MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF … · 2018. 1. 8. · MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF . PARASTATALS IN ZIMBABWE . By . Edward Tshuma . Submitted

MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF

PARASTATALS IN ZIMBABWE

By

Edward Tshuma

Submitted in fulfilment of the requirements for the degree of Philosophiae Doctor Commercii to be awarded at the Nelson

Mandela Metropolitan University

December 2012

Promoter: Prof NE Mazibuko

Co-Promoter: Prof EE Smith

ACKNOWLEDGEMENTS

I would like to express my appreciation to the following people and institutions for their contributions to make this study possible.

• My promoter, Professor NE Mazibuko, for her continuous support, insights, commitment and valuable guidance throughout the study.

• My co-promoter, Professor EE Smith, for his valuable guidance, expertise, comments which guided the study.

• Dr Gary Sharp who assisted me with statistical data analysis and interpretation. • Nancy Morkel for her expertise in language editing this thesis. • My research assistants Jonathan Chituku and Alberito Mashingaidze for their

assistance in the data collection exercise. • Nasreen Abrahams for her assistance in data capturing and support throughout the

duration of the study. • The Government of Zimbabwe for offering me the opportunity to study in South

Africa. • The Nelson Mandela Metropolitan University for the financial support through the

Post Graduate Research Funds and Publications DHET Subsidy Incentive Funding. • All the parastatals in Zimbabwe which participated in this study. • All the respondents who participated in this study, for their contributions. • My wife and children, for their patience, and allowing me to spend most of the time

away from them. • Lastly, I would like to thank God, for giving me the wisdom which assisted me to

complete this study.

Edward Tshuma

PORT ELIZABETH

7 DECEMBER 2012

i

DECLARATION

I, Edward Tshuma, hereby declare that this thesis entitled: "Management perceptions regarding privatisation of parastatals in Zimbabwe", is my own work and that it has not previously been submitted for assessment to another University or for another qualification.

Signature:

Date: 7 December 2012

Language editing declaration:

I, Nancy Morkel, hereby declare that I have performed the language editing of the thesis titled "Management perceptions regarding privatisation of parastatals in Zimbabwe".

Nancy Morkel

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TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS i

DECLARATION ii

TABLE OF CONTENTS iii

LIST OF FIGURES xii

LIST OF TABLES xiii

ABSTRACT xv

CHAPTER 1

INTRODUCTION AND SCOPE OF THE STUDY

1.1 INTRODUCTION AND BACKGROUND TO THE RESEARCH 1 1.2 PROBLEM STATEMENT 5 1.3 RESEARCH OBJECTIVES 6 1.3.1 Primary research objective 6 1.3.2 Secondary research objectives 6 1.4 RESEARCH QUESTIONS AND HYPOTHESIS 6 1.4.1 Research questions 6 1.4.2 Research hypothesis 7 1.5 PROPOSED THEORETICAL MODEL REGARDING THE PERCEPTIONS OF

PRIVATISATION 8 1.5.1 Stakeholder consultation 10 1.5.2 Business conditions 12

1.5.3 Government considerations 13

1.5.4 Institutional framework 15

1.5.5 Management of the privatisation process 17

1.5.6 Economic benefits of privatisation 18

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1.5.7 Organisational performance 22

1.6 CLARIFICATION OF KEY CONCEPTS 24

1.6.1 Privatisation 24

1.6.2 Stakeholders 24

1.6.3 Business conditions 24

1.6.4 Parastatals 25

1.7 RESEARCH DESIGN AND METHODOLOGY 25

1.7.1 Research paradigm 25

1.7.2 Population 26

1.7.3 Sampling 26

1.7.4 Data collection 27

1.7.5 Questionnaire design 28

1.7.6 Pilot study 29

1.7.7 Data analysis 29

1.7.8 Reliability and validity of the measuring instrument 30

1.8 PURPOSE OF THE RESEARCH 30

1.9 SIGNIFICANCE OF THE RESEARCH 30

1.10 SCOPE AND DELIMITATIONS OF THE RESEARCH 31

1.11 PRIOR RESEARCH 31

1.12 PLAN OF THE STUDY 32

1.13 CONCLUSION 33

CHAPTER 2

BUSINESS ENVIRONMENT IN ZIMBABWE: CONTEMPORARY ISSUES

2.1 INTRODUCTION 34

2.2 OVERVIEW OF BUSINESS ENVIRONMENT 35

2.3 MICRO ENVIRONMENT 37

2.3.1 Marketing mix 37

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2.4 MARKET ENVIRONMENT 42

2.4.1 Competitors 42

2.4.2 Shareholders 44

2.4.3 Intermediaries 44

2.4.4 Suppliers 45

2.4.5 Business partners 46

2.4.6 Customers 46

2.5 MACROENVIRONMENT 47

2.5.1 Political environment 48

2.5.2 Economic environment 52

2.5.3 Socio-cultural environment 66

2.5.4 Technological environment 70

2.5.5 Legal environment 72

2.5.6 Ethical environment 74

2.6 GLOBALISATION 77

2.6.1 Foreign market environment 79

2.6.2 International marketing environment 81

2.6.3 Legal issues 85

2.6.6 Technological issues 86

2.6.7 Trade barriers 86

2.6.8 Infrastructure 87

2.6.9 Membership of international organisations 89

2.6.10 Ease of doing business in Zimbabwe 90

2.8 CONCLUSION 93

CHAPTER 3

A THEORETICAL OVERVIEW OF PRIVATISATION

3.1 INTRODUCTION 95

3.2 CONCEPTUALISATION OF PRIVATISATION 96

3.3 PRIVATISATION IN THEORY AND PRACTICE 98

3.3.1 Theory of ownership 98

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3.3.2 Rationale for privatisation 99

3.3.3 Approaches to privatisation 104

3.3.4 Privatisation methods 105

3.3.5 Privatisation-nationalisation cycles 108

3.3.6 Benefits of privatisation 112

3.3.7 Criticism of privatisation 114

3.4 PRIVATISATION IN DEVELOPED AND DEVELOPING COUNTRIES 116

3.4.1 Privatisation in developed countries 116

3.4.2 Rationale for privatisation in developed countries 116

3.4.3 Management of privatisation in developed countries 118

3.4.4 Benefits of privatisation in developed countries 120

3.4.5 Regulation in developed countries 121

3.4.6 Criticism of privatisation in developed countries 121

3.4.7 Privatisation in developing countries 122

3.4.8 Market features of developed and developing countries 123

3.4.9 Rationale of privatisation in developing countries 125

3.4.10 Management of privatisation in developing countries 131

3.4.11 Benefits of privatisation in developing countries 136

3.4.12 Economic regulation in developing countries 138

3.4.13 Criticism of privatisation in developing countries 141

3.4.14 Lessons to be learnt 145

3.5 CONCLUSION 147

CHAPTER 4

IMPLEMENTATION OF PRIVATISATION IN ZIMBABWE

4.1 INTRODUCTION 150

4.2 THE GROWTH OF PUBLIC ORGANISATIONS IN ZIMBABWE 151

4.3 PERFORMANCE OF PARASTATALS BEFORE PRIVATISATION 151

4.4 RATIONALE OF PRIVATISATION IN ZIMBABWE 152

4.5 IMPLEMENTATION OF PRIVATISATION IN ZIMBABWE 153

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4.5.1 The Privatisation Agency of Zimbabwe (PAZ) 155

4.5.2 Stages involved in privatising an organisation in Zimbabwe 157

4.5.3 Constraints to privatisation 158

4.5.4 Methods used during privatisation 160

4.6 IMPACT OF PRIVATISATION ON ORGANISATIONALPERFORMANCE 164

4.6.1 Success stories of privatisation in Zimbabwe 165

4.6.2 Criticism of privatisation 167

4.7 CONCLUSION 169

CHAPTER 5

KEY SUCCESS FACTORS OF PRIVATISATION IMPLEMENTATION


5.2 OVERVIEW OF CRITICAL SUCCESS FACTORS OF PRIVATISATION 171

5.3 DIMENSIONS OF THE PRIVATISATION PROCESS 173

5.4 COMMITMENT/POLITICAL WILL 175

5.5 CLEAR OBJECTIVES 179

5.6 THOROUGH PLANNING OF PRIVATISATION PROCESS 181

5.7 EFFECTIVE MONITORING AND EVALUATION SYSTEM 185

5.8 SOLID INSTITUTIONAL AND REGULATORY FRAMEWORK 186

5.8.1 Regulatory framework 187

5.8.2 Legal framework 189

5.9 TRANSPARENCY 190

5.10 GRADUAL PROCESS 192

5.11 STAKEHOLDER CONSULTATION 193

5.12 PUBLIC AWARENESS CAMPAIGNS 196

5.13 SOCIAL SAFETY NET ISSUES 196

5.14 ORGANISATIONAL RESTRUCTURING 197

5.15 FEASIBILITY STUDY 199

5.16 PROMOTING COMPETITION 200

5.17 COUNTRY RISK 202

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5.18 THE MARKET 204

5.19 VALUATION OF BUSINESSES 206

5.20 IMPLEMENTING THE SALE 207

5.21 CONCLUSION 208

CHAPTER 6

A HYPOTHETICAL MODEL OF PERCEPTIONS OF PRIVATISATION


6.2 THE MODELLED PERCEPTIONS OF PRIVATISATION 211

6.3 OPERATIONALISATION OF INDEPENDENT VARIABLES AND

HYPOTHESES FORMULATION 214

6.3.1 Stakeholder consultation 214

6.3.2 Business conditions 219

6.3.3 Government considerations 224

6.3.4 Institutional framework 230

6.3.5 Management of the privatisation process 234

6.4 OPERATIONALISATION OF DEPENDENT VARIABLES AND

HYPOTHESES FORMULATION 237

6.4.1 Economic benefits 237


6.5 CONCLUSION 251

CHAPTER 7

RESEARCH METHODOLOGY


7.2 PURPOSE OF THE STUDY 253

7.2.1 Primary research objective 254

7.2.2 Secondary research objectives 254

7.2.3 Research questions 254

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7.3 RESEARCH PARADIGMS 255

7.3.1 Population 259

7.3.2 The sampling procedure 259

7.3.3 Identification of the sample frame 261

7.3.4 The sample size and selection of sampling elements 261

7.3.5 Demographic profile of respondents 262

7.3.6 The research instrument design 264

7.3.7 Pilot study 270

7.3.8 Administration of the questionnaire 271

7.4 THE CRITERIA FOR EVALUATING MEASURING INSTRUMENT 272

7.4.1 Reliability 272

7.4.2 Validity 274

7.5 DATA ANALYSIS 277

7.5.1 Descriptive statistics 277

7.5.2 Factor analysis 277

7.5.3 Regression analysis 281

7.5.4 Correlation analysis 282

7.6 RESEARCH ETHICS 282

7.7 CONCLUSION 283

CHAPTER 8

EMPIRICAL EVALUATION OF MANAGEMENT PERCEPTIONS REGARDING

PRIVATISATION OF PARASTATALS IN ZIMBABWE


8.2 SUMMARY OF THE EMPIRICAL INVESTIGATION OBJECTIVES 284

8.3 DATA ANALYSIS RESULTS 286

8.3.1 Internal reliability of the measuring instrument 287

8.3.2 Factor analysis 287

8.3.3 Cronbach alpha values of measuring instruments 297

8.3.4 Descriptive statistics 304

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8.4 REGRESSION ANALYSIS 306

8.4.1 The influence of management perceptions regarding the privatisation of parastatals 307

8.5 CORRELATION ANALYSIS OF THE HYPOTHESES 313

8.5.1 Findings on the first set of hypotheses 316

8.5.2 Findings on the second set of hypotheses 319

8.6 CONCLUSION 322

CHAPTER 9

SUMMARY, CONCLUSIONS, MANAGERIAL IMPLICATIONS AND RECOMMENDATIONS


9.2 SUMMARY OF OBJECTIVES AND FINDINGS OF THE CHAPTERS 323

9.3 CONCLUSIONS ON PROBLEM STATEMENT AND RESEARCH

QUESTIONS OF THE STUDY 326

9.3.1 Gap in Zimbabwean literature: Influence of the approach to privatisation of Parastatals in Zimbabwe 326

9.3.2 Gap in Zimbabwean literature: Influence of an appropriate institutional framework on privatisation of parastatals in Zimbabwe 327

9.3.3 Conclusions to the research questions of the study 327

9.4 EMPIRICAL FINDINGS AND MANAGERIAL IMPLICATIONS OF THE STUDY 333

9.4.1 The empirical findings and implications based on management perceptions of the stakeholder participation dimension 334

9.4.2 The empirical findings and implications based on management perceptions of the stable macroeconomic conditions dimension 334

9.4.3 The empirical findings and implications based on management perceptions of the government transparency dimension 335

9.4.4 The empirical findings and implications based on management perceptions of the privatisation process plan dimension 336

9.4.5 The empirical findings and implications based on management perceptions of the privatisation process implementation dimension 336

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9.4.6 The empirical findings and implications based on management perceptions of the effective governance dimension 337

9.4.7 The empirical findings and implications based on management perceptions of the economic empowerment dimension 338

9.4.8 The empirical findings and implications based on management perceptions of the organisational performance dimension 338

9.5 RECOMMENDATIONS FOR THE PRIVATISATION OF PARASTATALS IN ZIMBABWE 339

9.5.1 Stakeholder participation 339

9.5.2 Stable macroeconomic conditions 340

9.5.3 Government transparency 340

9.5.4 Privatisation process plan 341

9.5.5 Privatisation process implementation 341

9.5.6 Effective governance 342

9.5.7 Economic empowerment 342


9.6 CONTRIBUTIONS OF THE STUDY 343

9.7 LIMITATIONS OF THE STUDY 344

9.8 IMPLICATION FOR FUTURE RESEARCH 345

9.9 CONCLUSIONS 345

LIST OF SOURCES 347

APPENDIX A: Ethics Proforma Form 374

APPENDIX B: Letter to Parastatals 377

APPENDIX C: Letter of approval 379

APPENDIXD: Covering letter (Questionnaire) 381

APPENDIX E: Questionnaire 383

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LIST OF FIGURES

1.1 Theoretical model regarding perceptions of privatisation 9

2.1 Increasing complexity from domestic to foreign environments 37

5.1 Dimensions of successful privatisation – of YPF 174

6.1 The hypothetical model regarding the perceptions of privatisation 213

7.1 Stages in the selection of a sample 258

8.1 Theoretical model regarding the perceptions of privatisation 285

8.2 The adapted model of management perceptions regarding the privatisation of parastatals in Zimbabwe 300

8.3 The hypothesised model of the management perceptions regarding the privatisation of parastatals in Zimbabwe 303

8.4 The regression analysis model of management perceptions regarding privatisation of parastatals 321

9.1 Empirical evaluation of the proposed influences and outcomes of management perceptions regarding the privatisation of parastatals in Zimbabwe 333

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LIST OF TABLES

Page

1.1 Causes of poor performance of parastatals in Zimbabwe 2

1.2 Agencies involved in the privatisation process in Zimbabwe 4

1.3 Forms of privatisation 18

2.1 Market structures and their characteristics 44

2.2 Characteristics of the three main economic systems 53

2.3 Characteristics of stages in the business cycle 55

2.4 Sectorial investment opportunities in Zimbabwe 62

2.5 Rankings on the ease of doing business for selected countries 91

2.6 Topic rankings for Zimbabwe 92

3.1 Determinants of privatisation across all countries 100

3.2 Privatisation methods 107

3.3 Privatisation and de-privatisation in Atlanta and Hamilton 110

3.4 Characteristics of public organisations after privatisation 114

3.5 Privatisation record of selected countries in Africa: 1991-2001 123

3.6 Privatisation: Market differences between developed and developing economies 124

3.7 Privatisation objectives of selected developing countries 127

3.8 Determinants of privatisation in transition economies 129

3.9 Privatisation methods used in Africa 132

3.10 Problems of privatisation in Nepal 144

4.1 Stages in privatising an organisation in Zimbabwe 157

4.2 Privatisation transactions in Zimbabwe: 1991-1999 163

4.3 Success stories of privatisation in Zimbabwe 165

5.1 Four forms of planning 182

7.1 Differences between qualitative and quantitative research 257

7.2 Demographic profile of respondents 262

7.3 Demographic variables of the study 269

7.4 Response rate 272

8.1 Abbreviations of variables 286

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8.2 Factor loadings: management perceptions of stakeholder consultation 289

8.3 Factor loadings: management perceptions of business conditions 290

8.4 Factor loadings: management perceptions of government considerations 291

8.5 Factor loadings: management perceptions of institutional framework 292

8.6 Factor loadings: management perceptions of the management of the privatisation process 293

8.7 Factor loadings: management perceptions of privatisation 294

8.8 Factor loadings: management perceptions of economic benefits of privatisation 295

8.9 Factor loadings: management perceptions of organisational Performance 296

8.10 Empirical factor structure: independent and dependent variables 297

8.11 Cronbach alpha values of measuring instruments 298

8.12 Cronbach alpha coefficients of the latent variables based on the comprehensive factor analysis 299

8.13 Descriptive statistics for variables: responses per category 304

8.14 Regression analysis: Influences of privatisation on management perceptions of privatisation 308

8.15 Regression analysis: the influence of management perceptions of privatisation on effective governance 310

8.16 Regression analysis: the influence of perceptions of privatisation on competitive advantage regarding foreign investment 311

8.17 Regression analysis: the influence of perceptions of privatisation on economic empowerment 312

8.18 Regression analysis: the influence of perceptions of privatisation on organisational performance 313

8.19 Correlation matrix of variables of study 315

9.1 Conclusions to the research questions of the study 328

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ABSTRACT

In recent years the ownership of public organisations has been transferred from

government to the private sector through privatisation owing to the poor performance of

parastatals. In Zimbabwe, the privatisation of parastatals has been criticised as a result of

the approach which has been adopted to privatise them, the transparency and the paceof

the privatisation, the factors pushing for privatisation at the expense of local demand as

well as the lack of an institutional framework for privatisation. The main objective of this

study was to explore management perceptions regarding the privatisation of parastatals in

Zimbabwe.

This study is based on a combination of theories of privatisation and preceding results of

studies looking at privatisation of parastatals in developing and developed countries. The

secondary sources were the backbone in the formulation of a theoretical model on the

management perceptions of privatisation which was used to guide this study. The extensive

literature which was analysed revealed that independent factors such as stakeholder

consultation, business conditions, government considerations, institutional framework and

management of the privatisation process could influence management perceptions

regarding privatisation. Perceptions of privatisation were identified as influencing two

dependent variables, economic benefits and organisational performance. The variables of

the study were operationalised and the hypotheses which identified relationships between

the independent variables and perceptions of privatisation were formulated. Hypotheses in

respect of perceptions of privatisation and the dependent variables were also formulated.

In this study, a quantitative research approach was adopted as the study sought to

investigate the relationships between variables. This study collected data through the use of

a structured self-administered survey questionnaire which was distributed to 700 managers

of parastatals in Zimbabwe. The parastatals which were used in this study were selected

using the simple random sampling method whilst convenience sampling technique was used

to select the managers. The survey yielded 301 usable questionnaires which were analysed

using several statistical analysis techniques.

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The major findings of this study show that managers, employees and customers participate

during privatisation and that privatisation in Zimbabwe is guided by a formal action plan.

The study also showed that parastatals in Zimbabwe operate under stable macroeconomic

conditions and that information regarding the bidding process is accessible to all parties.

However, the results also showed that, in Zimbabwe privatisation is poorly implemented as

a result of lack of structural capacity to enhance privatisation, lack of an autonomous

institution to manage and lead the privatisation process. The results also show that

privatisation in Zimbabwe lacks credibility as the valuation of organisations and assets is

poorly done resulting in organisations being acquired at rates which are below market

value. In addition, the results indicate that privatisation has failed to improve organisational

performance and to change the management style from being reactive to being proactive.

The study also found that privatisation brings about economic benefits such as effective

governance and economic empowerment. The study recommends that government should

ensure that managers, employees and customers participate in the privatisation process

and that privatisation is implemented in a transparent manner so as to have a credible

programme and achieve the intended objectives. The study also recommends that

government should engage people and institutions which have the capacity to efficiently

value the organisations and assets identified for privatisation. In addition, the study

recommends that the government should appoint board members who possess the

requisite skills and competencies, encourage partnerships between local and foreign

investors so as to produce quality products and services as well as economic growth.

This study has contributed to the existing body of knowledge by developing a theoretical

model which can be utilised in other developing countries to test perceptions regarding the

privatisation of parastatals. This study could assist the government, parastatals and other

stakeholders by providing feedback regarding the privatisation of parastatals in Zimbabwe,

so that remedial action can be implemented where deviations are recorded. The findings of

this study could also assist the government of Zimbabwe and also other governments, by

providing guidelines which can be adopted to implement a successful privatisation

programme. This study provides useful and very practical guidelines to parastatals so as to

ensure successful privatisation.

xvi

KEY WORDS:

Privatisation,parastatals, stakeholders, business conditions, management, transparency.

xvii

CHAPTER 1

INTRODUCTION AND THE SCOPE OF THE STUDY

1.1 INTRODUCTION AND BACKGROUND TO THE RESEARCH

The period after the end of the Second World War saw governments taking over control of

organisations across the world, as a result of the nationalisation of industries. However, in

recent years, many countries have reversed this trend and the ownership of nationalised

organisations has been transferred to the private sector, usually referred to as

“privatisation’’ (Burns, Katsouros & Jones, 2004:66). The move to privatise started in the

United Kingdom (UK) and the United States of America (USA) in 1980 as a result of the

economic challenges of the 1970s. The UK, which had a large number of public

organisations, committed itself to privatisation and its model is viewed is considered a

model for other countries. Besides, developing and transitional countries have placed

privatisation among the top priorities in their policy plans (Yonnedi, 2010:537).

According to Dore, Hawkins, Kanyenze, Makina, Ndlela & Simpson (2008:186), in 2006,

Zimbabwe had seventy six (76) public organisations and 60% of these had been inherited

from the Rhodesian administration. The promulgation of parastatals in Zimbabwe differed

from that of other African countries in that, after independence, new parastatal bodies

were created in Zimbabwe; whereas, other countries created theirs through nationalisation

and expropriation. The adoption and creation of these parastatals was to provide essential

social services to public economic stabilisation and the equitable distribution of resources.

State ownership of these organisations was also linked to the government’s socialist

ideology and an inward looking economic strategy (Tambudzai, 2003:165).

However, global trends have shown that socialism has not improved the living standards or

redressed the economic injustices prevailing amongst states, hence, the government of

Zimbabwe has abandoned a socialist ideology and has embarked on the policy of

privatisation (Tambudzai, 2003:165). Dore et al. (2008:189) note that, over the years,

parastatals in Zimbabwe have suffered huge losses amounting to Z$2billion in 1993/1994,

which was 4% of its Gross Domestic Product (GDP). In 1997/1998 these losses reached

Z$11billion, which accounted for 8.6% of its GDP. The major loss-makers were NOCZIM (50%

1

of the total losses), ZESA (20%), the Cold Storage Company (8%), NRZ (6%) and ZISCO (6%).

The Economic Structural Adjustment Programme (ESAP) proposal recognized the causes of

the poor performance of parastatals, as indicated in Table 1.1 below.

Table1.1: Causes of poor performance of parastatals in Zimbabwe

Variable Causes Pricing • Government charged low prices which could not cover the costs of

parastatals. Acts of Parliament

• A number of Acts allowed government to provide funding public parastatal’s shortfalls from the national budget, despite these losses being incurred as a result of poor management.

Government payment

• Government’s failure to pay for services provided by parastatals for social reasons.

Capital base • Parastatals were mainly financed through loans; the consequence of this was the heavy burden of servicing these loans.

Accountability • Management of parastatals and Boards of directors and managers lacked autonomy as line ministries interfered in their operations such as hiring employees, salaries, procurement and investments.

Management • Parastatals are characterised by corruption and mismanagement. Control and monitoring

• Weak internal financial control systems and external monitoring systems of parastatals’ performance.

Expertise • Boards lacked the necessary expertise for effective management. Source: Adapted from Dore et al. (2008:188).

Lack of profitability by these organisations has resulted in their low capacity to sustain their

operations financially. Parastatals are usually an uneconomical way of doing business as

they are characterised by heavy losses, budgetary burdens, poor services, mismanagement

and political interference (Akpan, 2002).

Government, as the provider of essential services to the public, has been left with no option

but to subsidise their operations so that they continue providing necessary services to the

public. The growth rate of these subsidies (Sikwila, 2010:1) has not matched the growth of

the economy, thus raising government concerns. Thus, most stakeholders have linked these

developments in parastatals to the poor management of these organisations. Consequently,

such developments had a negative effect on the economy as the country experienced a

decline in economic growth, lack of foreign currency, and a lack of foreign direct

investment.

2

According to Godana and Hlatshwayo (1998:23), there exists a monopoly among parastatals

which,and when prices and quality of service are not regulated, the new private owners can

charge high prices and offer poor service at the expense of the customers. Therefore, the

promotion of monopolies is in contrast with globalisation which aims to liberalise the world

economies so as to promote free markets, a private sector, fair competition, good corporate

governance and professionalism. Dore et al. (2008:189) note that parastatals in Zimbabwe

have been classified into the following three broad categories:-

• Organisations that need to be reserved for their social functions.

• Organisations that need to be reserved for their promotional functions.

• Organisations to be owned by government for strategic reasons.

Privatisation in Zimbabwe was adopted in 1991 in line with the five-year Economic

Structural Adjustment Programme (ESAP) as an economic reform strategy. This resulted in

the government abandoning its socialist guided principles to follow a free market economy,

where emphasis was to be placed on market forces (Tambudzai, 2003:165). According to

Godana and Hlatshwayo (1998:11), the visualised Parastatal Reform Programme had broad

objectives which were set out as follows:-

• To improve efficiency and economic development through attracting foreign investors

and encouraging local entrepreneurial skills; and

• To generate revenue through sales and leases.

There are about twelve stakeholders who are involved in the privatisation and

commercialisation of parastatals in Zimbabwe. This situation has created confusion in the

privatisation programme through the promotion of clientelism, patronage and the quest of

rent-seeking actions (Dore et al., 2008:197). The agencies involved in the privatisation

process are listed in Table 1.2 below.

3

Table 1.2: Agencies involved in the privatisation process in Zimbabwe

Levels Agency Management • Management and Board of the entity to be privatised. Ministries • The parent ministry.

• Ministry of Economic Development. • Inter-Ministerial Committee on Commercialisation and Restructuring.

Other • Department of State Enterprises and Parastatals in the Office of the President.

• State Enterprises Restructuring Agency. • The Vice President with a specific mandate on public organisations. • Reserve Bank of Zimbabwe with its Parastatals and Local Authorities

Reorientation Program (PLARP). • Cabinet. • Various Regulatory bodies/Authorities in some of the sectors. • The ruling party and aligned lobby groups.

Source: Adapted from Dore et al. (2008:197).

Therefore, the privatisation process in the country depends primarily on the commitment

and efficiency of these major stakeholders. According to Pamacheche and Koma (2007:18-

20), an incorrect approach to privatisation normally results in poor performance levels

which are worse than those which existed prior to privatisation. Therefore, it is important to

come up with an appropriate design and implementation plan which identifies critical

success factors for privatisation so as to achieve the anticipated benefits of privatisation.

Pamacheche and Koma (2007) suggest that the following are some of the critical success

factors:

• Commitment – there is need for government commitment privatisation as some

stakeholders are likely to resist the programme.

• Clear objectives – governments should come up with clear objectivesso that the

necessary conditions which support a successful privatisation are created.

• Solid institutional and regulatory framework – a solid institutional and regulatory

framework for privatisation should be put in place so as to achieve the desired

objectives.

• Transparency – privatisation transactions should be carried out in a transparent way so

that it is easily accepted by the general public.

4

• Stakeholder consultation – it is important to ensure that stakeholders are adequately

consulted during the entire process of implementing privatisation transactions.Poor

consultation can lead to the disruption of the programme.

• Social safety net issues – there is need to overcome the fears of loss of employment

through offering incentives such as unemployment benefits, education and training

programmes and outplacement assistance.

The next section highlights the problem statement of this study.

1.2 PROBLEM STATEMENT

According to Tambudzai (2003:177-178), in Zimbabwe the following parastatals were

privatised during the period 1997-1999: Dairiboard Zimbabwe Limited (DZL),Cotton

Company of Zimbabwe (COTTCO), Zimbabwe Reinsurance Company (ZIMRE), Commercial

Bank of Zimbabwe (CBZ) and Rainbow Tourism Group (RTG). The privatisation of these

organisations was influenced by pull and push factors. Pull factors included: the general

economic decline, subsidies, debt crisis, and financial inefficiencies of parastatals. The push

factors comprised of external pressure emanating from multilateral donor institutions such

as the International Monetary Fund (IMF) and the World Bank.

In Zimbabwe, the privatisation process has been criticised for its slow pace, impact on the

general public and the economy, the efficiency as well as the transparency of the process

(Tambudzai, 2003:166). Akpan (2002) notes that privatisation finds African governments

unprepared and - considering their poor conditions such as deteriorating economies, high

unemployment, underdeveloped markets, inexperienced professionals and unstable

political systems with weak bureaucracies - incapable of designing and implementing the

privatisation process. Privatisation thus becomes a very difficult affair. Conversely,

Pamacheche and Koma (2007:12) argue that many African politicians and public officials

benefit from parastatals as they are offered gifts, board memberships, future jobs for

themselves and engage in corrupt activities such as procurement kickbacks. All these may

no longer be possible after privatisation; hence, such governments resist the move to

privatise organisations.

5

Therefore, the problem with privatisation in Zimbabwe is that the process has raised a great

deal of criticism in the press by politicians, professional organisations and civil society. The

issues which have been raised against privatisation include: the approach; its transparency;

acts of corruption; lack of promptness and enrichment; lack of competencies as well as the

external pressure from multilateral donor agencies such as the IMF and the World Bank, at

the expense of local demand. Lack of an appropriate institutional framework for

privatisation is also a concern of parastatals in Zimbabwe.

This lead to the following research question to be addressed in this study: What are the

management perceptions regardingthe privatisation of parastatals in Zimbabwe?

1.3 RESEARCH OBJECTIVES

1.3.1 Primary research objective

The primary objective of this study is to examine the perceptions of stakeholders regarding

the privatisation of parastatals in Zimbabwe.

1.3.2 Secondary research objectives

The following secondary research objectives will assist to achieve the primary objective of

the study.

• To critically review the literature pertaining to privatisation.

• To develop a measuring instrument to test management perceptions regarding

privatisation of parastatals in Zimbabwe.

• To empirically assess management perceptions of the privatisation of parastatals in

Zimbabwe.

• To provide managerial guidelines and recommendations on privatisation that needed to

be improved in Zimbabwe.

1.4 RESEARCH QUESTIONS AND HYPOTHESES

1.4.1 Research questions

The research questions of this study will be based on the purpose and objectives of the

research. The following are the research questions to be addressed in this study:

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• Are stakeholders adequately consulted during the privatisation of parastatals in

Zimbabwe?

• Is the business environment prevailing in Zimbabwe conducive to privatisation?

• Is the government showing commitment to replicating its models and to improving the

speed of privatisation?

• Is government receptiveness sufficient to promote a suitable environment for

privatisation?

• Is there an appropriate institutional framework for privatisation in Zimbabwe?

• Will privatisation create economic benefits in Zimbabwe?

• Will privatisation improve the organisational performance of parastatals in Zimbabwe?

1.4.2 Research hypotheses

Based on the hypothetical model for privatisation of this study, the following research

hypotheses are identified:

H01: Stakeholder consultation does not influence perceptions of privatisation.

H02: Business conditions as measured by attractiveness to foreign investment and

macroeconomic conditions do not influence perceptions of privatisation.

H03: Government consideration as measured by perceptions of trust, political intervention,

role conflict and role ambiguity does not influence perceptions of privatisation.

H04: The institutional framework as measured by transparency, two-way communication

as well as the speed and replicability of the privatisation process does not influence

perceptions of privatisation.

H05: Management of the privatisation process does not influence perceptions of

privatisation.

H06: Perceptions regarding privatisation do not influence the economic benefits as

measured by perceptions of investments, competition, improved services, effective

corporate governance and economic growth.

H07: Perceptions regarding privatisation do not influence organisational performance as

measured by perceptions of customer satisfaction, organisational efficiency and

innovation.

7

The following section deals with the proposed hypothetical model of this study.

1.5 PROPOSED THEORETICAL MODEL REGARDING THE PERCEPTIONS OF

PRIVATISATION

In light of the secondary sources analysed in this study, and particularly the models offered

by Donaldson and Wagle (1995), Aboujdiryha (2011) and Mudambi (2003), a theoretical

model of the perceptions of privatisation was constructed. The proposed theoretical model

shows that the perceptions of privatisation are influenced by four independent variables;

namely, stakeholder consultation, business conditions, government considerations and the

institutional framework. Likewise, the model shows the perceived outcomes of

privatisation; these are indicated in economic benefits and improved

organisationalperformance.

Figure 1.1 illustrates the proposed theoretical model of this study, regarding perceptions of


8

Figure 1.1: Theoretical model regarding perceptions of privatisation

Independent variables Dependent variables

H01

H02 H06

H03

H07

H04

H05

Source: Own construction

Stakeholder consultation

• Employees • Unions • Management • Customers

Economic benefits

• Investments • Competition • Improved services • Effective corporate governance • Economic growth • Economic empowerment • Trade relations

Business conditions

• Attractiveness to foreign investment

• Macroeconomic conditions

Government considerations

• Trust • Political Intervention • Role conflict • Role ambiguity

Perceptions of Privatisation

Organisational performance

• Customer satisfaction • Organisational efficiency • Innovation

Institutional framework

• Transparency • Two way communication • Speed and replicability

Management of the privatisation process

9

Figure 1.1 shows five sets of independent variables; namely, stakeholder consultation,

business conditions, government considerations, institutional framework and management

of the privatisation process. Economic benefits and organisational performance are shown

as the dependent variables. In constructing the proposed theoretical model (Figure 1.1), the

major elements of the supporting models by Donaldson and Wagle (1995), Aboujdiryha

(2011) and Mudambi (2003) were considered. Some concepts relating to the proposed

hypothetical model are outlined in this section.

1.5.1 Stakeholder consultation

Nieman (2006:179) states that a stakeholder can be defined as an individual or group of

people without whose support the business would cease to exist. Pamacheche and Koma

(2007:19) argue that stakeholder consultation, during the privatisation process, is very

important because these groups are very powerful and can easily disrupt the privatisation

process. The ensuing sections indicate which stakeholders are involved in the privatisation

process.

(a) Employees

These are key stakeholders in the privatisation process as they are often the fiercest

adversaries of the policy, owing to its likely effects on employment and working conditions.

Once a government has made the decision to privatise or outsource a service,

considerations can be given to employees who may be given the opportunity to participate

in the bidding process (Lawther, 1999). Hill and McShane (2008:357) note that employees

feel that they are part of the organisation when they contribute to decisions that guide the

organisation’s future. Consultation brings loyalty to the organisation because it shows the

organisation’s trust in its employees. Consultation is also necessary in addressing issues like

establishing the necessary payment and adjustment measures, such as severance pay,

worker retention, as well as potential redeployment. Pamacheche and Koma (2007:9) note

that privatisation is in the interest of employees as they benefit from employment levels

and remuneration which tend to increase after privatisation. In addition, employees can

often buy shares at discounted prices.

10

(b) Unions

Cole (2004:398) argues that a trade union is an organisation which promotes and protects

the interests of the workers in the work place by consulting and engaging the employers.

Bratton, Sawchuk, Forshaw, Callinan and Corbet (2010:233) note that the purpose of a trade

union in an organisation is to represent the common interest of the workers. Unions have a

role to lobby support for privatisation and also actively participate in the final approval of

privatisation schemes. According to Pamacheche and Koma (2007:11), trade unions often

disapprove of privatisation as they view it as associated with job losses and worsening

conditions of service.

(c) Management

Dessler (2004:3) argues that management has a responsibility for contribution - making sure

that the organisation achieves its goals. Brinkman, Bateman, Harper and Hodgson (2010:17)

note that a manager can be described simply as someone who gets things done through

other people. Daft, Murphy and Willmott (2010:17) define management as a function

responsible for directing and coordinating other parts of the organisation.Calabrese

(2008:34-35) argues that a strategic communication plan for privatisation and public private

partnership programs should involve management of parastatals as these are important role

players in the reform process. Management can resist privatisation if they realise that their

positions of authority are opened for international competitive bidding; they can in turn

influence politicians to hang on to the monopoly in exchange for political support.

(d) Customers

According to Brinkman et al. (2010:182), customers are people or organisations who buy

goods or services. Gomez-Mejia, Balkin and Cardy (2008:7) define a customer as anyone

who receives a service from an employee. Consultation that is educative helps to build

commitment in the community; it also supports accountability in decision-making and

attracts alternatives and improvements. Bakker and Page (2005) suggest that the

participation of stakeholders in decision-making increases the support of the programme

hence a successful privatisation. According to Ahmed and Bohail (2004:4), one of the major

concerns when introducing privatisation is the impact it has to poor consumers. Customers

are concerned with getting the best service at the lowest cost. It is therefore important to

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carry out an intensive media campaign which includes meetings with concerned members

through debates, seminars, workshops and question and answer sessions.

1.5.2 Business conditions

Business conditions variables relate to the market environment in a country and they

include attractiveness to foreign direct investments (FDI) and macroeconomic conditions.

(a) Attractiveness to foreign direct investment

According to Kirkpatrick, Parker and Zhang (2006:144), governments around the world have

adopted policies which encourage the private sector to participate in the financing and

provision of infrastructure services. FDI in infrastructure is attracted to an effective

domestic regulatory framework. The economic determinants of FDI inflows show that

transnational organisations are attracted to invest in locations that allow the organisation to

exploit its ownership specific objectives (Kirkpatrick et al., 2006:149). It was noted that

corruption has a significant impact on privatisation investment. Foreign investors have also

made their decisions to invest bearing in mind the degree of legal protection of private

property and the adequacy of enforcing such laws. Thus, privatisation is seen as an effective

means of attracting FDI, especially when a strategic investor is selected through open

international auctions (Kalyuzhnova & Andreft, 2003:64).

(b) Macroeconomic conditions

According to Jones (2010:4), macroeconomics can be defined as the study of collections of

people and organisations and how their interactions through markets determine the overall

economic activity in a country or region. Swanenberg (2005:4) asserts that macroeconomics

is the area of economics that focuses on the behaviour of individual units or groups of units

such as households, corporations or industry sectors. Yueh and Chamberlain (2006:4) argue

that there are important interactions among organisations, consumers and the government

in the economy. This system is called the circular flow of income. As government is part of

the circular flow of income, it has the capacity to embark on ways which promote economic

growth, manage inflation, low unemployment, and trade balance. Macroeconomic analysis

is characterised by three aspects; namely, inflation, unemployment and national output (as

measured by gross domestic product) (GDP). Mudambi (2003:213-214) argues that

12

macroeconomic crises pushed governments in transition economies towards privatisation as

experienced in Latin America, Eastern Europe and the former Soviet Union who faced

balance-of-payments crises and plunging currencies.

1.5.3 Government considerations

Government considerations relate to the actions which the government exhibit. These

include trust, political intervention, role conflict and role ambiguity.

(a) Trust

According to Hill and McShane (2008:272), trust refers to a psychological state which

consists of accepting vulnerability based on optimistic prospects of the behaviour of another

person. Nooteboom and Six (2003:4) define trust as the belief that an associate will not

engage in opportunistic actions, even if the other party is faced with short-term

opportunities and incentives. Trust assessed in political terms is when citizens evaluate the

government and its institutions, policy-making in general and the individual political leaders

as capable of keeping promises, being fair, honest and efficient. Political trust hinges on the

judgement of the citizenry that the system and the political incumbents are responsive, and

will perform according to expectation, even without close supervision. Political trust at an

organisational or individual level, depends on credible policy-making. Bortolotti, Fantini and

Siniscalco (2003:308) define credibility asthe capacity to organize the support of private

investors. This ability is associated with factors such as the reputation of the government,

the presence of controls associated with policy reversals and the execution of economic

policies. Conversely, if a government organisation produces policies that repeatedly lack

credibility, distrust develops.

(b) Political interventions

According to Burgess and Bothma (2007:223), political intervention is when action by

government forces businesses to ‘’change strategies, policies or operations’’. Intervention is

normally initiated by government to achieve social welfare, political or economic goals.

Czinkota and Ronkainen (2002:173) argue that government has to ensure that the country’s

environment, both political and legal, is conducive to business as it affects the operations of

organisations in a variety of ways. There is political risk in every nation which can be the

13

result of government action or actions outside of government control. Czinkota and

Ronkainen (2002:176) note that government policies that are caused by nationalist or

religious factions are worrisome to business. The most drastic steps resulting from such

policy changes are usually confiscation, expropriation and domestication.

• Expropriation – Brinkman et al. (2010:206) argue that expropriation is concerned with

the shift of ownership by the host government to a domestic body. Compensation is

normally done through local, non transferable currency or it can be benchmarked on the

book value of the organisation.

