, it seems. The road is only for the kombi driver and his sort. The rest are just a nuisance, standing in the way.

It’s easy to see why these bus drivers think they own the road.

Try driving your car, likely the same car, on the same route, for hours each day, every week, for months and even for years. Soon, you’re going to start thinking you own the road. In your mind, it all belongs to you. Everyone else using it is a trespasser. They can’t tell you anything about this road. You are the king of everything.

When you’ve done the same thing for so long, you find any suggestions to do things differently annoying. It’s the kombi mentality; you’ve been in a place so long, you know it all.

The kombi drivers are society’s riff raff, but they have like-minded friends in lofty places.

Take, for instance, state enterprises. In Zimbabwe, there are over 100 state owned enterprises (SEOs). They represent about 14% of Zimbabwe’s GDP, which makes them a key part of the economy.

The problem is, many of them are loss making. From break-even position in 2011, the SOEs made a combined loss of close to $340 million (or 2,1% of GDP) in 2015. According to World Bank and Government data, around $1,1 billion of Zimbabwe’s external payment arrears to foreign creditors is made up of government guaranteed SOE debt.

At a recent meeting with business leaders in Harare, President Robert Mugabe said it may be time to bring coffins to bury some of these enterprises. They are beyond redemption, he suggested.

The reasons for the decay are many. However, a key reason is that many of these enterprises are led by men (and they’re all mostly men), with a kombi mentality. Management at the enterprises rarely changes, and those that have been at their helm, simply cannot fathom suggestions that they can do things differently.

In their minds, “I have been doing this for 25 years, I can’t change now”.

Mike Ndudzo recently retired from the post of CEO of one of Zimbabwe’s largest state-owned conglomerates, the Industrial Development Corporation (IDC), after serving as its head for 26 years. Instead of taking his retirement as an opportunity to shake things up, Government replaced Ndudzo with Ben Khumalo, who himself has been in the group for close to a quarter century. His own record is far from stellar; under his leadership, companies such as Motec and Amtec have suffered.

What different culture can he possibly bring to such a key national asset as the IDC?

He is in good company.

The bulk of CEOs of SOEs have been in their posts for at least a decade.

The need for corporate renewal is obvious. When CEOs stay for too long, they become entrenched in their positions, they run out of new ideas, they become complacent and progressively add less and less to their enterprises. Like kombi drivers, they start to think they own the road; only their way or no way at all. Boards, which are supposed to supervise the CEO, become less powerful than the CEO. 

As a result corporate governance and, inevitably, performance suffers. The consequence is a loss of public funds.

In Zimbabwe, a new law is being proposed to change all that. The Public Entities and Corporate Governance Bill was supposed to impose term limits and salary caps. Unsurprisingly, it is being resisted by parastatal CEOs and their ministers.

It is an attack on what they were used to. They see it as a private car driver standing on their way, wanting to use their road too.

It’s a cancer in the private sector too, where CEOs have clung to office for decades. In Egypt and Kenya, central banks have had to impose term limits on bank CEOs.

“By being there long enough and having become part of that institution, it is difficult for that person to continue providing guidance and vision for that institution”, the Central Bank of Kenya (CBK) said in 2016. Unsurprisingly, the CBK is facing stiff resistance.

Such resistance is not surprising, but it must be broken if state enterprises are to be turned around. President Mugabe has said those enterprises that cannot be buried must be turned around.

To do that, someone will have to bite the bullet and deal with the kombi mentality that has gripped parastatal CEOs for so long. They have been doing the same thing, in the same office, for so long, they can’t imagine any other way.

They think they own the enterprises, but they do not. The parastatals, just like roads, belong to the public.

September 2017
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