SUPPLEMENT No. 1 TO THE JANUARY 2009
MONETARY POLICY STATEMENT
DELIVERED BY
THE GOVERNOR OF
THE RESERVE BANK OF ZIMBABWE
DR. G. GONO
JANUARY 2009
EVOKING SUPPLY SIDE RESPONSE
THROUGH PRIVATISATION AND
FOREIGN CURRENCY GENERATION
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

INTRODUCTION
In most countries the private sector plays a key role in steering economic

growth and development. The participation of the private sector in the
agriculture, manufacturing, mining and service industries ensures the
efficient provision of goods and services in the economy.
The Government complements the responsibility of the private sector in

economic growth by monitoring, regulating and providing a conducive
business environment through infrastructure and public services provision.
Government’s role in infrastructure and public goods and services provision
diminishes as the economy grows.
Privatization is one way to ensure that the private sector actively

participates in wealth creation through the povision of goods and services,
while Government oversees the activities of all sectors of the economy.
Privatization is the transfer of enterprise ownership and control from the

public to the private sector. The transfer techniques can take the form
of disposal of an enterprise to a strategic investor, a public offer, joint
venturing, liquidations, employee/management buyouts or a combination
of some or all the techniques.
In carrying out such transfers, the three essential components involved

include:
Management responsibility,
i)
Assets (with or without liabilities) or the rights to use assets; and
ii)
Personnel.
iii)
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Governments across the world are involved in business enterprise and

wealth creation activities, in partnership with the private sector. There is,
however, considerable variation in the scope and scale of Government
involvement in the production and marketing of goods and services from
country to country.
Government’s involvement in the economy reflects the desire to mitigate

against the effects of market imperfections and the attendant distributional
effects. A recurring theme has been the need to cushion the vulnerable groups
in society from the excesses of market forces, through deliberate welfare
redistribution measures, such as subsidies and related interventions.
Progressively, Governments have, thus taken up strategic stakes in

various sectors of the economy to influence and guide economic activity,
particularly the production and marketing of goods and services.
Most Governments have, however, significantly scaled down on direct

business enterprise, preferring to concentrate on the core Government
business of providing social welfare services such as health and education,
as well as national security, peace and stability.
This has been achieved mainly through extensive divesture and public

enterprise reforms, in many Sub Saharan African economies and other
parts of the world. In these countries there has been significant supply side
response and these economies have grown tremendously over the years.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

THE GOVERNMENT OF ZIMBABWE’S
CONTRIBUTION IN THE PRODUCTIVE SECTORS
In Zimbabwe, since independence in 1980, the Government gained

extensive stakes in various key sectors of the economy, such as agriculture,
manufacturing and mining.
This was in addition to the public enterprises that were already operating

directly under the various Ministries. Government involvement in business
extended to all major areas of economic activity which include:-
Manufacturing through the Industrial Development Corporation
•
(IDC);
Mining through the Minerals Marketing Corporation of Zimbabwe
•
(MMCZ);
Water – through the Zimbabwe National Water Authority (ZINWA);
•
Agriculture through the Agricultural Rural Development Authority
•
(ARDA); and
Marketing institutions such as the Grain Marketing Board (GMB)
•
and the Agricultural Marketing Authority (AMA).
In an effort to improve water management and coordination, Government

established the ZINWA in 1997 to manage the production and distribution
of water in the country. ZINWA replaced the Government Department of
Water Management and the Regional Water Authority (RWA).
Under the initial arrangement, ZINWA provided bulk water while the

distribution remained under the management of Local Authorities.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Eventually, in 2005, ZINWA took over the whole water distribution chain

from production to distribution as a result of the failure by most local
authorities to provide adequate clean water for both industrial and human
consumption.
Between 1991 and 1995, Government undertook a public enterprise reform

process designed to unlock value through disposal of public entities and
commercialization.
Under the parastatal reform framework, entities such as Dairibord