• Confiscation– Kobate and Helsen (2004:147) argues that confiscation can be referred to

as a complete occupation of property without compensation.

• Domestication - According to Kobate and Helsen (2004:148), domestication refers to an

organisation slowly turning over management and operational tasks and ownership to

local organisations over time.

(c) Role conflict

Bobot (2011:26) states that, in any conversation, conflict is an inevitable element. Hamwi,

Rutherford and Boles (2011:5) posit that role conflict take place when two or more powerful

individuals in a work place issue conflicting statements to an employee. Conner and Douglas

(2005) argue that role conflict arises when employees face contradictory expectations of

various parties, or from a perceived incongruence between job demands and individual

desires and morals. According to Masunungure and Zhou (2006:32), privatisation in

Zimbabwe was a victim of patronage politics. Efforts communicate with private players

through tendering processes resulted in a cycle of court proceedings between responsible

ministries and investors who wanted to participate in the programme.

(d) Role ambiguity

According to Hamwi et al. (2011:5), role ambiguity takes place when responsibilities of

employees in the work place are unclear. Tang and Chang (2010:870) posit that, according

to the role theory, role ambiguity is concerned with lack of clarity and certaintyof an

employee’stask functions and accountability. Management must establish clear

organisational goals so as to avoid role ambiguity and achieve high creativity. Masunungure

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and Zhou (2006:32) argue that the Zimbabwean privatisation process was not guided by any

concrete privatisation plan of action. Unlike Malawi, Tanzania and Malaysia in which

privatisation programmes were guided by specific master plans, in Zimbabwe, those who

were responsible for policy implementation relied on contradictory official statements that

were normally issued by the Department of State Enterprises responsible for indigenisation

and the National Economic Planning Commission.

1.5.4 Institutional framework

According to Kirkpatrick et al. (2006:149), institutional framework refers to the set of

informal and formal ‘’rules of the game’’ that limit economic, social and political

interactions. A ‘’good’’ institutional environment is regarded as capable of establishing

incentive structures which reduce uncertainty, encourage efficiency and contribute to

better economic performance. The institutional framework variables include transparency,

two way communication as well as speed and replicability.

(a) Transparency

Ball (2009:293) argues that transparency constitutes the demand for information, the ability

of citizens to obtain information and the supply and actual release of information by

government and non-governmental organisations. Considering this perception, it is believed

that, for transparency to be realised, citizens should be active participants. Kikeri and Nellis

(2004:111) observe that some of the issues regarding privatisation include; the lack of

transparency, a rise in unemployment, selling assets to foreigners and the presence of

corrupt tendencies during the programme. Lack of transparency has repelled potential

investors, led to allegations of corruption, provided ammunition to critics of privatisation

and has threatened the reversal of privatisation. Transparency can be achieved through well

publicised procedures, vetting actions by the press or other outsiders, opening bids in public

sessions and publicising the terms of the transaction. Concerns of corruption result in deep

dissatisfaction and decline of support for privatisation.

(b) Two way communication in government

According to Versosa and Garcia (2009:1), strategic communication refers to the design of

action plans intended to promote voluntary changes in the behaviour of stakeholders whose

15

endorsements are crucial to the success of reform initiatives. It employs the tools of

persuasion and negotiation rather than the power of laws, coercion or incentives to identify

involved parties’ underlying interests and promote their understanding of and support for a

proposed reform. Government communication consists of three primary functions, namely:

informing, advocating/persuading (for policies and reforms) and citizens. Enhanced citizen

participation is a key indicator of effective government communication. According to

Calabrase (2008:2), a strategic communication programme for privatisation, private sector

participation and public-private partnerships serves two broad purposes. Firstly, it prevents

disappointments by highlighting prevailing and likely sources of backing and resistance.

Secondly, it assists in initiating a well-tailored privatisation programme, serves as a two-way

check and a feedback instrument from planning to implementation. Therefore, when

preparing for privatisation, a government must communicate with political parties,

managers of state-owned organisations, unions, employees, business leaders, potential

investors, customers as well as national and international organisations about the

privatisation programme.

(c) Speed and replicability

Donaldson and Wagle (1995:3) note that, the declining economic conditions influenced

Eastern Europe and the former Soviet Union to speed up privatisation. The size of these

economies and the sheer size of the task of transformation required these economies to

replicate the previous methods. According to Tambudzai (2003:166), the need for

privatisation as a result of the intensified economic crisis, private sector and donor interests

led to the launch of the Privatisation Agency of Zimbabwe (PAZ) in 1999, whose mandate

was to speed up the slow process and improve efficiency of the programme. Parker and Saal

(2003:408) argue that a slower pace of privatisation may result in implementation of more

efficient corporate control structures, immediately after ownership change. On the other

hand, a slow pace of privatisation can be stopped by political decisions before it is finalised.

Makonnen (2001:26) notes that the choice of directed group ownership as replicable “best

practice” is based on the method being extremely effective for broadening local

participation for the intended privatisation and the ease with which the methods are

implemented. Conversely, Von Weizsacker, Young, Finger and Beisheim (2005:10) argue

16

that forms of privatisation that produce positive results, under some conditions, fail

miserably under other circumstances. The replicability of privatisation in Africa is mainly a

result of the influence of the Bretton Woods Institutions which prescribe structural

adjustment programmes as a prerequisite for accessing the much needed aid to pay foreign

debt.

1.5.5 Management of the privatisation process

According to Needle (2010:228), management is the organisation of the internal and

external influences, the harmonization of actions and people so as to achieve organisational

goals. Similarly, Brinkman et al. (2010:6) argue that management is about the best use of

available resources to meet an organisation’s requirement. Wright and Perotti (2000:52)

argue that the operations of privatisation do not last for a short period hence there is need

to engage experts in the process. As such, governments have decided to come up with

several special institutions to manage the privatisation process or to outsource part of the

work to outside experts. The responsibility for privatisation lies on a political level (that is,

the head of state and cabinet) which spells out the privatisation programme, sets its

priorities and makes other decisions as well as a technical level (a private agency) which

enjoys a certain degree of autonomy. Parliament is also involved as it authorises the

process; this confirms parliament’s adherence to government’s privatisation policy and

support for the process. According to Dore et al. (2008:196), PAZ changed its name to State

Enterprises Restructuring Agency (SERA) in 2005. SERA prepares an initial commercialisation

and restructuring plan, giving the overall rationale for restructuring and privatisation and

submits the plan to the Inter-Ministerial Committee on Commercialisation and

Restructuring (IMMCCR) for approval. The IMCCR is responsible for reviewing the plan with

a view of accepting it, modifying it or directing further modifications and resubmission

Tambudzai (2003:178) notes that some of the methods which have been utilised, in

Zimbabwe, include: public share offering or floatation, trade sales, collective investment

schemes, sales to employees or management teams (internal privatisations), private and

targeted placements, management contracts/contracting out or leases and liquidation.

Other methods which can be used are listed in Table 1.3 below.

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Table 1.3: Forms of privatisation

Form Description Service contract • A government agency engages a private organisation to provide a

particular service. Lease contract • In this contract, a private operator takes some operating risks to

manage a government facility and pays a fee to government. • The lease contract normally runs for a period of between 8 to 15

years. Management contract

• The government temporarily transfers its responsibility to a private operator and pays the operator for managing the facilities.

• The government retains much of the operating risks. Concessions • A private organisation manages a government facility for a specified

period. • The private operator invests into the facility and assumes

operational risks. • The agreement is usually for a very long term nature, for example 30

years. (e.g. Build-Operate-Transfer) (BOT) agreements. Source: Adapted from Pamacheche and Koma (2007); Von Weizsacker et al. (2005:7).

According to Pamacheche and Koma (2007:5), in a lease contract, government retains

ownership as well as responsibility for financing capital investments, usually through a

special vehicle established for the purpose. Besides, the new owner is motivated to reduce

costs and improve efficiency which results in government benefiting through dividends.

Robinson (2006:189) posits that in management and lease contracts the facility remains

owned by the public sector; government usually continues to make the investment

decisions and retains financial responsibility. Management contracts normally benefit

government as they bring about market discipline and technical know-how to parastatals

and consequently realising efficiency gains (Pamacheche & Koma, 2007:4-5). Von

Weizsacker et al. (2005:8) argue that the World Bank has spearheaded the development of

models where financing is provided by the private sector in exchange for various

management agreements to pay back the investments. Likewise, the concession model can

be adopted by developing countries as they do not have the capacity to finance large

infrastructure projects as a result of capital constraints.

1.5.6 Economic benefits of privatisation

Based on the theoretical model in Figure 1.1, this section discusses the economic benefits

which are realised after successful implementation of a privatisation programme.

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(a) Investment

According to Salvatore (2011:400), direct investment consists of actual investments in

organisations, capital goods, land and inventories where both capital and management are

involved and the investor retains the right to use the invested funds. In addition, a direct

investment relates to a long lasting relationship between the investor and the entity and the

ability to influence the operations of the organisation. Musila and Sigue (2006:578) view

foreign direct investment as a motivation for economic growth. Foreign direct investment

can be viewed as having negative effects on income distribution, unemployment, autonomy

and national sovereignty. According to the World Investment Report (1999:33-34), FDI

brings in investible financial resources to host countries. Thus, host countries are likely to

benefit through the inflow of modern technology, market access, skills, management

techniques and modern environmental management systems. The advantage of FDI is that it

is easier to service as compared to business-related debt or portfolio investment.

(b) Competition

McAleese (2004:160) argues that competition is an active process in which some business

strategies thrive whilst others fail. In addition, the continued rivalry between organisations

offers customers better products and better run organisations. A competitive environment

forces organisations to search relentlessly for new and better ways of doing things, thereby

minimising costs. Competition thus encourages innovation, allowing the more efficient

organisations to prosper at the expense of the inefficient. The growing interest in supplier

partnerships and strategic alliances is a direct consequence of increased competition (Baker,

2007). Kikeri and Nellis (2004:106) argue that it has been empirically proven that increased

exposure to competition has resulted in most of the positive changes seen in privatised

organisations. Bender, Gotz and Pakula (2011:11) support this argument as they state that

privatisation and competition seek to provide some incentives which can facilitate an

efficient production of goods and services which are preferred by consumers.

(c) Improved customer services

Berndt and Brink (2004:48) note that customer service can be described as the total of what

the organisation does to add value to its products and services, as viewed by the customers.

19

It is directly related to the marketing concept. The marketing concept states that the

organisation exists to satisfy the identified target market’s wants and needs. According to

Blem (2007:7), customer service refers to establishing strong relationships with customers

and which benefit all the parties in the relationship. It is made up of pre-transaction,

transaction and post-transaction considerations relevant to the exchange process with the

customer. Customer service is part of the expanded marketing mix, that is, “provision of

customer service” and all other marketing mix elements are matched against it. Sturdy,

Grugulis and Willmott (2001:3) argue that it is based on the neo-liberal concept of the

sovereign consumer and free markets. Therefore, for organisations to gain a competitive

advantage they should identify customer needs and direct their activities towards

addressing these profitably. The organisation must ensure this by focussing on issues of

customer value, quality, and customer satisfaction. Bloch (2010) claims that the

privatisation of the railways and telecommunications in the USA and that of British Gas,

British Water as well as British Airways, resulted in the improved quality of services offered

to customers.

(d) Effective corporate governance

According to Solomon (2010:6), the role of corporate governance is to defend and press

forward the aims and objectives of shareholders interests of shareholders through

formulating the strategic direction of an organisation. The key stakeholders are

shareholders, management (led by a Chief Executive Officer) and the board of directors. The

other stakeholders are suppliers, customers, employees, the community and creditors.

Corporate governance refers tointernal and external control mechanisms that reduce

conflict of interest between shareholders and management. (Calderini, Garrone & Sobrero,

2003:3). The King Report on Corporate Governance for South Africa (2002) identifies

sustainability as a major impact of corporate governance. Sustainability is concerned with

the non-financial operations of an organisation which influence an organisation’s survival

and prosperity in the communities in which it operates. In addition, practices such as

organisational values, accountability and responsibility, transparency, tackling corruption

and employee relations have been identified as some of the characteristics of good

corporate citizenship.

20

Parker and Saal (2003:437) claim that privatisation, foreign ownership and an extensive

company restructuring would improve an organisations’ economic performance and

financial discipline considerably. This assertion is supported by Hanousek and Kocenda

(2003:287) who argue that the extent of improvement in financial performance illustrates

the level of restructuralisation of large organisations in Central European countries.

(e) Economic growth

According to Muradzikwa, Smith and Villiers (2004:64), economic growth can be defined as

the increase in actual output of an economy over time. There are four ways to increase the

potential output of an economy; that is, increase the quantity of the factors of production,

improve the quality of resources, increase the exploitation of resources and improve

technology. Perkins, Radelet and Lindauer (2006:12) note that economic growth refers to a

rise in national or per capita income and product. A country achieves economic growth

when there is a rise in the production of goods and services as well as an increase in the

average income. Other indicators are growth in the level of income, life expectancy, level of

education, savings and investment as well as political variables, as closely associated with

economic growth. Uchida and Cook (2003:124) assert that privatisation positively affected

GDP growth.

(f) Economic empowerment

According to Bosch, Tait and Venter (2011:63), Black Economic Empowerment refers to

economically empowering black people, taking into account employees, women, the youth,

disabled people and people who live in the rural areas through various and synchronised

socio-economic strategies. Horwitz and Jain (2011:301) postulate that Broad Based Black

Economic Empowerment is a deliberate strategic process which is focused on changing the

South African economy, by rearranging management structures, broadening share holdings

so as to ensure that the previously marginalised South African citizens participate in

economic activities in order to achieve economic justice. Theron (2008:16) states that

empowerment entails a process that ‘’makes power available’’ so that it may be used to

gain access to resources in order to achieve certain goals.

21

(g) Trade relations

Reddy (2011:8688) observe that, in the past, since states enjoyed sovereignty, they

preferred to impose barriers on imports, exports and other forms of international trade,

primarily to protect local industries. Mudzonga (2009:31) argues that Zimbabwe’s bilateral

engagements are focused on free trade, entrance into larger markets and economies of

scale. Besides, Zimbabwe has preferential trade agreements with Botswana, Malawi,

Namibia and South Africa; the latter of which is the stronger trade partner in terms of values

and variety. Furthermore, the common history, political solidarity and socio-cultural

background of Southern African Development Countries (SADC) have facilitated

Zimbabwean business people to integrate easily with their regional counterparts.

Sachdeva (2010:229) points out that during the early 1990s, the major economic reforms

which were undertaken by India to liberalise the country’s economy resulted in India

becoming a preferred long-term prospect in Japanese business planning and the number of

Japanese organisations which were investing in India increased.

1.5.7 Organisational performance

This section discusses the outcomes of privatisation in terms of enterprise performance, as

measured by customer satisfaction, enterprise efficiency and innovation.

(a) Customer satisfaction

According to Jamali and Suliman (2007:372), customer satisfaction refers to the customer’s

reaction to the assessment of a product or service by the customer can be defined as the

customer’s response to the evaluation of the perceived discrepancy between prior

expectations and the actual performance of the product as perceived after its consumption.

In addition, customer satisfaction is concerned with evaluating a number of items such as

the attitude of service providers, efficiency in providing a service, the price charged for the

product or service and the general performance of the business in relation with the ideal

business service. Similarly, Krivobokova (2009:565) argues that customer satisfaction is

generally understood as the sense of satisfaction that a consumer feels when comparing his

preliminary expectations with the actual quality of the acquired product. Thus, when a

buyer is disappointed about a service, they will comment about the problems experienced

22

by some other potential buyers of the service or product. According to Burns et al. (2004),

privatisation has improved customer satisfaction as evidenced by the British

Telecommunications service which kept customers waiting for two years to have a

telephone installed.

(b) Organisational efficiency

According to Daft et al. (2010:67), efficiency is regarded as the amount of resources used to

produce a unit of output. Equally, Gomez-Mejia et al. (2008:7) posit that an organisation is

efficient when people, money, the physical plant and technology are put to maximum use.

Hough, Thompson, Strickland III, Gamble, Human, Makin & Braxton (2008:194) assert that

organisations improve their efficiency as soon as they change their direction so as to focus

on the point of view of the customer, and measuring performance from the customer’s

view. Wright and Perotti (2000:295) claim that privatisation can be justified on the grounds

that it increases the technological efficiency of operations. Efficiency increases as a result of

a change in management behaviour and a reduction in government intervention.

Tambudzai (2003:191) points out that the privatisation of the Cotton Company of Zimbabwe

resulted in the organisation realising significant improvements in profits after from as low as

Z$8.4 million in 1994 to Z$1.1 billion in March 2001. This increase is linked to improved

operational efficiencies andeconomies of scale, as a result of increased output and good

capital management.

(c) Innovation

According to Tidd, Bessant and Pavitt (2005:66), a business is considered to be innovative

when it lives and thinks “outside the box”. Innovation is not made up only of good ideas; it

also involves motivated staff and an intuitive understanding of what customers want.

Nooteboom and Stam (2010:6) note that innovation is about the development of new

knowledge, introduced to the economy. Innovation occurs, when something more than the

invention of a creative idea or vision is put into action. This results in better or altered

business processes within the organisation or positive changes in the products and services

provided. Organisations rely on research and development to achieve breakthrough

innovations. A highly innovative organisation enjoys a competitive advantage in a highly

unstable environment when competing at individual, regional and national levels. Mudambi

23

(2003:590) claims that process innovations or the introduction of new methods of producing

goods or services should flourish, after privatisation.

1.6 CLARIFICATION OF KEY CONCEPTS

1.6.1 Privatisation

According to Yonnedi (2010:537), privatisation can be defined as the change in the

production of goods and services from the public sector to the private sector. Similarly, Von

Weizsacker et al. (2005:4) posit that privatisation can be defined as all the activities which

are meant to increase the participation of the private sector in the production of goods and

services by decreasing government’s participation in such matters. Mudambi (2003:583)

defines privatisation as the adoption of any activity which reduces the role of government

increases the function of the private sector in the economy. Therefore, in this study,

privatisation will mean partial or full granting of service, lease or management contracts and

concessions to domestic or foreign investors which gives them the substantive independent

power of controlling the activities of the organisation.

1.6.2 Stakeholders

According to Carroll and Buchholtz (2003:70), a stakeholder is any individual or group who

can affect or is affected by the goals, policies, actions, practices, decisions and objectives of

the organisation. Freeman, Harrison, Wicks, Parmar and De Colle (2010:207) define a

stakeholder as any group or individual who can affect or is affected by the achievement of

the organisation’s objectives. For the purposes of this study, a stakeholder will be defined

as an individual or group which has a substantial influence on the actions, programmes and

aims of an organisation.


According to Hough et al. (2008:53), the operations of all organisations is influenced by the

external environment which is characterised by government actions, different cultures of

societies, population demographics, economic activities, legal issues, technological factors

and the level of competition in the industry. Equally, Gomez-Mejia et al. (2008:62) point out

that the business environment of any country comprises of factors which have an effect on

24

the benefits, costs and risks associated with doing business in that country. In this study,

business conditions will be defined as the political, economic, socio-cultural, technological,

legal and ethical factors which affect the operations of an organisation.

1.6.4 Parastatals

According to Adeyemo and Salami (2008:402), parastatals or public organisations are

organisations which are owned by the state or in which the state holds a majority shares;

provide goods and services, has a separate management structure and carries out business

activities. In the same way, Macleod (2004:33) states that parastatals are organisations that

collaborate with the state without forming part of its administration. In this study, a

parastatal is defined as any organisation that has an identifiable management structure,

provides goods or services to the public and in which the government have a substantial

control over its operations.

The research design and methodology of this study is outlined in the next section of this

chapter.

1.7 RESEARCH DESIGN AND METHODOLOGY

According to Blumberg, Cooper and Schindler (2008:195), a research design can be defined

as a plan and configuration of study which is aimed at obtaining answers to research

questions. A research design expresses both the structure of the research problem and the

plan of investigation used to obtain empirical evidence in relation to the problem. This study

adopted a survey research design. Wilson (2010:3) notes that methodology can be defined

as the approach and strategy used to conduct research.

1.7.1 Research paradigm

Wilson (2010:13) states that the two research strategies which are normally used in

business research are ‘qualitative’ and ‘quantitative’ approaches. Gill and Johnson

(2010:148) state that qualitative research refers to a research approach which does not use

quantitative data. According to Blumberg et al. (2008:193), qualitative research is less

structured and is premised on the belief that the world is a socially constructed and

subjective, and the researcher participates on what is being studied and science is driven by

25

human interest. Qualitative methods use small samples which are researched in-depth using

qualitative methods (Gray, 2009). A qualitative study follows an inductive theory, whereby

theory becomes an outcome rather than being applied from the start of the research

(Wilson, 2010:13).

Conversely, Wilson (2010:13-14) notes that quantitative studies give emphasis to the

measurement and investigation of underlying relationships between factors, not processes.

It is concerned with examining numerical data and the approach draws a large and

representative sample from the population under study and attempts to generalise to the

whole population. Quantitative studies follow the deductive approach whereby theory is

applied at the beginning of the study. Blumberg et al. (2008:20) claim that the social world

consists of simple elements to which it can be reduced and is observed by collecting

objective facts, which are external, that cannot be influenced. This study is going to adopt

the positivist research philosophy (quantitative research). The stages of this research

approach consist of deducing hypotheses, articulating the hypotheses in operational terms,

testing operational hypotheses through an empirical enquiry and examining the specific

outcomes of the enquiry.

1.7.2 Population

According to Wilson (2010:306), a population can be defined as a clearly defined group of

cases from which a researcher can draw a sample. Blumberg et al. (2008:228) notes that a

population is the entire set of elements about which a researcher wishes to make some

conclusions. The population of this study was all parastatals operating in Zimbabwe.

According to the Zimbabwe Government Online (2011), there are sixty nine parastatals

operating in Zimbabwe. Parastatals in Zimbabwe represent a wide spectrum of sectors

which include: agriculture, transport, energy, finance, environment, education,

telecommunications, health, industry and trade, information, commerce, science and

technology, tourism, water and mining.

1.7.3 Sampling

Wilson (2010:191) defines sampling as taking a subset from a chosen sampling frame or

entire population. Sampling is done when it is impractical for the researcher to survey the

26

whole population and when the budget and time constraints prevent a survey of the entire

population. According to Neuman (2003:232), for small populations (under 1000), a

researcher needs a large sampling ratio (about 30 %). The larger the sample size, the lower

the likelihood of error in generalising to the population. Bryman and Bell (2007:182) assert

that there are two sampling techniques, called probability and non-probability sampling. A

probability sample is a sample which is selected using random selection and ensures that

each element in the population has an equal chance of being selected. When using this

technique, it is assumed that a representative sample is likely to be obtained from the

population. This method usually keeps the sampling error to a minimum. On the other hand,

Zikmund and Babin (2010:423) state that in nonprobability sampling, the probability of any

particular member of the population being chosen is unknown. However, nonprobability

samples can be found to be suitable for certain studies hence researchers can use them.

Neuman (2003:210-211) points out that quantitative researchers normally use probability

sampling, gained from mathematics, while qualitative researchers use non-probability

sampling.

In this study, a sample of twenty seven (27) parastatals was selected from the study

population using a simple random sampling technique. This is a sampling procedure which

ensures that each element in the population will have an equal chance of being included in

the sample (Zikmund & Babin 2010:426). According to Gill and Johnson (2010:127), simple

random sampling is a good sampling method to be used when a good sampling frame exists

and when the population can easily be accessed. In this method, population elements are

selected randomly so that each element has an equal chance of being selected in the

sample. Wilson (2010:191) postulates that a sampling frame can be defined as a list of the

actual cases from which a sample will be drawn. The simple random technique was used

because it gave every parastatal an equal opportunity of being selected.

1.7.4 Data collection

According to Neuman (2003:8), data can be defined as the empirical evidence or

information that one gathers carefully, according to rules and procedures. Wilson

(2010:134) notes that there are two basic types of data: primary data and secondary data.

27

(a) Primary data

Wilson (2010:134) defines primary data as information gathered for the purpose of the

researchers’ own study. Self-administered questionnaires were used to collect primary data,

from managers, regarding the selected parastatals. A self-administered questionnaire is

completed by the participant without the assistance of an interviewer. Primary data was

collected by the researcher with the assistance of two fieldworkers who were recruited for

this exercise. Questionnaires were distributed by researchers to the respondents and were

collected after completion. The fieldworkers were trained prior to the data collection

exercise so as to administer the questionnaires correctly and to observe ethical issues. The

following ethical issues were observed during this study:

• The right to privacy and confidentiality, and being transparent about the use of the

research data (Wilson 2010:81).

• To ensure that the participants understand what the researcher wants them to do and

consents to the study (Zikmund, Babin, Carr & Griffin 2010:90).

(b) Secondary data

According to Wilson (2010:134), secondary data can be defined as data that has already

been published. Secondary data was collected from books and journals as well as the

databases of the Nelson Mandela Metropolitan University Library, which include EBSCO

host, Emerald, Science Direct, Sabinet Online and Nexus as well as Google search engines.

1.7.5 Questionnaire design

A questionnaire is a method of data collection that comprises a set of questions designed to

generate data that is suitable for achieving the objectives of a research project; it also has

the capacity to collect vast quantities of data from a variety of respondents (Wilson,

2010:148). Questionnaires are inexpensive to administer, whilst being easy and quick to

analyse and develop. Zikhali (2009:135) argues that the use of a questionnaire guarantees

anonymity, privacy and confidentiality; respondents thus answer questions without fear of

victimisation.

The questionnaire consists of two sections.

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• Section A uses an ordinal scale to measure the perceptions of the respondents on the

variables of the study (perceptions regarding privatisation of parastatals in Zimbabwe).

Gill and Johnson (2010:142) argue that an ordinal scale contains two or more categories

that allow differentiation of variables in terms of those categories. A seven-point Likert-

scale was used so that participants could indicate whether they agree or disagree with

the statement.

• Section B consists of nominal-scaled questions meant to solicit the background

information of respondents (biographical characteristics). In this type of scale, a variable

is measured in terms of two or more different categories such as gender, age, ethnic

group, educational level and employment level.

1.7.6 Pilot study

The questionnaire was pilot-tested before collecting data. According to Bryman and Bell

(2007:273), the purpose of the pilot study is to ensure that the survey operates well and to

ensure that the research process, as a whole, functions well. It is also used to assess the

questions’ validity and the reliability of the collected data. Blumberg et al. (2008:74) posit

that pilot testing can be repeated several times to refine questions, instruments or

procedures. The pilot study was conducted amongst 39 respondents who were not part of

the final empirical study.

1.7.7 Data analysis

In this study, data will be analysed using quantitative methods of data analysis. The

statistical methods which will be used in this study include; descriptive statistics,

frequencies, factor analysis, regression analysis and correlation analysis. Descriptive

statistics (for instance, mean) were used to describe the basic features of the data. Factor

analysis was used to identify factor loadings and to reduce the number of variables.

Regression analysis was used to predict the outcome variables based on the predictor

variables (Blaikie, 2003:146). Correlation analysis was used to identify the nature and size of

linear relationships between variables of this study (Cramer, 2003:16).

29

1.7.8 Reliability and validity of the measuring instrument

The measuring instrument was assessed for validity and reliability. According to Gill and

Johnson (2010:143), validity refers to the extent to which a scale encoded into a set of

questions actually measures the variable it is supposed to measure. In addition, validity

refers to the accuracy of the measurement process. Construct validity was used to measure

whether the constructs of the study measured what they intended to measure. Both face

and content validity was used. The questionnaire was sent to experts in the field of

management, economics and statistics to ensure that the content is correct. Discriminant

validity was used to identify relationships between constructs of the study. A pilot study was

conducted to ensure that respondents understand the questions (Wilson, 2010:119).

Reliability of the measuring instrument refers to its consistency – that is, the degree to

which a measuring tool will produce the same results when applied more than once to the

same group under similar conditions (Gill & Johnson 2010:143). The assessment of the

internal reliability of the instrument is going to be done by means of calculating Cronbach’s

alpha values.

1.8 PURPOSE OF THE RESEARCH

Themain purpose of this study is to investigate how managers perceive of the privatisation

of parastatals and its economic benefits in Zimbabwe.

1.9 SIGNIFICANCE OF THE RESEARCH

The findings of this research are expected to assist stakeholders with information which can

facilitate a successful privatisation process in Zimbabwe. Stakeholders involved with the

implementation of the process will benefit from the findings as they will improve their

appreciation of and approach to privatisation, thereby resulting in the attainment of the

expected economic benefits. The research will also assist in solving problems facing the

parastatal sector in Zimbabwe, where the government is expected to benefit from knowing

the impact of their actions on society. Managers of privatised organisations can benefit from

knowing more about the influence of privatisation on the performance of their businesses.

Other researchers in the area of privatisation could also benefit from the findings of this

study.

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1.10 SCOPE AND DELIMITATIONS OF THE RESEARCH

The study seeks to investigatemanagement perceptions regarding the privatisation of

parastatals in Zimbabwe. The study focuses primarily on how the process has been

managed, by paying particular attention to stakeholder consultation, business conditions,

government considerations, institutional framework as well as the economic benefits and

enterprise performance realised after the privatisation process. Geographically, the study

was conducted in Harare, the capital city of Zimbabwe, Bulawayo and Kwekwe as these are

the areas in which most of theparastatals are located and where their headquarters are.

1.11 PRIOR RESEARCH

Embarking on this study has been influenced by the previous work of other researchers in

the field of privatisation in Zimbabwe. A review of the existing literature on the subject

revealed that there is no research which has focused specifically on Zimbabwe in terms of

investigating the perceptions of stakeholders regarding privatisation in the country.

Godana and Hlatshwayo (1998:1) acknowledge that there has been very little public debate

and academic dialogue on such an important issue, i.e. of reconsidering the role of the state

in the economy. Furthermore, these researchers looked at public enterprise reform and

privatisation in Zimbabwe based on international experience and suggested the adoption of

a conceptual, institutional and legal framework for privatisation. According to Godana and

Hlatshwayo (1998), privatisation in Sub-Saharan African countries has not been done well as

most divestiture strategies have been dominated by liquidations, mainly because locals do

not have the resources to buy the privatised organisations. Godana and Hlatshwayo (1998)

further argued that a general improvement in performance has been noted in privatised

organisations, especially in the United Kingdom. However, this finding is not conclusive as

the same improvements have been noted in some organisations which were not privatised.

According to Godana and Hlatshwayo (1998), these improvements are associated with the

pre-privatisation restructuring programme, rather than with privatisation. Therefore, it

could be assumed that the hypothesis that privatisation per se will quickly lead to

substantial improvements in the performances of inefficient parastatals is not supported by

data. Similarly, Tambudzai (2003:166) reviewed the Zimbabwean experience of

privatisation. Privatisation has been performed on an ad-hoc basis as there was no clear

31

programme, clear-cut institutional structure or Act of Parliament regarding the matter; this

left the process riddled with bureaucratic tendencies. Tambudzai (2003:166) provides

evidence of the performance of DZL and COTTCO after privatisation as they were turned

around from loss-making organisations to profitable ones. COTTCO, for example, was listed

and classified amongst the top ten organisations in the Zimbabwean Stock Exchange. This

move brought about benefits for various stakeholders; examples of these are consumer

choice, improved quality of products, the government was relieved from payment of

subsidies and started to receive dividends and tax revenue from the organisation, and

morale of workers improved as remuneration was market-determined. The improvement

was linked to improved operational efficiencies and economies of scale due to higher

output, prudent capital management and improved recoveries from a reorganised input

credit finance scheme.

The following section of this chapter provides an outline of the structure of the research.

1.12 PLAN OF THE STUDY

The structure of the research (division of chapters) will be as follows:

• Chapter 1: The scope and background of the study

This chapter offers an outline of the problem statement, states the research objectives,

research questions, hypotheses and the methodology of the study.

• Chapter 2: Business environment in Zimbabwe: Contemporary issues

An analysis of the current business environment in Zimbabwe is going to be presented

in this chapter. The political, economic, social and technological issues prevailing in

Zimbabwe will be discussed here.

• Chapter 3: A theoretical overview of privatisation

This chapter provides a detailed analysis of the concept of privatisation in developing

and developed countries.

• Chapter 4: Implementation of privatisation in Zimbabwe

This chapter provides a discussion of the implementation of privatisation in Zimbabwe.

The discussion offered here highlights the rationale for privatisation, methods used

during privatisation, the success stories as well as the criticism of the process.

32

• Chapter 5: Key success factors of privatisation implementation

An analysis of the key success factors of the implementation of privatisation, in

organisations, will be outlined in this chapter.

• Chapter 6: A hypothetical model of perceptions of privatisation

In this chapter, a discussion of the variables outlined in the hypothetical model of this

study will be provided.

• Chapter 7: Research methodology of the study

In this chapter, the research design and methodology of the study are discussed.

• Chapter 8: Empirical results of the study

This chapter presents a summary of the research, based on the empirical findings of the

study.

• Chapter 9: Conclusions and Recommendations

Based on the empirical findings of the study, the main conclusions and

recommendations of this study are presented in this chapter.

1.13 CONCLUSION

Chapter 1 presented the introduction and background of the research, problem statement

as well as the research objectives, research questions and hypotheses of the study.

Furthermore, the chapter presented the proposed theoretical model regarding

management perceptions of the privatisation of parastatals and a brief description of the

variables of the study. The chapter also presented the research design and methodology

employed in the study. This chapter also presented the scope and delimitations of the

research. The chapter also presented a brief explanation of prior research in the area of

privatisation of parastatals in Zimbabwe and, lastly, a plan of the study was presented.

Chapter 2 offers an analysis of the contemporary business environment prevailing in

Zimbabwe.

33

CHAPTER 2

BUSINESS ENVIRONMENT IN ZIMBABWE: CONTEMPORARY ISSUES

2.1 INTRODUCTION

Zimbabwe is a landlocked country which is located in Southern Africa. The countries which

border Zimbabwe are South Africa to the south, Botswana to the west, Mozambique to the

east and Zambia to the North. The country attained its independence in 1980 and it is a

parliamentary democracy. Campbell and Craig (2005:126) argue that a democracy is where

the government is established by the people it will govern. Zimbabwe has a total land area

of 390 757 square kilometres which is divided into ten administrative provinces; namely,

Harare, Bulawayo, Matabeleland North, Matabeleland South, Masvingo, Midlands,

Mashonaland West, Mashonaland Central, Mashonaland East and Manicaland. According to

the 2010 estimates, Zimbabwe is a low income country with a Gross National Income, per

capita, of US$375 and its population is estimated at 12 522 784 people (World Bank, 2011).

Thelife expectancy in Zimbabwe is currently estimated at 45 years (Department for

International Development, 2011). The International Development Committee (2010:5)

stresses that Zimbabwe is in a period of fragile transition, following a decline caused by

years of neglect, repression and economic mismanagement.

According to Plant and Desruelle (2011:35-36), there is a need to consider the exceptional

characteristics of Zimbabwe that should be considered in assessing the need for building

precautionary safeguards. This includes the following:

• It is highly exposed to terms-of-trade shocks as a primary commodity producer and oil

importer

• It relies on volatile short-term capital, aid flows, and remittances in order to finance a

large current account deficit of transfers

• It is in debt distress, with the bulk of its external debt stock in arrears, therefore limiting

access to new official foreign financing, including insurance instruments, and

• It suffers from a history of political and economic instability, weak institutions, the

absence of a lender of last resort, and a fragile banking system.

34

Chapter one of this study addressed the background, problem statement, research

objectives, research questions and hypotheses as well as the methodology of the study. In

an effort to address the second research question of the study, this chapter analyses the

business environment which is currently prevailing in Zimbabwe. The chapter is made up of

three sections. The first section is an introduction to the chapter; this is followed by an

overview of the business environment. An analysis of the current business environment in

Zimbabwe is then presented. The chapter will close with a conclusion.

2.2 OVERVIEW OF BUSINESS ENVIRONMENT

Needle (2010:54) observes that a commonly used business analysis model is the political,

economic, social and technological (PEST) model. The model is used to simplify a

complicated set of relationships. It is used to review four types of environmental influence;

namely, the political, economic, socio-cultural and technological environments. In some

instances, this model has been adjusted to include the legal and ethical environment

(PESTEL or PESTLE). Furthermore, another dimension which has been considered is the

LoNGPEST which takes into account the PEST factors as its base and examines them at Local

(Lo), National (N) as well as Global (G) levels.

The decisions and performance of organisations are not only affected by the internal

environment and aims of the organisation but they are also affected by the external

environment in which these organisations operate (Sloman, 2008:11). According to Nickels,

McHugh and McHugh (2010:11), the business environment can be viewed as consisting of

some factors which contribute to the promotion or hindrance of the development of

business. In any country, the prevailing business environment can facilitate or dampen

entrepreneurship. The general factors which make up the business environment are

demographic, social, cultural, legal, political, macroeconomic, technical and global (Mathur,

2010:2). According to Bhattacharyya, Datta and Offodile (2010:28), the aim of the business

environment in any country is to make the most of sustainability (economic freedom and

relational continuity) as well as the creditworthiness (financial standards and compliance) of

a country’s internal environment, so as to reduceworking risks. Bhattacharyya et al.

(2010:28) further define economic freedom, relational continuity as well as financial

standards and compliance as follows:

35

• Economic freedom – is the basic right of individuals to control their capital, property,

labour, and organisation. Thus, it is important for countries to allow these factors to flow

freely within the business so as to reduce operational risks. Hough and Neuland

(2007:124) define economic freedom as the nonexistence of government constraint on

the production, distribution, or consumption of goods and services beyond the degree

necessary for society to defend and sustain freedom itself. According to Ploch (2010:15),

Zimbabwe was considered, by some, to be among the world’s most repressive states.

• Relational continuity – is a primary principle of maintaining a satisfying set of good

business regulations supervised by acapable regulatory system which is easy to

understand and that is available to users (Bhattacharyya et al., 2010:28). Moreover, this

phenomenon considers elements related to the integration, procedure and dissolution

of business as a substitute for evaluating a country’s internal environment in relation to

economic governance.

• Financial standards and compliance – the stability of money markets is a basic

requirement for operations. Thus, organisations which intend to open a business in any

country consider operational risks such as mismanaged money supply, liquidity crises

and capital flow manipulation. Furthermore, compliance with these factors determines a

country’s creditworthiness to its investors.

Therefore, for the purposes of this study, the analysis will focus on the micro environment,

the market environment, the macro environment as well as the global environment in order

to show their interaction and influence on businesses in Zimbabwe. The PESTLE Model will

be used to analyse the macro environment currently prevailing in the country. Businesses

do not operate in isolation but operate within a complex network of inter-relationships as

shown in Figure 2.1 below.

36

Figure 2.1: Increasing complexity from domestic to foreign environments

2.3 MICRO ENVIRONMENT

The micro environment consists of factors that are closely linked to the organisation and

which the organisation can control (Omar, 2009:36). According to Bosch et al. (2011:40), the

microenvironment symbolizes all the variables which have a constructive or harmful effect

on the establishment, continued survival, growth and accomplishment of organisational

goals.

2.3.1 Marketing mix

According to Armstrong and Kotler (2005:57), the marketing mix consists of a set of

controllable, planned marketing tools that are used by organisations to produce the

required response from their target market. Likewise, the marketing mix consists of four

groups of variables popularly known as the ‘four Ps’, that is: product, price, promotion and

place, all of which influence the demand for an organisation’s products. Lamb, Hair

McDaniel, Boshoff and Terblanche (2008:36) postulate that the marketing mix consists of

factors which are under the organisation’s control and is meant to appeal to a specific group

of potential buyers who are the target market. Consequently, the changes in the

environment compel managers to regularly review the marketing mix for the convenience of

the target market.

37

(a) Price

According to Strydom (2011:159), price consists of the total values which the consumers pay

as a benefit for using the product or service of a service provider. Similarly, Armstrong and

Kotler (2005:293) posit that price is the amount of money which is charged for benefiting

from using a product or service. Furthermore, history has revealed that price is a major

factor which affects the choices of buyers. Likewise, in order to survive in today’s highly

competitive market, organisations need to come up with pricing objectives that are specific,

attainable and measurable (Lamb et al., 2008:358). Equally, from a marketing perspective,

prices are used to establish competitive advantage as well as differentiating and positioning

a product.

Lamb et al. (2008:372) declare that setting the right price on a product is a four-step

process:

• institute pricing objectives

• approximation of demand, profits and costs.

• select a price strategy to help establish a base price

• polish up the bottom price with pricing plans.

Equally, marketers can use three basic strategies of pricing goods and services; namely,

price skimming, penetration pricing and status quo pricing.

Skimming – involves intentionally setting a relatively high price compared to the prices of

competing products (Kurtz, 2010:643). In this regard, Cateora, Gilly and Graham (2009:533)

postulate that an organisation uses a skimming pricing strategy when the objective is to

reach a market segment which is insensitive to price and is willing to pay a high price for the

value experienced. The skimming pricing strategy allows that, as the product develops

through its life cycle, prices are lowered in order to penetrate more market segments

(Bothma & Burgess, 2011:434-435).

