THE government has cut financial support to some parastatals as part of the efforts to deal with pressures on the fiscus and to force rapid formulation and implementation of turnaround strategies by the State owned entities, sources have said.
While the actual number of the affected companies could not be ascertained, the Ministry of Finance and Economic Development has already communicated that position.
“Some institutions have already received communication in respect of the latest development,” said one source.
“What it basically means is that they will now be on their own and all they need to do is to come up with viable turnaround strategies to sustain themselves.”
Finance and Economic Development Minister Patrick Chinamasa recently warned that government would get rid of or institute radical reforms on parastatals that continue to be a drain on the fiscus.
“This is our headache and it is an area we’ve not been addressing as attentively as we should have because we’ve many other things equally pressing,” Minister Chinamasa said during the pre-Budget consultative forum in November last year in Victoria Falls.
“They used to contribute 40 percent to the gross domestic product. We should not hesitate to put under those parastatals we think are not good to us. That is where we’ve been lacking some degree of boldness. We should be able to say you are not performing; get away.”
Parastatals have the potential to act as powerful levers for rapid economic development. Rapid growth in the Asian tiger economies, which include China, Singapore, Hong Kong and South Korea, has been driven by a strong export-led strategy by primarily state entities.
These economies have taken the bold step of capacitating skills in state enterprises by sending their top management to world leading business schools where they have been exposed to cutting edge business thinking. Asian tigers have, in turn, reaped the rewards of this investment, as reflected by the phenomenal success of their state entities in becoming not just national, but, global champions. This has, in turn, driven growth across their entire economic spectrum. In 2010, the government approved reforms of state enterprises, starting with 10, but nothing much has been achieved. This has created a lot of skepticism over prospects for real reforms.
State enterprises are critical enablers of the economy, critical in value chain as they promote competiveness.
Further, parastatals and State enterprises fill in the void of essential service and or products by venturing in territories too risky or unattractive to investors yet essential.
However, corporate governance deficiency has been affecting profitability of the state entities. The institutions have continued to be a drag on efforts to turnaround the economy and continue to burden Treasury by getting support from the tax payers’ money.