Zimbabwe Limited (DZL), Cotton Company of Zimbabwe (Cottco) and
CBZ Holdings were privatized, as Government disposed its controlling
shareholding. The privatized entities have since continued to make
significant contribution to the economy, generating increased output,
foreign exchange and employment.
It is in recognition of the positive contribution of privatization that there

is need to review the current range of public enterprises and Government
shareholding in different sectors of the economy, with a view to unlocking
value through undertaking further privatization and disposal of targeted
shareholding.
Through this strategy, the country would stand to benefit, not only from

relieved burden on the fiscal budget, but also through the effective defence
of the external value of the Zimbabwean dollar on the back of the foreign
exchange to be raised through privatization.
The tables below show the list of major public enterprises where

Government has 100% shareholding and Government shareholding
through the Reserve Bank of Zimbabwe (RBZ).
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

LIST OF PARASTATALS WITH 100% GOVERNMENT
SHAREHOLDING
Public Enterprise
Government
Shareholding

National Railways of Zimbabwe
100%

ZESA
100%

Cold Storage Company (CSC)
100%

NOCZIM
100%

Zimbabwe National Water Authority
100%

District Development Fund
100%

Grain Marketing Board
100%

Air Zimbabwe
100%

ARDA
100%

Telone
100%

Netone
100%

Industrial Development Corporation
100%

Zimbabwe Mining Development Corporation
100%

Minerals Marketing Corporation of Zimbabwe
100%

CMED
100%

ZINWA
100%
BENEFITS OF PRIVATIZATION AND
COMMERCIALISATION OF PUBLIC ENTERPRISES
Foreign Exchange Inflows
Increased foreign exchange inflows could be realized through the

participation of foreign investors in joint ventures and strategic
partnerships.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The improved foreign direct investment inflows, coupled with increased

access to offshore lines of credit would avail more foreign exchange
resources, critical for economic recovery and sustained growth and
employment.
Improved Performance
Privatization is expected to improve efficiency and productivity of

privatized entities. Efficiency will be promoted through several means,
which include introduction and enhancement of value addition. Further
efficiency gains are realized through commercially driven structures, free
from civil service rigidities.

The engagement of private strategic partners is also likely to bring the much

needed expertise and leads to diffusion of technology. This significantly
improves the efficiency of these enterprises, as well as increasing
capacity utilization. Further, technology transfer would underpin factory
refurbishment and increase productivity.
Relieving the Administrative and Financial Burden on
Government
Privatization is also aimed at relieving financial and administrative burden

from Government in undertaking, maintaining and supervising public
entities.
The policy is, thus, designed to relinquish management to the private sector

and allow the Government to concentrate on traditional functions such as
facilitating growth, welfare distribution objectives and maintaining peace,
security, law and order. This would result in decreased budget deficit and
reduce the fiscal drain by parastatals.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

In the case of Zimbabwe, over the years, many parastatals have continued to

impose a significant burden on the fiscus, a position which has undermined
the quick turnaround of the economy.
Government should instead fund capital projects in the development of

infrastructure such as dams for irrigation. This evokes supply response in
the agricultural sector.
Facilitate Economic Growth
In the context of facilitating economic growth, privatization provides

opportunities for the private sector to expand its role in economic
productivity and development. The commercial and profit orientation of
the private sector provides impetus for further growth.

Through higher efficiency gains and profit deployment, Government

obtains additional revenue to finance other socio-economic development
initiatives.
Privatization also improves capacity utilization, thereby enhancing

economic growth. Most public enterprises are currently operating below
10%, which is directly retarding the capacity of the private sector to
grow.
There is a symbiotic relationship between the performance of parastatals

and growth of the rest of the economy. For example, an inefficient ZESA will
cripple the whole industry including major sectors such as manufacturing,
agriculture, mining and tourism.
Additionally, problems at Hwange will undermine electricity generation,

steel production at ZISCO, tobacco curing, mineral processing and general
industrial heating.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Improvement in Investment and Export
Potential
Joint venture initiatives with foreign partners are likely to improve access to

international capital markets. The engagement of foreign strategic partners
has potential to improve the quality of goods and services provided to the
rest of the world, and further enhancing export competitiveness.
Success Stories of the Zimbabwe Privatization Process
Notable companies that were privatized successfully in Zimbabwe include

CBZ, Cotton Company of Zimbabwe, Dairibord Zimbabwe Ltd and
Zimbabwe Reinsurance Company.
Dairibord Zimbabwe Limited’s Privatization Experience
Dairibord Zimbabwe Limited (DZL) is a successor company to the Dairy

Marketing Board (DMB), a parastatal company that was established in
1953 to receive all milk supplied by registered producers, process and
distribute the milk and milk products at prescribed prices.
DZL established itself as a well managed and transparently run organization.