Penetration pricing –when using this strategy, products are intentionally offered at low

prices so as to stimulate market and sales growth (Cateora et al., 2009:533). This is a

marketing move to enhance market share. Similarly, Bothma and Burgess (2011:435) argue

that the penetration strategy consists of setting lower prices in the market so as to motivate

38

sales growth and gain a bigger market share. Furthermore, this strategy is mainly used by

organisations when entering a new market or when the intention is to build on a relatively

small market share.

Status quo pricing –is when an organisationcharges a price identical to or very close to the

price charged by the competitors (Lamb et al., 2008:372). According to Bothma and Burgess

(2011:435), status quo pricing is where products are priced to meet the prices of the

competitor or to maintain existing prices. The strategy is important for an organisation

which aims to stabilise the market price.

The economic meltdown experienced in Zimbabwe in 2008 forced the country to adopt the

multicurrencying system. During this period the US dollar became the major currency and,

at the same time, other hard currencies were accepted for making transactions in the

country; these include the Botswana pula, South African rand, the euro and the pound

(Makina, 2010:116). Thus, this meant that the supply of foreign currency was now

dependent on the performance of the export sector, international capital inflows,

remittances and donor funds, as the Reserve Bank of Zimbabwe (RBZ) could not print the

currencies of other countries. Consequently, dollarization managed to quell inflation and,

during January, February and March 2009, the Central Statistics Office (CSO) reported

monthly inflation figures of minus 2 percent, minus 3.1 and minus 3 percent respectively;

thereby reducing the prices of goods and services. Furthermore, the pricing policies of

parastatals fail to meet economic objectives as they are influenced by political interests,

thus limiting foreign participation in the economy.

Similarly, Ploch (2010:7) observes that Zimbabwe officially began trading in foreign currency

in late September 2008, in an effort to lower prices. This led to the adoption of the hard

currencies for transactions in early February 2009. Equally, Plant and Desruelle (2011:5)

support this assertion as they observe that the adoption of the multicurrency regime had a

positive impact on the country as it restored price stability and introduced effective fiscal

discipline. However, Faal, Honde, Maquengo, Mshana and Siwingwa (2011:11) point out

that, in Zimbabwe, the pricing of goods and services in the parastatal sector - which

encompasses power, rail transport, and fixed line communications services - have remained

39

very low. This has happened to such an extent that these organisations have suffered

economically as they are making unsustainable losses.

(b) Product

According to Lamb et al. (2008:206), a product is anything, both favourable and

unfavourable, which is received by a person in exchange for money. Likewise, from a

marketing point of view, services and ideas are also regarded as products. Furthermore, a

product has a life-cycle which progresses through four stages: introduction, growth,

maturity and decline. Consequently, the product life-cycle is characterised by some changes

in certain variables, which include: consumer needs, the marketing mix, profitability,

competitive activity and strategies. Similarly, Armstrong and Kotler (2005:223) postulate

that a product is anything that is offered in the market for consideration, purchase, use or

consumption that is meant to satisfy a need or want. Equally, products can be in the form of

tangible goods, services, events, persons, places, organisations, ideas or a mixture of these

entities.

According to Magure (2012:76), as a result ofthe absence of fresh capital injection through

foreign direct investment, capacity utilisation will remain a permanent predicament in

Zimbabwe. Quintessentially, it is not surprising that the costs of locally produced goods and

services continue to be very high. Thus, when the economy is properly functioning, capacity

utilisation would result in economies of scale which will contribute to more jobs, increases

in disposable incomes and a high demand for locally manufactured products which are

cheap and affordable.

Ploch (2010:7) observes that the adoption of the multicurrency system in Zimbabwe,and the

removal of price controls, has resulted in shopkeepers being able to restock their shelves

with basic goods, and it has brought about a decline in the cost of living although this has

still remained high for most of the population. However, according to Kramarenko,

Engstrom, Verdier, Fernandez, Oppers, Hughes, McHugh and Coats (2010:4), the

multicurrency system also poses a number of challenges as prices and salaries are usually

agreed in United States (US) dollars, when South Africa is Zimbabwe’s main trading partner

and a source of most of its capital inflows. Thus, this scenario affects Zimbabwe’s

competitiveness and international investment position. Equally, the shortage of small-

40

denomination US dollar banknotes and coins has resulted in retailers facing some challenges

in their transactions. Plant and Desruelle (2011:18) argue that the government has taken a

position that the Zimbabwean dollar will not be reintroduced until such a timethat there is

clear evidence of strong economic recovery. This will be evidenced by a good track record

of implementing policy consistently, a sustained external position and a viable financial

sector.

(c) Promotion mix

A promotion mix is made up of a mixture of the advertising, sales promotion, public

relations, personal selling, and direct marketing tools that an organisation uses to attain its

marketing goals (Armstrong & Kotler, 2005:399). Kurtz (2010:500) contends that the

promotional mix is part of the marketing mix, by means of which marketers try to achieve

the most favourable combination of the elements of both personal and nonpersonal selling

so as to achieve promotional objectives. Armstrong and Kotler (2005:399) further define the

five major promotion tools as follows:

• Advertising – any paid form of non personal arrangement and support of ideas, goods or

services by an identified sponsor

• Sales promotion – consists of short term incentives which are aimed at pushing the sale

of a product or service

• Public relations – involves building a good corporate image, good relations with the

organisation’s various stakeholders, dealing with adverse rumours, stories and events

and gaining good publicity

• Personal selling – personal presentation of goods and services by the organisation’s sales

force for the purpose of making sales and building relationships with customers

• Direct marketing – involves direct associations with a target market so as to stimulate

emmediate responses from customers and create lasting customer relationships

through the use of communication tools such as e-mail, fax, internet and the telephone.

(d) Place

Armstrong and Kotler (2005:57) posit that a place includes all the organisation’s actions that

will result in making the products and services available to the target market. Similarly,

41

Perreault, Cannon and McCarthy (2008:36) point out that place is concerned with making all

the decisions which result in the correct product being available to the target market’s

place. A significant point in this regard is that a product is not good enough for a customer if

it is not available where it is required.

Lamb et al. (2008:264) avow that the three basic functions of intermediaries are:

• Transactional functions – these involve contacting and communicating with prospective

buyers to make them aware of existing products and explain their features, advantages,

and benefits

• Logistical functions – these include sorting out, accumulating, allocating, and sorting

products into either homogeneous or heterogeneous collections

• Facilitating – this includes research and financing.

Bothma and Burgess (2011:111) are of the opinion that Zimbabwe’s adoption of the US

dollar and the South African rand has resulted in the stabilisation of its market. This has also

resulted in the movement of goods and services for the country, which posed as a major

challenge prior to 2009.

2.4 MARKET ENVIRONMENT

According to Farrington (2009:123), the market environment consists of all the variables in

the market that establish the nature and vigour of competition within a certain industry,

and which are located immediately outside the internal business environment. The degree

of market concentration refers to the number of organisations in a market and their

respective market shares (Brinkman et al., 2010:172). According to Lamb et al. (2008:37-38),

the manager’s influence in the market environment is limited as the marketing manager can

only attempt to influence suppliers and intermediaries such as wholesalers and retailers, as

well as try to shape and reshape the marketing mix to influence the target consumers.

2.4.1 Competitors

Blythe (2008:26) contends that competitors are organisations which offer similar products

or services or organisations which are fighting each other for the customer’s money. In this

regard, marketers have the responsibility of providing products which meet the consumer’s

42

needs in a better way than that offered by their competitors. Bosch et al. (2011:55)

postulate that a free market economy has more than one business organisation which

competes in a specific market segment (target market).

Balkyte and Tvaronaviciene (2010:344) argue that the competitiveness of a nation is a field

of economic theory, which analyses the evidence and policies that outline the capability of a

nation to create and sustainan environment that creates value for its organisations and

wealth for its people. Additionally, the prevailing ideology of a nation greatly determines the

ability of a nation to compete effectively in the world economy. According to Kararach,

Kadenge and Guvheya (2010:15), Zimbabwe is currently ranked lowest, that is, second to

Burundi (with which it competes for foreign investment) among its regional competitors in

the World Economic Forum’s (WEF) Global Competitiveness Report, 2009-2010.

Furthermore, the main productive sectors of the economy, which include mining,

agriculture and manufacturing, have declined as a result of foreign currency and power

shortages. The country has also experienced significantly reduced tourist arrivals as the

international community perceives of the country as an unsafe tourist destination. Similarly,

it can be noted that Zimbabwe competes poorly in terms of: governance, which includes the

rule of law, property rights, and corruption; investment climate, which involves,

enforcement of property rights and infrastructure (Kramarenko et al., 2010:31).

According to Brinkman et al. (2010:174), market structures are placed in a continuum in

which perfect competition and monopoly are at the extreme ends with monopolistic

competition and oligopoly located in the middle. In market economies, the liberal economic

view is that governments do not interfere in the market but remain on the outside, with the

responsibility of maintaining an orderly and fair environment in which private organisations

carryout business transactions (Morrison, 2009:174). Market structures and their

characteristics are shown in Table 2.1 below.

43

Table 2.1: Market structures and their characteristics

Market structure

Characteristics

Monopoly • The market has one seller or producer. • There is a lack of competition and the producers set the prices of

goods and services. • Prices of goods and services are normally high.

Oligopoly • The market is controlled by a few large sellers who have the power to influence the price of their products.

• Entry into the market is very difficult as huge capital investments are required.

Monopolistic competition

• Numerous buyers in the market. • Sellers use a differentiation strategy on their products. • Limited barriers to entry.

Perfect competition • The market has many sellers and buyers who sell identical products and services.

• There is perfect information about the prices charged by other sellers in the market.

• Prices are determined by forces of supply and demand. • Easy to enter the market.

Source: Adapted from Brinkman et al. (2010:174) and Griffin and Ebert (2006:19-21).

According to Bernstein (2010:43), the introduction of a vibrant market economy and free

trade is one way of eliminating legally protected monopolies from organisations. This move

forces them to offer superior goods and services so that they remain in business.

2.4.2 Shareholders

Needle (2010:300) argues that many shareholders, particularly institutional shareholders,

are concerned with, above all, a rising share price and good dividends. This focus motivates

managers to concentrate on short-term gains at the expense of long-term growth, which

may harm the company and its accountability to other stakeholders. Moreover, a large

group of shareholders is motivated to invest in organisations which demonstrate clear

ethical standards and social responsibility.

2.4.3 Intermediaries

According to Bosch et al. (2011:56), intermediaries operate as the mediators who facilitate

the manufacturer’s distribution of products from the internal business environment to

consumers in the market environment. Blythe (2008:29) observes that intermediaries are

44

retailers, wholesalers, agents and others who allocate the organisation’s products. It is thus

very important to establish good relationships with these intermediaries so that

organisations can be successful in pushing their products to consumers. Marketing

intermediaries, or middlemen, are organisations which operate between the consumers and

the producers of goods and services (Kurtz, 2010:418).

According to Needle (2010:461), there are many channels which are available for the

distribution of goods and services; these include channels such as the traditional sales force,

the use of partner organisations to handle the distribution related aspects of the business,

wholesalers and retailers, telemarketing and the internet. Essentially, the type of service or

product determines the choice of channel to be used. Moreover, many organisations use

telephone sales as well as the internet to transact so as to reduce costs and for the

convenience of customers, as the internet operates 24 hours a day.

2.4.4 Suppliers

Suppliers supply the assorted resources and services (inputs) that are required by business

organisations in their production processes (Bosch et al., 2011:56). In recent years,

organisations have focused on treating suppliers not just fairly but also as members of their

organisations (Needle, 2010:301). Moreover, aggressive competition amongst suppliers has

resulted in some suppliers enjoying a good working relationship with their customers.

Consequently, building good relationships with suppliers assists organisations during times

of recessions; for example, suppliers extended credit for several months to Mazda when it

experienced operational challenges in the 1970s. According to Blythe (2008:29), even

though suppliers can be viewed to be operating outside the organisation’s marketing

department, organisations rely heavily on the goodwill of suppliers; hence, there is a need

to have a good public relations team which will always try to interact with the suppliers.

Besides, a supplier can affect the operations of an organisation by supplying sub-standard

goods, or it could fail to meet delivery deadlines thereby affecting the organisation’s

customers. Thus, suppliers need to be monitored so as to ensure that the correct products

are delivered.

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2.4.5 Business partners

According to Kurtz (2010:325), a partnership is an association of two or more organisations

that support each other to achieve common goals. Organisations get into partnerships so as

to improve their positions in existing markets or to enter new domestic or international

markets. Naicker and Saungweme (2009:326) state that strategic alliances consist of long-

term partnerships between two or more organisations working together to achieve

common objectives. Thus, partnering organisations bring in different strengths,

competences and resources in order to achieve their objectives.

Naicker and Saungweme (2009:327) posit that, in Zimbabwe, economic challenges, lack of

technology and limited global market place abilities and expertise have resulted in

organisations embarking on strategic alliances as a strategic option in an effort to achieve

their organisational goals. However, a survey carried out in Zimbabwe in the areas of hotel,

leisure, construction and retail businesses between 1995 and 2005, on 287 alliance

relationships, indicates a 62% failure rate as a result of lack of transparency, accountability,

fairness and honesty.

2.4.6 Customers

According to Sheth and Mittal (2004:14), a customer is a person or an organisational unit

that plays a role in the consummation of a transaction with the marketer or an entity. In a

similar manner, it is important for organisations to be customer oriented so that the market

satisfies the customer’s needs and wants. Equally, Blythe (2008:28) affirms that it is very

important for marketers to be aware of the needs of customers so as to identify new

segments easily and accurately so as to facilitate the switching of the marketing effort from

the disappearing segments to the newly identified segments, which are lucrative. This is as a

result of customers who may want to change their needs.

In a customer-centred business environment, customer value is considered a strategic tool

which can be used to attract and retain customers (Matanda & Ndubisi, 2009:385).

According to Sheth and Mittal (2004:12-13), the customer can play other roles in the buying

decision, such as suggesting the idea of buying the product or service (initiator); a person

whose views or advice influences the decision to buy (influencer); a person who is deciding

46

on any component of the buying decision such as when to buy, where to buy, what to buy,

or how to buy (decider); a person who approves of the recommendations of the decider

after considering the concerns of influencers and users (approver); or a person who controls

access of information to any of the other roles (gatekeeper). Therefore, for marketers to be

triumphant they need to be aware of the values of these roles as, for example, the user role

is of paramount importance in the designing of products or services so that their quality

meets customer expectations. Berstein (2010:43) supports this assertion by declaring that

even large organisations survive at the whim of customers, and would have to close down

unceremoniously if they ceased providing what customers want; for example, if an

organisation like McDonalds sells mutton burgers in India, teriyaki burgers in Japan, and

salmon burgers in Norway.

2.5 MACROENVIRONMENT

The macro environment, sometimes called the wider marketing environment, consists of

those elements that are external to the company and have a broader effect on it (Omar,

2009:36). The macro environment consists of the political, economic, social, technological,

(Brinkman et al., 2010:9). Similarly, Stolt (2009:4) points out that the macroenvironment is

commonly analysed through the PESTEL framework to identify political, economic, social,

technological, environmental and legal aspects that influence the organisation. The term

macroenvironment refers to concerns at a regional, societal or national scale, such as

policies, legislation, or general societal attitudes legal, environmental and demographic

(PESTLED) factors that impact on organisations and practices (Madans, Loeb & Altman,

2011:5).

The macro environment is usually influenced by issues such as technological innovation,

economic fluctuations and emerging markets, changing legislation (labour, monetary and

fiscal), increased urbanisation, changing social values, globalisation, increased poverty and

crime, as well as changing consumer tastes (Farrington, 2009:123). Vining (2011:64) argues

that parastatals perform poorly as a result of lack of strategic fit to the external

environment.It is therefore important to diagnose the nature of the lack of fit so as to

develop successful turnaround strategies. Consequently, many organisations are always

involved in a process of environmental searchwhere a team of specialists frequently gather

47

and assess environmental data and facts (Lamb et al., 2008:38). Thus, the purpose of

continually collecting and evaluating data is to detect and assess trends that could influence

the organisation and its target markets as well as to identify future market opportunities

and threats.

2.5.1 Political environment

Brinkman et al. (2010:194) note that the political environment is concerned with the

processes by which power is exercised and the institutions by which laws are made and

implemented within the state. It is made up of the government and its institutions, the

political ideology and system of the state, and the political agreements to which a state has

subscribed. The government is run on three basic structures; namely, the legislature, the

bureaucracy and the judiciary (Mathur, 2010:74). In addition, the legitimate authority of any

government is enshrined in the constitution, which outlines the main political principles and

rules which are to be adhered to by the society.

(a) Government actions

In a free market economy, the most important tasks of any government involve issues such

as the maintenance of law and order and the protection of the rights and liberties of

individuals, institutions (including business organisations) and society in general (Bosch et

al., 2011:71). Mudzonga (2009:6) observes that the trade policy in Zimbabwe aims to

strengthen existing markets and to expand into non-traditional markets. Moreover, the

government has embraced the smart partnership viewpoint by engaging the private sector,

labour and civil society through the policy of cooperation which is aimed at transforming the

country into a winning nation. Conversely, Magure (2012:77) notes that the government of

Zimbabwe has failed dismally to turn around the declining economic fortunes of state-

owned organisations such as Air Zimbabwe, National Railways of Zimbabwe, Noczim,

Agribank, Cold Storage Company, the Grain Marketing Board, and the mobile telephone

networks NetOne and TelOne. Equally, the Zimbabwe Electricity Supply Authority (ZESA) and

the Zimbabwe United Passenger Company (ZUPCO) are also struggling to recapitalise and

continue to make losses. Thus, the only remaining option in order to sustain these

organisations is to create strategic partnerships with foreign investors.

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The disputed presidential elections in 2008 ushered in a wave of political disturbances

between the major political parties in Zimbabwe. As a result of these disturbances, SADC

intervened in the crisis and this resulted in the signing of an agreement that laid the

foundation for a Government of National Unity (GNU). The agreement, known as the Global

Political Agreement (GPA), now preserved in Zimbabwe’s constitution, set a time frame of

eighteen months to draft a new constitution and a countrywide referendum on the

document (Ploch, 2010:6). Plant and Desruelle (2011:9) postulate that, in Zimbabwe, the

medium-term outlook is highly uncertain on account of the lack of a roadmap for elections

and ensuring political uncertainty. Equally, the political tensions which surround the pre-

election debate contribute towards complicating economic policy making.

According to Sibanda (2010:48), these political parties entered into GPA to end the political

stalemate and resuscitate the ailing economy. Similarly, Besada and Werner (2010:1)

observe that the top priorities of the government of national unity include re-establishing

the rule of law, indicating fiscal responsibility, and putting in place macroeconomic and

structural reforms so as to attract local and foreign investors. However, according to

Mushonga (2011:247), the process proved to be chaotic, politicised and has been a test of

the unity between partners in the GNU. This argument is supported by Sibanda, Erwee and

Ng (2011:71) as they highlight that, although the unity government has made some progress

stimulating the economy, health and education systems, it has been troubled from the

beginning by lack of consensus over the appointment of provincial governors and

ambassadors as well as major positions such as the governor of the Reserve Bank of

Zimbabwe and the attorney general. These disagreements and quarrels have led to the view

that Zimbabwe is being run by two parallel governments.

According to Chigora and Guzura (2011:26), the GNU has brought hope both to

Zimbabweans andinternational community as it is viewed as having the capacity toprovide

better opportunities for the country and its general standing globally. Conversely, the GNU

defeats the spirit of democracy as it removes from the fore a government in waiting,

confines the government to specific political parties, does not take on board civil society and

other new political players as well as other critics of government policy. Additionally, if the

GNU is scrutinised closely it can be noted that it is not a viable project as it creates a

49

platform where the ruling elite implement policies which suit their interests at the expense

of all Zimbabweans.

(b) Democracy

Rugman and Collinson (2009:104) define democracy as a system of government in which

people directly or through their elected representatives decide on what is to be done.

Democracy is the establishment of a political system where government leaders are elected

into office by a wide and direct participation of the people or their representatives (Wild,

Wild & Han, 2008:87). Furthermore, democratic governments sustain constant business

environments, primarily through laws that protect property rights.

Zimbabwe is a democratic state governed by the three arms of government, namely: The

Executive, Legislature and the Judiciary (Republic of Zimbabwe Investor’s Prospectus,

2009:8). Conversely, Chingono (2010:196) claims that in the past, Zimbabwe was being

perceived as democratic and a respecter of human rights, but lately the government has

been regarded as a pariah state that has abandoned the rule of law and respect for human

rights, democracy and other principles of good governance. According to Chigora and

Guzura (2011:26), democracy not only refers to the freedom to choose a government but

also means freedom from perpetual poverty, economic deprivation as well as the

establishment of government systems which promote socio-economic development. This

assertion is supported by Wu and Raghupathi (2011:183) who argue that a global

agreement has arisen in the last decade which supports transparent, accountable

institutions, fair decision making procedures, and democratic political and judicial systems,

economic openness, a viable civil society and components of good governance. In this

regard, countries which receive incentives and priority allocation of resources by

international funding institutions are better positioned to have good governance. In a

democratic country, the elected politicians are assigned to frame the industrial policy of the

country and in doing so, they should seek suggestions and advice from businessmen,

industrialists, trade bodies and financial institutions (Mathur, 2010:74).

50

(c) Political risk

According to Menipaz and Menipaz (2011:151), political risk can be defined as the possibility

that political change in a country occurs and results in negative events, such as the

expropriation of assets, changes in tax policy, restrictions on the exchange of foreign

currency, or other changes in the business environment. Internal political risk manifests

itself through corruption, interference by authoritarian regimes, conflicting factions within

government, actual and potential social unrest as well as a fragile coalition government

(Rugman & Collinson, 2009:167). Similarly, Wild et al. (2008:94) define political risk as the

likelihood of political changes in government or society that negatively affect business

activities. Political risk affects organisations by jeopardising the market of the exporter, the

production facilities of a manufacturer or the ability of an organisation to repatriate profits

from the country where these profits have been earned. Furthermore, Wild et al. (2008:94)

observe that political risk can be in the form of property seizure by government which can

be in the form of confiscation, expropriation and nationalisation. Consequently, investors

will always assess prevailing political risks in a country where they intend to invest.

According to Bothma and Burgess (2011:390), Zimbabwe is an example of a state in which

multinational organisations have evaluated the potential risk, business risk, market risk and

currency risks but shied away from the risks of lawlessness and corruption which emanated

from poor corporate governance.

According to Bhattacharyya et al. (2010:30), the standpoint taken by Zimbabwe to

nationalise land increased the country’s operational risk. The consequences of this move

were that the country lost its status of being the ‘’bread basket’’ of Southern Africa and its

investors withdrew their capital. Equally, a country with a high operational risk will always

shy away from organisations which intend to partner with organisations operating in that

country. Similarly, Magure (2012:78) emphasises that domestic and foreign capital can leave

a country where they face an ‘unacceptable business risk’ tied to political instability.

However, Jones (2010:346) postulates that in Zimbabwe, and at the centre of its patriotic

history, is a triad which consists of the land, race and the revolution. Besides, the land in

Zimbabwe is linked to a particular race which belongs to it geographically (that is,

‘autochthons’ or ‘vana vevhu’ in Shona or ‘abantwana benhlabathi’ in Ndebele). Equally, the

land is viewed as a means of production if managed properly. However, the trajectory of

51

colonialism blocked the autochthons of their historical right which led to spontaneous land

seizures popularly known as the Third Chimurenga.

(d) The press

Countries with a transparent information environment allow open access to information,

have fewer restrictions on disseminating information, take noteworthy steps to link the

digital divide and publish accurate and reliable information (Bhattacharyya et al., 2010:28).

Accordingly, unless the reliability of disclosed information can be assessed, operational risks

will always overwhelm a country as there is no accurate assurance of a country’s internal

environment. According to Mabweazara (2011:110), political reporting in the Zimbabwean

press has always been entangled in controversy, as a result of its division. Furthermore,

reporters and editors who are employed by the state media have a bias towards the ruling

party whilst the private media seem to have signed an agreement with the opposition

parties to hear no evil, speak no evil and see no evil in as far as their affairs are concerned.

2.5.2 Economic environment

The term ’macroeconomic environment’ refers to economic influences in the external

environment within which organisations exist and operate (Brinkman et al., 2010:216).

Essentially, economics is premised on the allocation of scarce resources within organisations

whilst the economy is the system which the community uses to allocate these scarce

resources. Likewise, Griffin and Ebert (2006:30) define the economic environment as the

conditions of the economic system in which an organisation operates. McDaniel and Gitman

(2008:66) assert that an economic system is the combination of policies, laws and choices

made by a nation’s government to establish the systems that determine what goods and

services are produced and how they are allocated. Furthermore, the economic agenda of a

country is usually influenced by the politics of the country and, traditionally, democratic

governments are associated with the free market. Entrepreneurs operating in a free market

system are allowed to decidethe quantities of products and services which are to be

produced without the interference of the state (Bosch et al., 2011:16). In this system, supply

and demand determine the prices of goods and services. There are three major types of

economies as shown in Table 2.2.

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Table 2.2: Characteristics of the three main economic systems

Economy Major Characteristics Free market economy

• Privately owned organisations • The means of production is privately owned. • The price determines the demand and supply of goods and

services. Centrally planned economy

• The state makes all the decisions on the production. • The state controls the main factors of production.

Mixed economy • The economy exhibits elements of both the centrally planned and free market economies.

Source: Adapted from Brinkman et al. (2010:218) and Pride, Hughes and Kapoor (2008:14-15)

Hough and Neuland (2007:121) observe that a market economy is an economic system in

which the majority of a nation’s land, productive facilities, and other economic resources

are privately owned, whether by individuals or businesses, as opposed to being owned by

the state. In a market economy, production and what to produce are determined by the

interaction of the forces of supply and demand prevailing in the market place. Sloman

(2008:3) argues that most countries have increasingly embraced the ‘market’ as the means

of boosting prosperity. The adoption of the ‘market’ is usually seen through the

abandonment of state planning, the privatisation of state industries, the dismantling of

barriers to international trade, the development of global financial markets, the use of

government policies to promote competition and reductions in government regulation of

business in order to promote competition and attract inward investment. Moreover, a

command or centrally planned economy is an economic system in which a nation’s land,

productive facilities, and other economic resources are owned by the government, which is

also responsible for planning most of the country’s economic activities (Hough & Neuland,

2007:122). Moreover, a centrally planned economy is consistent with the value of

collectivism where the government determines the quantities of goods produced as well as

the prices at which they are sold. Thus, the system aims to achieve political, economic and

social objectives by controlling resources.

According to Tambudzai (2003:165), in Zimbabwe, the inception of economic reforms in

1991 (which were biased towards capitalism) led to the abandonment of the creation of

53

public organisations in favour of the privatisation policy. Thus, this change in economic

strategy saw Zimbabwe pursuing a free market economy.

(a) The business cycle

Pride et al. (2008:18) avow that a business cycle is the reappearance of periods of growth

and recession in a nation’s economic activity. Similarly, Nickels et al. (2010:48) posit that

business cycles are the intermittent fluctuations that occur in economies over time.

In some years a country may experience high economic growth (called a boom) and in

others it may go through a slowdown of economic growth, or a high rate of economic

shrinking, which is called a recession (Brinkman et al., 2010:224). This fluctuation is called

the business or trade cycle. The stages in the business cycle affect unemployment levels,

economic growth, inflation, exports and imports. This assertion is supported by Lind,

Marchal and Wathen (2012:606) who argue that the characteristics of a business cycle

consist of a phase of success followed by phases of recession, depression and a period of

recovery. These stages in the business cycle are illustrated in Table 2.3 below.

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Table 2.3: Characteristics of stages in the business cycle.

Stage Characterised by Recovery (expansion)

• This is when the economy stabilises and starts to grow. • Unemployment levels – the levels of unemployment start to decline. • Economic growth – national income and output start to increase and

continue to rise. • Inflation – starts to increase. • Imports – start to rise. • Generally – consumption and investments start to increase.

Boom/Peak • Businesses realise considerable growth at this stage. • Unemployment levels – the economy realises full employment. • Economic growth – there is high growth of national income. • Inflation – continues to rise. • Imports – imports are high. • Generally – there is an increase in confidence by businesses, workers

and consumers resulting in high imports, wages and profits with government earning high tax revenues. Both consumption and investment continue to be high.

Recession (Slowdown)

• A decline in GDP that lasts for at least two consecutive quarters. Businesses fail as a result of constrained purchases of goods and services.

• Unemployment levels – there is an increase in unemployment levels. • Economic growth – a decrease in national income is realised. • Inflation – begins to decrease. • Imports – begin to decline. • Generally – businesses, workers and consumers lose confidence in the

economy resulting in lower demand for imports. There is a reduction in tax revenues earned by government. Added government expenditure on benefits for the unemployed increases. Both consumption and investment decrease.

Slump • Unemployment levels – become very high. • Economic growth – economic activity falls and national income is low. • Inflation – decreases. • Imports – decrease. • Generally – confidence by businesses, workers and consumers is very

low, resulting in lower consumption, investment and imports. Source: Adapted from Brinkman et al. (2010:225-226); McDaniel and Gitman (2008:70), and Nickels et al. (2010:48-49).

According to Magure (2012:71), the Zimbabwean economy lost about 54% of its productive

potential between 2000 and 2010. However, Kramarenko et al. (2010:30) note that after

many years of falling output and hyperinflation, Zimbabwe has been experiencing a fragile

recovery since early 2009. The recovery in growth has been consumption-led although there

55

are high hopes that exports realised from the mining sector could provide the much needed

foreign currency for the government to undertake its obligations. Nabli (2010:17) argues

that Zimbabwe is in a recession and found that the comparison of individual country GDP

growth over two periods - 1997-2002 and 2003-2007 - shows many cases of persistent

growth: high growth rates continued to be strong in Mozambique between these periods

and even accelerated in China and Vietnam, while large negative growth rates persisted in

Zimbabwe. The phase of a recession is normally characterised by a situation where

employment, production, and some other economic and business phases fall below the

normal long-term trend lines (Lind et al., 2012:606).

(b) Exchange controls

Besada and Werner (2010:1) argue that Zimbabwe’s 2009 national budget eliminated

exchange controls, allowing corporations and individuals to repatriate dividends and profits

made on operations in the country. The removal of foreign currency controls facilitated

businesses to transact using currencies such as the United States dollar and the South

African rand. Edwards (2011) observes that dollarized countries had a significantly lower

rate of inflation than countries that pursue an active domestic monetary policy.

Furthermore dollarization will tend to result in lower interest rates, higher investment,

increased growth, eliminate currency risk and encourage international trade.

Similarly, Kararach et al. (2010:1) point out that the adoption of the multicurrency regime

(MCR) in Zimbabwe stabilised the macro-economy by containing inflation and allowing the

private and public sectors the possibilities of medium to long-term planning. This

development has resulted in business gaining confidence in the economy.

(c) Gross domestic product (GDP)

According to Pride et al. (2008:18), GDP can be defined as the total dollar value of all goods

and services produced by all people within the boundaries of a country during a one year

period. Jones (2010:18-19) defines it as the market value of the final goods and services

produced in an economy over a certain period. Gross Domestic Product per capita is simply

its GDP divided by its population (Wild et al., 2008:135). In addition, GDP per capita is used

to measure a nation’s income per person.

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Zimbabwe’s political, economic and social environment has declined significantly, since the

year 2000, as a result of political instability, hyperinflation and the collapse of the

productive sector (Makochekanwa and Kwaramba, 2010:3). The inception of the inclusive

government has resulted in economic revival as indicated by its transition from less than

10% of production capacity in January 2009 to between 30% and 50% by end of 2009.

Similarly, Plant and Desruelle (2011:5) point out that Real Gross Domestic Product growth

accelerated from 6 percent in 2009 to 9 percent in 2010. Makochekanwa and Kwaramba

(2010:3) further state that the statistical figures on Zimbabwe indicate that the GDP growth

rate for 1980 was 10.7%, and per capita GDP was US$755; by 2009 GDP was striking an

annual rate of 6.1% and per capita GDP had fallen to US$265. According to Magure

(2012:71), Zimbabwe’s total GDP is presently around US$4 billion, representing half the GDP

of about US$8.7 billion recorded in 1996/97.

(d) Unemployment

Unemployment is the aggregate of people who:have made efforts to secure a job in the past

four weeks and remain without a job; have been laid-off and are waiting to be called back to

work; are waiting to start a new job within 30 days (Swanenberg, 2005:311). Similarly,

Campbell and Craig (2005:190) define unemployment as a count of jobless people who want

to work, are available to work, and are actively seeking employment. The level of

unemployment in an economy indicates that organisations are reducing workers as a result

of low economic growth.

Economists classify unemployment into four types: frictional, structural, cyclical and

seasonal (McDaniel & Gitman, 2008:71). Frictional unemployment manifests itself in people

who are waiting to start a better job, those who are re-entering the job market, and those

entering for the first time, such as college graduates. This type of unemployment is always

present in the economy and is not related to the business cycle. Structural unemployment

results when the available skills in an economy do not fit the available jobs. This form of

unemployment is not related to the business cycle. Cyclical unemployment, however, is

directly related to the business cycle. It is caused by a downward spiral of the business cycle

as the demand for labour is reduced throughout the economy. This form of unemployment

is common in a long recession and sees people with excellent job competencies fail to get

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employment. Seasonal unemployment results from a lack of demand for labour during some

specific seasons in the economy.

According to Obert and Olawale (2010:1709), Zimbabwe suffers from high unemployment

with an official estimate of approximately 80% of the economically active population being

unemployed. This high unemployment level can be addressed by promoting the

development of small businesses as well as leveraging the employment creation potential of

these small businesses. Mansoorian and Mohsin (2010:229) argue that recent country

specific studies on trade liberalisation may well reduce employment. Zimbabwe is cited as a

classic example which suffered a contraction in output and employment, a consumption

boom, the inflow of imports and a rising trade deficit after liberalisation.

(e) Inflation

Inflation is the situation in which the average of all prices of goods and services rises

(McDaniel and Gitman, 2008:72). The percentage change in an economy’s overall price

level, and episodes of extremely high inflation – say greater than 500 percent per year – are

known as hyperinflation (Jones 2010:190).

Two types of inflation; namely, demand-pull inflation and cost-push inflation have been

identified (MacDaniel & Gitman, 2008:73). Demand-pull inflation occurs when the supply of

goods and services does not meet the demand and when the buyers of such goods and

services have more money to spend than the amount needed to buy the available goods

and services. In such a scenario, a lot of money will be chasing a few goods causing the price

of goods and services to rise. In contrast, cost-push inflation is caused by the increase in

production costs normally propelled by materials and wage increases. Such increases have a

tendency to push up the prices of the final goods and services which ultimately result in a

wage-price spiral.

Chiboiwa, Samuel and Chipunza (2010:2103) point out that the entire business environment

in Zimbabwe is characterised by unprecedented hyperinflation, high interest rates and high

import tariffs which are primarily caused by the devastating economic cum political

sanctions imposed on the country by some developed countries. Moreover, as a result of

economic mismanagement, resulting in a 94% unemployment rate and hyperinflation, the

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economy transcended from one of the strongest to one of the world’s weakest economies.

These factors have resulted in businesses facing an unpleasant operating economic

environment which has rendered them crippled in creating sustainable employee retention

strategies.

Contrary to this, Madera (2011) contends that the annual inflation rate in Zimbabwe for the

month of May as measured by the all items consumer Price Index declined 0.2 percentage

points to 2.5% as a result of price stability. Furthermore, annual inflation ended at 3.2% in

2010 but increased to 3.5% in January 2011 before decelerating to 3% and 2.7% in February

and March 2011, respectively. In addition, it is proposed that inflation will remain steady in

the country as a result of a positive trajectory in the micro-economic fundamentals.

(f) Interest rates

According to Obert and Olawale (2010:1712), the company’s thirst for credit to better the

decade-long recession points to a sustained high interest rate environment relative to those

prevailing in the region. As such, most Zimbabwean organisations find it difficult to earn

returns which are higher than their debt. Zimbabwe’s debt, which is estimated at US$7

billion, is increasing because the country is failing to attract the required capital from

investors to kick start its economy (Business Reporter, 2011). Furthermore, the increase in

debt is a result of its attraction of an annual interest of more than 100% of the country’s

GDP.

According to Chinomona, Lin, Wang and Cheng (2010:184), until early 2009, the

Zimbabwean economy was in a downward spiral for close to a decade and most large

manufacturing organisations either closed down or downsized operations. It is further

observed that when the large manufacturing organisations closed, Zimbabwe’s

manufacturing sector was characterised by the preponderance of Small and Medium

Enterprises (SMEs). This dominance by SMEs was observed in food processing, metal

fabrication, garments, leather, furniture manufacturing and construction. In Zimbabwe,

SMEs are now regarded as an option for economic growth and tools of creating

employment; hence, they have attracted considerable support from the government.

Although SMEs are getting support from the government, they have failed to expand their

businesses or gain market share for their products due to the scarcity of resources.

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(g) Investment climate

According to Vickers (2007:18), a country’s investment climate is broadly defined as the

location-specific factors that shape the opportunities and incentives for domestic

organisations and transnational corporations to invest productively, create jobs, and expand

their activities. Chavunduka and Bromley (2010:366) observe that there is general

recognition that the Zimbabwean economy has suffered a lack of investor confidence

starting well before independence – but, especially over the past 15 years. Furthermore, the

sectors which have been greatly affected include manufacturing and agriculture.

Kramarenko et al. (2010:32) support this assertion as they observe that investment in key

export sectors is handicapped by inadequate infrastructure, high operational costs are

exacerbated by wage pressures, and the poor business climate makes Zimbabwe less

attractive to investors. Moreover, the lack of investment has forced Zimbabwe to start

converting Special Drawing Rights (SDR) allocation (US$410 million) to finance its budget,

thereby contributing to quick exhaustion of international reserves. Pushak and Briceno-

Garmendia (2011:50) stress that the uncertain and difficult investment climate in

Zimbabwe, where private property itself seems frequently jeopardised, makes it difficult to

attract investors. Nevertheless, Zimbabwe has a high potential of private participation in

infrastructure (PPI) development, hence, the need for the country to tap this potential.

The Republic of Zimbabwe Investor’s Prospectus (2009:6) states that the inclusive

government has crafted an Economic Revival Framework outlined in a document referred to

as the Short Term Economic Recovery Programme (STERP). The document was crafted to

communicate the country’s vision towards economic revival. In order to realise this vision,

the government targeted the major economic sectors, namely: agriculture, manufacturing,

mining, tourism and distribution as well as finance and insurance, to spearhead the revival

as their combined contribution to GDP is more than 60%. Essentially, Ploch (2010:10) states

that economists suggest that Zimbabwe will also require a combination of donor assistance,

direct foreign investment, and domestic policy reforms to restore productivity in these key

sectors. Similarly, Mudzonga (2009:11) notes that investors considering the Zimbabwean

marketcan strongly focus on export orientated sectors such as minerals, tobacco, cotton,

sugar, and food beverages.

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In an effort to promote and facilitate easy investment procedures, the government has

established the Zimbabwe Investment Authority (ZIA) and Zimbabwe Tourism Authority

which are all one-stop shops designed to accommodate business people and serve as an

interface between the government and the investing public. The mining sector has been

boosted because the Kimberley Process Certification Scheme (KPCS) has finally granted

Mbada and Marange Resources permission to unconditionally sell their diamonds without

supervision, after they fully complied with its requirements (Murwira, 2011). The sector has

also benefited through the launch of New Zimbabwe Steel (Pvt) Ltd (formally Ziscosteel) and

New Zimbabwe Minerals (Pvt) Ltd which are products of a joint venture between Essar

Global and the Government of Zimbabwe (Kawadza, 2011). Furthermore, Essar Global has

been identified by the government as a strategic partner and has a stake of 54% in the

venture and is set to recapitalise the steel organisation and other downstream organisations

like Zimbabwe Electricity Supply Authority (ZESA) and the National Railways of Zimbabwe.

The other sectorial investment opportunities which are available in Zimbabwe are shown on

Table 2.4 below.

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Table2.4: Sectorial investment opportunities in Zimbabwe

Economic Sector Investment opportunities Manufacturing • The sub-sectors which have been targeted include textiles,

agro-processing, clothing and footwear, chemicals, wood and furniture, metal and metal products and technology.

Agriculture • Major crops in agriculture are cotton, tobacco, wheat, maize, and cash crops such as vegetables and flowers.

Mining • Investment opportunities exist in minerals such as diamonds, platinum, gold, base minerals which include nickel, copper, zinc, lead and industrial minerals like phosphate, clay and dolomite.

Tourism • Joint venture opportunities are available in the hotel and catering industry, services and downstream related activities, conservancies and eco-tourism.

Energy • Opportunities exist in expanding and upgrading its electricity generation and transmission infrastructure against the background of the SADC power deficit.

Financial services • Opportunities exist in the banking sector based on the minimum capital requirements set by the Reserve Bank of Zimbabwe (RBZ).

