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The Privatisation Opportunity

The Government of Zimbabwe through the Ministry of Finance has unveiled some parastatal reforms that will see the liquidation, merging, privatisation and recapitalisation of some state-owned utilities (SOEs).  It is worth highlighting that Zimbabwe has over 100 parastatals whose capital stock is at USD14.0bn but 99% have been loss-making. In the mid 1980s, these parastatals were contributing more than 60% to the country’s gross domestic product (GDP) compared to a mere 2% by 2017. According to the new reforms, parastatals including the Cold Storage Company, Grain Marketing Board and National Railways of Zimbabwe will be recapitalised through several initiatives while the boards of ZETDC, ZPC and ZESA will be dissolved to pave way for a single ZESA board.

The good news for investors is that such developments tend to deepen local capital markets given the possibility of new listings on the Zimbabwe Stock Exchange (ZSE). Privatisation involves selling state-owned assets to the private sector.  This can be done through a normal share –sale transaction to a private investor or via an Initial Public Offering (IPO) on an exchange. Successful IPOs present opportunities for a massive share-price upliftment for participants.

Investing in IPOs

Generally, it is argued the private sector players tend to run a business more efficiently because of the profit motive. Privatisation has several advantages that include;

  • Improved efficiency- Private companies have a profit incentive to cut costs and be more efficient than parastatals. This increases the overall efficiency and reduces the bureaucratic culture which is the main culprit in state-owned enterprises;
  • Lack of political interferenceIt is argued governments make poor economic managers as they tend to be motivated by political pressures rather than sound economic and business sense;
  • Long-term view – A government may think only in terms of the next election. Therefore, they may be unwilling to invest in long term improvements because they are more concerned about projects that give a benefit before the election;
  • Shareholders -Private firms have pressure from shareholders to perform efficiently;
  • Increased competition – The privatisation of SOEs occurs alongside deregulation. These are policies that allow more firms to enter the industry and increase the competitiveness of the market; and
  • Government will raise revenue from the sale – Selling state-owned assets to the private sector can raise a significant sum of funds for the government though it is a one-off benefit.

There are number of case studies of successful privatisation efforts. For example, the privatisation of companies such as British Telecom, Rolls-Royce and British Airways in the United Kingdom has shown degrees of improved efficiency and higher profitability. In East Africa, Rwanda has been successful in terms of deepening its markets through a number of IPOs that include Bralirwa, a beer and soda manufacturer, from which the government divested in 2010, Crystal Telecom Rwanda, I&M Bank Rwanda and the Bank of Kigali, which offloaded the government-owned shares to the public in 2011.  Piggy is supportive of a move towards privatising SOEs and possibly listing some on the stock exchange via an IPO. Investors should keep their ears on the ground for any upcoming IPOs.

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