The period 1994 to 1997 saw the company gaining public confidence
which enabled it to successfully list on the Zimbabwe Stock Exchange in
September, 1997, making it the first Parastatal to be privatized.
After being run for 4 years, from 1994 to 1997, DZL was privatised through

listing on the Zimbabwe Stock Exchange in September 1997. As a show
of public confidence in the organization and the privatization process, the
counter was over subscribed.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The benefits of successful privatization can aptly be summed up by the

current status of DZL:
The company is highly profitable and well capitalized.
iv)
DZL is achieving real growth in sales volumes, both on the domestic
v)
and on the export market.
DZL is a net foreign currency earner.
vi)
There are no longer financing operational deficits as was the case
vii)
with DMB.
Government is collecting corporate tax, and not subsidizing
viii)
operations.
DZL is contributing towards employment.
ix)
DZL is cash rich and finances its own capital projects.
x)
Employee motivation is high as the company can now afford
xi)
market-related conditions of services.
The value addition thrust has ensured a wider product choice for
xii)
consumers.
The company has established itself as a regional player having
xiii)
acquired some subsidiaries within its value chain.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The Cotton Company of Zimbabwe Limited
The Cotton Company of Zimbabwe was born out of the privatization of

the Cotton Marketing Board (CMB). The privatization of CMB started off
with commercialization of the parastatal in 1992. The CMB, like any other
parastatal was a drain on the fiscus.
Benefits of Privatizing Cottco
Cottco is now one of the blue-chip companies listed on the
i)
Zimbabwe Stock Exchange.
The company is profitable and has reduced Government fiscal
ii)
burden.
The company is one of the top exporters, racking in millions of US
iii)
dollars from cotton exports.
Opening up of the cotton sector has enhanced competition resulting
iv)
in increased cotton output and fair compensation to growers.
In all these recommended privatization cases, full regard ought to be

taken of national strategic and security considerations, which dictate that
Government remains the main shareholder in such cases.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

STRATEGIES FOR PRIVATISATION AND
COMMERCIALISATION.
The following options can be espoused by Government in order to

minimize the dependence of parastatals and Local Authorities on the fiscus
for funding :
Commercialize only where public enterprises are allowed to charge
i)
economic and viable tariffs for service provision;
Commercialize and privatize e.g. Cold Storage Company; and
ii)
Transfer service provision to Local Authorities and commercialize.
iii)
In this case, the provision and distribution of water can
be commercialized and transferred from ZINWA to Local
Authorities.
A CASE FOR THE COMMERCIALISATION OF ZINWA
Zimbabwe is well endowed with water resources in the form of dams,

rivers and underground sources, which are sufficient to meet the country’s
water requirements.
This notwithstanding, the country has been experiencing persistent water

shortages for industrial and domestic use as well as irrigation due to failure
to fully harness water resources coupled with management challenges
confronting the responsible authorities.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

ZINWA, however, faces greater challenges in water production and

distribution. Its capacity to effectively provide clean water to the whole
country has been constrained by:
Deteriorating water reticulation infrastructure;
i)
Increasing urban population that can no longer be supported by the
ii)
existing capacity;
Lack of resources to replace old pipes and pumps;
iii)
High frequency of pipe bursts and water leakages;
iv)
Inadequate human and financial resources;
v)
Ineffective water costing, billing and revenue collection systems;
vi)
Foreign currency shortages to import chemicals and spares; and
vii)
Managerial and technical challenges.
viii)
Government Interventions

In a bid to alleviate water shortages, the Government thorough RBZ

financed various ZINWA projects to improve treated water production and
sewage reticulation.

EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Notably, one such intervention is the Dam Construction Facility under

which a total of $50.3 billion was availed to ZINWA by June 2007 to
support construction of dams and for various accelerated irrigation
rehabilitation projects.
In the last quarter of 2008 alone, the Reserve Bank availed Z$375

quadrillion, US$1 million and a fleet of vehicles to ZINWA towards the
provision of clean water following the outbreak of the cholera epidemic
in the country.
Support to ZINWA to Fight the Cholera Outbreak
Intervention
Purpose
Procurement of water pumps.
To replace the broken down water
pumps.
Disbursement of US$1 597 093
Importation of water treatment
chemicals.
Disbursement of Z$374.2 quadrillion. Working capital to repair and install
pumps, and other equipment.
28 Single-cab Vehicles.
To provide transport for Zinwa
engineers when attending to
maintenance work.
60 000 litres of petrol; and
30 000 litres of diesel.
To provide transport for Zinwa
engineers when attending to
maintenance work.
Despite Government intervention in ZINWA, most cities and towns

continue to face challenges relating to availability of adequate clean and
safe water for domestic, industrial and agricultural uses.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The challenges of the ageing equipment inherited by ZINWA, in Harare

have seen at least 40% of the total water produced by the parastatal being
lost through leakages in the process of distribution.
Most glaringly, ZINWA’s inefficiencies have resulted in the outbreak

and spread of cholera in Harare and the rest of the country. This adverse
development has been caused by the contamination of drinking water by
incessant sewage pipe bursts.
Recommended Water Management Strategy
Despite the support extended to ZINWA, it remains evident that the

parastatal continues to under-perform on its key result areas.
Against this background, it is recommended that Government reassigns

the roles of water production and distribution back to Local Authorities.
This is in view of the fact that Local Authorities have wider and diversified

revenue bases that can be used to maintain and sustain the country’s water
reticulation infrastructures.
In addition, Local Authorities have stronger balance sheets that enable

them to borrow from the open markets for purposes of financing effective
water management systems.
The role of ZINWA should be confined to bulk water supply, dam

construction and research and development.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

In addition to revoking supply-side response from the privatization and

commercialization of parastatals and rehabilitating the infrastructure, the
availability of foreign currency is fundamental to enhance the production
of goods and services in the economy.
FOREIGN EXCHANGE GENERATION STRATEGIES
The country’s foreign exchange situation remains critical. This has made it

difficult for the country to supply adequate goods and services and provide
for critical imports such as food, fuel, electricity and drugs.
The challenge is, therefore, to find ways and means of mobilizing foreign

exchange for Government, industry, Small to Medium Enterprises (SMEs)
and the vulnerable groups of our society. It is against this background that
immediate and urgent measures be adopted to generate foreign exchange.

As alluded to, Government should restructure and accelerate the

privatization of non performing Public Enterprises with potential to
perform and generate foreign currency.
Foreign Exchange Generation and Savings
The increase in the economy’s productive capacity occasioned by foreign

participation in the country’s public enterprises will also create scope
for increased local production of goods and services, some of which are
currently being imported.
This releases foreign exchange for the importation of critical intermediate

inputs, as well as petroleum and other products, which cannot be produced
locally.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The public enterprise privatization process could be designed to culminate

in the listing of the enterprises on the Zimbabwe Stock Exchange, through
public offering. Privatized companies contribute to the fiscus through
increased taxes. Enhanced performance implies more tax remittances to
Government.
Concessioning
In strategic public enterprises such as the National Railways of Zimbabwe

(NRZ) and NOCZIM, Government would need to retain its ownership.
Significant benefits can be derived from concessioning, which enables the
retention of ownership while allowing for some lease arrangement.
Examples of concessioning include:

Concession of the NRZ can easily be structured with a regional
•
reputable rail operator who will then provide freight and passenger
service;
In the case of NOCZIM, the pipeline and the storage facilities offer
•
opportunities for concessioning; and
The recapitalisation of Air Zimbabwe can also be arranged through
•
inviting a strategic investor. Alliances are now a common feature in
the airline industry.
Mining Royalties
Substantial foreign currency resources can be mobilized through a more

rigorous and intensified mining sector royalties collection in foreign
currency.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Organized Diamond Mining
Formalization of mining activities at Chiyadzwa is a key source of

Government revenue. It is envisaged that the revenues from the diamond
mining venture can assist the country.
Attracting Remittances
Government can issue a foreign denominated bond to non-resident