Natural Resources and Environmental Management

• There are opportunities in waste management as municipalities throughout the country lack the technical capacity to process waste economically.

Information Communication Technology

• Opportunities exist in the provision of equipment and other technology based services such as the internet, call centres and data processing opportunities.

Infrastructure development

• Opportunities exist in dam construction, urban housing, transport, power generation, and telecommunication infrastructure, amongst others.

Source: Adapted from Republic of Zimbabwe Investor’s Prospectus (2009:10-20)

• Manufacturing - According to Mudzonga (2009:6), the manufacturing sector contributes

significantly to the Zimbabwean economy in terms of Gross Domestic Product (GDP),

exports, employment and value addition to locally produced raw materials. In this

regard, Plant and Desruelle (2011:5) posit that structural impediments weighed heavily

on manufacturing and utilities, which were the locomotives of growth and employment

creation in the past. Similarly, Magure (2012:76) reports that the manufacturing sector

registered a cumulative decline of -91.1% between 2000 and 2008. Likewise, Doran

(2009:17) observes that, in Zimbabwe, the manufacturing sector has been destroyed by

a raft of problems including the collapse of agriculture (which used to sell nearly 45% of

its output to manufacturers), brain drain, shortages of power, water and fuel,

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hyperinflation and exchange controls. Likewise, organisations in this sector remain

without human and financial resources which are vital to boost capacity as lines of credit

and inflow of skilled human resources remains elusive. However, the inclusive

government is working on raising capacity utilisation from under 10% at the beginning of

the year to around 60% by the end of the year 2009, through making funding available

to the sector (Republic of Zimbabwe Investor’s Prospectus, 2009:10).

• Agriculture - In Zimbabwe, an estimated 69% of the country’s population lives in rural

areas and is therefore directly or indirectly dependent on agriculture for employment

and food security (Doran, 2009:13). In addition, agriculture has been supporting the

manufacturing industry as much of it has been based on the processing of agricultural

products. Conversely, vital infrastructure in agriculture has collapsed as a result of

vandalism and theft which can be attributed to the land reform programme. In this

regard, long-term planning is non-existent as the resettled farmers do not have property

rights and security of tenure to use their land as collateral in securing loans as the

industry is capital intensive. According to the Republic of Zimbabwe Investor’s

Prospectus (2009:11), opportunities exist in contract farming and joint ventures where a

number of local and international companies have facilitated a significant output for

each of the major export crops such as cotton, tobacco, and other horticulture crops.

• Mining – It is contended that Zimbabwe is richly endowed with over 40 different

minerals that have a high demand in international markets, and mining activities in

Zimbabwe contribute around 13 percent to gross domestic product (GDP) and are the

second-greatest contributors to foreign-currency earnings after agriculture (Pushak &

Briceno-Garmendia, 2011:19). In addition, the country extracts precious minerals like

gold, diamonds, coal, nickel and platinum. However, the extraction of these minerals is

greatly affected by power outages. Doran (2009:9) avows that mining has become

relatively more important to the export economy since 2000 with the collapse of

commercial agriculture and the steep rise in metal prices until 2008. However, the

mining industry has been affected by skills flight, power cuts, shortages of foreign

exchange, a massively overvalued exchange rate as well as a shortage of mining inputs.

However, Kramarenko et al. (2010:43) note that the Zimbabwe Chamber of Mines

estimates that Zimbabwean diamonds could fetch as much as US$100-US$120 per carat.

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• Financial –According to Magure (2012:74), Zimbabwe has a total of 25 banking

institutions comprised of 1 savings bank, 15 commercial banks, 5 merchant banks and 4

building societies. Chikuhwa (2006:240) posits that the Zimbabwean financial sector is

mainly private-owned and is in many respects highly sophisticated. Furthermore,

commercial banks such as Barclays Bank Zimbabwe Limited, Commercial Bank of

Zimbabwe Limited, Stanbic Bank Zimbabwe Limited and Standard Chartered Bank

Zimbabwe Limited play a pivotal role in allocating financial resources to private

economic agents. However, Doran (2009:18) argues that a government audit in April and

May 2009 showed that almost half of Zimbabwe’s 28 banking institutions do not meet

very modest minimum capital requirements. Likewise, the revenue base has declined

asa result of poor economic activity as well as a lack of confidence by potential

depositors. Furthermore, real interest rates have remained very high for borrowers.

Most banks would welcome the extension of further lines of credit for their customers

and strategic partnerships for their operations (Republic of Zimbabwe Investor’s

Prospectus, 2009:15).

• Tourism - A recent study by the World Economic Forum (WEF) ranks the country 121 out

of 133 on a travel and tourism competitiveness index (despite being ranked at 35 on

natural resources) – this rating is reflected in economic data (Doran, 2009:18). In this

regard, the negative perceptions on Zimbabwe are deep-rooted and would require a

variety of strategies other than rebranding, as the country ranks poorly on air transport

infrastructure (123 out of 133), ground transport infrastructure (85 out of 133), tourism

infrastructure (100 out of 133), information communications technologies (ICT) (123 out

of 133), health and hygiene (106 out of 133) and price competitiveness (113 out of 133).

• Energy - Zimbabwe suffers from a chronic power deficit; demand is approximately 2 000

– 2400 megawatts (MW) per day (and expected to grow at 3% per annum over the

medium to long term) while supply has hovered at around 1 100MW per day (Doran,

2009:6). The poor supply of power has been a result of lack of expansion on the existing

infrastructure as well as lack of maintenance of this infrastructure, as the parastatal

Zimbabwe Electricity Supply Authority (ZESA) owes large sums to regional power

companies and is struggling to generate revenue. Magure (2012:77) posits that the

power shortages that have damaged Zimbabwe’s economy for nearly two decades could

easily be resolved if foreign investors were given a role to play.

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• Water and sanitation - Zimbabwe’s water and sanitation network is in a dismal condition

and constitutes a threat to public health as a result of the lack of proper maintenance

(Pushak & Briceno-Garmendia, 2011:25). This scenario has been reflected by the

outbreak of cholera in 2008 and 2009 which killed a significant number of people.

Moreover, a lot of people, especially the poor, in the rural areas do not have access to

improved water as a result of the inefficiencies and lack of investment. Potts (2011:90-

91) points out that mismanagement and city politics played their part but the

fundamental issues in this regard were the lack of general funds and forex for essential

imported infrastructural parts, maintenance and chemicals. On this matter, Doran

(2009:7) emphasises that much of the country’s hardware is over 50 years old as

evidenced by Harare’s main water treatment plant which was built in 1954 and most of

its pipes and pumps were installed around the same time, yet even these are operating

far below original capacity.

• Transport–Zimbabwe has a unitary railway system with her neighbours and the system

covers the Tanzania Zambia Railway Authority (TAZARA) line through Zambia and

Tanzania, the Benguela line through Angola and it links with the copper-rich Shaba

province of the Democratic Republic of the Congo (DRC) (Chikuhwa, 2006:206). In

addition, Doran (2009:4) contends, Zimbabwe has a road network of 88 000 kilometres

(km), including 15 000km of tar roads. Furthermore, this road network is made up of 18

400km of primary and secondary roads, 26 000km of core tertiary roads and 35 400km

of other tertiary roads as well as 8 500km of urban roads. However, over the past

decade, the network has been poorly maintained due to a decline in government

revenue, lack of materials, obsolescent equipment as well as skills flight. Consequently,

the government has established toll gates to improve the revenue for roads but

proceeds from toll gates are not enough to rehabilitate these roads. There is thus a need

for public-private partnerships. Likewise, the rail network plays a strategic role in the

development of Zimbabwe as it acts as a link for southern–central Africa. Furthermore,

operations at the National Railways of Zimbabwe (NRZ) have been affected as only 55

percent of the locomotives are operational as most of the wagons are off-line due to

lack of maintenance. Moreover, government has estimated that about $274 million is

required from investors for NRZ to run smoothly. Equally, Pushak and Briceno-

Garmendia (2011:36) declare that Air Zimbabwe is struggling financially, and anecdotal

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evidence of poor schedule reliability and service quality show an airline with many

operational challenges.

• Information and communication technologies (ICT) - According to Kurtz (2010:48),

technology has changed the marketing environment, partly with the advent of the

internet. Despite Zimbabwe’s political and economic situation, it has maintained parity

with Sub-Saharan African averages for many ICT indicators (Pushak & Briceno-

Garmendia, 2011:38). Moreover, internet access penetration and fixed telephone line

penetration exceeded the Sub-Saharan average in 2008. However, due to a lack of

investment, mobile penetration has always lagged behind. Zimbabwe faces some

challenges in this sector as there is one fixed-line operator, Tel-One, which is owned by

the state and four Internet Service Providers (ISPs), with Econet dominating the mobile

market. According to Doran (2009:8), a recent report ranks the country at 132 out of 134

countries on its network readiness index – a measure of overall ICT readiness just ahead

of East Timor and Chad. Moreover, ISPs are dependent on ComOne, the government

internet gateway provider, and internet access has always been down as a result of the

frequent suspensions of ComOne by international partners, due to its unpaid debts.

2.5.3 Socio-cultural environment

The socio-cultural environment refers to forces which impact on cultures and societies that

tend to affect the thoughts, feelings and behaviours of individuals (Bosch et al., 2011:66).

Brinkman et al. (2010:241) argue that ‘socio-cultural environment’ refers to the values,

attitudes, norms and lifestyle of the population. Similarly, Griffin and Ebert (2006:42) note

that the socio-cultural environment includes the customs, mores, values, and demographic

characteristics of the society in which an organisation operates. Campbell and Craig

(2005:226) posit that the sociological facets which are important to business include the

features of the population, including its size, distribution, composition and changes

(demography), as well as the opinions, beliefs, cultural norms and preferences of the

population. Brinkman et al. (2010:240) further state that the socio-cultural environment

impacts on an organisation in terms of the type of products and services it offers, the

markets it serves, where and how it produces, and how it sells its products and services.

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(a) Demography

Demography can be defined as the numerical study of a population of people in respect of

its size and density, as well as other characteristics such as age, race, gender, and income

(Nickels et al., 2010:17). Similarly, McDaniel and Gitman (2008:41) contend that

demography refers to a study of the statistics of people which relate to age, gender, race

and ethnicity, and setting. It is important for organisations to study the demography of a

country as this assists them in defining the markets for their products and human resource

planning.

Zimbabwe’s urban areas have been characterised by a marked population growth as a result

of the rural-urban drift (Munzwa & Wellington, 2010:127). Urban areas became very

attractive because they offered better job opportunities and social facilities in comparison

to rural areas. Mining ventures and other business activities have influenced the

development of many towns in Zimbabwe. Growth Points have also been established in the

rural areas and these have attracted both public and private investment in the provision of

basic and higher order needs for the rural people.

(b) Skills and education

Businesses are normally operated successfully when there is an educated and skilful labour

force (Campbell and Craig, 2005:235). According to the Republic of Zimbabwe Investor’s

Prospectus (2009:6), Zimbabwe has a literacy rate of 97% which means that skilled, semi-

skilled and unskilled labour is readily available. This assertion is supported by the

Department for International Development (2011) which observes that the adult literacy of

both men and women in Zimbabwe is over 90% and that of young men and women aged 15-

24 years is 98%. The government in the late 1980s established the Social Dimensions Fund

to accommodate around 61 percent of the Zimbabwean population who are living below

the poverty datum line; this was mainly meant to support the needy (Nyazema, 2010:257).

Such moves have contributed to the high literacy levels in Zimbabwe. The high literacy level

in Zimbabwe has assisted many people to communicate in the English language which is

mainly used for communication on official documents as well as the internet (Mavesera,

2011: 73). Moreover, the English language has been maintained in Zimbabwe so as to keep

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abreast with global developments, to improve harmony within the country and to easily

communicate with other countries which transact with Zimbabwe.

According to Mudzonga (2009:26), Zimbabwe has an immense collection of experienced

professional and technical people who have the capacity to develop sound policies which

are geared towards improving the economy. The country also makes use of local and foreign

consultants in areas where government lacks the capacity to craft policy.

(c) Health

According to Gregson, Gonese, Hallet, Taruberekera, Hargrove, Lopman, Corbett,

Dorrington, Dube, Denhe and Mugurungi (2010:1316), Southern Africa is an epicentre of

diseases which include acquired immunodeficiency syndrome (AIDS). However, on analysis,

in Zimbabwe, HIV infections in all age groups up to 40 years fell from 26% in 2002 to 18% in

2006. As such, this positive development assures businesses of a healthy labour force in

Zimbabwe. Halperin, Mugurungi, Hallet, Muchini, Campbell, Magure, Benedikt and Gregson

(2011:4) support this assertion as they observe that the HIV epidemic in Zimbabwe has been

in existence for many years as opposed to some other countries in the region, yet the

country has recorded a higher decline in HIV prevalence compared to other countries in the

region; examples of these countries are Malawi and Zambia (where HIV was recorded even

earlier). Immediately after independence, the government of Zimbabwe adopted the

Primary Health Care Concept in order to achieve affordable universal coverage and to

ensure equity in health (Nyazema, 2010:243). The adoption of such policies assisted in the

reduction of such deadly diseases in Zimbabwe.

(d) Emigration

Emigration can be defined as the movement of people out of a country (Morrison,

2009:144). According to Sabennikova (2011:6), the concept of ‘’emigration’’ as treated in

present day studies includes diverse types of movement of the people; these include

migration, emigration, refugees - concepts that are anything but identical. These

movements of people result from various social causes and motives which drive people to

decide to move. The concept of globalisation has also made it easy for people to move

around the world to seek better living conditions as a result of easy transportation routes.

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As a result of the global demand for skilled labour, Zimbabwe has experienced a skills flight

to better performing economies which has left the Zimbabwean labour market grossly

depleted with the attendant consequences on human resource practices in organisations

(Chiboiwa et al., 2010:2107). Most of these skilled workers and professionals have settled in

South Africa, Botswana, Australia and the United Kingdom. Chiboiwa et al. (2010) further

observe that the external employment opportunities and failure to satisfy the employee’s

needs, as propounded in Maslow’s hierarchy of needs theory, have a direct positive effect

on the intention to leave the job. Chavunduka and Bromley (2010:369) believe that

Zimbabwe’s trajectory cannot possibly be considered good news considering that about 3.5

million people have migrated. This trend, coupled with the HIV/AIDS pandemic, has robbed

the country of vital skills. Makochekanwa and Kwaramba (2010:11) support this assertion as

they state that by the end of January 2010, the country was estimated to have only 80 000

working teachers when in fact 140 000 are necessary for the smooth running of both

primary and secondary schools.

In this regard, Sibanda (2010:48) concludes that the high unemployment rate which has

been estimated at to be high as 94%, by the UN’s humanitarian arm in January 2009, drove

Zimbabweans to neighbouring countries in search of better lives. This migration has seen

Zimbabweans moving to regional countries like Botswana, South Africa, Zambia, Namibia as

well as Britain, Canada, America and Australia. However, some of the people have migrated

to these countries to further their education as some of these countries have good

universities and training colleges with a variety of courses to choose from. The international

migration phenomenon has been commonly explained by the use of the neoclassical theory

(Bohlmann, 2010:2). The theory observes that differences in wages and conditions of

employment within regions serve as the primary motivation for migration and that rational

actors would migrate if their individual cost-benefit calculations yield positive net returns.

Muzvidziwa (2010:86) found that the morals of ‘kumusha’ (ekhaya in Ndebele/home in

English) have kept many in town and in the diaspora linked and investing in Zimbabwe.

Thus, this strong sense of kumusha/ekhaya has sustained the free falling economy and

millions of Zimbabweans have survived hunger through these remittances. Rugman and

Collinson (2009:144) support this assertion as they observe that migrants from poor to rich

countries send much of the money they earn to their relatives in the home country. In

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addition, recent research suggests that approximately US$0.94 billion was remitted to

Zimbabwe by people living in the UK in 2007 alone. Furthermore, Rugman and Collinson

(2009:144) argue that these remittances, which are received by poor countries, are very

important as they contribute about 10% of the GDP in such countries. Essentially, migration

has assisted poor countries in that it raises global innovation and, in some instances, the

benefits have been ploughed back to the poor countries through the imports of products

with improved technology or at lower cost (Agrawal, Kapur, McHale & Oettl, 2011:43).

Furthermore, gains may flow back to the developing country via returnees with enhanced

skills, personal connections, and ideas for innovation.

2.5.4 Technological environment

Griffin and Ebert (2006:39) define the technological environment as consisting of all the

ways through which organisationsgenerate value for their citizens. Technology refers to the

application of science or knowledge in order to serve a specific purpose (Brinkman et al.,

2010:263). Technology is important for organisations as they use it to produce a product or

service. In this respect, technological change has enhanced global communication, inter-

planetary transport, the global development of businesses and it has increased the speed in

manufacturing and distribution as well as the quality of manufactured goods (Campbell and

Craig, 2005:248).

(a) Information communication technology (ICT)

The impact of ICT on corporate governance, disclosure, reporting and transparency has

been identified in a number of studies (Wu & Raghupathi, 2011:184). ICT can improve a

country’s governance and participation of the society which can result in an effective and

accountable government. These improvements can be achieved through the use of cell

phones which can be used to search for employment, to broaden trade networks, to

substitute the scarce fixed network and to increase mobility. Other important influences of

ICT on businesses around the world have included the development of computers and IT,

improvements in Transport and Communications as well as the recent rapid growth in the

use of the internet (Sloman, 2008:3).

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Zimbabwe has a widespread usage of cell phones whose services are provided by Net one,

Econet and Telecel. During the March 2008 Zimbabwe elections, 8 900 network volunteers

of Zimbabwe Elections Support Network (ZESN) were accredited to observe the elections

using cell phones, text messaging, satellite phones and fax machines to report final vote

counts to Harare. ICT can be used by businesses to provide public services and to supply

information about certain aspects of institutions. Information about these institutions can

easily be accessed by citizens through the use of official institutional websites.

Mhlanga (2006:2) states that technological determinism, as a theory, holds that plugging

poor countries into the internet will close the digital divide. In this regard, Zimbabwe has to

concentrate on building infrastructure to allow ICTs to be accessible to its people thereby

bridging the digital gap. Furthermore, e-commerce and business-to-business transactions

are still tilted towards the old face-to-face exchanges. Some business-to-business

transactions are mainly done through broadcasting, which is normally through the radio and

television, which has a disadvantage in that this medium is concentrated in urban areas.

However, banks in Zimbabwe such as Stanbic, Standard Chartered and Kingdom bank have

started offering internet banking (i-banking) (Njanike, 2010:213).

According to Mudzonga (2009:36), in Zimbabwe, the major strategy which has been

followed has been to widely avail ICT to as many people as possible. Essentially,as Isaacs

(2007:4) points out, the government of Zimbabwe adopted a national ICT Policy in 2005 that

was informed both by a Harvard University-guided e-readiness survey, which suggested the

country was not uniformly e-ready, and by a host of preceding general and sectorial policies

including vision 2020, the national and technology policy adopted in 2002 and the

Nziramasanga Education Commission Report. This report, in 1999, recommended the

promotion of the educational use of computers for teaching and learning in educational

institutions. Thus, the vision for this policy is to position Zimbabwe as a knowledge-based

society by 2020 whilst its mission is to speed up the development and application of ICTs to

support economic growth and development. Furthermore, a major boost to Zimbabwe’s ICT

infrastructure is the impending establishment of the East Africa Submarine Cable System

(EASSy), which is a submarine optical fibre system running along the east coast of Africa of

which Zimbabwe is a beneficiary. Similarly, Mudzonga (2009:36) highlights that the

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President of Zimbabwe has, for example, made efforts to make computers available to

schools, and an ICT policy was launched in 2007.

Zimbabwe has launched an Electronic government (e-governance) which is meant to

modernise Government systems and processes through the use of information technology

(Business Reporter, 2011). The programme makes it possible for government to provide

online services, bring government services closer to the people, improve communication

between government and its citizens, lower government operating costs and enhance

accountability and transparency in government operations.

2.5.5 Legal environment

Brinkman et al. (2010:287) claim that the term legal refers to those aspects of life that fall

under the jurisdiction of the law. The rules and morals of any society which are codified into

regulation make up the laws of a country. Thus, laws affect business as they can offer

opportunities or restraints in its operations. Equally, laws that affect marketing activities are

divided into three main groups: laws which promote competition, laws which limit

competition and laws that protect the rights of consumers (Lamb et al., 2008:56-57).

According to Chingono (2010:210), the Zimbabwean government proceeded to implement

the controversial Public Order and Security Act (POSA), Access to Information and

Protection of Privacy Act (AIPPA), the Criminal Law (Codification and Reform) Act, (Criminal

Law Code) and the Miscellaneous Offences Act (MOA) which are controversial in nature.

Besides, these laws are domineering, restrictive and designed to hinder political freedom.

Mabweazara (2011:100-101) supports this assertion and argues that the state controlled

press had assumed a comfortable position in the conventional media because of the

measured and well arrangedsilencing of the private press by the government, through the

proliferation of prohibitive statutory instruments such as POSA and AIPPA.

The land invasions that became common in Zimbabwe after 1999 have beenorganized along

racial, class and political grounds and as a result of applying the rule of law selectively

(Chavunduka & Bromley, 2010:373-374). As a result of the inconsistency and incoherence in

the application of the law, the confidence in the government’s ability to govern effectively in

Zimbabwe has been eroded. Furthermore, this decay in the rule of law has been associated

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with the absence of an independent Judiciary Services Commission. According to Sibanda et

al. (2011:71), the indigenisation regulations in Zimbabwe require that foreign owned

companies with assets of $500 000 or more must cede a control-lining stake of not less than

51% to Zimbabwean blacks and this move has resulted in thefall on the Zimbabwean Stock

Exchange and reluctance of international organisations to invest further. Andreason

(2010:427) concurs that the indigenisation of Zimbabwe’s economy reflects the fade and

flow of relations between the state and both white and black emerging andestablished

businesses, and their respective lobbying groups. The indigenisation policy has also resulted

in Zimbabwe failing to produce genuine business people who are globally accepted in

financial circles as emerging economic groups who are independent from the state have not

enjoyed the same prolific rise to positions of influence. Magure (2012:78) believes that

Zimbabweans are not opposed to indigenisation, as such, but they want the process to be

carried out in a rational and fair manner to avoid a situation where the initiative is hijacked

to benefit a privileged few. Furthermore, the capital flight can be linked to both domestic

and foreign investors who are not willing to invest where they perceive risk.

Contrary to this, Mupazviriho (2011:7) posits that the policy objectives of the revised policy

framework for the indigenisation of the economy are:

• To economically empower previously disadvantaged Zimbabweans by increasingtheir

participation in the economy so as to eradicate poverty and create wealth.

• The creation of conditions that will improve the economic position of hitherto

disadvantaged Zimbabweans so that they can contribute and benefit from the economic

development of the country.

• To increase ownership of the productive assets of the country.

• To develop a competitive domestic private sector that will lead economic growth and

development.

• To create opportunities for all Zimbabweans so that they attain improved and

acceptable living standards.

According to the Republic of Zimbabwe Investor’s Prospectus (2009:8), the government of

Zimbabwe has relaxed exchange regulationsso as to facilitate the repatriation of foreign

funds invested and profits earned in Zimbabwe, without any limits. In addition, immigration

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laws ensure that qualifying investors get to stay in Zimbabwe and conduct their businesses

without any constraints. Equally, Mudzonga (2009:29) posits that all investors in Zimbabwe

are guaranteed legal protection through the Constitution, which guarantees them the right

to private property and forbids expropriation of private property without adequate

compensation. Moreover, Zimbabwe has put in place both domestic and export incentives

to lure investors.

2.5.6 Ethical environment

According to Needle (2010:55), the ethical environment examines the implications of ethical

and environmental issues such as rates of pay, the employment of child labour, the disposal

of waste, the use of energy and how employees, suppliers and customers are generally

treated. Gomez-Mejia et al. (2008:100) point out that ethics are principles that explain what

is right or wrong, good or bad, and what is appropriate or inappropriate in various settings.

Ethical issues often arise out of a business’s relationship with investors, customers,

employees, creditors or competitors (Pride et al., 2008:41).

(a) Corporate social responsibility (CSR)

Kubenka (2011:116) defines corporate social responsibility as a voluntary commitment by

business to behave responsibly, in their operations, towards the environment and the

society in which they operate. According to Pride et al. (2008:48), corporate social

responsibility refers to the recognition by business that business activities have an impact

on the societies in which they operate; it is therefore important to consider that impact

when making business decisions. There are two views of social responsibility in business;

namely, the economic model and the socio-economic model. The economic model posits

that the society stands to benefit when the businesses produce market profitable products

and services that are needed by the consumers. Alternatively, the socio-economic model

emphasises that businesses should not focus on making profits but should reflect on the

impact of their decisions on society.

Zimbabwe has adopted a guiding model for business operations in the country through

focussing on the development of a corporate governance code and promoting corporate

social responsibility, also known as corporate citizenship (Besada & Werner, 2010:2). The

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adoption of this code is meant to assure local and international investors that they are

investing in a secure market and to facilitate the formation of public-private partnerships

which benefit the organisations as well as society.

(b) Pollution

Pollution refers to the actions of people in industrialised societies which facilitate the

contamination of water, air or land (McDaniel & Gitman, 2008:60). Similarly, Campbell,

D’Arcy, Frost, Novotny and Sansom (2004:3) define pollution as man-made or man-induced

alteration of the chemical, physical, biological, and radiological integrity of water.

Dube, Makaka and Sibanda (2010:210) claim that waste water from industries and sewage

spillages from burst pipes around the country are released into streams and rivers which

finally discharge into dams around the cities of Zimbabwe. As a result of the economic

challenges facing the country, industrialists have foregone the effluent treatment process

thereby discharging untreated trade waste effluents into the environment. Such action by

industrialists has resulted in water pollution, primarily in the urban areas of Zimbabwe.

Diseases such as cholera have been experienced in Zimbabwe as a result of the

environmental pollution and inability to supply clean water in urban centres (Munzwa &

Wellington, 2010:140-141).

(c) Climate change

Chitiga and Chigora (2010:125) argue that climate change can be defined as any long-term

change in weather conditions. In the same way, Nickels et al. (2010:19) contend that

climate change is the movement of the temperature of the planet up or down over time.

Moreover, at present, the challenge of climate change is global warming, but if the sun

starts producing less heat the issue will be global cooling. Scientific evidence shows that

temperature changes are likely to have profoundly negative consequences for human

society, the global economy and the world’s natural systems (Spedding & Rose, 2008:518).

Therefore, this situation creates risks and opportunities within the business environment to

which investors and companies must respond.

According to Chitiga and Chigora (2010:126), Zimbabwe is vulnerable to climate change

principally through shifting rainfall patterns and extreme events. The country is susceptible

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to increased temperatures (normally during the dry season), localised floods and decreased

river flow. Besides, these adverse effects of climate change have been caused by the

activities of the resettled farmers who are engaged in the clearing of the land, building of

structures using poles and dagga, hunting and gold panning. Located in one of the world

regions which are most adversely affectedby climate change, Zimbabwe needs also to adapt

to and mitigate the impact of this global threat while tackling severe economic and social

problems. Essentially, the government of Zimbabwe is geared to protect the environment

and has created policies such as the Environmental Management Act, the Forestry Act, and

the Water Act as well as the establishment of the Environmental Management Agency and

the Environmental Fund. Besada and Werner (2010:2) support this assertion by observing

that in the tourism sector that formerly represented a significant portion of the

Zimbabwean economy, the Land Reform Program launched in 2000 had disastrous

consequences, and the recovery of the sector hinges on sustainable management of the

environment and new policies. Thus, it is prudent for both individuals and organisations to

go green in their business operations. Greening is the inclination towards saving energy and

producing products that cause less harm to the environment (Nickels et al., 2010:19).

(d) Consumerism

Bosch et al. (2011:54) state that consumerism is a planned movement of consumers,

businesses and the authorities to uphold the rights and powers of buyers in relation to

sellers in an effort to eliminate malpractice. Similarly, Needle (2010:541) defines

consumerism as a social movement to inform and assist consumer choice and to act as a

pressure group to represent the interests of consumers. Furthermore, these interests are

presented to organisations in an attempt to influence product design, price and distribution.

The Consumer Council of Zimbabwe (CCZ) has been established to take on the responsibility

of representing consumers in the country. The objectives of the CCZ are to protect the

consumers, protect manufacturing standards and improve consumer awareness through

education, in addition to settling disputes between consumers and suppliers (Consumer

Council of Zimbabwe, 2006). Furthermore, all consumer organisations have an obligation to

honour universally accepted rights which include the following;

• The right to basic needs,

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• The right to safety and a healthy environment,

• The right to information and the right to choose,

• The right to be heard and to redress, and

• The right to consumer education.

2.6 GLOBALISATION

Globalisation refers to a wider link of places which results in the sharing of common cultures

beyond common boundaries, the increased international movement of goods and services

as well as increased competition (Mpofu, 2009:2). Globalisation refers to a system by means

of which countries all over the world are linked together in an effort to improve the

worldwide economy (Mavesera, 2011:72). Similarly, Needle (2010:12) contends that

globalisation can be defined as a development through which countries unite culturally,

politically and economically. The elements associated with globalisation are:

internationalisation, liberalisation, universalisation, westernisation and deterritorialisation.

Considering these, deterritorialisation clearly defines globalisation and shows how it has

changed human conduct by ignoring national boundaries and any other geographical

obstacles which can be circumvented through telephone calls, the internet, the electronic

transfer of cash and satellite television.

The development of a global world has created opportunities such as employment,

abandoning basic ways of survival thereby improving the standard of living, reduction in

prices of goods and services so that everybody can access these products and the creation

of wealth for many people all over the world (Bernstein, 2010:49). Moreover, globalisation

has led to a worldwide economic unification of countries through the World Trade

Organisation (WTO) which provides a structure for the implementation, administration and

operation of multilateral trade arrangements amongst member countries (Reddy,

2011:8688). Likewise, Wild et al. (2008:6) observe that the purpose of globalisation is to

ease and improve the free movement of goods, services, money, people, and ideas across

national borders. Furthermore, the drivers of globalisation (technological innovation and

falling trade and investment barriers) influence every aspect of the global business

environment.

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Globalisation has been accelerated by factors such as political decisions which reduce trade

barriers, promote foreign direct investment, wealth, privatisation and deregulation policies

as well as government decisions which promote political stability, advances in technology,

free movement of people across borders, knowledge dissemination and innovative ideas

(Scherer & Palazzo, 2011:901). The repercussions of a global village for African countries is

that world goods, factors of production and financial assets will be accepted as competitive

substitutes all over the world (Njanike, 2010:208). Conversely, Bernstein (2010:40)

postulates that opponents of globalisation are of the view that multilateral organisations

have exerted excessive influence on the governments of developing countries through

forcing such countries to compete for their investments, thereby undermining democracy.

This criticism has been put forward because big organisations inevitably collude with one

another so that they can collectively dominate the world business.

Cateora et al. (2009:5) observe that four trends affecting global business have been

identified and these include factors such as: the rapid growth of the World Trade

Organisation and regional free trade areas such as the North American Free Trade Area and

the European Union; the drift toward the recognition of the free market system amongst

developing countries in Latin America, Asia, and Eastern Europe; the growing use and

impact of the Internet, mobile phones, and other global media on the disbanding of national

borders, and; the obligation to take care of the global environment for future generations.

Youde (2007:9-10) observes that Zimbabwe has been avoided by the Western states as a

result of allegations of electoral fraud, the government’s land-appropriation scheme,

massive economic mismanagement, as well as violations of human rights. This move has

resulted in these states and international financial institutions withdrawing any form of

funding directly to the Zimbabwean government. This move has prompted the Zimbabwean

government to adopt the ‘’Look East Policy’’ thereby promoting relationships with Asian

States which include China, Indonesia, Iran, Malaysia and North Korea. Zimbabwe took this

stance as it viewed Asia as the right economic model for Zimbabwe, as the two share the

same pre-independence experiences of colonial domination by Western states, in spite of

which Asia has become a major economic competitor of the West. The absence of donor

support from the Western countries has necessitated the Zimbabwean government to

adopt the ‘Look East Policy’ (Friedrich-Ebert-Stiftung, 2004:11). However, Bothma and

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Burgess (2011:62) contend that, practically, the idea by which a country isolates its internal

activities from the global environment has not yielded any positive results.

2.6.1 Foreign market environment

Brinkman et al. (2010:181) posit that international markets refer to markets which are

beyond national boundaries and which can be classified as consumer, business, resell, or

government markets. According to Cateora et al. (2009:12), a business operating in a foreign

country makes very important decisions based on political stability, class structure and the

prevailing economic environment. Kurtz (2010:218-219) argues that marketers chose from

three basic strategies when entering foreign markets; these include activities such as

importing or exporting, entering into contractual agreements like franchising, licensing or

subcontracting as well as international direct investment.

(a) Foreign competitors

According to Chikuhwa (2006:239), just as the purpose of the Irish Monopolies Commission,

the anti-trust laws of the USA and the British restrictive practices statute, businesses in

Zimbabwe are now subject tothe policy of competition which the government has enforced.

The policy is premised on the proper allocation of resources, efficiency, high quality, low

prices as well as new developments so as to promote a mechanism of competitive markets.

Hough and Neuland (2007:12) argue that a country can become less competitive as a result

of the cost of industrial land, roads, railways, electricity, water and telecommunication. This

may result in neighbouring countries being targeted as alternative options. Kramarenko et

al. (2010:34) posit that on the Global Competitiveness Indexwhich captures the set of

policies, institutions and factors that determine the level of productivity of a country,

Zimbabwe ranks 132 amongst 133 countries. Therefore, the country performed badly on the

structural competitiveness indicators; this suggests that the country is less competitive in

the international market.

(b) Foreign intermediaries

Cateora et al. (2009:396) argue that the distribution course is concernedwith the physical

handling and delivery of goods, the passage of ownership (title) and, in terms of the

marketing point of view which considers it as the buying and selling transactions which take

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place between producers, middlemen and consumers. In some markets, the distribution is

complex as the structure has many layers, thus making it inefficient. Hence, marketers find

it very difficult to penetrate whilst in some markets there are middlemen who specialise in

distribution. In addition, some markets incorporate the dynamic mixture of traditional and

current distribution channels which are used globally. Moreover, marketers are faced with

the options of either establishing their own subsidiaries and distributing the products

straight to the end-user or engaging intermediaries in order to distribute their product.

Therefore, channel structures consist of those with less developed marketing infrastructure

which are typically found in less developed countries and the complex channels which are

normally prevalent in developed countries like Japan. Moreover, the traditional distribution

structure is synonymous with economies which depend primarily on imported

manufactured goods. Kurtz (2010:417) contends that distribution channels bring buyers and

sellers together to complete the business transaction.

Bothma and Burgess (2011:392) emphasise that control over the international distribution

channel should focus on the following two areas, namely:

• Control over the whole distribution channel, and

• Control over individual intermediaries.

Moreover, it is necessary to control the whole distribution channel so as to guarantee that

the export operation meets costs and lives up to the marketing objectives. Furthermore, it is

important to spell out marketing objectives to the intermediary so as to gain control over

individual intermediaries.

(c) Foreign customers

According to Omar (2009:26), modern international marketing thoughtis based on focusing

and identifying issues which are of value to customers, and providing these values equally to

all customer groups. Moreover, the main management concern is to understand the

customer’s perceptions of value as well as providing and communicating value to the

customer group in the international markets.

According to Masuka (2012:575), the land distribution exercise in Zimbabwe culminated in

the country being isolated from the global business world by Western countries, through

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the imposition of sanctions on the ruling elite. Similarly, Saunders (2008:71) argues that the

capital boycott of Zimbabwe, which was led by international financial institutions and

governments, was strengthened by the imposition of sanctions on the ruling party

leadership and organisations which were associated with them. These sanctions also posed

threats toforeign businesses which conducted business with politically connected

organisations in Zimbabwe, as dealing with blacklisted organisations would invite severe

penalties on these organisations in their home markets.

2.6.2 International marketing environment

Hough and Neuland (2007:119) stress that it is important to appreciate the cultural,

political, legal, and economic environments of the countries in which international

businesses operate so as to easily identify how these tendencies will affect the performance

of business organisations in these countries. Likewise, the international marketing

environment is made up of diverse elements which are situated outside the control of the

organisation (Omar, 2009:35). Therefore, the international marketing environment is

characterised by some complexities, as a result of political, economic, social, legal and

technological factors; hence, it is important for international managers to be aware of these

complexities.

(a) Political

The political environment where an organisation intends to or already operates in has a

considerable impact on an organisation’s international activities (Hough & Neuland,

2007:103). The government can either encourage foreign participation by offering attractive

opportunities for trade and investment or it can discourage such actions by imposing

restrictions, which include import quotas. A host of government actions that increase the

risks of international business manifest themselves in issues related to sovereignty, differing

political ideologies and nationalism (Cateora et al., 2009:169). Moreover, risks can be in the

form of confiscation, import restrictions, exchange controls and price controls, all of which

have a direct impact on the operations of a business.

According to Omar (2009:47), issues of political importance in the international market

environment generally fall in one of the followingtwo categories:

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• Restrictions on transfers, which might be either foreign or domestic in origin. These

normally manifest themselves in the form of trade barriers which prevent organisations

from transacting freely in the global village.

• Ownership and/or control restrictions. These restrictions encompass barriers which

impact negatively on the decision making process of an organisation.

(b) Economic

In assessing global markets, it is recommended that organisations should concentrate on the

potential economic performance of a country and the stage which the targeted country

would have reached in terms of development (Omar, 2009:39). Generally, the GDP of a

country is used as a measure of the attractiveness of an international market.

According to Mount (2011:18989), Zimbabwe’s foreign debt was estimated at more than

$6.9bn at the end of 2010, representing 103% of its GDP and stood well over the

international debt sustainability benchmark, which is pegged at 60%. Likewise, 36 percent of

this debt is owed to multilateral creditors, 33 percent to bilateral creditors whilst 31 percent

is owed to commercial creditors. The central government is the major contributor to this

debt, with 57 percent, while parastatals contribute 35 percent and the private sector

contributes 8 percent towards this debt.

As a result of the increasing arrears on its debt, multilateral creditors, such as the

International Monetary Fund (IMF) and the World Bank, have withdrawn their loans to

Zimbabwe and have demanded that the country clear its debt before it could be considered

for such loans in the future (Mount, 2011:18989). The IMF and other economists argue that

Zimbabwe can only relieve itself of this debt trap through international debt forgiveness

which can be achieved through improving relations with the international community so as

to qualify for a global scheme for heavily indebted poor country status which will facilitate

the debt cancellation.

(c) Culture

According to Cateora et al. (2009:101), culture encompasses the values, rituals, symbols,

beliefs, and thought processes that a group of people learn and share for further

transmission from generation to generation. Therefore, it is important for international

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marketers to design their products, distribution channels and promotional programmes with

appropriate consideration of all the elements of culture. Usunier and Lee (2009:3-4) posit

that culture is the arrangement where people learn a behaviour so that the traits of such

behaviour are shared and transmitted by members who belong to a particular society.

Culture can be identified by the sum of its elements which include, beliefs, knowledge,

values, arts, law, manners and morals and all other kinds of skills and habits which members

of society acquire. In this regard, Bothma and Burgess (2011:199) argue that culture is made

up of four levels which include issues such as the behaviour of individuals, organisational

culture, industry culture as well as national culture. These levels are interrelated and the

behaviour of all the individuals involved in business transactions is influenced by these

levels.

According to Blythe (2008:38), cultural differences encompass religion, language,

institutions, beliefs and behaviours that are shared by the members of a society. It is

important that marketers take on board the advice of citizens of countries where they

intend to do business. Similarly, Kurtz (2010:209) believes that when a decision is made to

enter a foreign country, it is important for marketers to study all aspects of that nation’s

culture, such as language, education, religious attitudes as well as social values. Sanda

(2010:2) posits that, in line with this observation, there is a need for managers to be flexible

so that they can respond positively and effectively in addressing practices and values which

they are not familiar with, if their businesses are to survive in the global village.

(d) Cultural values

According to Hough and Neuland (2007:74), culture is based on the values of society and

provides the background within which the norms, beliefs, attitudes, traditions and symbols

of a society are created and noticed. Luthans and Doh (2012:113) contend that values are

basic beliefs that are held by people regarding what is right and wrong, good and bad,

important and unimportant for a particular society. These values are learnt and assist in

shaping the behaviour of individuals.

Conklin (2011:10-11) cites the model by Hofstede (1991, 2001) which was developed from a

survey of 117,000 IBM employees in 66 countries and postulates that the analysis of cultural

differences is mainly based on this model. Consequently, these typologies have been

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applied to a number of issues which include change of behaviour by multinational

organisations investing in other countries, application of ethical issues as well as changing

marketing strategies according to differences in consumer preferences. Cateora et al.

(2009:106) note that Hofstede studied how cultural values influence various types of

business and market behaviour and found that the cultures of the nations studied differed

along four primary dimensions, namely:

• Individualism/Collectivism Index (IDV) – refers to the preference of behaviour that

promotes one’s self-interest. The cultures which have a high score on IDV reflect the “I”

mentality as they reward individual ideas and those low on individualism reflect the

“we” mentality and restrain the individual from the group. In this respect, collectivism

reflects societies in which people are amalgamated into powerful groups which protect

people throughout their lifetimes, in exchange for unquestionable loyalty.

• Power Distance Index (PDI) – measures the tolerance of social inequality, that is, power

inequality between superiors and subordinates within a social system. Cultures with a

low PDI value equality and observe knowledge and respect as sources of power whilst

those with a high PDI score tend to be hierarchical and its members cite social roles,

manipulation and inheritance as sources of power. In addition, people from cultures

with a high PDI believe that power rests with individuals and is coercive rather than

legitimate; these people normally do not trust people who do not belong to their group.

Luthans and Doh (2012:116) posit that power distance is the extent to which less

powerful members of institutions and organisations accept that power is distributed

unequally.

• Uncertainty Avoidance Index (UAI) – measures the tolerance of uncertainty and

ambiguity amongst members of a society. Equally, cultures with high UAI scores do not

tolerate ambiguity and do not trust new ideas or behaviours. Furthermore, they rigidly

follow historically tested patterns of conduct, which ultimately become the rules of the

game, in order to avoid any risk. Conversely, those cultures with low levels of UAI are

characterised by a tolerance of deviance and dissent, low stress levels and are highly

motivated to take risks. Uncertainty avoidance is the extent to which people feel

threatened by ambiguous situations and have created beliefs and institutions that try to

avoid these (Luthans & Doh, 2012:117).

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• Masculinity/Femininity Index (MAS) – focuses on assertiveness and achievement.

Conklin (2011:11) contends that this dimension differentiates between aggressive

objectives which are crafted to pursue money and power, and nurturing objectives.

Therefore, masculine cultures distinguish between gender roles where men are given

superior tasks whilst feminine cultures recognise personal relationships which are

multidimensional. Luthans and Doh (2012:117) argue that masculinity is a situation in

which the dominant values in society are success, money, and belongings.

2.6.3 Legal issues

According to Hough and Neuland (2007:107), managers operating in foreign countries

should acquaint themselves with the legal systems of the countries in which they operate,

as well as the domestic and international legal relationships prevailing between the

countries. The legal environment of a country partially emanates from the political

environment and is guided by three dimensions, namely: international law, the domestic

laws of the exporter’s country and the domestic laws of each of the exporting country’s

foreign markets. In terms of international law, it is recognised that a sovereign state is

independent and free from all external control, enjoys full legal equality with other

countries, presides over its own territory, selects its own political, economic, and social

systems, and has the power to endorse agreements with other nations (Cateora et al.,

2009:162). In this regard, countries which decide to abide by international covenants and

arbitration procedures lose some sovereignty as these tend to override national laws and, in

certain situations, have serious consequences for citizens.

In Zimbabwe, business confidence has dropped as a result of the continued threats of

compulsory takeover of foreign organisations which fail to comply with the Indigenisation

and Empowerment Act (Magure, 2012:75). Thus, the policy inconsistencies of the

indigenisation programme have negatively affected the attraction and retention of foreign

investors. This argument is supported by Moyo (2011:9) who argues that the indigenisation

law in Zimbabwe has somewhat weakened investor confidence as it is viewed as forcing

potential investors to give away majority shares to locals.

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2.6.6 Technological issues

Hough and Neuland (2007:109) postulate that technology can be defined as ‘the method or

technique for converting inputs to outputs in accomplishing a specific task’. Furthermore,

technology is viewed as a very important factor for development as a result of the advances

in international communication, increasing interdependence of nations and the shortage of

natural resources. However, technology transfer can be a source conflict between donor

and receiving countries as the former may think that the latter is on a mission to dictate

economic independence through technology, money and production. Thus, the government

of any country plays an important role in facilitating or impeding the transfer of technology

from industry to industry or government to government.

According to Njanike (2010:213), in Zimbabwe, the earliest indicators of globalisation

became manifest in the form of electronic and communications technologies, which were

mainly office automation devices. The devices which included telephones, telex and

facsimiles were used to serve customers quickly and efficiently. These advancements in

technology resulted in banks, like Barclays and Standard Chartered, networking their

branches, thus making the one-branch philosophy a reality.

2.6.7 Trade barriers

According to Hough and Neuland (2007:23), governments normally use two broad

measures, such as tariff barriers and non-tariff barriers, to protect its economy or reduce

the flow of imports. Consequently, tariffs can be used to control the importation of certain

goods and to raise revenue for government. Tariff barriers include customs duties whilst

non-tariff barriers include import and export control, import licences, quotas, prohibitive

goods, restricted goods, standards and embargoes as well as sanctions.

Reddy (2011:8687) states that international trade issues related to the split between the

developed and developing nations include:

• the non compliance by the United States (US) and the European Union (EU), to reduce or

eliminate subsidies, especially on agricultural products

• the reluctance of developing states to reduce their tariff barriers, partly because they

derive a relatively high proportion of their income from these (about a third of revenue

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in Sub-Saharan Africa has come from tariffs in the past, whereas in richer countries, such

tariffs amount to two percent of their revenue)

• developed states have alleged that developing states, particularly from Africa, have the

highest tariff barriers and that the main culprits, as far as violation of intellectual

property rights of foreign businesses are concerned, are developing nations; and

• the protection of intellectual property rights of businesses from developed countries are

seen as having an adverse effect on developing countries as they are heavily dependent

on technologies from the former.

According to Faal et al. (2011:28), trade between Zimbabwe and South Africa has

dramatically increased over the past two decades thereby increasingly replacing Zimbabwe’s

international exports and imports. Similarly, Kramarenko et al. (2010:7) posits that about 40

percent of Zimbabwe’ imports originate from South Africa and about 25 percent of

Zimbabwe’s exports are delivered to South Africa. As a result of the significance of South

Africa, a hard peg on the rand would lower trading costs thereby promoting trade

integration between the two countries. In this regard, Reddy (2011:8694) points out that

the 14 SADC states have formed a free trade area, which was launched in August 2008. Over

the medium-term, revenues are expected to stabilise at about 28 percent of GDP, as

Zimbabwe simplifies its tariff structure in line with its commitments under regional trade

agreements (Plant & Desruelle, 2011:14).

2.6.8 Infrastructure

When planning to enter foreign markets, it is important to consider economic factors which

characterise modern life and efficient marketing such as transportation, communications,

banking, utilities, and public services (Kurtz, 2010:207). Poor infrastructure in a foreign

country can restrain a marketer’s plan to manufacture, promote, and distribute products

(Kurtz, 2010:207). Cateora et al. (2009:253) point out that infrastructure represents those

types of capital goods that serve the activities of many industries. Infrastructure is made up

of paved roads, railroads, communication networks, energy supplies, seaports and financial

networks. Furthermore, the quality of infrastructure affects a country’s ability to do

business as well as its economic growth. Bothma and Burgess (2011:265) postulate that

international marketing decision-making is especially interested in the market’s

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infrastructure, since inadequate facilities will add to the cost of the investment, affect

business efficiency and influence the product offering, in some cases, in the market.

Dore et al. (2008:193) note that, in Zimbabwe, the resulting deterioration in infrastructure

has been marked by the following:

• Urban roads and highways are evidentlydeclining, while many rural roads have become

impassable.

• The rail track has deteriorated significantly with a growing proportion of main lines

having to operate under speed restrictions.

• Erratic water supplies in urban areas due to lack of spare parts for pumps and other

equipment and the shortage of electricity and water purification chemicals.

• In the energy sector, fuel is in constant short supply and extremely expensive when

available (in part due to rapid increases in the international price of petroleum

products).

• A large backlog in both fixed line and cellular phone connections.

According to Mudzonga (2009:36), infrastructure development is regarded as a key factor to

industrial growth. Similarly, Pushak and Briceno-Garmendia (2011:5) contend that

Zimbabwe is well integrated with its neighbours when it comes to power and transport

networks, allowing it to participate in regional trade and act as a critical transit country for

its landlocked neighbours Zambia and Botswana, and a key link in the north-south corridors.

However, for the country to fully benefit from its strategic location in southern Africa,it

needs to improve the condition of its international road network and reduce its transit costs

and transit time. Kramarenko et al. (2010:32) support this assertion as they argue that, in

Zimbabwe, thelack of adequate infrastructure has resulted in the reduction of investment in

key export sectors; wage pressures have also increased organisational costs, and the poor

business environment has repelled potential investors from investing in Zimbabwe.

Nevertheless, Zimbabwe is committed to improving its infrastructure as it spends about

US$0.8 billion per year on infrastructure development. Equally, Mudzonga (2009:36)

observes that the industrial policy in Zimbabwe recognises the need for partnerships with

the private sector to make good government’s lack of resources through Build Operate

Transfer/Build Operate Own Transfer (BOT/BOOT) projects.

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Pushak and Briceno-Garmendia (2011:29) argue that Zimbabwe is linked to its neighbour

South Africa – the largest regional economy and home to the busiest port in Africa – and

other countries such as Mozambique, Botswana, Zambia, the Democratic Republic of Congo,

Malawi, and Tanzania through the North–South Corridor, the most extensive corridor

system in the region. Conversely, the political unrest in Zimbabwe resulted in the

abandonment of the North–South Corridor with a new corridor bypassing Zimbabwe and

going through Botswana being created. Even though Zimbabwe boasts of one of the most

far-reaching road networks in SADC, the state of these roads has deteriorated over the

years. There is thus a need to rehabilitate the road network.

Conversely, Pushak and Briceno-Garmendia (2011:35) further assert that Air Zimbabwe, the

national flag carrier out of Harare, is in the International Air Transport Association (IATA)

International Safety Audit (IOSA) registry, which means that it has passed IATA’s

operational-safety audit.

2.6.9 Membership of international organisations

According to Mudzonga (2009:31), regional integration arrangements are strategic for a

country like Zimbabwe which is landlocked and thus requires close ties with regional

neighbours to access the main export/import routes. Mapuva (2010:462) argues that

Zimbabwe is a signatory to the Southern African Development Community (SADC)

Guidelines Governing the Conduct of Democratic Elections, promulgated in 2004 and

adopted by SADC member states. Zimbabwe is also a member of the Common Market for

Eastern and Southern Africa (COMESA), African Union (AU), United Nations (UN), World

Trade Organisation (WTO), Non Aligned Movement (NAM), African Development Bank

(ADB), World Bank and the International Monetary Fund (IMF). Alden (2010:8) postulates

that Zimbabwe permanently withdrew from the Commonwealth organisation in December

2003. In this regard, Chingono (2010:209) concludes that the withdrawal of Zimbabwe from

the Commonwealth saw the regression of the country from its previous assertive position as

a global player to being a regional, if not a domestic, player. This caused the segregation of

the country from some beneficial public-private partnerships for trade and investment in

Commonwealth countries and essential networking and information sharing, not only for

business but also for educational, employment and other purposes. Chingono (2010) further

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argues that, as a result poor networking, control of the media by government and media

laws that centred more on censorship further isolated the people of Zimbabwe from global

interaction.

However, through the Short Term Economic Recovery Program (STERP) of March 2009,

Zimbabwe’s government pledged to adhere to its bilateral and multilateral obligations

concerning the protection of foreign investments covered by Bilateral Investment

Promotion and Protection Agreements (BIPPAs), and pledged adherence to the rule of law

(Besada and Werner, 2010:1). Mudzonga (2009:31) postulates that under bilateral trade

agreements, Zimbabwe has a preferential agreement with South Africa, the stronger trade

partner, in terms of values and diversity. Moreover, Zimbabwe has preferential bilateral

agreements with Botswana, Malawi and Namibia.

2.6.10 Ease of doing business in Zimbabwe

According to Muteti (2010:61), the World Bank provides a global ranking on the ease of

doing business. The statistics for ranking nations are gathered through a survey which is

carried out by local organisations in conjunction with local experts drawn from the fields of

law and accounting. The indicators measure and benchmark regulations affecting nine areas

in the life cycle of a business: starting a business, dealing with construction permits,

registering property, getting credit, protecting investors, paying taxes, trading across

borders, enforcing contracts and closing a business (World Bank, 2011:1). The rankings on

the ease of doing business of selected countries, including Zimbabwe, are shown on Table

2.5 below.

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Table 2.5: Rankings on the ease of doing business for selected countries

Country Ranking 2010 Ranking 2011 Reforms done 2011 Singapore 1 1 0 Hong Kong SAR, China 2 2 2 New Zealand 3 3 1 United Kingdom 4 4 2 United States of America 5 5 0 Mauritius 20 20 1 South Africa 32 34 0 Botswana 50 52 0 Rwanda 70 58 3 Kazakhstan 74 59 4 Zambia 84 76 3 Swaziland 126 118 2 Mozambique 130 126 1 Zimbabwe 156 157 3 Chad 183 183 0 Source: Adapted fromWorld Bank Doing Business (2011:4).

The rankings on the ease of doing business, as indicated in Table 2.5 above, show that

Zimbabwe is ranked 157 in 2011, compared to 156 in 2010, out of 183 countries. Three of its

neighbours were ranked in the top 100 in 2011. The three are ranked as follows: South

Africa at number 34, Botswana at number 52, and Zambia - which improved its ranking from

84 in 2010 - is at 76 in 2011. Therefore, from the above rankings it can be observed that

Zimbabwe has a poor record of doing business in comparison to its neighbours.

Every year, Doing Business recognises the 10 economies that improved the most in terms of

the ease of doing business in the previous year, and introduced policy changes in 3 or more

areas (World Bank, 2011:5). Kazakhstan took the lead after amending its company law and

introducing regulations which reduced time to start a business and reducing the minimum

capital requirement to 100 tenge ($0.70). The country also simplified the process of dealing

with construction permits by coming up with new regulations in 2009 which included

creating a one-stop-shop for issues related to construction. Countries like China and

Singapore, who have made it easy for organisations to do business, have put in place

advanced e-governance initiatives like turning their one-stop-shops for building permits into

online systems. Topic rankings for Zimbabwe, on the Ease of Doing Business, are shown on

Table 2.6 below.

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Table 2.6: Topic rankings for Zimbabwe

Ease of Doing Business DB Rank 2011 DB 2010 Rank Change in Rank Starting a Business 143 141 -2 Dealing with Construction Permits 172 17 +3 Registering Property 82 81 -1 Getting Credit 128 125 -3 Protecting Investors 120 119 -1 Paying Taxes 131 130 -1 Trading Across Borders 168 168 0 Enforcing Contracts 110 81 -29 Closing a Business 156 156 0 Source: World Bank (2011:3)

Table 2.6 above shows the ease of doing business in Zimbabwe, in terms of rankings by each

topic. Zimbabwe undertook three reforms in order to improve establishing a business in the

country. The reforms which were done are:

• Starting a business – Zimbabwe made it easy to start a business by reducing registration

fees and accelerating the name search process, as well as company and tax registration.

• Paying taxes – Corporate income tax was reduced from 30% to 25%, capital gains tax

was also reduced from 20% to 5%. A facility was also put in place for corporate tax to be

paid quarterly through commercial banks.

• Registering property – The government reduced the cost of transferring property by 15%

of the value of the property (World Bank, 2011:72).

However, Kramarenko et al. (2010:35) argue that Zimbabwe has done better than most

other countries in the areas of registering property and enforcing contracts. It has done

worse than most countries in terms of starting a business, dealing with construction

permits, getting credit, protecting investors, paying taxes, and closing a business.

Furthermore, Zimbabwe is viewed as having a high incidence of corruption in relation to

comparative countries.

Alternatively, the World Bank (2011:23) notes that, in Zimbabwe, it costs 182.8% of income

per capita to start a business. Thus, it is very expensive to start a business in Zimbabwe, in

comparison to its neighbours Botswana and South Africa were it costs 2.2% and 6%,

respectively, of income per capita to start a business.

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2.8 CONCLUSION

This chapter has presented an analysis of the current business environment in Zimbabwe, in

an effort to address the second research question of the study. The analysis focussed on the

external business environment by paying particular attention to the market, macro and

global environments. The PESTLE Model has been used in this analysis.

Zimbabwe is a developing country located in Southern Africa and is signatory to various

regional and international organisations; it is a parliamentary democracy. The country is in a

fragile transitional stage which was initiated by the signing of the Global Political Agreement

in 2008, between the warring major political parties in the country. This agreement has

stabilised the political and economic situation in the country, thereby winning the

confidence of some domestic and international investors, mainly, from the East. However,

countries from the West seem unconvinced about the progress made by the Government of

National Unity, as they have not removed the sanctions on the country.

The country has shown considerable progress in the economic arena, as reflected by the

control of inflation and the adoption of a multi currency regime which has attracted the

attention of investors. The country is making frantic efforts to attract foreign investors as

there are opportunitiesfor investment in the major sectors of the economy;these include

agriculture, mining, manufacturing, tourism, transport, financial and energy.

Zimbabwe has an impressive socio-cultural environment where it is strengthened by the

high literacy levels of its citizens and a decline in deadly diseases like HIV. Although a large

population of skilled workers and professionals has migrated to other countries, this has

helped in that these immigrants have acquired new skills, financial resources and created

new business relationships which they can plough back into Zimbabwe.

The country has also embraced information communication technology through the use of

computers, the internet and cell phones. The launch of the electronic government in the

country has improved communication, thus bringing citizens closer to government services.

Furthermore, the country has put in place strategies which encourage organisations to

conduct their business in an ethical manner. These strategies include issues related to

corporate social responsibility, controls in climate change as well as consumer protection.

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Globally, Zimbabwe is a signatory to a number of international organisations such as the UN,

AU, NAM, COMESA, WTO and SADC. However, as a result of political instability, some

Western countries have shunned trade with Zimbabwe resulting in the country adopting a

‘’Look East Policy’’. This isolation coupled with high debt has contributed to the country

being ranked low in the World Competitive index for many years. Having analysed

Zimbabwe’s business environment in this chapter, Chapter 3 will focus on a theoretical

overview of privatisation.

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CHAPTER 3

A THEORETICAL OVERVIEW OF PRIVATISATION

3.1 INTRODUCTION

The 1960s and 1970s witnessed an enormous expansion of government intervention in

developing countries when the public sector was seen as a major contributor to economic

growth and socio-political stability (Chittoo & Nowbutsing, 2010:171). Moreover, public

organisations were created to serve an array of economic, social and political objectives.

The end of the 19th century and, especially, the beginning of the 20th century (Von

Weizsacker et al., 2005:5) was characterised by governments playing crucial roles of

supplying infrastructure like highways, airports, port facilities, telecommunication and

postal services, water supply and reservoirs, sewerage and irrigation systems, schools,

hospitals as well as the maintenance of these facilities. Some infrastructure which included

railways, power grids and telecommunication networks had been built by private investors

but were later nationalised. Nationalisation was adopted from pragmatic assessments which

viewed the state as having the capacity to raise capital cheaply and to offer services in a

coordinated, efficient and effective way.

Since the 1980s, which was preceded by economic theory generated in the 1960s but

significantly pushed by globalisation, technological developments, market expansion and

the growth of private operators, a new trend has emerged of questioning the state’s

dominant role and strengthening the private sector (Von Weizsacker et al., 2005:5).

Consequently, after the world economic crisis of the 1970s, the weaknesses of public sector

organisations and operations were revealed (Chittoo & Nowbutsing, 2010:171). According

to Kirkpatrick et al. (2006:144), over the past two decades, international institutions such as

the World Bank have influenced many developing countries to adopt privatisation

programmes as a major component of their economic reform agenda. Essentially,

privatisation has been viewed as promoting efficiency in operations, increasing service

delivery, stimulating foreign and local private investment as well as reducing the financial

burden on the government.

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The focal point of this study is the perceptions of privatisation of parastatals in Zimbabwe.

The preceding chapter of this study analysed the contemporary business environment in

Zimbabwe by paying particular attention to the market environment, the

macroenvironment and the global environment showing how these interact with and

influence businesses in the country. The analysis was carried out using the PESTLE (political,

economic, socio-cultural, technological, legal and ethical) model.

Chapter three turns the focus of the study to a theoretical overview of privatisation. The

chapter is made up of five sections. Section one is an introduction to the chapter and

Section two provides a discussion of the theories of public and private ownership of

organisations, showing the advantages and disadvantages of such approaches. This section

also offers a general overview of privatisation; it concentrates on the definition, rationale,

approaches to, as well as the methods of privatisation, privatisation-nationalisation cycles,

benefits and criticism of privatisation. Section three offers a discussion of privatisation in

developed economies and highlights the rationale, management, benefits, regulation and

criticism of privatisation. Section four provides a discussion of privatisation in developing

economies by focusing on the rationale, management, benefits, regulation, criticism and

lessons to be learnt. The chapter will then close with a summary.

3.2 CONCEPTUALISATION OF PRIVATISATION

Joseph (2010:146) argues that privatisation involves not only the sale or other forms of

transfer of state assets, but also the transfer of the management of parastatals to the

private sector. Furthermore, this process is accompanied by the restructuring of current

organisational operations, reorganisation of the factors of production as well as the infusion

of new methods of corporate government, which is free from political interference.

Boubakri, Cosset, Guedhami and Saffar (2011:244) define privatisation as the deliberate sale

by a government of parastatals or assets to private economic agents. The change in

ownership structure and control to private operators results in a shift in the prevailing

incentive structure, thereby promoting efficiency and profit generation.

Similarly, Ohemeng and Grant (2011:289) posit that privatisation refers to the transfer of

assets and/or service functions from public to private hands. Furthermore, it involves

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activities which include the sale of parastatals to contracting out public services with private

operators so as to improve the delivery of such services to the public.

Kauffmann and Wegner (2007:12) state that the term ‘’privatisation’’ is used generically to

include the sale or disposal of some or all of the assets of parastatals, the sale of

government-owned shares in organisations, reduction in the equity percentage held by a

government through share dilutions or through the transfer of enterprise assets to a new

joint venture, liquidations, leases, concessions and management contracts. In a

corresponding manner, privatisation is no longer restricted to private ownership and

includes various degrees of private-sector participation (PSP), with private participation in

infrastructure (PPI) encompassing full and partial divestitures as well as service and

management contracts, lease of assets and various types of concessions to build and

operate infrastructure services (Tan, 2011:50).

Privatisation is a competition policy for providing organisations of public property with

sustainable regulation and competitive power as well as the establishment and

enhancement of a global competitive environment (Hagen & Halvorsen, 2008:73).

According to Selvi and Yilmaz (2010:672), privatisation is the strategy or process which

transfers totally, or partially, an asset or enterprise which is owned or controlled, either

directly, or indirectly, by the state to private organisations. In addition, privatisation

empowers people economically and politically by making them participants in the

ownership of societal resources.

In this study, privatisation will be defined as an economic strategy which transfers totally, or

partially, an organisation which is controlled by the state to private ownership. The transfer

can be achieved through, the sale of government owned shares in parastatals, reduction in

equity percentage held by a government through transfer of organisational assets to a joint

venture, liquidations, leases, concessions and management contracts so as to achieve

economic benefits and improved organisational performance.

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3.3 PRIVATISATION IN THEORY AND PRACTICE

3.3.1 Theory of ownership

According to Parker and Saal (2003:25), throughout history, the ownership of production

and commerce has always been provided by the public and private sector. This arrangement

has always raised debate on whether the means of production or directing commerce

should be under the ownership of the State or private control. In line with this arrangement,

Clifton, Comin & Fuentes (2003:5-6), liberal thinkers, are of the opinion that

underperforming public organisations should be privatised; this could lead to the private

sector having the sole responsibility of doing business. Parker and Saal (2003:28-29) argue

that the private ownership of the means of production is advantageous as it is based on the

fundamental theorem of welfare economics which states that a competitive equilibrium is

Pareto optimal, under certain assumptions. These assumptions include that the product is

not a public good, that the market is not monopolistic in nature, that information can be

obtained at low costs and that there are no externalities in production or consumption.

Conversely, arguing for government intervention on the grounds of market efficiency, the

assumptions on private ownership do not hold as markets have failed in certain

circumstances and that government can address such market failures through regulating

natural monopolies and providing public goods. Moreover, government ownership is also

necessary as a means of fairly redistributing resources, thus changing wealth and income

patterns.

The operation of public organisations (Nguyen, 2010:6) has primarily been aimed at social

welfare issues and tends to ignore profitability goals. Furthermore, the operation of public

organisations depended heavily on financial subsidies which were obtained, for the most

part, through taxation, foreign debt and exports. However, deficiencies in management

knowledge, technology, the dynamics of competition and issues related to demand and

supply resulted in public organisations failing to operate effectively.

The importance of privatisation can be argued based on political and management

perspectives (Li, Ouyang & Zhou, 2005:58). According to Earle and Estrin (2003:4),

parastatals are less efficient in their operations than privately owned organisations. In most

cases, the objectives of parastatals take into account politically imposed social targets which

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make it difficult to enforce corporate governance principles and proper evaluation of

performance of these organisations. According to the principal-agent theory (Tan, 2011:49),

problems faced by public organisations are a result of the owners or taxpayers choosing the

government as an agent to supervise them. The government has to appoint managers to run

state organisations as agents but the government does not have the capacity to provide the

incentives which motivate the agents to monitor the performance of the employees.

There is consensus, according to Garcia & Anson (2007:396) and Nguyen

(2010:6), that the objectives of public organisations normally do not focus on the

profitability of the organisation or maximising the wealth of the shareholder.Even where the

government expects the public organisation to maximise profit, these organisations will

always avoid taking risks, as managers will be expected to give reason for their strategic

decisions to their employees and the State. Tsamenyi, Onumah and Tetteh-Kumah

(2010:429) observe that private organisations have the capacity to organise their resources

in the production of goods and services so as to reduce production costs more efficiently

than public organisations. In addition, private organisations are capable of allocating

resources more efficiently than public organisations as they have to deal with competition.

Privatisation theory (Garcia & Anson, 2007:396) recommends that the means of production

should be in private hands as government is inefficient and is faced with many problems.In

this regard, Boubakri et al. (2011:244) posit that the change in ownership and control from

public to private ownership brings about new incentives as the primary focus will be on

profits and efficiency.

Global trends have focused on the elimination of state-controlled economies (Osemeke,

2011:178) and are now being replaced by market oriented economies, thus making the

private sector the engine of economic growth. Many developing countries have adopted a

variety of strategies which include a new investment regime, trade liberalisation and

privatisation with a view to boost the private sector.

3.3.2 Rationale for privatisation

Proponents of privatisation (Ohemeng & Grant, 2011:288) are of the view that privatisation

has been adopted by states to cure the poor accountability, inefficiency and ineffectiveness

of public organisations. The idea of privatisation is based on four important arguments of

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efficiency, effectiveness, cost savings and competition. Privatisation is also meant to control

government intervention in economic activity and to modernise the economy (Garcia &

Anson, 2007:406). According to Von Weizsacker et al. (2005:175), privatisation is part and

parcel of a major historic trend that has been characterised by markets dominating the

activities of the state, thereby leading to globalisation. The markets have dominated the

public sector because their operations are global whilst the state operates at the local level.

Globalisation is thought to operate in a uniform ‘’one-size-fits-all’’ top-down mechanism

that affects all countries equally (Fink, 2011:116). Rahaman, Everett and Neu (2007:638)

support this assertion and point out that, indeed, if globalisation is viewed as the diffusion

of common organisational forms and practices across diverse sites, it has persuaded the

transfer of government assets and services to the private sector.

Bortolotti et al. (2003:307) observe that the possible determinants of privatisation are

classified into four groups: political preferences; hard budget constraints; legal origin; stock

market liquidity. The determinants of privatisation across all countries are discussed in Table

3.1 below.

Table 3.1: Determinants of privatisation across all countries

Determinants of Privatisation Description of the Determinants of Privatisation

Political Preferences

• Market-oriented politicians • Government’s credibility

Hard budget Constraints

• Government in distress • Contribution to balance public finances

Legal origins • Civil law countries • Common law countries

Stock Market Liquidity

• Market liquidity • Liquid stock exchange • Monitoring of management through a liquid market.

Source: Adapted from Bortolotti et al. (2003:308-311).

Political preferences – Gyorffy (2009:149) argue that implicit commitment from government

on structural reforms brings about long-term benefits. However, when the public does not

trust the credibility of the government in general and policy makers in particular structural

reforms face resistance from the public. Bortolotti et al. (2003:308) contend that credibility

is related to factors such as the reputation of the government, the presence of restraints on

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policy reversals and on how the government implements its economic policies. Therefore,

credible governments are associated with more sales and increased privatisation revenue.

Hard budget constraints – Bortolotti et al. (2003:308) argue that privatisation has been

imposed on both developed and developing countries through structural adjustment

programmes so as to avoid subsidies and to generate the required capital. According to

Earle and Estrin (2003:2), the collapse of communism in Russia resulted in the adoption of

privatisation programmes where shares were transferred from government ownership to

private owners in more than 12000 organisations. Consequently, the adoption of the

privatisation policy reduced subsidies to parastatals. Thus privatisation yields higher

benefits when government reduces its role of bailing out loss making parastatals and when

entry of new businesses is liberalised.

Legal origins – Evidence shows that (Bortolotti et al., 2003:309), politicians in civil law

countries are unwilling to give up control of parastatals as they are a powerful means of

maintaining the State’s monopoly in the provision of strategic services and its redistribution

policy. Common law countries have a legal tradition of protecting investors whilst civil law

countries protect investors to a lesser extent, thus resulting in these countries’ diminished

access to external capital, debt or equity. Selvi and Yilmaz (2010:683) argue that it is

important for governments to put in place a legal framework to guide the privatisation

process as privatisation programmes require a lot of planning.

Stock market liquidity – Perotti and Oijen (2001:44) argues that a critical policy change in

emerging economies has been the establishment of large privatisation programmes which

have led to reduction in public debt, better incentives and organisational efficiency.

Bortolotti et al. (2003:311) argues that the availability of a liquid stock market will facilitate

the privatisation of large public organisations and the ability to gather information; this

allows fuller extraction of the organisation’s market value thereby realising higher

privatisation revenues, as investors require a discount for shares traded in an illiquid stock

market.

Proponents of privatising public organisations (Zabalza & Matey, 2011:1741) have based

their argument on the unsustainable, or at least strongly criticisable, nature of many of the

pillars that had supported the creation of public organisations in previous times. The major

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pillars which were criticised include: the natural monopolies, the strategic productions and

the redistribution of wealth. The poor performance of most parastatals and their inability to

offer a quality service and meet demands have encouraged many governments to turn to

the private sector for the provision of infrastructure services, thus leading to the need for

reforms (Tarola, 2010:64). Tan (2011:49) argues that the expansion of privatisation into

public services and, in particular, infrastructure in the 1990s coincided with developments in

privatisation theory and perceived opportunities by the private sector (multinational

companies, financial institutions, consultants); this was supported by multilateral

organisations and international development agencies (for example, the International

Monetary Fund, the World Bank and the Asian Development Bank).

Astami, Tower, Rusmin and Neilson (2010:9) argue that the performance of privatised

organisations is expected to be better than that of public organisations, as private

organisations are perceived to be more efficient. This argument is based on the belief that

private organisations implement efficient management techniques and easily adapt to the

dynamic business environment. Furthermore, reasons such as the employment of efficient

managers by the private sector to replace managers previously employed by the public

sector, improved incentives in the private sector. Thishas motivated managers to improve

organisational performance as well as the reduction of some strategic barriers imposed on

public organisations, like retrenchments, switching suppliers, introducing modern and

efficient technology and charging market prices, have been listed as some of the reasons

why private organisations outperform public organisations.

The motivation by governments to privatise their public organisations has, in some

instances, not been driven by the need to adjust their domestic economic situation. Instead,

they have been driven by the actions of other countries (Fink, 2011:112). Similarly,

governments have been driven by institutional isomorphism and have privatised their public

sectors because other governments privatised as they are motivated by the cumulative

positive experiences which they are eager to emulate. In addition, privatisation is

conditioned by political institutions in that leftist parties tend to avoid privatisation whilst

liberal parties privatise early. Furthermore, Fink (2011) contends that governments privatise

as a result of economic considerations which include the opening of capital markets, a weak

economic performance, high public debt, the growth of a consensus that private

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organisations perform better than public organisations and the conditions set by the IMF

and World Bank for the provision of aid.

According to Bjornskov and Potrafke (2011:202), the question of whether government

ideology influences privatisation has been investigated for Organisation for Economic Co-

operation and Development (OECD) and some developing countries; it has been observed

that right-wing governments have been more active in promoting privatisation, overall

market liberalisation, labour market deregulation and product market deregulation in OECD

countries. Boubakri et al. (2011:246) support this assertion and point out that literature on

the political economy of privatisation posits that government commitment to market-

oriented policies can manifest itself through partial privatisation whilst right-wing oriented

governments, which are less distressed financially, will easily relieve themselves from state

control in the economy and will divest quickly. Furthermore, governments which are highly

indebted find themselves under pressure to adopt privatisation and restructuring policies.

Apart from being a policy which relieves government from its financial distress and

improves the performance of public organisations, privatisation assists in creating a basis for

competitive sectors and private organisations which assist in improving economic growth

(Nguyen, 2010:6). Similarly, Garcia and Anson (2007:391) claim that the reasons and aims

underlying privatisation processes are of a financial, political and economic nature.

Furthermore, the financial reasons for privatisation are realised after selling parastatals and

when states stop subsidising these organisations. Moreover, the political reasons for

privatisation are premised on the weaknesses of state ownership as it is unable to establish

the organisation’s goals as well as a means of attracting foreign capital and institutional

investors. Economic driving forces of privatisations revolve around the belief that private

organisations perform better than public organisations in terms of productivity and

efficiency. In this regard, privatisation can be influenced by the economic cycle or the time

of the privatisation programme. Furthermore, Garcia and Anson (2007) conclude that

privatisation normally brings about good performance outcomes when organisations are

privatised during expansive economic cycles, because of the influence of the

macroeconomic evolution of the country.

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Kauffman and Wegner (2007:29) observe that as usually mentioned in government’s

privatisation legal framework, the MEDA countries had three main motivations for

undertaking privatisation programmes:

• Short-term fiscal benefits brought about by once off privatisation proceeds and the

reduction of the massive subsidies granted to often loss-making parastatals;

furthermore, enlargement of the tax base as organisations become profitable;

• The positive economic social impact of privatisation on competition brought about by

increased corporate efficiency, lower prices and improved access to services;

• The development of financial markets and the broadening of local participation in order

to attract foreign direct investment and stimulate private-sector development.

The authors also note that the World Bank and IMF programmes which spelt out conditions

for financial assistance, based on the adoption of market reforms (especially privatisation),

also influenced privatisation.

According to Fink (2011:118), governments adopt privatisation not only because of

economic problems but also by the growing legitimacy of privatisation as a transmittable

policy issue. Similarly, Parker and Saal (2003:33) also argue that privatisation arose not

because of ideas but because government ownership and management of organisations did

not work. Similarly, Ito and Krueger (2001:214) conclude that governments transfer public

organisations to the private sector not only for the purpose of increasing efficiency but to

create a bigger base for collecting tax revenue and as a strategy to relieve themselves from

perpetual subsidies to loss making public organisations.

3.3.3 Approaches to privatisation

There are two main approaches to privatisation (Goel & Budak, 2006:100); these include the

big bang approach to privatisation, which seeks to quickly privatise all sectors at the same

time, as well as the gradual approach which advocates for a sluggish bit by bit progression.

Furthermore, the use of these approaches is still debatable as the advantages of using these

approaches are not clear. The gradual approach is viewed as prolonging the status quo of

state-ownership whilst the political-economy framework views it as more acceptable to

citizens. Sarkar and Sensarma (2010:277) support this claim as they state that, owing to the

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political opposition to bank privatisation, India has followed a piecemeal approach where

the government has relinquished some of its stakes in one or a few banks every year.

3.3.4 Privatisation methods

According to Parker and Saal (2003:87), as a policy, privatisation has been adopted by

different countries operating in diverse socioeconomic backgrounds ranging from developed

countries, such as the United Kingdom, France and Germany to the transition economies of

Central and Eastern Europe, to the developing nations of Africa and Asia. All the countries

have used different methods and, in most cases, concentrated on those methods which are

deemed appropriate or successful in their environments. Ohemeng and Grant (2011:289)

argue that privatisation includes activities that range from selling public organisations to

contracting out public services with private contractors. The idea is viewed as an attempt by

government to involve the private sector in the provision of public services with the goal of

improving the content and execution of these services. The method of privatisation can

affect the evolution of government ownership since private sales generally involve smaller

companies, often privatised fully, whereas public offerings typically involve larger

companies often sold partially (Boubakri, Cosset & Guedhami, 2005:382). In addition, the

outright sale of public organisations can be opposed by politicians (Sarkar and Sensarma,

2010:276). Thus, when governments are faced with such political obstacles they may prefer

partial privatisation as an option.

The perfect privatisation strategy of transferring public organisations to private operators is

to transfer these assets as rapidly as possible (Simoneti, Damijan, Rojec & Majcen,

2005:1604) to determined owners through open, fair, and transparent methods. Reforms

which have been carried out in Eastern and Central Europe (Bennet, Estrin & Maw,

2007:806) have used a variety of privatisation methods to supplement the standard

approaches, such as auction, public tender or direct sale, that have been employed in the

West. Other privatisation methods which have been used include restitution, transfer to

municipalities, sale to insiders through management-employee buyouts (MEBOs) and mass

privatisation. However, Omran (2009:671) concludes that employee ownership

concentration results in a negative organisational performance whilst ownership by a

strategic foreign investor tends to produce better performance.

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Tan (2011:55) observes that public financing remains central to infrastructure privatisations

because of the very high costs, uncertainty and risks associated with long gestation periods,

as well as the fact that governments can raise financing for large-scale infrastructure

projects at a lower cost than the private sector. Therefore, the need to involve the public

sector in infrastructure privatisation has resulted in a shift to Public-Private Partnerships

(PPPs), Private Participation in Infrastructure (PPI), and Private-Sector Participation (PSP), in

which risks are shared. Similarly, these developments have adjusted the meaning of

privatisation from strict ownership or divestiture to include any form of private-sector

participation, which may include lease of assets, concessions as well as management

contracts. The US$3.5bn BOT concession for the Gauteng light rail in South Africa involved

government cash subsidy commitments of US$3 bn (Tan, 2011:56).The methods of

privatisation which can be used are shown in Table 3.2 below.

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Table 3.2: Privatisation methods

Method Brief description

Sales of shares and Assets

• Sales are done through competitive bidding or direct negotiations.

Public floatation • Shares are sold to individuals, private organisations or financial institutions through the stock market.

Management buyout • The organisation is sold to its managers and/or employees, giving them control of the future direction of the organisation.

Liquidations • Assets of an organisation are sold to pay its outstanding debt. • Leads to the total closure of the business.

Joint venture • A company which is jointly owned by the public and private sectors is set up to complete a project that benefits both parties.

Full privatisation • The government sells 100% of the equity in the parastatal to private operators.

Partial privatisation • The government transfers part of the equity in the SOE to a private organisation.

Trustees • Achieved by transfer of shares of a public organisation to a trustee for onward sale.

Service contract • A contract for the maintenance of a specific service by a private entity.

Lease contract • A private organisation pays a fee to the government for the right to manage the facility and takes some of the operational risks for a given period.

Management contract • A private organisation is appointed by the government to provide managerial services for a fixed fee.

Concessions • A private organisation takes over the management of a facility or a SOE for a given period, during which it also assumes significant investment and operational risks.

Build-operate transfer (BOT) arrangement

• A private entity builds, owns and operates a facility, then transfers ownership to the government at the end of a specified period.

Mixed method • This is where two or more methods are used. Source: Kauffmann and Wegner (2007:12-13); Von Weizsacker et al. (2005:7).

Von Weizsacker et al. (2005:6) devote particular attention to four broad categories of

privatisation, ranking from ‘weak’ to ‘strong’ privatisation:

• Having public organisations to compete with private or other public operators

• Where governments pay private actors to provide public goods and services

• Private financing in exchange for delegated management arrangements, often with a

view to transferring ownership to the state after a period of profitable use, and

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• Transfers of public organisations into private hands.

The first category involves cases where the government changes the rules of doing business

by allowing private organisations to compete with public organisations in providing services.

The second category involves cases where the government contracts private organisations

to provide services. The third category involves the financing of infrastructure projects like

BOT arrangements, concessions and lease contracts by the private sector whilst the fourth

category involves the transfer of public assets to private ownership. Waigama (2008:31)

postulates that joint ventures are important during privatisation as they have the capacity

to generate the much needed foreign currency, introduce modern technology, operational

know-how and build good infrastructure as investors are keen to expand their businesses

and earn some profits.

The most effective way of selling public organisations is through the identification of the

organisations to be sold. Then, through the market mechanism, private investors get the

chance to buy shares from these organisations (Filipovic, 2005:4). This form normally

generates revenue for the state and puts privatised organisations under ownership of

investors who are motivated and have the capacity to invest and restructure the privatised

organisation. Furthermore, Filipovic (2005) states that employee or management buy-out

involves the selling of public organisations to employees or managers at a low price.