Zimbabweans to further mobilize free funds. The bond should be structured
in such a way that it is secure and attractive from the investors’ point of
view.
The Government’s stake in public enterprises and financial institutions can

be disposed to diasporants. This will raise significant foreign exchange
flows currently locked up in shares.
Joint Ventures and Strategic Partnerships
Foreign exchange inflows can be realized through the participation of

foreign investors in joint ventures and strategic partnerships particularly
in the Small to Medium Enterprises (SMEs).
The engagement of foreign strategic partners brings the much needed

expertise and leads to diffusion of technology. This significantly improves
the efficiency of these enterprises as well as reducing their excess
capacity.
Issuance of Foreign Currency-Denominated Bonds
Government can mobilize foreign exchange from foreign capital markets,

through issuance of a foreign currency denominated bond, through a
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

selected manager. This is necessary, so as to circumvent current sanctions
and negative perceptions about Zimbabwe. Proceeds from the bonds would
go towards servicing foreign obligations, particularly those that have a
potential to resume disbursements.
Issuance of this bond will also be targeted at non-resident Zimbabweans.

International Engagement
Government should take bold initiatives to engage the country’s creditors,

with a view to easing the pressure on foreign exchange requirements, while
at the same time restoring good relations with external financiers.
Particular focus should be on those creditors who are likely to disburse

and put in place rescheduling arrangements.
Product Beneficiation
There is urgent need for Government to provide tax incentives to promote

value addition at company level. Notably, the establishment of a platinum
refinery would facilitate the beneficiation of such minerals as the platinum
group of metals (PGMs).
Financial resources should also be availed to research institutions such as

SIRDC to enhance their ability to undertake research in areas promotive
of exports and import substitution.
Additional Export Capacity
Government should underwrite and broaden the setting up of bonded

warehouses in selected markets with potential for expansion. The capacity
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

of small to medium enterprises to export should be enhanced through
the establishment of export houses, which will facilitate movement of
exports.
Activities of cross border traders should be coordinated to ensure that

their foreign exchange earnings are channeled through the formal banking
system for the benefit of the economy.
Pre and Post-Shipment Financing
Another source of mobilizing foreign exchange is to arrange pre- and

post-shipment finance facilities for the country’s exporters. This requires
touring friendly countries and institutions, such as Afreximbank, BADEA,
PTA Bank and the OPEC Fund. This is necessary for raising a critical pool
of foreign currency resources.
Identifying key exporters and earmarking their earnings towards the

repayment of such arranged pre- and post-shipment facilities will be
essential. This way such facilities become essentially back-to-back or selfliquidating facilities that achieve the twin objective of mobilizing foreign
exchange for immediate use, while at the same time promoting exports.
Trading in Shares
Government can trade in dually listed shares through appropriate institutions

to raise foreign exchange.
It will be critical to ensure that foreign exchange generated from the sale

of shares on international bourses is remitted to Zimbabwe.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

Toll Fees
Foreign truckers and visitors to Zimbabwe should pay toll fees in foreign

currency on a reciprocal basis at all ports of entry and at established toll
gates along the country’s major highway.
Conclusion
The privatization process must be viewed within the context of broad

macroeconomic policies that are designed to stimulate growth and
economic development.
The benefits of privatization are best realized within the context of a

package of reinforcing economic recovery measures. The program must be
well designed and appropriately sequenced to optimize on the privatization
benefits. It is imperative that the nation invests in critical negotiation skills
required during the privatization process.
Privatization is expected to release funds for infrastructural and social

development in the health and education sectors of the economy.
In addition the enhanced foreign exchange generation will improve the

productive capacities of industries.
This will lead to human resources development which enhances private

sector growth, thereby increasing the supply of goods and services in the
economy.
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES

The prevailing foreign exchange crisis can be solved by addressing the

current macroeconomic imbalances. Over the medium to long term, the
economy’s capacity to generate foreign exchange can only be guaranteed
by a stable macro environment characterized by low inflation. Thus,
inflation stabilization remains a critical pillar necessary to enhance
exporting activities.
DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
EVOKING SUPPLY SIDE RESPONSE THROUGH PRIVATIZATION AND COMMERCIALISATION OF PUBLIC ENTITIES