Although the organisation is sold to employees or managers who have the experience of

running the organisation, these normally lack resources to invest and restructure the

organisation compared to when organisations are sold to strategic investors. According to

Waigama (2008:30-31), management-employee buy-outs pose some risks to the business

because of the huge debts and other financial problems from which public organisations

suffer, as well as the lack of capacity to operate businesses by such employees and

management.

3.3.5 Privatisation-nationalisation cycles

According to Chang, Hevia and Loayza (2009:2), lately, however, the benefits of privatisation

have been questioned and this has resulted in many countries’ governments having taken

the stance of re-nationalising some of the privatised organisations or services.

Nationalisation-privatisation cycles normally take place in the natural and utilities sectors.

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Nationalisation occurs when there is a high level of inequality within a country, particularly

where there is a perception that the rents from these organisations are benefitting the

minority. Bolivia, replete with natural resources such as minerals and hydrocarbons, is one

country that has gone through a number of privatisation-nationalisation cycles as a result of

fluctuations in the prices of its products and political instability. The country nationalised

the entire petroleum industry in 1936; this was followed by a new economic program in

1956 which invited North American petroleum organisations back to Bolivia in the midst of

an economic downturn. The government passed a new hydrocarbon law which approved

property rights to foreign investors. Moreover, the political environment in Bolivia

deteriorated in 1969 resulting in the nationalisation of Gulf Oil. The adoption of the

nationalisation policy resulted in the country facing high inflation and a disastrous economic

situation which led to the country reverting back to the privatisation policy in 1993. The

downward wave in Latin America caused the Bolivian economy to move into a recession

thereby attracting inequality protests which demanded the nationalisation of the country’s

natural gas resources. The protests led to the nationalisation of Bolivia’s gas fields and oil

industry in 2006.

Similarly, Von Weizsacker et al. (2005:102) state that, at the end of 1989, Air New Zealand

was privatised through its outright sale to a consortium of investors. The airline was

privatised through public tender when the government embarked on economic reforms

which sought to eliminate subsidies to industries, abandon price controls and eliminate

capital controls. The international consortium consisted of Brierley Investment Limited (65

percent), Qantas (19.9 percent), Japan Airlines and American Airlines (each with 7.5

percent). The transaction offered Air New Zealand a major quantity of ‘A’ shares which were

to be sold to New Zealand citizens only. Air New Zealand started to expand by entering into

alliances with a number of airlines which included Canadian Airlines, Qantas and

Scandinavian Airlines and it purchased 50 percent of Ansett Holdings in 1996. However, in

2000 Ansett experienced a series of problems which led to its planes being grounded and in

2001 Ansett was placed under voluntary administration. Air New Zealand weaned itself from

Ansett as the government was not willing to have its airline under the control of foreign

hands, hence Air New Zealand was nationalised in 2002. Rossouw (2012) reports that the

Zambian government has nationalised the concessions of New Limpopo Bridge Projects

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Investment Limited in which South African companies Nedbank, Sanlam and Old Mutual

held significant stakes. The New Limpopo Bridge Projects Investment Limited had won a

tender to operate railways in Zambia in a process supervised by the World Bank in 2003.

Consequently, the mismanagement of the railway systems of Zambia has been cited as the

main cause of renationalising the concession.

Ohemeng and Grant (2011:290) assert that contracting back, in all cases, results from

disappointment with service quality, or difficulties with contract specifications and

monitoring. Similarly, the idea of privatisation in Atlanta and Hamilton was premised on four

fundamental grounds: efficiency, effectiveness, cost savings and competition. The

privatisation and causes of de-privatisation of water and wastewater services in Atlanta and

Hamilton is are in Table 3.3 below.

Table 3.3: Privatisation and de-privatisation in Atlanta and Hamilton

City Privatisation process Problems encountered Atlanta • Contracting out management

operations

• Service delivery was very poor • Promises on capital investments

were not fulfilled • Failure to generate the promised

cost savings for the city.

Hamilton • Management contract • Lay-off of employees. • Concerns regarding deteriorating

health safety conditions. • Change of ownership.

Source: Adapted from Ohemeng and Grant (2011:293-296).

Atlanta privatisation process–According to Ohemeng and Grant (2011:293), Atlanta decided

to privatise its water services in an attempt to solve a fiscal crisis rather than to deal with a

water supply or quality problem (although there was a potential environmental crisis

looming in the background). Atlanta decided to privatise the entire water system and one

wastewater treatment plant in December 1997 through contracting out management

operations. Interested companies were invited to bid for the contract. The tender was won

by United Water on a 20 year contract. The contract entailed that United Water operate,

manage, and maintain the water supply system whilst at the same time being responsible

for raw water supply, treatment and distribution, billing and other services as well as

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carrying out some capital repairs and improvements. Privatisation resulted in the city

minimising potentially large future rate increases, generating immediate savings to help

fund a major bond issue, and allowed Atlanta to take advantage of intense competition for

contracts to manage the water system.

Problems encountered in Atlanta privatisation - In Atlanta, some major problems - such as

the company’s overall poor performance with respect to service delivery, its broken

promises surrounding capital investments, and its failure to generate the promised cost-

savings for the city- surfaced during the operation of the management contract (Ohemeng &

Grant, 2011:294). Furthermore, the organisation failed to maintain its allegiance to

customer service. These problems strained relations between the two contracting parties

resulting in the parties deciding to mutually end the partnership.

Hamilton privatisation process– The economic downturn in the early 1990s (Ohemeng &

Grant, 2011:294) led to local politicians in Hamilton deciding to contract a private player in

the delivery of municipal services. The other reasons for this were that the water and

wastewater system was poorly managed, overstaffed and failed to comply with provincial

regulations. The opportunity led to Philip Utility Management Company (PUMC) submitting

a proposal to run the water services. Furthermore, the organisation was awarded the

contract, which would run for 10 years, without going to tender despite the fact that PUMC

had no track record of successfully running water services of that magnitude.

Problems encountered in Hamilton privatisation – Within a year of the contract, problems

such as poorly maintained equipment as well as deteriorating health and safety conditions

started to surface (Ohemeng & Grant, 2011:295).The contract resulted in a number of

employees being laid off. Furthermore, a pumping system failure at the main sewage

treatment plant, in 1996, flooded a number of homes and businesses and raw sewage was

deposited into the Hamilton harbour and surrounding wetlands. The sewage spill was the

worst ever in the history of Hamilton. In 1999, Philip was acquired by Azurix Corp without

going to tender and the organisation agreed to take over all the responsibilities of Philip.

Azurix was also sold to American Water Services (AWS) in 2001 before fulfilling its promises.

These problems led to Hamilton’s public works department planning new arrangements

regarding the running of their water systems before renewing the contract. The department

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recommended the contract model or the municipal model which would return water

services to municipal management. Nevertheless, a contract model was agreed upon and

stringent requirements were stated in the request for a proposal so as to avoid the

repetition of earlier mistakes. This arrangement, coupled with a rigorous competitive

procurement process, led to the four final bidding companies including AWS failing to

qualify. Thus, on the advice of the city staff and after court appeals by AWS, Hamilton

council decided to return these systems to municipal management.

3.3.6 Benefits of privatisation

The research on privatisation in many parts of the world, including Africa, is based on an

economistic theoretical lens that posits that privatisation brings about benefits (Josiah,

Burton, Gallhofer & Haslam, 2010:376). Notably, public organisations are characterised by

principal-agent issues whilst these are less pronounced in private organisations. According

to Tan (2011:49), privatisation reduces the chain of command between principal and agent

and provides owners with incentives to monitor the performance of managers. Managers of

privatised organisations are disciplined as they constantly interact with capital-market

pressures. In this sense, privatisation is seen as separating politicians and managers thereby

depoliticising organisations and making it difficult for politicians to subsidise losses using

public funds. According to Zhang, Parker and Kirkpatrick (2008:8), privatisation is associated

with benefits such as raising economic efficiency through changing the allocation of

property rights leading to improved management incentives with the capacity tochange

management behaviour, exposing organisations to capital market discipline, formulating

with objectives which are measurable, thorough monitoring of management behaviour by

principals as well as the elimination of political interference in the day-to-day management

of the organisation.

Privatisation in transition and developed countries has had a tremendous impact (Assaf &

Cvelbar, 2011:393) but, in developing countries, the policy shift has remained controversial.

Numerous theoretical opinions are of the view that privatisation is linked to higher

productivity and higher utilisation of the available funds. Josiah et al. (2010:377) confirm

that privatisation eliminates the crowding of private organisations and attracts investments,

markets, foreign currency and access to global technology. In addition, at the macro-level,

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privatisation is viewed as reducing government subsidies and the public sector deficit as

well as stimulating better resource allocation through the market mechanism. Furthermore,

privatisation is a panacea to increased international trade, reducing unemployment,

inequality and poverty as well as fostering long-term economic development.

Cunha and Cooper (2002:22) point out that the results of privatisations, which have been

reported from economic, financial and strategic perspectives include:

• a decrease in deficit within the public sector and improved organisational financing

• a strong capital market

• increased efficiency within the state and its actions

• improved incentives for managers and workers positively influence efficiency and

productivity

• management gain full control of the private sector

• decrease in levels of employment and relative wages, and

• rational organisational strategies are put in place so as to attain stated goals.

A significant change in organisational culture has been reported as attitudes shift towards

recognising efficiency, quality and innovation, introduction of new management as well as

adopting new human resources management practices which emphasise better

performance. The change in culture can be used by management as a regulatory tool to

achieve synergy amongst individuals and to support strategic changes within an

organisation. Thus, organisational culture can also be viewed through such variables as

organisational planning, decision making processes, organisational integration, management

style as well as organisational strength. The human resources management changes which

include culture, management style, employee involvement and influence, remuneration,

training and development, recruitment and selection, as well as job security/layoffs are

shown in Table 3.4 below.

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Table 3.4: Characteristics of public organisations after privatisation

Area of Human Resources Management

Characteristics of public organisations after privatisation

Culture • Close monitoring of the market and clients. • Change from an inward looking to an outward looking

culture. Management style • Changes from reactive to proactive.

• Guided by the shareholders’ interests. Employee involvement and Influence

• Employee involvement increases. • Employees have greater autonomy in managing their

jobs. Remuneration • Range of salaries increases.

• New wage incentives are introduced. Training and development • Emphasis on employee development.

• More economic resources are allocated to training. Recruitment and selection • External recruitment is preferred over internal

recruitment. • People with business management profiles make up

the executive staff. Job security/ lay-offs • Characterised by job cuts. Source: Adapted from Zabalza and Matey (2011:1743-1749).

According to Zabalza and Matey (2011:1743), privatisation leads to close monitoring of the

market and customers which results in a shift in organisational culture. Management style

changes from being reactive to being proactive. Furthermore, there is an increase in

employee involvement as employees have greater autonomy on their jobs. Moreover, high

calibre employees are identified for training and development as more resources are

allocated to this cause. The executive members of the organisation are made up of people

with business management experience as there is an emphasis on external recruitment

rather than internal recruitment. Incentives to push profits are introduced and salary levels

improve significantly.

3.3.7 Criticism of privatisation

Critics of privatisation are of the view that proponents of privatisation have tended to

concentrate on literature which is narrow and limited to certain types of benefits (Josiah et

al., 2010:379). Likewise, the focus of these studies have concentrated primarily on

profitability at the expense of jobs, skills, pensions, income distribution or welfare issues in

general. Consequently, privatisation has been heavily criticised as it is perceived to be

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unfair as the rich, powerful and those who are strategically positioned benefit at the

expense of the poor, disenfranchised and at times beleaguered workers (Birdsall & Nellis,

2002:2). Even though privatisation brings about an improvement in efficiency and financial

performance, it has a disadvantage in the distribution of wealth, income and political power.

Although privatisation can improve access to products through the expansion of businesses,

the private owners may decide to withdraw a service from certain markets which were

previously serviced by the public organisations.

Observations of large scale privatisation in terms of progress and volumes in developing

countries (Koyuncu, Ozturkler & Yilmaz, 2010:277) have shown an increase in the risk of

corruption whereas such risk decreases in developed countries. In addition, there is also a

causality problem considering whether privatisation causes corruption or corruption causes

privatisation. Whilst public ownership is characterised by principal agent problems, there is

even a more serious principal-agent problem during the privatisation process itself (Josiah et

al., 2010:376-377). This problem is a result of the difficulties associated with controlling

abuses within the privatisation process, as processes like auctions can be rigged.

Furthermore, it is very difficult to undertake the process of privatisation as government can

lose some revenue during the process.

Privatisation has received negative perceptions as it leads to job losses and the employment

of non permanent employees as well as outsourcing jobs; it has therefore received a lot of

resistance during the process (Astami et al., 2010:15). The managers and workers of public

organisations can also oppose privatisation as they fear the loss of their jobs and benefits.

Moreover, those who oppose privatisation around the world are concerned about increased

corruption and lack of transparency during the implementation of privatisation

programmes. Cunha and Cooper (2002:26) declare that in some cases organisations carrying

out privatisation are characterised by issues such as role ambiguity, role overload and role

underload, new work relationships, job insecurity associated with future job loss or

deterioration of working conditions, the requirement of new skills and the frustration of

career advancement expectations as well as centralisation, normalisation and decision

making. Thus, employees are likely to be affected by these occupational stressors during the

period of restructuring of privatised organisations.

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3.4 PRIVATISATION IN DEVELOPED AND DEVELOPING COUNTRIES

3.4.1 Privatisation in developed countries

Bortolotti and Milella (2006:1) posit that, during the 1990s, Western European countries

embarked on an ambitious privatisation programme which was mainly initiated by a need to

introduce market reforms and control budget deficits as a requirement for these countries,

before they could be allowed to be members of the European Union.In this regard, the

statistics on privatisation indicate that Portugal has carried out the largest number of

privatisations, followed by the United Kingdom, Netherlands with Spain and Italy occupying

the middle high spot while France and Austria record the lowest scores. Product market

competition is viewed as having the capacity to influence privatised organisations to

operate efficiently and aggressively (Otchere, 2007:4). These organisations can maintain

their market power based on their previous monopoly status whilst being weaned from

government demands to promote social objectives.

3.4.2 Rationale for privatisation in developed countries

The main objective of privatisation in developing countries is to improve economic

efficiency and to raise the much needed foreign currency (Parker and Kirkpatrick, 2007:528).

The privatisation programmes of these economies places emphasis on raising productivity

and reducing the costs of production. Fink (2011:117) observes that privatisation in the

Western Organisation for Economic Co-operation and Development (OECD) world is

influenced by similar activities being implemented by neighbouring countries (isomorphism

pressures). Thus, when a government in the peer group privatise their public organisations it

becomes more likely that other governments in the grouping will also privatise.

Furthermore, membership in the European Union, which is characterised by far-reaching

liberalisation programmes, also drives these countries to privatise their public organisations.

Similarly, fiscal conditions and the positive outlook in financial markets (Bortolotti and

Milella, 2006:1) have played a positive role in influencing privatisation programmes in

Western Europe.

The British Conservative privatisation experience of the 1980s strongly influenced the Irish

government to embark in the same programme as most of its organisations in the

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telecommunications, maritime and air transport sectors were scoring poor results and

making losses (Clifton et al., 2003:65; Palcic & Reeves, 2011:58). In this regard, Ireland

carried out three major privatisations between 1989 and 1992; these included the Irish

sugar company and two insurance companies. According to Amess, Du and Girma (2009:8),

China’s privatisation programme was driven by the desire to create a functioning market

with a capacity to do away with central planning in the allocation of productive activity.

Privatisation in the UK aimed to raise revenue for the state, promote economic efficiency,

reduce government interference in the economy, promote wider share ownership, and to

provide the opportunity to introduce competition and subject public organisations to

market discipline (Hagen & Halvorsen, 2008:68). Furthermore, the government intended to

expand the domestic capital market through privatisation policies fixed by the government.

The successful British Telecom initial public offering, in November 1984, motivated

privatisation to be adopted as a basic economic policy in the UK. The privatisation of the

Japanese National Railways (JNR) took place in two phases and can be seen partly as a

response to JNR’s financial troubles and to its negative image. The first phase comprised of

minimal privatisation as the state kept the shares of the companies and the second phase

involved the sale of shares on the stock market (Von Weizsacker et al., 2005:94).

According to Clifton et al. (2003:73), the first objective of privatisation in Spain was to

promote industrial recovery by: making the public enterprise sector profitable by

eliminating loss-making businesses; selling off organisations that were not considered to be

of strategic interest, such as Textil Tarazona, Marsans (travel agency) and Entursa (tourism);

ensuring the sustainability of organisations which could not be made competitive as

parastatals, because they lacked the economies of scale, technology or commercial

networks, by selling the whole enterprise to multinational companies (as occurred in the

cases of Secoinsa, Skf, SEAT and Enasa) or merging them through cross shareholding in

order to gain technological partners and business alliances with other organisaations

(Repsol); and, promoting the policy of reindustrialisation by favouring business

concentration, as in the cases of Enfersa and Inisel. Similarly, the second objective of

Spanish privatisation was of a financial nature which involved removing subsidies to loss-

making organisations, in order to eliminate the budget deficit, by sourcing extraordinary

income, and to encourage public organisations to be financially self-sustaining.

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3.4.3 Management of privatisation in developed countries

According to Parker and Saal (2003:89), privatising governments should create new

institutions which are meant to manage the programme. Privatisation in Russia created a

State Committee for the Management of State Property which had a mandate to prepare

the annual privatisation programme, supervise its implementation, create commissions

responsible for the preparation of plans for individual organisations to be privatised and

promote investment funds involved in voucher privatisation. In France, the Privatisation

Commission was created to ensure that the organisations identified for privatisation were

not undervalued.

In spite of the fact that there is no universally applicable approach to privatisation, and

given that the attempt to apply a ‘’one size fits all’’ approach has proven ineffective and

counterproductive; the literature on privatisation has identified the necessary features of a

legitimate and acceptable national policy (Jerome, 2004:3). The features have been

benchmarked on the evaluation of the design, implementation process and outcome of

national privatisation policies and programmes which primarily include broad-based

participation, political commitment, competition and transparency.

Bortolotti and Milella (2006:2) contend that privatisation methods adopted in Western

Europe have been characterised by a general trend of using private sales where the sale of

shares to private strategic investors has dominated transactions. Public offerings which

account for about 28 percent and offer high revenues of about 64 percent are normally

used for larger and normally profitable organisations as they can easily be put forward for

internal or foreign contacts. Furthermore, the general trend shows that European countries

have not achieved ambitious privatisation programs in strategic sectors, except for the

United Kingdom and Spain who have completely privatised sectors such as energy,

telecommunications and transport. Larner and Laurie (2010:221) postulate that while the

United Kingdom led the way in telecommunications privatisations, the sale of Telecom NZ

received critical international attention because, rather than privatising through public

offerings in the equity market, the New Zealand government opted for a strategic sale to a

consortium dominated by two US companies in 1990. This method was consequently

adopted by many Southern and Eastern European countries which had poorly developed

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equity markets and where access to international managerial skills was a prerequisite for

privatisation.

Clifton et al. (2003:71) point out that privatisation in Portugal was implemented using some

of the best practice techniques available at the time: independent financial advisors

evaluated organisations prior to their sale; the public enterprise sector was corporatized or

transformed into companies regulated by private company law; and, optimum means and

techniques of selling were used, through tendering, public offerings, stock market offerings,

auctions of shares or a combination of these techniques. The Portuguese government was

selective as it targeted strategic investors as practised by smaller countries like Belgium,

Austria, Denmark and Ireland.

Garcia and Anson (2007:393) confirm that between 1985, when privatisation in Spain began,

and 2005, 134 State-Owned Companies from almost every industry – including strategic

industries such as telecommunications, energy, transport and banking – were privatised.

The privatisation programme was carried out in stages through partial privatisations and

total sell-offs through both direct sales and public offerings under both the Socialist (PSOE)

and Conservative (PP) governments. In addition, some auctions were also used to dispose of

these public organisations. The Spanish privatisation process was preceded and

accompanied by public sector restructuring, deregulation and liberalisation of key product

markets (petrochemicals, telecommunications, energy, gas and transport) (Garcia and

Anson, 2007:406).

The privatisation of Irish Telecom Eireann was done through a strategic alliance with KPN

and Telia which were medium sized EU telecommunications organisations. Furthermore, the

Irish government liberalised 22 percent of the electricity distribution network through the

Department of Transport, Energy and Communication (DTEC) by setting up a productivity

compensation plan for employees of the Electricity Supply Board as well as a concession

contract with Finland’s IVO. Similarly, other sectors which included air transport and airports

were reorganised through a strategic alliance with Air Lingus.

According to Dore, Kushner and Zumer (2004:46), in France, privatisation occurred at a time

when local authorities became technically or financially incapable of maintaining and

expanding their water and sewerage networks to comply with European standards.

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However, water and sewage systems in France are owned by the state but they are

operated by private organisations through a variety of contracts which include management

contracts, lease contracts, sub-contracting provisions and concession contracts.

China adopted partial privatisation which involved selling a minority stake in parastatals to

private individuals (Amess et al., 2009:8). This was part of a broad restructuring exercise

that required parastatals to adopt the western-style governance structures that comprised

of shareholders, a board of directors and chair of the board as well as a Chief Executive

Officer (CEO).

3.4.4 Benefits of privatisation in developed countries

Bortolotti and Milella (2006:19) argue that studies of privatisation clearly indicate that:

privatisation improves the operating and financial performance of newly divested

organisations; these improvements are the result of socially beneficial improvements in

productive efficiency and entrepreneurial effort, and; privatisation ‘’works’’ in a wide variety

of countries, industries, and competitive environments. Studies of privatised water and

sewerage organisations in England and Wales highlight that labour productivity improved

substantially and that increases in output prices have exceeded increased input prices,

thereby leading to higher profits after privatisation. According to Von Weizsacker et al.

(2005:278), privatisation is good for the environment as the dirty state hands over

responsibilities to international private investors and operators who finally introduce clean

technologies, make efficient use of natural resources and, ultimately, clear the mess left

over from earlier times.

The privatisation of public organisations in China improved the performance of these

organisations as a result of the introduction of incentives for managers (Amess et al.,

2009:9). Similarly, the quality of labour improves after privatisation because private

organisations prioritise the training of their staff. According to Von Weizsacker et al.

(2005:95), during the first decade of privatisation, the three Honshu Japanese Railways

made robust profits. The organisation managed to perform better than other private

organisations by attracting more passengers and improving productivity. Increased labour

productivity was realised through technological innovation such as automatic ticket

inspection when accessing platforms, offering better service and information, prompt

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reaction to regional needs, reduced travelling time by trains and increased train frequency

so as to prevent overcrowding.

3.4.5 Regulation in developed countries

According to Tan (2011:64), regulatory structures in advanced countries are thus the

outcome of a very different set of social, economic, technical and political conditions,

including significantly higher levels of income (and hence the ability and willingness of

consumers to pay higher/cost-covering tariffs), increased skilled technical staff who are well

versed in incentive regulation and the stronger enforceability of penalties for non-

compliance. The privatisation of Thames Water in the UK created three regulatory

authorities (Von Weizsacker et al., 2005:29) such as the Office of Water (OFWAT) which had

a mandate to regulate prices, investments and profits; the Drinking Water Inspectorate

which was responsible for setting, monitoring and enforcing purity standards in water

delivered for consumption, as well as the National Rivers Authority which was responsible

for protecting the aquatic environment through licensing water abstractions and water

discharge. Dore et al. (2004:43) point out that privatisation in England and Wales increased

the prices of water as, during the first year after privatisation (1989), the average water bill

in England and Wales was approximately £166 (1998/1999 prices) and it increased by 46%

to £242 in 1998-1999. However, OFWAT declared that the water bills were supposed to be

decreased by 12.3 percent as they were excessive.

3.4.6 Criticism of privatisation in developed countries

Apart from the different paths that have been used for privatisation - in terms of

chronology, rationale, motivation, scale and scope -the proponents of privatisation have

understood it as a single, homogenous process that might be implemented in various

countries at different times and yet have the same kind of results (Clifton et al., 2003:85).

Privatisation is normally viewed as following a linear path emanating from the British

experience of the early 1980s, and which has subsequently been adopted by many countries

all over the world. Privatisation also results in corruption and, at the same time, privatised

monopolies create huge rents. Birdsall and Nellis (2002:38) argue that the assessment of the

distributional effects of deregulation and partial privatisation in Spain’s utilities show that all

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households experienced a welfare gain following the reforms, although poorer households

benefitted ‘’less than average,’’ implying a negative distributional effect.

Von Weizsacker et al. (2005:87) argue that the privatisation of British Rail has become

notorious for its lack of success. Worldwide media coverage has associated privatisation

with the death of fifty-nine people as a result of accidents which occurred in Southhall

(1997), Ladbroke Grove (1999), Hatfield (2000), Great Heck (2001) and Potters Bar (2002).

Furthermore, some investigations carried out on other accidents found that factors such as

inadequate maintenance, inoperative safety equipment, inexperienced and poorly trained

staff, overlooked operating and safety procedures as well as mixed-up reporting channels

and responsibility were linked to privatisation.

3.4.7 Privatisation in developing countries

According to Wated, Sanchez and Gomez (2008:111-112), privatisation in developing

countries has long-term economic results such as the increased effectiveness of

organisations, fair and merit driven employment practices and profit sharing mechanisms

whilst it can, at the same time, be viewed as having negative results which are basically

social and nationalistic in nature such as job losses, social unrest as well as the loss of

natural resources. Nellis (2005:7) notes that many of the privatisations in Africa have

targeted small, less valuable and declining organisations in the manufacturing and industrial

sectors as well as the service sectors of the economy. In comparison, the privatisation of

infrastructure utilities has always made little to no progress as most African leaders prefer

to address the problems facing parastatals through means other than a change of

ownership. Of the 2300 privatisations carried out between 1991 and 2001 in Sub-Saharan

Africa, roughly 66 have been for higher economic value and important organisations.

Furthermore, a full third of the total revenue realised from these privatisations has been

generated by a few privatisations in South Africa whilst 33 percent was generated from

Ghana, Nigeria, Ivory Coast and Zambia; the other 26 African countries have contributed a

negligible $0.7 billion USD. In addition, African governments usually hold on to a substantial

amount of shares from the few infrastructure privatisations they would have done on the

pretext of protecting the public interest from mischievous and poorly performing new

buyers. Moreover, the governments hold back these shares with the hope of selling them

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when the new buyer has improved the value of the organisation. Furthermore, the lack of

enthusiasm to privatise the highest potential organisations, sluggish pace of sales, poor

business and legal environments, shortcomings of government regulation and

administration as well as the failure to sell all stakes has contributed to a lack of foreign

investment in infrastructure privatisations. The record of privatisation, for a few African

countries, during the period 1991-2001 is shown in Table 3.5 below.

Table 3.5: Privatisation record of selected countries in Africa 1991-2001

Country Number of transactions Sale value

(US$ million)

Share of total Parastatals

divested (%)

Angola 57 6 Nil Cameroon 48 244 28 Cote d’Ivoire 82 622 55 Ethiopia 10 410 06 Ghana 181 936 69 Guinea 31 45 27 Kenya 189 381 79 Lesotho 10 6.5 20 Madagascar 61 16.9 33 Mozambique 474 135 39 Nigeria 30 893.5 6 Rwanda 1 Nil 3 Senegal 39 415 23 South Africa 8 3 151 Nil Tanzania 199 287 53 Uganda 102 174 79 Zambia 253 828 90 Zimbabwe 6 217 10 Source: Adapted from Nellis (2005:8).

3.4.8 Market features of developed and developing countries

According to Parker and Kirkpatrick (2007:526), although there are limited empirical facts

concerning privatisation in developing countries, some lessons can be learnt regarding the

design and implementation of privatisation programmes in these countries. Notably,

country characteristics can considerably affect privatisation policies as well as the firm’s

strategy and performance. In addition, as a result of the differences in characteristics,

privatisation can impact developed and developing countries differently. The major

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differences between developed and developing economies – in terms of markets,

management, property rights, and government - are shown in Table 3.6 below.

Table 3.6: Privatisation: Market differences between developed and developing economies

Commonly found feature

Developed Countries Developing Countries

Product market

• Characterised by competitive product markets.

• Imperfectly competitive and incomplete markets.

Labour market • Organised and competitive labour markets.

• Regionalised and sometimes ethnically distinct labour markets.

• Appointments made through connections.

Capital market • Competitive and mature capital markets.

• Have stock exchanges, venture capitalists, banks and other loan creditors.

• Lack liquid capital marketsto facilitate share trading and the takeovers that police management behaviour in the private sector.

Managerial labour market

• Competitive managerial labour markets.

• Institutionalised management training.

• Management weaknesses and patronage in appointments.

Legal system • Characterised by a well functioning legal system.

• Protects private property rights. • Conventional standards of

business behaviour (business ethics) that facilitate market exchange.

• Poorly protected private property rights.

• Lack business experience • Operate within a weak

regulatory and supervisory regime.

Probity in Public administration

• Usually relatively high standards of probity in public administration.

• Relatively low standards of probity in public administration in a number of countries, including cronyism and corruption.

Source: Adapted from Parker and Kirkpatrick (2007:526-528).

According to Parker and Kirkpatrick (2007:526), developed countries have an advantage

over developing countries during privatisation in that these countries have a well

functioning financial system in the form of mature capital markets with strong stock

exchanges, business enterprise entrepreneurs, well implemented legal systems which

protect private property rights as well as strict adherence to ethical business practices which

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promote market trade. In contrast, developing countries do not have liquid capital markets

that can facilitate share trading in addition to which the banks in these countries lack

business experience and are poorly supervised as a result of a weak regulatory regime.

There are also major differences as private property rights are less defined and protected,

business conduct which fosters mutually beneficial trading is not well established and the

integrity of governments is largely questionable.

3.4.9 Rationale for privatisation in developing countries

Although developed countries primarily embark on privatisation programmes to enhance

economic efficiency, privatisation in developing countries seems to aim beyond this horizon

(Parker & Kirkpatrick, 2007:529). The welfare impact of privatisation in low-income

countries should include important issues such as economic growth, as well as distributional

and poverty effects. Birdsall and Nellis (2002:7) agree that the common aim of privatisation

in developing and transitional economies, and in industrialised economies, has been to

secure efficiency gains for the economy as a whole. Moreover, some proponents of

privatisation in transition economies have interpreted privatisation as a necessary political

action meant to link the state with productive organisations in the economy. Furthermore,

where distributional issues such as offering shares to employees, post-privatisation service

guarantees for less profitable markets and maintaining employee levels for sometime are

considered, they have been implemented in such a way that they grease the wheels of the

process in order for it to become politically acceptable.

According to Zhou (2000:200), in Zimbabwe, as in most African countries, public enterprise

reforms were implemented as a major component of structural adjustment programmes.

The policy goals in Zimbabwe included the need to: reduce the budget deficit (emanating

from loss-making parastatals), improve the operational viability of public organisations

(through operational, organisational and managerial restructuring), and rectify historically-

induced tilted ownership patterns in the economy - by economically empowering

indigenous groups. According to Dore et al. (2008:188-189), when the economic reforms

were implemented, the major objectives of public enterprise reform were not dissimilar to

those applied elsewhere:

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• Efficiency improvements and economic development through the attraction of foreign

investment, technology and know-how and the harnessing and encouragement of local

entrepreneurial skills.

• Generation of revenues through sales and leases.

• Use of a full range of options, including outright sale of shares and assets, leasing and

management contracts, and contracting services out.

Critics of privatisation have misinterpreted it as being imposedon countries by financial

institutions such as the World Bank (WB) and the International Monetary Fund (IMF) (Josiah

et al., 2010:378) when it should in fact be viewed as an economic policy that can be used to

stabilise and consolidate economic development. In this light, Hagen and Halvorsen

(2008:62) posit that developing countries have embarked on the privatisation strategy in

order to address their economic problems or as a result of the imposition of such policy

strategy by international financial institutions. The objectives of privatisation in South Africa,

Nigeria and Turkey are listed in Table 3.7 below.

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Table 3.7: Privatisation objectives of selected developing countries

Country Objectives of Privatisation South Africa

• Economic growth, • Promote the development of historically disadvantaged communities and black

economic empowerment, • Extend private ownership of government-controlled assets to employees and to

previously disadvantaged persons, • Reduce the national borrowing requirement, • Promote skills transfer and fair competition, • Attract foreign investment, • Reduce public borrowing requirements, • Assist in the development of an economic context that promotes industrial

competitiveness and fuels economic growth. Nigeria • With the organisations in the hands of private investors, it is argued that there will

be economic efficiency, • Equity is very crucial in the provision of goods and services. • Organisation and management, through incentives, communication, consultation,

collective bargaining and creativity make privatisation a more rewarding system, • To help reduce government regulation of the economy, thus making room for

greater deregulation and operation of market forces, • To encourage competition as private initiatives in privatised industries increase, • To reduce the burden on the dwindling resources of the government, • To help restructure the Nigerian economy in order to relocate public funds to

efficient users, create a self sustaining culture, attract foreign investors while goods and services will reflect real value,

• Overtime the economy will shift from a consumption oriented to a production oriented one.

Turkey • To implement a tight monetary and fiscal policy, • To reduce inflation, • To enhancethe momentum of development by activating idle capacities, • To liberalise foreign trade and encourage foreign capital investment, • To take the required precautions for establishing interest and exchange rates in a

(liberal) competitive market, • To prevent interruption on prices, • To reduce and stabilise real wages, and • To liberalise importation.

Source: Adapted from Jerome (2004:12-13); Joseph (2010:146-147); Hagen and Halvorsen (2008:71).

According to Hagen and Halvorsen (2008:71), in Turkey, the privatisation goals are basically

focused on limiting state control and decreasing the state’s intervention in the economy.

Joseph (2010:147) argues that Nigeria has adopted privatisation so that the private sector

becomes the driver of economic growth. The growth of a large public sector in Nigeria had

crowded out the private sector but had grown to be a hindrance to growth, as a result of its

appalling conditions. Jerome (2004:12) contends that South Africa has adopted a

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restructuring and privatisation model which is not similar to any of the models being applied

in the world. The emphasis of the South African model is on restructuring parastatals rather

than on privatisation itself, although some equity has been sold to some strategic equity

partners and Black Empowerment Groups whilst the government has retained majority

ownership.

According to Zhang et al. (2008:4), the driving forces behind the privatisation of the

electricity sector in developing countries include push factors. These include:

• the poor performance of state-run electricity services and unreliable supply

• the inability of the sector to meet the investment and maintenance costs of the

electricity industry, associated with the increasing demands for power resulting from

economic development in other sectors of the economy

• the need to remove electricity subsidies so as to release resources for other areas of

public expenditure, and

• the desire to raise immediate revenue for the government through the sale of state

assets.

In this regard, the pull factors have been identified as the demonstration effects of the

pioneering reforms of the power sectors in Chile, England, Wales and Norway in the 1980s

and early 1990s; advocacy of reform by international financial organisations and donor

agencies, such as the IMF and World Bank, through their lending for institutional reform

programmes; and rapid changes in technology in both the generation of electricity and in

the computing systems used to meter and dispatch power, making new industrial structures

possible.

Nellis (2005:16) points out that a study carried out in Zambia found that a prime rationale

for privatisation was the inability of government to access investment capital for the

renewal and expansion of parastatals. According to Goel and Budak (2006:100), broadly

speaking, a nation’s propensity to privatise public sector organisations can be seen to

depend on three sets of factors: economic conditions, government policies, and exogenous

influences. Accordingly, the study scrutinised the determinants of privatisation in 25

transition countries over the 1997-2001 period and gathered the results shown in Table 3.8

below.

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Table 3.8: Determinants of privatisation in transition economies

Factor Determinant of privatisation Economic conditions • Level of education within the population

• High levels of unemployment • High inflation

Government policies • A larger government structure • A government suffering from a budget deficit • Foreign exchange controls

Exogenous influences • Country size • Large population

Source: Adapted from Goel and Budak (2006:101-102)

According to Goel and Budak (2006:101), when a population is more educated, it is likely to

accept the policy of privatisation as it will have the capacity to bid for shares in

organisations earmarked for privatisation and will be able to manage such organisations

after privatisation.In this regard, an educated population is in a better position to evaluate

the value of public organisations offered for privatisation and this can result in difficulties in

disposing of theirconcerns. The level of education within the population is likely to influence

the degree of privatisation. A high level of unemployment is another determinant of

privatisation as there will be calls for private organisations with the capacity to create

employment. In addition, high inflation can hinder governments financially and this can

trigger government’s privatisation of state organisations. High inflation has a negative effect

on privatisation as the organisations offered for sale will be expensive. Furthermore, a large

government structure faces more pressure to privatise as resources may be efficiently

utilised by the private sector. Conversely, a huge government workforce can be a powerful

mechanism to lobby against privatisation. Moreover, a government facing a budget deficit is

likely to adopt privatisation in order to raise money, so as to reduce public liability. The

relaxation of exchange controls to include currency conversion and the repatriation of

earnings is likely to attract foreign investors who bring in specialised expertise, new

technology and capital, thereby promoting privatisation. Larger nations face difficulties in

managing parastatals, especially those located in remote areas, as a result of pronounced

agency issues; hence, privatising them can be an option.

Furthermore, Goel and Budak (2006:107) found that greater economic prosperity, greater

unemployment, and lower inflation seem to induce small scale privatisation. Similarly,

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foreign exchange liberalisation was found to spur large-scale and small scale privatisation

whereas large government deficits facilitated large-scale privatisation.

According to Fundanga and Mwaba (1997:12), one of the obvious goals of the Zambian

privatisation programme was to improve government finances from the proceeds of the

sale of organisations and, ultimately, receive tax revenues from the larger privatised

organisations. The Zambian privatisation/liberalisation programme focussed on a paradigm

shift which could improve efficiencies and turn the organisations into sustainable economic

organisations (Von Weizsacker et al., 2005:138). Overtime, public organisations in Zambia

performed below par as a result of issues such as the application of inappropriate

technology, total dependence on processing of imported raw materials, lack of management

experience, embezzlement of resources by officials appointed to run them and operating in

monopolistic environments where there was no competition (Wohlmuth, Gutowski, Knedlik,

Meyn & Ngogang, 2004:358).

According to Tsamenyi et al. (2010:429), the government of Ghana adopted the

privatisation programme with a focus on rejuvenating ailing public organisations so that

they could be focussed in their operations, thereby contributing revenue to the national

fiscus and creating employment.In addition, Ghana’s privatisation programme has been

recommended by international financial organisations as successful and as an example for

other African governments to follow. Ghana’s economy has, over the years, been

performing poorly as it was characterised by high inflation, problems of balance of

payments, high levels of unemployment, low GDP as well as low productivity. Furthermore,

the financial performance of parastatals in Ghana was very poor and they relied heavily on

subsidies and loans, eventually becoming a threat to economic stability. Rahaman et al.

(2007:639) state that Ghana is not an exception to other African states as it is also a victim

of the debt trap where African countries borrow in a bid to pay interest on its previous debt.

Furthermore, Ghana has encountered a situation in which it has relinquished some of its

autonomy over policy-making to its lenders; this is rises of from the fact that the latter only

offer credit if certain conditions are met. Thus, Ghana has observed meeting the demands of

its major lenders, the IMF and the World Bank, as these organisations not only offer the

much needed economic capital but also stipulate other requirements such as privatisation.

However, Nguyen (2010:6) observes that privatisation in transition countries has been

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influenced by higher levels of government debt. Moreover, if the ratio between debt and

the GDP is higher than 90% then debt has a negative effect on economic growth. Fink

(2011:117) observes that a major claim of sociological institutionalist reasoning is that

developing countries emulate the institutional forms of rich countries.

Privatisation goals in Turkey have focussed primarily on decreasing the actions of the state

and public interference in the economy (Hagen & Halvorsen, 2008:71). Moreover, Turkey’s

privatisation programme - which was supported by international financial institutions such

as the IMF and the World Bank - also sought to find solutions to the short term external

deficit. According to Fatta (2010:121), the government of Nepal accepted privatisation as an

integral part of its liberal economic policy in 1991.

3.4.10 Management of privatisation in developing countries

The impact of privatisation on performance in low-income countries requires the

improvement of a wide range of institutional issues such as the political, legal, management

and financial capacity in these countries (Parker & Kirkpatrick, 2007:526). The failure to deal

with these constraints prior to privatisation may lead to imperfect markets, or a monopoly,

at the expense of a competitive and dynamic economy, as argued by the proponents of

privatisation.

Nellis (2005:11) argues that in an effort to address the poor performance and financial

losses of public organisations, proponents of privatisation accelerated the privatisation

process without sufficiently addressing the fundamentals on which a successful privatisation

programme will be based.In addition, African countries rank low in terms of institutional

density and capacity, hence, a cautious approach to privatisation could be the right policy as

this will allow these countries to establish the correct institutional and regulatory

frameworks for successful privatisation. Dogruel and Dogruel (2011:7) observe that in the

early stages of reform in Turkey, the implementation of privatisation was slow. Moreover,

political unwillingness is viewed as a contributory factor to the slow pace of privatisation in

Turkey prior to 2000 because the political elites were using parastatals as tools for

controlling the economy; the government could thus not hastily abandon the activities of

the state.

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According to Wohlmuth et al. (2004:328), privatisation transactions have increased in Africa,

both in terms of the number and value of these transactions. Furthermore, privatisation in

developing countries managed to raise approximately US$250 billion between 1990 and

1999. Privatisation methods and transactions in Africa are shown in Table 3.9 below.

Table 3.9: Privatisation methods used in Africa

Method Number of transactions Sale of shares • Public Floatation • Competitive Tender • Existing Shareholders • Non-competitive • Management/Employee Buy-Outs • Sales by Open Auction

1286 91 912 157 85 34 7

Share Dilutions 6 Debt/Equity Swaps 10 Joint Ventures 39 Sales of Assets • Competitive Basis • Non Competitive

539 501 38

Liquidations 552 Transfer at nil value 12 Transfer to Trustees for follow on Divestiture 19 Restitutions 48 Leases 126 Concessions 4 Management Contracts 53 Mergers 2 Methods not reported 450 Total 3 146

Source: Adapted from Wohlmuth et al. (2004:332).

As a result of the declaration of the privatisation policy by the Zambian government, in May

1990, the Zambian government immediately set up a task force on privatisation in

September 1990 (Fundanga & Mwaba, 1997:7). The task force submitted a report to

government in January 1991; this report recommended the establishment of a Steering

Committee on Privatisation responsible for policy issues and a Technical Committee on

Privatisation responsible for actual privatisation activities. The government then passed the

Privatisation Act (No: 21 of 1992) which established the Zambia Privatisation Agency (ZPA)

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as the sole institution responsible for the privatisation of parastatals. Furthermore, the

methods which were listed in the Privatisation Act included the following (Fundanga &

Mwaba, 1997:7; Pamacheche & Koma, 2007:4-7):

• Public offering of shares

• Private sale via negotiated and competitive bids

• Dilution of government holdings

• Sale of assets

• Re-organisation of parastatals before sale of whole or part

• Management/employee buy-out

• Lease and management contracts, and

• Any other method the agency may consider.

Accordingly, privatisation facilitated the inflow of investments into Zambia as evidenced in

the Chilanga Cement privatisation; the Commonwealth Development Corporation (CDC)

increased their shareholding and the company was listed on the Zambia Stock Exchange.

Similarly, the Zambia Sugar Company was bought by Tate and Lyle, an organisation from the

United Kingdom and CDC, and the balance of the shares were reserved for public floatation.

Similarly, privatisations have been successful for those organisations which have been sold

using private sales via competitive bidding and acquisition by use of pre-emptive rights.

Conversely, organisations disposed of by means of management buy-outs have not

performed very well due to the lack of capital inflow into the operations of the organisation

and the lack of new management practices; as such, organisations maintain the same

parastatal culture. However, large scale privatisation - through sales to foreigners - risks the

tag of ‘re-colonisation’ and weakens indigenous ownership (Parker & Kirkpatrick, 2007:531).

Ghana became one of the earliest countries in Africa to have adopted the IMF and the

World Bank’s recommended economic policy – the Economic Reform Program (ERP)

(Tsamenyi et al., 2010:433). The government of Ghana engaged experts from the World

Bank in 1982 to carry out a feasibility study of the public sector and the team recommended

the privatisation of 100 parastatals in phases and the establishment of a 13 member

Divestiture Implementation Committee (DIC) to oversee the process. According to

Wohlmuth et al. (2004:341), the government put the Ashanti Goldfields Corporation (AGC)

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up for sale by offering 30 percent of its 55 percent stake in AGC on the Ghana and London

Stock Exchanges. In 1994 Accra Breweries and Standard Chartered Bank were divested

whilst in 1995 the DIC approved 195 organisations for privatisation and 79 sales had been

made by the end of the year. The number of organisations which had either been fully or

partially privatised in Ghana by 1999 had reached 233 organisations. The methods which

used for these privatisations included the sale of assets (which was the dominant method);

the sale of shares; the lease of assets, with a view to acquiring the assets after a certain

lease period; joint ventures where government was a minority shareholder as well as

liquidations.

The South African government has embarked on partial privatisation through the sale of

shares to strategic partners and some Black Empowerment Groups whilst the government

has remained the majority shareholder as evidenced in the privatisation of Telkom, the

Airport Company as well as the South African Airways (Jerome, 2004:12). Furthermore, the

South African model emphasises the restructuring of state-owned organisations rather than

privatisation. Moreover, the South African model of privatisation is similar to the French one

in which the government has carried out partial privatisations while the government

remains a major shareholder in the privatised organisation. There is also an argument that

this model has been influenced by the political will to sustain the Tripartite Alliance of the

African National Congress, South African Communist Party and the Congress of South

African Trade Unions (COSATU). However, the French model prefers domestic investors

while the South African model takes on board foreign investors only as minority

shareholders.

Hagen and Halvorsen (2008:71) highlight that the first legal regulation regarding

privatisation in Turkey was implemented as legislature on 29 February 1994, which also

established the corporate mechanism of privatisation. In addition, activities such as the

principles, strategies, procedures, authorised agencies and problems pertaining to

privatisation were all spelt out in the Privatisation Law No. 4046, dated November 27th

1994. However, due to political instability, privatisation-oriented discussions could not

achieve a positive and efficient period. Furthermore, between 1985 and 2007, privatisation

in Turkey embraced methods which include block sale, asset sale, public offering,

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international offering, Istanbul Stock Exchange sale, incomplete asset sale and sales to

investment funds.

The privatisation of the electricity, gas, telecommunications, and parts of the water and

sewage industries in Bolivia was preceded by a valuation of the organisations which were to

be capitalised (Birdsall & Nellis, 2002:38); these were later put out to a competitive tender.

Moreover, those who submitted the bids were supposed to meet certain financial and

technical criteria and those who won the tender were allowed to control all the equity

purchased. The private owners were allowed to own 50 percent of the privatised

organisation whilst the government turned over the remaining 50 percent to newly

established, and private, pension funds, in which the population had a share. Wohlmuth et

al. (2004:336) point out that, in Nigeria, the legal framework of the second privatisation

programme was put in place with the promulgation of the Public Enterprises (Privatisation

and Commercialisation) Decree No. 28 of 1999. This Decree brought about an institutional

framework which established the Bureau of Public Enterprises (BPE) which had the mandate

of implementing the privatisation programme. The programme was carried out through the

full privatisation of 25 parastatals in the oil, cement, banking, agro-allied, motor vehicle

assembly as well as the hotel sector, and partial privatisation of 37 parastatals in sectors

ranging from telecommunications to sugar organisations.

In 1989, Guinea entered into a lease arrangement with a private provider to deliver water

service in the capital, Conakry, and 16 other towns (Nellis, 2005:3). The government

retained ownership of the assets, was responsible for setting policy and tariffs and was

assisted by the World Bank to organise investment finance and develop the network.

Furthermore, the government selected a private firm to operate and maintain the existing

facilities as well as billing and collecting payments from the customers. In 1999 Tanzania

engaged in the privatisation of parastatals through selling 136 organisations, 115

organisations were shut down, 24 organisations were leased and 8 were placed under

management contracts.

The Bulgarian government instituted a currency board and improved the macroeconomic

environment before it embarked on the privatisation of its first bank to a consortium of

investors in 1997 (Bonin, Hasan & Wachtel, 2005:2160). This privatisation trend continued

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and, by 2000, eight out of ten of the largest banks in Bulgaria were under foreign ownership.

Similarly, Croatia adopted the same model and by 2000 foreign investors had acquired 84

percent of the country’s banking assets; by 2002 ten of the largest banks in the country had

majority foreign ownership.

3.4.11 Benefits of privatisation in developing countries

A study based on 85 companies in 28 countries, including 13 developing economies,

between 1990 and 1996 revealed a higher mean level of profitability, real sales and

operating efficiency, significant reductions in leverage ratios, and insignificant changes in

employment and capital spending following privatisation (Parker & Kirkpatrick, 2007:518).

Furthermore, another study involving developing economies only found that the

organisations had realised significant improvements in profitability, organisational

efficiency, capital investment, output as well as total employment and dividends. Further

improvements have been realised from concessions to private operators in Buenos Aires,

Columbia and Guinea where, for instance, after privatisation, Buenos Aires realised a 14

percent reduction in water tariffs. Studies carried out in transition economies (Bonin et al.,

2005:2167) showed that all the banks which were privatised through a strategic foreign

investor were more cost efficient than the banks which were under public ownership.

Dogruel and Dogruel (2011:3) point out that the performance of privatised organisations is

superior to that of public organisations. Furthermore, from 1986 to the end of 2009,

privatisation in Turkey generated about 38.7 billion dollars in revenue.

Yonnedi (2010:538) postulates that privatisation is a vehicle of foreign direct investment

(FDI). In this regard, FDI in developing countries increased from $23.7 billion in 1990 to $166

billion in 1998. Similarly, private investment in infrastructure also increased in developing

countries, between 1990 and 1997, from $16 billion to $120 billion. Furthermore,

privatisation theories point out that privatisation increases the organisation’s efficiency and

managerial implications as it brings about changes in managerial incentives and corporate

governance while leading to flatter organisational structures as well as a reduction in agency

problems. Such agency problems have largely been dealt with through external control

instruments (for example: markets for managers, capital and organisational control) as well

as internal controls which include managerial participation in ownership, improved reward

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systems and the introduction of the board of directors. Managers of privatised organisations

can thus exercise their discretion to adjust the organisational mission and goals to

emphasise efficiency and customer satisfaction inline with their shareholder’s expectations

as they will be free from political interference. Thus, managers who are experienced in

commerce rather than those with political connections are appointed to privatised

organisations to transform them into the private sector mindset which capitalises the

market and technological opportunities.

Kauffmann and Wegner (2007:31) argue that, in Morocco, from the beginning of the

privatisation process up to 2006, the contribution of privatisation proceeds to the total

revenue (excluding grants) was about 5.0 percent, with peaks of about 24.5 percent in 2001

and 13.8 percent in 2003, corresponding to the sale of Maroc Telecom to Vivendi Universal

for $2.3 billion and the sale of the Regie des Tabacs to Altadis for $1.2 billion. In addition, in

Egypt, the number of privatised organisations and those listed on the stock exchange almost

doubled during the period 1992 to 2003; the market capitalisation of these organisations

increased from $3.2 billion in 1992 to about $20 billion in 2003. Privatisation in Morocco has

led to substantial foreign direct investment (FDI) in the strategic economic sectors of the

country resulting in the country claiming the first spot in the Arab region in terms of the

receipt of FDI.

Evidence generally shows that privatisation has been among the more successful of the

liberalising reformsin the sense that privatisation, in more cases than not, has yielded good

returns to the new private owners, has freed the state from what was often a heavy

administrative and unproductive financial burden, has provided the governments in place

with a one-time boost, and has helped sustain a larger process of market-enhancing reforms

(Birdsall & Nellis, 2002:13). In this respect, a study on 230 organisations in 32 developing

countries (Chang et al., 2009:8) found that privatisation led to significant increases in

profitability, efficiency, investment, and output. Furthermore, the prevailing

macroeconomic environment, structural reforms, and corporate governance had a bearing

on the performance of privatised organisations.

A study commissioned by the Zambian Privatisation Agency in 2001 (Nellis, 2005:16) found

that 235 of the 254 organisations privatised since 1991 continued in operation at the time of

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the study; thisreflects a good outcome considering that these organisations were in a poor

financial state and operated in a dismal business environment during the 1990s, prior to

their privatisation. Furthermore, sales in terms of value to Zambian citizens account for 5

percent, joint ventures account for 83 percent and the total of foreign buyers account for 12

percent. Further, 81 privatisations in Cote d’ Ivoire - comprising of the electricity sector,

agriculture, agro-industries and services - were analysed and it was found that the

performance of organisations improved and that privatisation contributed encouragingly to

economic welfare, which amounted to about 25 percent of pre-divestiture sales. Similarly,

in Mozambique and Tanzania a number of state organisations were no-longer operating but

after privatisation a positive change in the financial and operating performance of these

organisations was realised. Cull and Spreng (2011:255) are of the view that performance

improvements on privatised banks in developing countries have tended to be pronounced

when: the government fully relinquishes control, preferably fully divesting its shareholding;

a bank is sold to a strategic investor, instead of via share issue privatisation, which often

results in dispersed shareholding, and; bidding is open to all, including foreign-owned banks.

Equally, the sale of the National Bank of Commerce (NBC) in Tanzania, to ABSA met all these

conditions and the new NBC improved its profitability and portfolio quality after

privatisation.

3.4.12 Economic regulation in developing countries

According to Viscusi, Harrington and Vernon (2005:357), economic regulation typically

refers to government imposed restrictions on firm decisions over price, quantity, entry and

exit. When a government regulates an industry, the performance of the industry, in terms of

allocative and productive efficiency, is determined by market forces and administrative

practices. Regulation is a strategic policy used to improve competitiveness in the

international market and the efficiency of allocating resources (Hagen & Halvorsen,

2008:65). In this regard, a properly designed regulatory system is characterised by

protecting consumers from monopoly abuse (Zhang et al., 2008:9) as well as protecting

investors from illogical political action so as to promote efficient operation and investment.

The regulatory state model implies leaving production to the private sector where

competitive markets work well and using government regulation where significant market

failure exists (Jalilian, Kirkpatrick & Parker, 2007:88). The existence of economic regulation is

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based on substantial market breakdown as a result of information flaws in the market

dealings, continuation of imperfect markets, income and wealth distribution effects.

Moreover, a viable regulatory system requires regulatory agencies to be accountable for

their actions, operate within the law and exercise transparency by disclosing decisions made

to stakeholders as well as being consistent, so as to capture investor confidence.

It has been observed that an environment where regulatory and supervisory capacity are

developing, complementary settings are not in place and where competition is still limited

privatisation effects have always remained controversial (Birdsall & Nellis, 2002:13).In the

absence of competition (Tan, 2011:51), a regulation rather than an ownership structure is

vital for any privatisation programme to be successful. Therefore, regulation is used to

monitor the performance of organisations with a view of equitable distribution cost savings

between customers and investors. Furthermore, regulatory independence is critical to

achieve an effective regulation which is non-political and to prevent regulatory control by

the private sector. The focus here has been on competent and professional staff, significant

routine requirements that seek to attain integrity, independence, transparency and

accountability as well as safeguarding investors and clarifying property rights.

Robinson (2006:196-197) emphasises that, more specifically, the following are some of the

main governance problems in developing countries that can prevent the achievement of

efficient and effective regulation:

• unclear powers – the regulatory ‘carrots and sticks’ may be ill-defined and their use

unpredictable as a result of political intervention,

• the inability of regulators to commit to some form of regulatory contract to remove

inconsistency and unpredictability in regulation. This is especially evident in countries

with unstable political structures that lead to frequent changes in government and

where regulatory practices are not adequately protected by the courts,

• lack of a developed legal code for regulatory appeals,

• lack of a developed competition policy to complement sector regulation, which places

even greater demands on the sector regulator to police the competitive environment

and protect consumers,

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• a weak macroeconomic environment, including relatively high inflation and exchange

rate weaknesses that adversely impact upon the cost base of utilities, complicate rate

settings and create disincentives for investors to invest,

• regulatory and political capture, including the appointment of regulators with links to

interested groups, including the regulated industries and governing elites.

Jalilian et al. (2007:90) support this assertion and point out that in Malawi the electricity

industry regulator remains closely connected to the state electricity industry; this

arrangement endangers any notion of real regulatory independence and encourages

capture. Moreover, in South Africa, the creation of regulatory bodies is normally

characterised by ambiguity of roles and responsibilities and the adoption of policy-making

roles independent of government.

Conspicuously, governments across Sub-Saharan Africa, especially at the push of

multilateral institutions, have established or are preparing regulatory agencies for utilities

based on the inspiration of the industrial countries’ models, at the expense of their peculiar

national context (Jerome, 2004:2). Furthermore, there is limited literature concerning the

post-privatisation transition to utility regulation in Africa, mainly within the framework of

their customs. Moreover, the planning for a credible and efficient regulation framework

prior to reform has been observed as an important tool of supporting growth and

development. The regulatory framework can assist to address persistent market failures

which can be characterised by natural monopolies; these can offer inferior services and

other social concerns. Thus, an effective regulation of privatised utilities should have

features which include coherence, independence, accountability, predictability,

transparency as well as capacity. In South Africa, regulation is effected by independent

regulators which operate at the level of provincial and municipal departments of

government.

However, Tan (2011:63) notes that in developing countries the regulatory capacity is limited

because of the lack of resources, the scarcity of highly educated professionals, and the use

of civil service pay scales, an undeveloped auditing system and an inexperienced judiciary.

Parker and Kirkpatrick (2007:524) confirm that studies carried out on the impact of

electricity generation in developing countries, using the panel data of up to 51 economies

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between 1985 and 2001, revealed that the establishment of an independent regulatory

authority and the introduction of competition before privatisation are correlated with

higher electricity generation, higher generation capacity and, in casesin which competition

is introduced before privatisation, improved capital utilisation.

3.4.13 Criticism of privatisation in developing countries

The impact of privatisation on poverty reduction is two-pronged (Parker & Kirkpatrick,

2007:529) as it can assist in reducing poverty through the increase of incomes and

increasing services whilst it can increase poverty by charging higher prices and reducing

employment and taxation. Furthermore, the influence of privatisation on the distribution of

assets and income is not obvious. In addition, the World Bank has been devoted to push for

the participation of foreign investors in privatisation even though this is likely to be labelled

‘’re-colonisation’’ and criticised as weakening indigenous ownership. Similarly, Nellis

(2005:13) is of the view that African intellectuals and officials have long been educated to

view the public sector as the promoter and defender of indigenous interests, and to believe

that privatisation will empower and enrich foreigners.

In developing countries - where there is a lack of regulatory independence and credibility,

widespread corruption, regulatory and political capture, and arbitrary political intervention-

privatisation has been poorly implemented (Tan, 2011:63). Furthermore, privatisation has

failed in Zambia and some parts of Africa, India and other transitional countries as a result

of corrupt activities. Moreover, privatisation is viewed as swapping the configuration of

corruption deals as taxpayers are affected during public ownership whereas, under private

ownership, consumers get affected. Zambia’s programme of privatisation (Parker &

Kirkpatrick, 2007:532) has been viewed by the World Bank as one of the best models in

Africa for others to follow;in contrast, the critics of privatisation contend that the

programme has been deeply flawed, and allowed for the corrupt acquisition of assets by

those linked to the ruling political party. Similarly, Wohlmuth et al. (2004:328) postulate

that, in Russia, the mass privatisation programme permitted insiders to engage in extensive

‘’self dealing’’, while the subsequent privatisation ‘’auctions’’ were a massive giveaway of

the most important assets at bargain prices to a handful of well-connected oligarchs, who,

in the absence of adequate legal and institutional arrangements, continued to act that way.

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Thus, the lack of transparency leads to criticism of the privatisation process thereby creating

a backlash from investors.

Privatisation in Ghana faced a number of problems (Tsamenyi et al., 2010:433) as a result of

an underdeveloped domestic capital market which made it difficult to raise the funds

required for the acquisition of shares in privatised organisations. The domestic investors

could not get any loans from financial institutions to acquire the shares; hence, most of the

organisations were acquired by foreign investors. Parker and Kirkpatrick (2007:531) support

this assertion and point out that, in the absence of well developed financial markets,

domestic private investment may only be feasible for certain high income groups or

families, which is probably the same elite that controls government. Notably, the critics of

privatisation (Rahaman et al., 2007:656) have marked the British Government as an

imperialist power, and they allege that Britain is seeking privatisation in Ghana only because

it wants to support those British companies currently bidding to provide water services.

Consequently, anti-privatisation activists are of the opinion that the profitability of British

organisations, instead of Ghana’s development, has motivated the British Government to

support the privatisation of water services in Ghana.

Critics of privatisation observe that privatisation programs have been widely imposed on

less developed countries (LDCs) by the World Bank, the IMF and other western donors as a

condition for bailing out the ailing economies of these countries (Tsamenyi et al., 2010:428).

Furthermore, most public organisations are sold to foreign investors with minimum

participation by citizens. Unfortunately, the IMF and World Bank have approached the issue

from a narrow perspective as they advocate that privatisation is to be pursued rapidly

(Dogruel & Dogruel, 2011:4). In addition, certain preconditions need to be satisfied before

privatisation can contribute to the growth of a nation’s economy. In addition, full

privatisation is viewed as having high job destruction in privatised organisations; the process

of privatisation is also criticised for being accompanied by corruption in many countries.

Furthermore, Josiah et al. (2010:384) support this assertion and emphasise that the

argument against privatisation is that it is part of the agenda of neo-liberalist globalisation

which is driven by the WB, IMF and transnational corporations, and that it is aimed to

enrichFirst World multicorporations whilst impoverishing developing countries.The

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argument here is that privatisation programs in developing countries are largely dominated

by First World corporations who enter as either investors or consultants, thereby

maintaining the superiority of the first world. In addition, these developed Western

countries are viewed as shareholders of the WB and IMF; hence, these institutions exist to

enhance the interests of their shareholders. Similarly, Nellis (2005:14) elaborates on the

Zambian experience by pointing out that privatisation is alleged to have:

• been imposed and micromanaged by IFIs, without sufficient attention to requisite policy

or regulatory frameworks, and with minimal involvement of Zambian citizens,

• resulted in the closure of many organisations previously run by Zambians (there is

particular resentment that many that continued or reopened are in the hands of

foreigners, particularly South Africans),

• added greatly to unemployment, poverty and inequality.

• increased the incidence of corruption (there is widespread suspicion that the proceeds

from sales have been unreported and misused), and in general

• benefited the rich, the foreign, the agile and the politically well-connected at the

expense of the poor, the domestic, the honest and the unaffiliated – as illustrated by the

allegation that new private owners extract subsidies and tax concessions from

government.

Nellis (2005:4) indicates that privatisation in Guinea was characterised by major concerns

which are evident in that by 1997 the price per cubic meter stood at US$0.83, a near seven

fold increase from 1989, and more than 40 times the 1986 price. These prices were much

higher than any other lease or concession activities in Asia and Latin America and far much

higher than any country neighbouring Guinea. Thus, such increments made post-

privatisation less palatable as customers could not afford this essential service.

Furthermore, investment responsibilities were not placed under the private operator as is

the case with lease and concession arrangements around the world. In addition, there were

no expansion and connection targets set for the SOE that was mandated to enlarge the

network.

Privatisation is seen as throwing large numbers of people out of work; forcing them to

accept jobs with lower pay, less security and fewer benefits; raising the prices of goods and

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services sold; providing opportunities for the enrichment of the agile and corrupt, and

generally making the rich richer and the poor poorer (Birdsall & Nellis, 2002:2). In this

respect, the prices of water and electricity may increase so as to break even and expand the

network resulting in the poor spending much more of their income on these services than

the rich. Similarly, privatisation is viewed as unfair in terms of the distribution of political

power, wealth and income thereby hindering growth, especially in developing economies

where organisations and markets are weak. Moreover, launching privatisation in developing

countries has proven to be very difficult, and is less likely to produce quick positive

outcomes as evidenced in Armenia, Moldova and Guinea. However, the reduction of

employees during privatisation is temporary as total employment numbers will eventually

increase under a vibrant private ownership.

Fatta (2010:121) observes that Nepal’s privatisation programme in the country has been

shrouded in problems and implementation has therefore become slower than anticipated.

The problems of the privatisation process in Nepal are shown in Table 3.10 below.

Table 3.10: Problems of privatisation in Nepal

Problems Analysis Political instability • Changes in governments with different ideologies. Capital market • The capital market is in an embryonic stage and there is

only one stock market, the Nepal Stock Exchange. • There is also a problem of mobilising capital for private

organisations. Lack of investors • Nepal is a poverty stricken country and there is a virtual

absence of dynamic entrepreneurs and real investors. Infrastructure • Economic and developmental infrastructure, such as

roads, communications, electricity, banking facilities and other utilities are in a primitive stage in Nepal.

Political commitment/consensus

• There is a lack of political commitment and national consensus on adopting the privatisation policy in Nepal.

Transparency • Lack of transparency has been the main problem during privatisation.

Effective monitoring and evaluation system

• No monitoring mechanism exists in terms of price regulation, employment conditions, output and quality levels as well as efficiency.

Source: Adapted from Fatta (2010:122-123).

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According to Fatta (2010:122), after the restoration of multiparty system in 1990in Nepal,

altogether 10 governments of different forms, equations and ideologies came into power.

Changes in government such as these result in the delay of privatisation and generate

differences in the privatisation policy. Furthermore, the private sector in Nepal is largely

characterised by profit-motivation more than it is by business mindedness. Investments in

the country are mainly concentrated in less risky and high profit sectors and very few

foreign investors have shown interest in investing in public organisations because they fear

uncertainty and low profitability.

Moreover, privatisation in Nepal has further been criticised by many stakeholders, including

trade unions, employees, customers, and academics; this has resulted in the programme

failing to gain momentum. The policy of privatisation hinges on many groups, sections and

organisations. Transparency is therefore important so as to gain their support and

cooperation for the successful implementation of the policy. However, in Nepal, the lack of

transparency during the privatisation process has been a problem, especially in the

valuation of assets, bidding procedures and the selection criteria for evaluating bids, price

disclosure, the method of selection of the successful bidder, monitoring and the supervision

of privatised organisations. Privatisation is a state policy and, like other economic policies,

the government should regularly monitor and evaluate the policy. Moreover, in Nepal there

is a lack of monitoring in terms of price regulation, conditions of employment, production

and quality levels as well as efficiency.

3.4.14 Lessons to be learnt

The lessons of economic transition that can be learnt from planned to market economy

identify the ideal privatisation strategy as one which transfers assets (Simoneti et al.,

2005:1604) as quickly as possible to determined owners through fair, transparent and open

methods. Nellis (2005:11) concludes that an experience such as Guinea’s shows that

privatisation is more likely to result in increased efficiency and improved equity outcomes if

it is embedded in a set of conceptually appropriate, functioning legal and economic

institutions that support and guide market operations. Therefore, for privatisation to be

successfully achieved these institutions should include the definition and protection of

property rights, quick and timely court decisions which are based on the law rather than

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kickbacks, the capacity to regulate, vibrant insolvency organisations as well as a predictable

and competent public administration that acts with integrity. Furthermore, privatisations in

Africa have to put programs in place which will endorse the policy structure and improve

execution competence in sales, regulatory and competition agencies, as well as training

sellers and regulators, so as to ensure that monitoring and enforcement agencies are

empowered and isolated from any political interference, and to ensure the enforceability of

contracts.

Attempting to transfer Western-style institutions in order to make privatisation work in

developing countries, is thus based on a serious misreading of the development process and

institutional evolution; this is akin to putting the cart before the horse (Tan, 2011:65).

Wohlmuth et al. (2004:327) contend that, in spite of the fact that there is no universally

applicable approach to privatisation, and given that the attempt to apply a ‘’one size fits all’’

approach has proven ineffective and counterproductive, the literature has identified

necessary features of a legitimate and acceptable national policy. Thus, the design and

implementation process of the privatisation programme should include broad-based

participation, political commitment, competition and transparency. Privatisation

programmes should also include the proper planning, implementation, monitoring and

assessment of every transaction. Von Weizsacker et al. (2005: 361) point out that the

lessons learnt can briefly be summarised as:

• develop good governance, strong regulations and regulatory institutions,

• do not privatise what the public sector can still do,

• never privatise for ideological reasons,

• secure democratic control over regulatory institutions, and enable the state to reverse

privatisation in cases of severe failure,

• develop the third sector between the state and the private sector: foundations,

charities, civil society.

According to Selvi and Yilmaz (2010:673), the critical success factors for privatisation

programs may be as follows: establish a proper balance of objectives; thorough planning

and education are vital, and; decision makers must be educated so that they can fully

understand the need for privatisation and the necessity of creating a solid institutional

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framework that will allow privatisation to flourish. Furthermore, the privatisation

programme should be designed by taking into consideration key aspects of the environment

which include social, economic, political, legal, technological and ethical concerns.

Jerome (2004:3) argues that privatisation requires strong political commitment.

Furthermore, public perceptions of a successful privatisation process are important; hence,

government should carryout public awareness campaigns so that the process is supported

on a large scale. In addition, improved regulatory frameworks, planning, monitoring and

transparency are vital elements of privatisation. According to Fatta (2010:123-124),

privatisation in Nepal was characterised by numerous implementation challenges which

included the lack of infrastructure, backwardness of technology, limited domestic market,

limited resource base, lack of capital and developed capital market, political instability- all of

which are considered general problems. However, the lack of political

commitment/consensus, lack of transparency in policies and procedures, lack of effective

monitoring and evaluation of the privatised organisations, dearth of professional capabilities

and business acumen in a country, and fear of the emergence of family

capitalism/concentration of economic power are the major and more specific problems

associated with the privatisation process. The critical success factors of privatisation will be

discussed in detail in Chapter 5 of this study.

3.5 CONCLUSION

The proponents of privatisation have argued that business should be undertaken by the

private sector and that poorly performing public organisations should be closed down or

privatised. Conversely, those arguing against privatisation claim that, in some instances,

markets have failed under private ownership and government can address such failure

through the provision of public goods. However, public ownership is viewed as lacking the

profit motive, thus labouring itself with subsidising public organisations. Furthermore,

managers in public organisations are poorly motivated as there are no incentives to monitor

the performance of employees whilst those in the private sector are faced with competition

and are obliged to organise their factors of production effectively. Thus, privatisation has

been viewed as the main engine for growth worldwide.

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The definition of privatisation has been broadened from the mere sale of public

organisations to the private sector to include the sale of shares in public organisations,

share dilutions, joint ventures, liquidations, leases, concessions and management contracts.

The rationale for privatisation has largely been premised on the perceived inefficiency,

ineffectiveness and unaccountable nature of public organisations. Thus, privatisation is

expected to reduce political and government interference in the economy and to expose

organisations to global competition. Privatisation is also generally determined by political

preferences, budget constraints, legal issues and the liquidity of the stock market. It has also

been noted that leftist parties tend to shun privatisation whilst liberal parties adopt

privatisation early. There are two main approaches to privatisation which have been used

and these include the big bang and the gradual approaches.

However, several methods of privatisation have been used by different countries and the

choice has been biased towards those methods which are deemed successful in their

environments. The discourse on privatisation also points out that privatisation should be

carried out rapidly, through open, fair, and transparent methods. The methods which can be

used to privatise organisations include: sale of shares or assets, management buy-outs,

liquidations, joint ventures, full and partial privatisation, trustees, service contracts, lease

contracts, management contracts, concessions and Build-Operate Transfer arrangements.

The benefits of privatisation have mainly been viewed from the economic perspective

whereby the process is expected to raise economic efficiency, increase organisational

investments, reduce government subsidies, increase international trade, reduce

unemployment, poverty, inequality, public sector deficit and promote economic

development. A change in organisational culture has been realised when privatised

organisations become innovative in fighting competition, adopting new human resources

management techniques, organisational planning, quick decision making processes,

management style and organisational integration.

The discourse against privatisation highlights that the benefits of privatisation have been

viewed narrowly as they have only focussed on economic benefits whilst ignoring jobs, skills,

pensions and income distribution. There has also been an outcry that privatisation has been

unfair as it has benefitted the rich, powerful, corrupt and well connected whilst hurting the

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poor, disenfranchised and the workers. The policy has also stressed workers as a result of

role ambiguity, role overload and underload during the restructuring of privatised

organisations. There are also instances where privatised organisations are renationalised as

a result of the discontent with high levels of inequality within a country, poor service quality

and the poor monitoring of contracts.

Proponents of privatisation in developed countries observe that privatisation has been

motivated by the need to deal with increasing fiscal deficits and improving the markets as

these were prerequisites for membership of the European Union. The characteristics of a

country - which include product, labour, capital and managerial markets as well as the legal

system and probity of public administration - can affect privatisation. Developed countries

have competitive product, labour, capital and managerial labour markets, coupled with a

well functioning legal system as well as high standards of integrity in public administration;

in comparison to developing countries, they are thus in a better position to privatise.

The rationale for privatisation in developing countries has been prompted by the need to

address economic efficiency as well as other important issues which include economic

growth, income distribution and poverty. However, privatisation has also been viewed as an

imposition by financial institutions like the IMF and the World Bank. Privatisation in

developing countries has been slow, poorly implemented and lacks regulatory

independence and credibility; it is associated with corruption, lack of transparency and

political capture. Furthermore, privatisation in developing countries has been hindered by

underdeveloped capital markets, political instability, a lack of political commitment and a

lack of professional and business acumen. Chapter 2 of this study focussed on the

contemporary business environment prevailing in Zimbabwe by specifically looking at the

political, economic, social, technological, legal, ethical and the global environment. Chapter

3 then presented a theoretical overview of privatisation in developed, transitional and

developing countries; with greater emphasis being placed on developing countries. Chapter

4 provides a discussion of the implementation of privatisation in Zimbabwe.

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CHAPTER 4

IMPLEMENTATION OF PRIVATISATION IN ZIMBABWE

4.1 INTRODUCTION

Privatisation, corporatisation, outsourcing and other modes of commercialising Southern

African state assets are driven by arguments that the state has insufficient resources to

make available capital grants for expanding infrastructure and is, in any case, an inefficient

service provider (Bond, 2009:2). Privatisation should be seen as a means of developing a

vibrant private sectorwhich entails the nurturing of an indigenous capitalist class while

attracting significant inflows of foreign direct investment with the capacity to turnaround

public organisations (Parker & Saal, 2003:310). Privatisation releases government from the

fiscal burden and improves the economic efficiency of the public sector. The inception of

economic reforms in 1991 (with a capitalist inclination) led the government of Zimbabwe to

abandon the creation of public organisationsin order to adopt privatisation (Tambudzai,

2003:165). This led to a change in the country’s economic strategy by abandoning its

socialist-guided principles to embark on a free market economy. According to neo-classical

economists, a free-market economy without state intervention will lead to economic

prosperity that will ‘trickle-down’ to the poorest members of society (Waigama, 2008:1).

The initial phases of privatisation in Zimbabwe were fairly successfulas evidenced by the

restructuring success stories that saw the successful completion of privatisation of the

Commercial Bank of Zimbabwe (CBZ), Dairiboard Zimbabwe Limited, AICO (formerly Cotton

Company of Zimbabwe), Zimbabwe Reinsurance Company, Caps (Pvt) Ltd and, recently,

Ziscosteel (Moyo, 2011:4).

This chapter focuses on the implementation of privatisation in Zimbabwe. First, the chapter

looks at the growth of parastatals immediately after independence and the rationale to

privatise these parastatals in Zimbabwe. The implementation of the privatisation process in

Zimbabwe is then discussed by focussing on the establishment of the Privatisation Agency of

Zimbabwe (PAZ), stages in the privatisation process, constraints of privatisation, methods

used to privatise organisations in Zimbabwe and the impact of privatisation in terms of

success stories and the criticism of privatisation. The chapter will then end with a

conclusion.

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4.2 THE GROWTH OF PUBLIC ORGANISATIONS IN ZIMBABWE

Developing countries have turned to state ownership of certain organisations for reasons

that were primarily pragmatic, rather than ideological (Obadan, 2008:9), as they created

public organisations to provide goods and services or to serve social goals that the private

sector appeared unwilling or incapable of addressing. In the developing world, practical

realities, such as small domestic capital markets, dependence on primary export, income

disparities, the reluctance of the private sector to invest, mistrust of private sector

motivations, and shortage of indigenous entrepreneurial skills, among other factors, were

cited as justifications for government participation in market activities (Zhou, 2001:229).

At the advent of independence in 1980 (Dore et al., 2008:186), Zimbabwe inherited a large

number of parastatals. The parastatals which covered most of the sectors of the economy,

which included agriculture, mining, transport, energy, communications and finance, were

created through new bodies; this is unlike the origins of parastatals in other African

countries where they were created through nationalisation and expropriation. Most

nationalisations within developing countries, which occurred frequently during the decades

after World War II, were consistentlywarranted as being necessary to overcome decades of

colonial exploitation (Megginson, 2005:34). Tambudzai (2003:165) claims that Zimbabwe’s

ideology, soon after attaining independence in 1980, followed an inward looking economic

strategy combined with a socialist ideological orientation whichmainly promoted state

ownership of organisations. However, in Zimbabwe unlike in other African countries, the

private sector remained stronger with a competitive advantage over the parastatal sector.

In Zimbabwe, apart from price controls, public organisations were required to undertake

investments or activities of a social nature, which were not economically viable (Zhou,

2001:238).

4.3 PERFORMANCE OF PARASTATALS BEFORE PRIVATISATION

According to Magure (2012:77), the government of Zimbabwe has failed dismally to turn

around the declining economic fortunes of parastatals such as Air Zimbabwe, National

Railways of Zimbabwe, Noczim, Agribank, Cold Storage Company, the Grain Marketing

Board, and its mobile telephone networks NetOne and TelOne. These organisations have

remained a burden to the government as they are perennial loss-makers. In the aviation

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sector, the national carrier Air Zimbabwe (Moyo, 2011:7) has been struggling to remain

competitive as a result of financial constraints that have faced the Airline over the years.

Virtually all public organisations in Zimbabwe are faced with severe capacity constraints

which have negatively affected their performance (Dore et al., 2008:198). Most of the

challenges facing parastatals are financial; this normally manifests itself in terms of poor

financing and a deficiency in proper financial management, lack of investment by the

government which is the major shareholder, poor liquidity management, poor financial

accountability, poor pricing configurations, financial mismanagement and corrupt practices.

Zhou (2001:235) asserts that the principal-agent relationship between the state as owner

and its parastatals as agents also meant that the state had an obligation to the operations of

public organisations and to take care of any losses which these organisations incurred.In

Zimbabwe, the only way of resuscitatingindustry and commerce is through strategic

partnerships with foreign investors (Magure, 2012:77). Similarly, Moyo (2011:3) states that

the underperformance of public organisations in Zimbabwe can be addressed through

religious adherence to international best practices in restructuring public organisations,

where the programme is tailored to the prevailing environment in the country.

4.4 RATIONALE FOR PRIVATISATION IN ZIMBABWE

The progress in the fields of public choice and property rights theories have explained the

failure by government and have created a base for challenging the efficiency and

effectiveness of government intervention, including public ownership which had increased

in the twentieth century (Palcic & Reeves, 2011:29). Privatisation has been adopted in

Africa,as elsewhere in the world, with the main focus of improving the efficiency in the

allocation of resources through increased competition, financial benefits to bankrupt

governments, attracting private investment and generally assisting the private sector in

accessing funding (Buchs, 2003:2). Likewise, Kikeri and Kolo (2005:3) claim that developing

countries have used privatisation as a tool to:

• Improve the productivity of public organisations which is well below that of private

organisations

• Access investment capital and improve service delivery of high cost critical sectors that

impact the economy as a whole, and

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• Reduce the fiscal burden of loss-making organisations.

In Zimbabwe, privatisation has been adopted in order to hand over the management of

public organisations to the private sector, thus allowing government to concentrate on the

management of key traditional obligations such as maintaining peace, security, law and

order as well as facilitating growth and welfare distribution (Gono, 2009:6). Similarly, Dore

et al. (2008:188-189) highlight that the objectives of implementing reforms in Zimbabwe did

not differ much from those which were applied in other countries:

• Efficiency improvements and economic development through the attraction of foreign

investment, technology and know-how and the harnessing and encouragement of local

entrepreneurial skills.

• Generation of revenues through sales and leases.

• Use of a full range of options, including outright sale of shares and assets, leasing and

management contracts, and contracting out services.

In Zimbabwe, as in most African countries, public organisations’ reforms were implemented

in 1991 as a major component of the country’s structural adjustment programmes (Masuka,

2012:575; Zhou, 2000:200). Zimbabwe’s policy goals included the need to reduce the

budget deficit (emanating from loss-making public organisations), to improve the

operational viability of public organisations (through operational, organisational and

managerial restructuring), and rectifying historically-induced tilted ownership patterns in

the economy by economically empowering indigenous groups. Similarly, Tambudzai

(2003:179) highlights that economic empowerment of the indigenous population was one of

the key objectives of privatisation in Zimbabwe.

4.5 IMPLEMENTATION OF PRIVATISATION IN ZIMBABWE

According to Conteh and Ohemeng (2009:61), the theoretical model of the dissemination of

privatisation as policy recognized three major factors that may push governments to adopt

privatisation as a policy. The theory identifies external inducement, emulation and policy

bandwagoning, and social learning as factors which push governments to adopt a

privatisation policy. Institutions such as the World Bank and the International Monetary

Fund (IMF) use the inducement strategy by tying credits and development aid to liberalising

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reforms of the domestic economies of reforming governments. Moreover, the idea of

emulation and policy bandwagoning is concerned with imitating the success of policies,

structures and mechanisms in other countries so as to suit the conditions of reforming

governments. Furthermore, social learning is concerned with spreading new knowledge

about how the world functions so as to adjust the goals regarding policy in-tandem with

past experience and the availability of new information.

According to McDonald and Ruiters (2005:226), privatisation started being debated upon in

Zimbabwe in the 1990s as part of a series of neoliberal economic reform packages; namely,

the Economic Structural Adjustment Program (ESAP) in 1990-1995 and its follow-up policy,

the Zimbabwe Program for Economic Transformation (ZIMPREST) in 1995-2000.

Privatisation was then implemented after multilateral donors, business people and some

individuals perceived of it as a universal remedy for the increasing economic challenges

being faced by Zimbabwe and a decline in service delivery from many sectors. According to

Tambudzai (2003:177), it was only in 1994 that a comprehensive policy paper on

privatisation called the ‘’Privatisation and Commercialisation Policy and Strategy Paper’’ was

prepared by the Inter-Ministerial Committee on Privatisation and Commercialisation.

Furthermore, in an effort to ease parastatal reform, parastatals were classified into three

categories. Dore et al. (2008:187) note that the restructuring of parastatals, and

privatisationin particular, came to the fore in Zimbabwe following the shift in economic

strategy from the highly interventionist approach of the first decade of independence

(1980-1990) to a more market-based strategy under the Economic Structural Adjustment

Programme (ESAP) in 1991. The ESAP blueprint categorised parastatals according to the

specific action which was to be taken in relation to each organisation. The categories

identified parastatals which were going to be either commercialised or privatised as follows:

• Category 1 – organisations which were going to be retained as a result of their social

functions

• Category 1 – organisations to be retained as a result of their promotion functions

• Category 2 - strategic organisations which would remain wholly owned by government,

and

• Category 3 – organisations involved in commercial activities.

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In this regard, organisations which fell under category 1 and 2 were to be commercialised

whilst those in category 3 were to be privatised. Zhou (2001:252) argues that from 1996 to

1998, privatisation was implemented without any legally constituted privatisation plan of

action. Essentially, the privatisation programme was characterised by conflicting statements

from the Department of State Enterprises and the National Economic Planning Commission.

Thus, parastatals which were privatised by the end of 1999 included Dairiboard Zimbabwe

Limited (DZL), the Cotton Company of Zimbabwe (Cottco), the Commercial Bank of

Zimbabwe (CBZ), the Zimbabwe Reinsurance Company of Zimbabwe (ZIMRE) and the

Zimbabwe Tourism Group of Companies. Conteh and Ohemeng (2009:71) highlight that the

development of the private sector in Botswana is guided by the privatisation master plan

which proposes a divestiture of public organisations and contracting public service delivery

to private actors.

4.5.1 The Privatisation Agency of Zimbabwe (PAZ)

The criticisms of the bit-by-bit approach to privatisation in Zimbabwe resulted in the

establishment of the Privatisation Agency of Zimbabwe (PAZ), in September 1999, which

had a mandate of driving the privatisation process (Dore et al., 2008:196). Furthermore, in

2005, PAZ was renamed the State Enterprises Restructuring Agency. It is the responsibility

of SERA to prepare an initial commercialisation and restructuring plan meant to highlight

the reasons of restructuring and privatisation. This plan suggests the method of privatisation

to be adopted; these recommendations are then submitted to the Inter-Ministerial

Committee on Commercialisation and Restructuring of Public Enterprises (IMCCR) for

approval by Cabinet. According to Tambudzai (2003:181), the major functions of PAZ are:

• To advise all line Ministries on all matters relating to privatisation,

• To consult with line Ministries so asto assist with financial restructuring of parastatals in

preparation for a successful privatisation implementation.

• To prepare a detailed workplan and timetable for the privatisation of each organisation

and equity holdings in private organisations and to seek the necessary approvals from

Cabinet through the Inter-Ministerial Committee on Commercialisation and Privatisation

(IMCCP),

• To facilitate consultation with relevant stakeholders during privatisation,

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• Assist line Ministries and Public Enterprises (PEs) in the preparation of a detailed

memorandum to Cabinet,

• To lead the public information campaign strategy by educating and encouraging

indigenous population to buy shares in privatised organisations so as to realise the

benefits of privatisation.

• To negotiate with the donor community in regard to privatisation and to solicit for any

financial or technical assistance.

• To implement Cabinet decisions in conjunction with line ministries and concerned

parastatals.

However, the functions of PAZ as indicated above show that it was a semi-autonomous

organisation which did not make final decisions pertaining to the privatisation of parastatals

in Zimbabwe. Thus, key decision making on the privatisation of organisations remained the

prerogative of Cabinet and the IMCCP.

The establishment of PAZ was, as a result of protracted lobbying by civil societal groups for

an autonomous and professionally-run body, to be involved, among other things, in

evaluating parastatals earmarked for sale, deciding how best the disposal should be

handled, assessing the legal environment and other aspects of privatisation (Zhou,

2001:255). According to McDonald and Ruiters (2005:226), in the year that PAZ was formed

it produced a privatisation manual which read much like a World Bank brochure, in that it

sought to:

• Reduce government expenditure in subsidies to poorly performing organisations,

• Ensure efficiency and competition in the economy by doing away with monopolies,

• Empower indigenous [read black] Zimbabweans to participate in the economy, and

• Raise revenue for the treasury.

In agreement with this, Luken and Hesp (2003:191) assert that the PAZ was developed to

spearhead the divestiture of some of the government’s shareholdings and ensure the

participation of indigenous people in the privatisation process.

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4.5.2 Stages involved in privatising an organisation in Zimbabwe

According to Tambudzai (2003:183), there are basically six stages which can be identified in

the privatisation of public organisations in Zimbabwe. Table 4.1, below, indicates the stages

involved in privatising a state organisation in Zimbabwe.

Table 4.1: Stages in privatising an organisation in Zimbabwe

Stages Activities involved 1 • The initial review and planning phase. 2 • This is the detailed assessment stage.

• Involves financial diligence, legal diligence, regulatory diligence, and the presentation of the privatisation strategy.

3 • The approval phase by the IMCCP and Cabinet. 4 • The pre-privatisation preparation stage.

• Comprises of four steps. 5 • The privatisation transaction stage. 6 • The final stage which is also called the Post Completion Stage.

Source: Adapted from Tambudzai (2003:183-184).

According to Tambudzai (2003), stage one of the process involves the listing and initial

review of parastatals as well as the scheduling thereof. The second stage has four parts

which deal with initial financial and commercial valuations, legal assessment in terms of

legal status, ownership and shareholder agreement, strategy towards regulatory/monopoly

issues as well as the methods of sale to incorporate employment issues and issues of

indigenisation. Stage three involves the formal presentation of the strategy to the IMCCP for

assessment and submission to Cabinet for decision making. The fourth stage has four steps

which are concerned with the production of information and the pre-qualification criteria,

the preparation of tender documents for selling the organisation as well as setting the sale

conditions, bidding criteria and premarketing activity; the final step involves checking for

compliance with the Procedures Manual. Stage five involves the transfer of shares to the

National Investment Trust (NIT), bidding invitations, evaluating bids, sale negotiations,

receiving payment for the organisation as well as the handover or takeover of the assets.

The final stage is concerned with the report on undertakings by government and other

parties, debt implementation and labour agreements.

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4.5.3 Constraints to privatisation

Dore et al. (2008:191) highlight that SERA identified the following as causes of poor

performance of public enterprise reforms:

• Viability deficiencies as a result of the prevailing harsh macroeconomic environment,

characterised by a high interest-rate regime and high inflation level.

• Under-capitalisation.

• Inappropriate operating and financial structure.

• Leakage and abuse of resources owing to poor and ineffective management.

• A huge debt overhang in a high-interest rate environment.

• Serious deterioration of infrastructure owing to limited resources for both maintenance

and new investments.

• Shortages of foreign exchange, which have constrained the importation of essential

spares.

• No access to external lines of credit.

(a) Political will and commitment

The lack of political will and commitment, unpredictable political environment, lack of

investor and donor confidence as well as government credibility have affected progress in

the reform process as the environment is characterised by mistrust and business, labour and

social groups are viewed as unpatriotic (Dore et al., 2008:191). According to Zhou,

(2000:199), for a government to achieve a high credit score, investors must believe that the

government will not ‘’renationalise privatised firms’’. In addition, employees of public

organisations and other stakeholders who are afraid to lose some of their benefits during

privatisation should be in a position to trust that government will honour its commitment

on future compensation. Thus, over the years, the credibility of the Zimbabwean

government to embark on a transparent and accountable disposal of state assets has been

very low. Hence, there is a need to further convince the public and investors that the

government is committed to these reforms. Furthermore, the government’s credibility in

implementing public organisation reforms has been dented by reports of corruption within

government. Moyo (2011:3) contends that, given the role of parastatals in steering the

turnaround of economies emerging from economic challenges like Zimbabwe, the

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government has made an unwavering commitment to promoting and implementing public

enterprise reforms. Conteh and Ohemeng (2009:72) observe that Botswana’s administrative

elites, on their own initiative, engaged in a search for ideas about privatisation around the

world, leading them to look to other countries’ experiences; this process included the

evaluation of some policies and ideas of International Finance Institutions (IFIs).

(b) Speed/pace of privatisation

The general debt profiles and general state of affairs of most parastatals has partly

contributed to the halting of privatisation of such parastatals (Muzulu, 2012).Factors such as

poor debt recovery mechanisms, failure by customers to pay, the prevailing adverse

macroeconomic environment, the introduction of the multicurrency system without any

recapitalisation from government, failure to comply with corporate governance principles as

well as weak internal controls have been cited as some of the challenges faced by

parastatals. McDonald and Ruiters (2005:226) observe that, in Zimbabwe, although the

World Bank would have preferred the privatisation of more parastatals in all sectors

(agriculture, water, electricity, telecommunications, transport and so on), the government

has proceeded rather slowly.

According to Dore et al. (2008:191), in Zimbabwe, the lack of political will and commitment,

its unpredictable political and macroeconomic environment, and the lack of investor and

donor confidence have also been identified as key constraints. In addition the slow progress

of parastatal reforms in Zimbabwe is also related to a fear of strengthening the grip of

foreign capital on the economy. This has been promoted by the passing of the indigenisation

and Economic Empowerment Act (No. 14 of 2007). Furthermore, lack of political will and

commitment, as well as an unstable political and macroeconomic environment, and the lack

of investor confidence have been sighted as barriers to privatisation. Government credibility

has also affected progress in the reform process as the environment is characterised by

mistrust with business, labour and social groups being viewed as unpatriotic. Tambudzai

(2003:166) argues that the main causes for concern were: the speed/pace, the efficiency,

the impact on society and the economy, and the transparency of the process. In this regard,

the operations of PAZ have been questioned in terms of its importance, independence and

effectiveness. Similarly, Jerome (2004:3) postulates that, arguably, privatisation in South

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Africa had been slow, with few visible results and a general feeling among observers and

donors that government’s commitment to the process was generally half-hearted.

(c) Capacity, structures and processes

In Zimbabwe, too many players were involved in the implementation of privatisation

(Tambudzai, 2003:178). The process had no precise institutional structure or Act of

Parliament resulting in the programme being unplanned and characterised by bureaucratic

inclinations. Masunungure and Zhou (2006:7) argue that the responsibilities of the

Privatisation Agency of Zimbabwe, the Department of State Enterprises, Anti-Monopolies

and Anti-Corruption and responsible ministries are not clearly demarcated. Similarly, the

lack of a proper legal framework has resulted in privatisation activities being twisted into

avenues of political patronage as PAZ could not make binding monitoring decisions.

The reform process is not adequately funded in Zimbabwe (Tambudzai 2003:192).

Essentially, the poor funding of the programme is a result of donors and multilateral lending

institutions who have withdrawn their funds to Zimbabwe as a result of political issues such

as the land reform programme. Thus, the instability of the macroeconomic and political

environments prevailing in the country does not favour privatisation.

4.5.5 Methods used during privatisation

According to Moyo (2011:4), the current thrust throughout the world has shifted from

wholesale privatisation to a more conservative government shareholding dilution through

strategic partners, engagement of joint venture partners, listing on capital markets and

Public Private Partnerships (PPPs). Waigama (2008:34) posits that professionals who have

the capacity of forging a link between objectives, on the one hand, and strategies, on the

other, should be used to formulate privatisation strategies. Experience has also shown that

the involvement of professionals in strategy formulation has paid dividends as higher sale

prices have been realised.

In most cases, the approaches and methods used in privatising public organisations will

depend on the privatisation policy objectives as well as the nature and operational status of

parastatals to be privatised (Tambudzai, 2003:178). The economic and financial

environment, the size of the organisation, its strategic importance, the needs of the

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organisation in terms of capital and technology, the state of its debt as well as management

know-how have a bearing on the privatisation programme. In this regard, Waigama

(2008:32) posits thatthe factors that were considered in the formulation of privatisation

strategies in Tanzania included:

• The economic significance of the parastatal,

• The strategic nature of the parastatal,

• The likelihood of high redevelopment or restructuring costs and/or low initial returns,

• The complexity and cost of expertise and technology required,

• Past operational and financial performance,

• Opportunities for encouraging new entrepreneurs, and

• Opportunities for achieving broader ownership.

In Tanzania, strategy formulation for any privatisation exercise is done by the Presidential

Parastatal Sector Commission (PSRC) after consultation with the parent ministry and the

management executive of the concerned state enterprise. Pitcher (2012:245) argues that, in

South Africa, the government did not sell off its most important parastatals such as

electricity supply and generation, defence manufacturing, telecommunications, and

transport services; instead, it configured them in order to pursue closer relationships with

private investors, to rationalise operations, to establish linkages with historically

disadvantaged organisations, and to appease trade unions in those industries.

Tambudzai (2003:178-179) points out that the most common methods which have been

successfully used in Zimbabwe include:

• Public share offering or floatation,

• Trade sales,

• Collective investment schemes,

• Sales to employees or management teams (internal privatisations),

• Private and targeted placements,

• Management contracts/contracting out or leases, and

• Liquidation.

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Similarly, public share offering was used in the privatisation of Cottco, DZL, CBZ and RTG in

order to create wider share ownership in Zimbabwe. Furthermore, other methods such as

management buy-out schemes and employee share ownership schemes have also been

used in the privatisation of Cottco and DZL so as to achieve the objective of economically

empowering the indigenous people. Advertising in foreign media and foreign missions have

also been used to target Zimbabweans living abroad. Similarly, Zhou (2001:252) highlights

that Dairiboard Zimbabwe Limited was privatised through a public sale of 336 661 000

government shares to the public (individual and institutional investors). Consequently, the

privatisation programme was assisted by a consortium of three banks; namely, Barclays

Merchant Bank, the Trust Merchant Bank and the Heritage Investment Bank. Similarly, the

Cotton Company of Zimbabwe was privatised through the offer of 350 000 000 shares over-

the-counter.

Table 4.2 lists the privatisation transactions which were carried out in Zimbabwe between

1991 and 1999.

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Table 4.2: Privatisation transactions in Zimbabwe: 1991-1999

Parastatal Sector Category of Shareholder Percentage Offered

Dairiboard Zimbabwe Limited (DZL)

Dairy products Public (Individual investors) Technical Partner Small Scale Producers Employees (DZL) Large Scale Producers National Investment Trust Government

15 25 5 10 10 10 25

Cotton Company of Zimbabwe(Cottco)

Agriculture Small scale Cotton growers National Investment Trust (NIT) Large-Scale Cotton Growers General Public Institutional Investors Employees Government

20 10 10 15 15 5 25

Rainbow Tourism Group (RTG)

Tourism (Hotel) Accor Hotel Group (France) Employees National Investment Trust (NIT) Public Offering Government

35 5 10 20 30

Zimbabwe Reinsurance Company (ZimRE)

Financial Various investors Government

49 51

Commercial Bank of Zimbabwe (CBZ)

Financial Various investors Government

80 20

Source: Adapted from Tambudzai (2003:197); Zhou (2001:252-253).

According to Zhou (2000:202), the government of Zimbabwe sought to use defensive

schemes such as the sale of shares to public enterprise employees, management and

employee buy-outs (MBOs) as well as employee stock option plans (ESOPs). Furthermore,

the government reserved a stake through the National Investment Trust (NIT) which could

warehouse shares for future sale to the indigenous people of Zimbabwe, for example NIT

has 10% shares in both Dairibord Zimbabwe Limited (DZL) and the Cotton Company of

Zimbabwe (Cottco) as well as 26% shares in the Commercial Bank of Zimbabwe (CBZ). Dore

et al. (2008:190) confirm that the main method used in these privatisations was a public

share offering (in the case of Dairibord, Cottco, CBZ and RTG). In addition, other methods

which included Employee Share Ownership Plans (ESOPs) were used alongside public share

offerings in the cases of DZL, Cottco and RTG.

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Kawadza (2011) confirms that Zimbabwe has launched the New Zimbabwe Steel (Pvt) Ltd

(formerly Ziscosteel) and New Zimbabwe Minerals (Pvt) Ltd through a joint venture between

Essar Global and the government. The new public-private partnership guarantees Essar

Global a stake of 54 percent in the venture after coming up with a capital investment of

US$750 million for the former parastatal. This partnership will bring direct employment

retention and will create over 5 000 jobs. Conversely, Murwira (2012) contends that the

Government, through the Ministry of Mines has suggested that the Essar deal must be

revisited because the Indian company will pay only US$700 million for resources worth over

US$30 billion. Moreover, the lack of consultation between the Ministry of Industry and

Commerce and the Ministry of Mines and Mining Development has resulted in role conflict

regarding the privatisation of the parastatal. Sibanda (2012) confirms that government is

renegotiating the Zicosteel deal with Essar Africa to ensure that it retains control of Buchwa

Iron Ore Mining Company, renamed NewZim Minerals.

According to Mohammed (2008:3), in South Africa, the first iron and steel parastatal to be

privatised was ISCOR. The approval of the privatisation of ISCOR was done after three

separate investigations by ISCOR itself which also appointed Senbank as its private

consultant whilst the state appointed the Finance Bank as its consultant. The two financial

organisations were tasked with making acceptable price estimates of ISCOR and, as a result,

the State announced the privatisation of its shareholdings in ISCOR in February 1989.

Waigama (2008:9) highlights that during sale preparations both buyers and sellers of

parastatals must have a benchmark against which acceptability of a given price is ultimately

judged. Thus, the market value of the organisation being sold should be used as a

benchmark in price determination.

4.6 IMPACT OF PRIVATISATION ON ORGANISATIONAL PERFORMANCE

The literature on privatisation has generally been divided into two main groups: broad-

based international studies which perceive that privatisation leads to improved

performance; and some country specific studies which have recorded ambiguous results

showing that privatisation does not automatically lead to improved organisational

performance (Palcic & Reeves, 2011:40-41). According to Masunungure and Zhou (2006:4),

privatisation has a far reaching impact for countries in Southern Africa and carries even

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more serious implications for economic development, social justice, human rights and

security in the poorer, weaker and more unstable countries of the world. Tambudzai

(2003:188) confirms that, in Zimbabwe, the data available on various indicators such as

output, retained earnings/profit, share prices and earnings reflect healthy performance by

privatised organisations. The increase in retained earnings has been linked to the improved

efficiency of these organisations and the successful implementation of turnaround

strategies which are attributed to the restructuring phase of these organisations.

4.6.1 Success stories of privatisation in Zimbabwe

According to Dore et al. (2008:190), the government of Zimbabwe raised over Z$2 billion

(US$100 million) through the sale of Dairibord Zimbabwe Limited, the Cotton Company of

Zimbabwe, the Commercial Bank of Zimbabwe (1997), the Zimbabwe Reinsurance

Corporation (1999) and the Rainbow Tourism Group (RTG) (1999). Under the parastatal

reform framework, entities such as Dairiboard Zimbabwe Limited (DZL), Cotton Company of

Zimbabwe (Cottco) and CBZ Holdings were privatised, as government disposed of its

controlling shareholding (Gono, 2009:4). These privatised organisations have significantly

contributed to the economy through increased output, generation of foreign currency and

as well as employment. The success stories of Dairiboard Zimbabwe Limited and Cotton

Company of Zimbabwe are shown in Table 4.3 below.

Table 4.3: Success stories of privatisation in Zimbabwe

Organisation Success story Dairiboard Zimbabwe Limited (DZL)

• Dairiboard Zimbabwe Limited was fully commercialised and registered under the Companies Act in July 1994.

• In September 1997 DZL was privatised through its listing on the Zimbabwe Stock Exchange with the counter oversubscribed.

Cotton Company of Zimbabwe (Cottco)

• Cottco was registered in 1994. • In 1995 allowed new cotton companies into the market,

enhancing efficiency in the sector. • Privatised in 1997.

Source: Adapted from Dore et al. (2008:190).

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(a) Dairiboard Zimbabwe Limited (DZL)

The privatisation of DZL is a success story as it resulted in an increased consumer choice

because the organisation embarked on adding value to its products which resulted in the

improvement of the quality of its products (Tambudzai, 2003:190). Furthermore, the

government stopped paying subsidies to the organisation and, instead, started to receive

dividends and tax returns from the organisation. Thus, the improved quality products have

enabled the organisation to penetrate the regional export market. Dore et al. (2008:190)

affirm that DZL has been a success story, as exemplified by the following:

• The company is highly profitable and well capitalised through its own funds.

• DZL achieved real growth in sales volumes, both on the domestic and export markets.

• The company is a net earner of foreign currency.

• Government is collecting corporate tax from it, and not subsidising its operations.

• Employee motivation is high as the company can now afford market-related conditions

of service.

Similarly, Gono (2009:9) postulates that the benefits of successful privatisation can aptly be

summed up by the current status of DZL:

• The company is highly profitable and well capitalised.

• DZL is achieving real growth in sales volume, both on the domestic and on the export

market.

• DZL is a net foreign currency earner.

• There are no longer financing operational deficits as was the case with Dairy Marketing

Board (DMB).

• Government is collecting corporate tax, and not subsidising operations.

• DZL is contributing towards employment.

• DZL is cash rich and finances its own projects.

• Employee motivation is high as the company can now afford market-related conditions

of services.

• The value addition thrust has ensured a wider product choice for consumers.

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• The company has established itself as a regional player having acquired some

subsidiaries within its value chain.

(b) Cotton Company of Zimbabwe (Cottco)

Akiyama, Baffes, Lason, and Varangis (2001:176-177) highlight that in September 1994 the

Cotton Marketing Board’s monopoly was formally terminated, and it was renamed the

Cotton Company of Zimbabwe, with the government holding all shares. The organisation

started on a clean balance sheet as the government assumed all its debts which then led to

the privatisation of the organisation in 1997. Palcic and Reeves (2011:125) posit that debt

write-offs and other financial undertakings by the government are some of the indirect

costs which can be incurred by the exchequer when preparing an organisation for

privatisation. Similarly, Masuka (2012:575) postulates that in 1994, the government stripped

the CMB (Cotton Marketing Board) of its statutory monopoly in purchasing, ginning,

marketing, and the export of cotton lint. There are claims that the improvement in

performance by Cottco has been attributed to improved operational efficiencies and

economies of scale due to higher output, prudent treasury management and improved

recoveries from a streamlined inputs credit and finance scheme (Tambudzai, 2003:191).

According to Gono (2009:10), the benefits of privatising Cottco include:

• Cottco is one of the blue-chip companies listed on the Zimbabwe Stock Exchange.

• The company is profitable and has reduced Government’s fiscal burden.

• The company is one of the top exporters, racking in millions of US dollars from cotton

exports.

• Opening up of the cotton sector has enhanced competition resulting in increased cotton

output and fair compensation to growers.

4.6.2 Criticism of privatisation

According to Mohammed (2008:13), privatisation - as prescribed by the World Bank/IMF

and supported by their servants and pseudo-intellectuals in the continent as a policy option

- has created the deep economic disruption in Africa leading to socio-ethnic crisis and

political instability. Similarly, Masunungure and Zhou (2006:6) contend that privatisation

policy prescriptions were embraced in Zimbabwe and other African countries in the early

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1990s, largely as conditionalities for accessing the balance of payments under the Economic

Structural Adjustment Programme (ESAP). Furthermore, privatisation programmes are

intended to press forward the neo-liberal development agenda. Consequently, in

Zimbabwe, privatisation resulted in the retrenchment of many employees thereby

deteriorating their wellbeing as a result of a lack of social net mechanisms. Similarly, the

Cotton Company of Zimbabwe reduced its workforce, through retrenchment, from 3000 to

500 employees between 1994 and 1998, thus forcing the retrenched employees into the

informal sector for their survival. In addition, the privatisation of organisations in Zimbabwe

resulted in more funds being drained than it generated. As a result of the lack of an

autonomous privatisation institution to monitor the privatisation process, private financial

intermediaries were paid undisclosed amounts during the valuation and listing of the

organisations which were privatised (Masunungure & Zhou, 2006:6).

Zhou (2000:215) argues thatthe weakness of policy documents in Zimbabwe is that they do

not clearly spell out the strategies that will be used to ensure the economic empowerment

of indigenous groups during the privatisation process. Pitcher (2012:244) highlights that, in

South Africa, although many features of GEAR (Growth, Employment and Redistribution)

were similar to the policy reforms adopted by countries that were experiencing more severe

crises, the decision to privatise also served other goals of government, particularly that of

black economic empowerment (BEE). BEE was incorporated so as to redress the country’s

legacy of economically marginalising the black majority. Tambudzai (2003:188) claims

thatthe trade unions have however criticised the programme for lack of proper legislation

dealing with workers’ issues and transparency when it comes to government and

management teams. Similarly, Masunungure and Zhou (2006:7) argue that, unlike the case

in Malaysia and other African countries such as Zambia, the state in Zimbabwe did not put in

place a consistent legal framework and specific defence schemes to supportthe indigenous

agenda. This is evidenced by the Dairiboard Employee Share Ownership Trust Fund which

was established after the privatisation of the organisation as it tended to benefit

management more than it did the general employees, as contributions were based on

individual employee earnings. Thus, this situation resulted in management, which had

higher contributions, taking almost full control of the organisation. Employee share

ownership schemes have featured prominently in privatisation programmes around the

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world as governments have used the preferential allocation of shares to employees in order

to build support for privatisation (Palcic & Reeves, 2011:134).

Dore et al. (2008:195) postulate that the framework for reforming public organisations in

Zimbabwe is a minefield as it is characterised by a multiplicity of pieces of legislation,

institutions and, at times, policies which contradict each other, and even policy reversals.

4.7 CONCLUSION

This chapter highlights that parastatals in Zimbabwe came into being after they were

inherited by the government after independence in 1980. It also indicates that some were

created as a result of the socialist and inward looking economic strategies which were

adopted for the provision of social services. The rationale for the privatisation of parastatals

in Zimbabwe was to reduce government subsidies to the loss making organisations, to

improve organisational performance and to access investment capital and improve service

delivery. The chapter also highlights the privatisation methods used in implementing

privatisation in Zimbabwe as well as their outcomes. The privatisation of DZL and Cottco are

highlighted as success stories as both of these organisations are listed on the Zimbabwe

Stock Exchange and they pay dividends to the government. However, the implementation of

privatisation is also criticised for its slow pace, lack of an autonomous institution to monitor

the process, lack of a legal framework for privatisation, lack of a clear policy to ensure

economic empowerment of indigenous Zimbabweans as well as worsening the livelihoods

of retrenched workers as a result of a lack of social safety net issues. Chapter 3 presented a

theoretical overview of privatisation based on literature from developed, transitional and

developing countries. Since Zimbabwe is a developing country, the chapter placed greater

emphasis on case studies from other developing countries. Chapter 5 offers a discussion of

the key success factors of implementation of privatisation.

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CHAPTER 5

KEY SUCCESS FACTORS OF PRIVATISATION IMPLEMENTATION

5.1 INTRODUCTION

Implementation is the step in the decision-making process that involves using managerial,

administrative and persuasive abilities to translate the chosen alternative into action (Daft,

2008:285). Likewise, Gomez-Mejia et al. (2008:207) postulate that implementation involves

defining the tasks to be accomplished, assigning individual responsibilities for those tasks,

and managing individuals to ensure that the tasks are appropriately completed. In this

regard, managers should invent ways to influence people to achieve the planned actions

through the use of authority, persuasion, policy and feedback mechanisms. Implementation

is characterised by some barriers which can be financial or a function of the external

environment and are thus sometimes outside the direct control of the organisation

(Burtonshaw-Gunn, 2010:32). However, in most cases, barriers are internal and can be dealt

with through proper planning, correct management actions and effective communication.

Implementation should provide management with guidelines for managing the organisation

in an efficient and effective manner.

Chapter 4 of this study focused on the theoretical overview of privatisation. The chapter

presented a discussion on the theory of privatisation, came up with some definitions of

privatisation and highlighted the general rationale for privatisation, the methods of

privatisation, privatisation-nationalisation cycles, benefits of privatisation as well as the

criticism of privatisation. Furthermore, the chapter analysed privatisation in developed

countries and in developing countries by paying particular attention to the rationale,

management, benefits, regulation and criticism of privatisation in the selected countries, as

well as lessons to be learnt by developing countries. The chapter ended with a summary.

This chapter will analyse the key success factors of privatisation implementation. The

analysis will cover issues which include government commitment to privatisation, clear

objectives, thorough planning, effective monitoring and evaluation, solid institutional and

regulatory framework, transparency, gradual process, stakeholder consultation, social safety

net issues, organisational restructuring, feasibility study, country conditions as well as the

preparation for sale. The chapter will end with a summary.

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5.2 OVERVIEW OF CRITICAL SUCCESS FACTORS OF PRIVATISATION

Li, Akintoye, Edwards and Hardcastle (2005:460) define critical success factors as ‘those few

key areas of activity in which favourable results are absolutely necessary for a manager to

reach his/her goals’. Therefore, critical success factor methodology is meant to clarify those

few key issues which determine the success of management efforts. This method has been

used as a management measure in many areas such as financial services, information

systems, manufacturing, construction management as well as Build Operate Transfer (BOT)

projects. Furthermore, the following critical success factors in BOT projects have been

identified:

• appropriate project identification,

• stable political and economic situation,

• attractive financial package, and

• reasonable risk allocation and management control.

In addition, government support, good governance, availability of a financing market, strong

private consortium, feasibility study/cost benefit analysis and a suitable legal and

administrative framework have also been identified as critical success factors in public-

private-partnership (PPP) projects (Li et al., 2005:460).

Critical success factors are those fundamental issues inherent in the project which must be

maintained in order for teamwork to take place in an efficient and effective manner

(Keremane & Mckay, 2009:252). The critical success factors method highlights the pertinent

strategies which are to be adopted for solving the problem at hand. In this respect, there is

a need to implement these factors throughout the life span of the project. Furthermore, the

critical success factor method is made up of four steps; namely, identifying the objectives,

decomposing goals into factors, coming up with activities, designing the critical success

factor matrix and validating the process.

According to Pamacheche and Koma (2007:18), given that the wrong approach to

privatisation can lead to overall performance levels being worse than those of pre-

privatisation, the issue of the overall design and implementation of privatisation

programmes is vital. Furthermore, thorough preparation of privatisation must be done

whilst at the same time avoiding the implementation of privatisation in a hurried manner.

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Therefore, any privatisation exercise should assess the information needs, constraints,

resources and time required to implement successful transactions. It is also necessary to

identify the critical success factors of privatisation which include commitment or political

will, clear objectives, solid institutional and regulatory framework, transparency,

stakeholder consultation and social net issues. Simoneti et al. (2005:1604) reveal that the

ideal privatisation strategy is to transfer assets as rapidly as possible to concentrated

owners through open, fair, and transparent methods. It is important to improve the

privatisation process so that the process fully addresses issues such as improving

competition, coming up with proper regulatory frameworks, ensuring transparency,

mitigating social costs and designing the privatisation process to meet local conditions

(Kikeri & Nellis, 2004:105). Lessons can be learnt from the Zambian privatisation process

which created a privatisation agency which had legislative authority outlining procedures on

ensuring transparency and accountability (Craig, 2000:360). These procedures also ensured

the government’s commitment to the successful implementation of the programme through

adopting steps of broadening ownership and eliminating some barriers.

The design of the privatisation process is complex and it is recommended that it should take

into account all the critical aspects of the environment; such as political, economic as well as

social issues (Selvi & Yilmaz, 2010:673). Moreover, the critical success factors for

privatisation, which include establishing a balance among objectives, thorough planning,

educating stakeholders, creating a solid institutional framework and transparency, should

be observed so as to have a flourishing privatisation. Fatta (2010:127) support this assertion

and conclude that it is, therefore, necessary that the policy of privatisation be devised with

due care and attention after evaluating its future results. Alternatively, a rushed

privatisation may reflect upon the government as inefficient and incapable of managing the

economy. Furthermore, the following are some measures which may be helpful in

implementing the privatisation policy in an effective manner:

• National consensus,

• Transparency,

• Gradual process,

• Selective approach,

• Public-private partnership,

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• Effective monitoring and evaluation system,

• Restructuring of public organisations prior to privatisation,

• Steps should be taken to protect interest groups, and

• Civic education/public awareness campaign (Fatta, 2010:124-126).

Kauffmann and Wegner (2007:8) note that the review of privatisation processes have

revealed that improved performance on privatised organisations has been observed in

countries where the government is committed to privatisation. In addition better

performance has been realised where credible privatisations are implemented through

proper sequencing of the programme, restructuring organisations identified for

privatisation, appointing an independent regulatory body before privatisation which has the

capacity to discipline the private sector and attract investment. Countries all over the world

have adopted different strategies in privatising their public organisations, have used

different activities in different economic sectors and have, at times,have applied different

strategies at different points in time within the same sector (Mudambi, 2003:586).In

addition, these different approaches are mainly influenced by the political ideology and

culture within the privatising country, the stage of the country in terms of development as

well as the vision of the country in terms of its development. Furthermore, the outcomes of

privatisation have a bearing on the speed, direction and extent of the changes which are

introduced in an effort to redefine the organisation’s mission, strategy and organisational

structure. However, Buchs (2003:46) concludes that political commitment, proper

transparency, regulation and competition frameworks have been repeatedly emphasised by

scholars and practitioners of privatisation in Africa, and elsewhere, over time, but they are

still at the forefront of privatisation concerns. These critical success factors are subsequently

discussed in more detail.

5.3 DIMENSIONS OF THE PRIVATISATION PROCESS

According to Mudambi (2003:563), the key conditions of privatisation have three

dimensions. The first dimension is based on the government perspective which analyses the

impact of selling the public organisation as well as the effectiveness of regulation in the

sector. The second dimension is based on the societal perspective which is discussed by

identifying the groups who are affected by privatisation and how this impacts on such

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groups, as well as identifying ways which can influence such groups to support privatisation.

The third dimension is based on the organisation’s perspective where privatisation is

evaluated by the organisation’s performance and efficiency before and after privatisation.

Figure 5.1, below, illustrates the three dimensions during the privatisation of YPF of

Argentina.

Figure 5.1: Dimensions of successful privatisation - of YPF

Source: Adapted from Mudambi (2003:564).

According to Mudambi (2003:565), in Argentina, Congress passed the State Reform Law,

which declared 32 parastatals eligible for privatisation. Accompanying the privatisation

process was a series of regulatory reforms which allowed private organisations to provide

public services which were previously the preserve of regulated monopolies. In addition, the

government created Decree 1055/89 which lifted the restrictions on the market for crude

oil, and provided for concessions and joint ventures. Thus, the regulatory changes

YPF State-Owned-Organisation

Government

• Creation of legal framework to permit the privatisation.

• Definition of the government’s role as regulator and part owner.

• Deregulation of the industry.

• Expected financial impact.

Society

• Identification and diffusing of pressure groups.

• Dealing directly with relevant unions and the issue of layoffs.

• Dealing with political opposition (parties).

Organisation

• Definition of businesses to be in, and transformation to fit this definition.

• Designing the new organisation structure and selecting the personnel.

• Establishment of the team to lead the process.

YPF

Private Organisation

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introduced by government created the conditions needed to sell YPF to private investors as

it introduced competition and attracted investors into the industry. The government of

Argentina then dealt with societal issues through renegotiating a new labour contract where

the union was awarded generous benefits for layoffs; these include encouraging laid-off

employees to organise their own private organisations with YPF contracting to buy their

services. Furthermore, other employees opted for training and development programmes

which were accompanied by generous severance payments. The government designed

strategies which included transparency, uniform treatment, and speed in the privatisation

process so as to smooth over the opposition. Moreover, in an effort to transform YPF, the

government engaged McKinsey and Company, an international strategy consulting

organisation, to design a strategic plan for its privatisation endeavours. Thus, the consulting

organisation recommended the restructuring of the organisation prior to a public offering.

In addition, the government appointed a visionary leader who possessed the necessary

competencies to drive the privatisation of YPF.

5.4 COMMITMENT/POLITICAL WILL

In any partnership agreement, it is important that top management commits

itselfgenuinelyin a manner which is visible and supportive of the partnership whilst at the

same time avoiding lip service (Burtonshaw-Gunn, 2010:98). Each stakeholder in a

partnership should articulate its interests in a set of goals that satisfy their requirements for

a successful programme. Commitment or political will is very important in any country

during privatisation as it tends to face a lot of resistance (Pamacheche & Koma, 2007:18).In

this respect, when political leaders are committed, it will be easy for them to defend their

stance on the need to implement privatisation despite any criticism from the stakeholders

concerned. Some countries like Nigeria have placed the privatisation programme in the

office of the vice president thus clearly reflecting the government’s commitment to the

programme. Similarly, Josiah et al. (2010:381) stress that privatisation has to be more than a

token gesture and receive substantive support from government, including support in the

form of an institutional infrastructure encompassing mechanisms of governance and an

appropriate legal and judicial framework.

Ngowi (2008:105) postulates thatthe capacity and willingness of both the public and private

sector to draft, negotiate and honour contracts is important so that the parties involved

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realise a genuine win-win outcome. Accordingly, the managerial implication, especially in

the public sector, revolves around the preparedness to conclude contracts which are not

influenced by corrupt practices. Thus, both private and public managers should practise

good governance principles and transparency in all transactions. Conspicuously, in Tanzania,

management and leadership in the public and private sectors are faced with the challenges

of understanding and putting into operation the idea of private sector participation in public

service delivery which has resulted in insufficient support, commitment and backing by

those involved in private sector participation. In addition, in Tanzania, these challenges have

been orchestrated by the fact that the private sector viewpoint in the country is still in its

infancy and that the funds, understanding, experience and equipment needed by the

private sector to offer public services under private sector participation is still inadequate.

The other factors which have prevented the private sector from working in harmony with

the public sector in Tanzania are that the public sector is characterised by bureaucracy,

inefficiency and ineffectiveness whilst the private sector’s characteristics are the opposite of

its public counterpart. Therefore, it is critical that the operations of the public sector are

changed in relation to its bureaucracy, inefficiency, ineffectiveness, inadequate incentives,

resourcefulness, enthusiasm, liveliness, widespread corruption and slow response.

According to Parker and Kirkpatrick (2007:534), the probity and competence of government

becomes crucial to ensuring a successful privatisation. However, studies carried out in

developing countries have revealed that most of these countries are characterised by poor

public sector governance, regulatory weaknesses, policy failures, incompetence, corruption

and cronyism.

Developing countries are generally characterised by a lack of government commitment to

privatisation and a lack of information for investors to analyse and monitor the performance

of privatised organisations (Otchere, 2007:1). Notably, developed countries (unlike

developing ones) privatise their banks fully thereby allowing them to restructure and

embark on politically unpopular business strategies which are profitable. Conversely, Cull

and Spreng (2011:257) argue that in Tanzania, political difficulties in maintaining support for

the privatisation led to delays and adjustments in the strategy for the privatisation of NMB.

Instead of a sale of 70% of NMB shares to a strategic investor, comparable to the sale of

NBC to ABSA, the adjusted strategy recommended a sale of only 49% of NMB shares, and

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51% of shares being held by government of which 21% of these shares would be sold to

Tanzanians at a later date. Furthermore, the privatisation of NBC shared the main features

of other successful transactions in developing countries which included the sale to a

strategic investor through the participation of foreign bidders, where ABSA of South Africa

won, as well as the relinquishing of majority shareholding by government.

Some countries such as Chile and Mexico, who committed themselves to privatisation,

experienced higher growth levels in comparison to countries in Sub-Saharan Africa

(Boubakri, Smaoui & Zammiti, 2009:18). Similarly, Aboujdiryha (2011:15) asserts that the

success of the privatisation of Kenya Airways was attributed to the government’s

determination to make it a success by establishing a special committee (the Okero Probe

Committee), which looked at the method used to sell the organisation, the restructuring

that took place prior to privatisation, and introduction of a corporate governance system.

Furthermore, the success of Kenya Airways was realised as a result of its strategic

partnership with KLM.

Paterson, Blewett and Karimi (2006:1) observe that the government of Afghanistan has

shown a considerable amount of commitment in the privatisation agenda as reflected in the

Interim Afghanistan National Development Strategy (INDS) and the Afghanistan Compact,

which was agreed upon with the international community in January 2006. This

commitment to the international community was preceded by the Cabinet approval to

amend the State-Owned Enterprise Law, in 2005, which provided for the divestment of

public organisations through privatisation as going concerns or liquidations by end of 2009.

Similarly, Jerome (2004:17) argues that privatisation in South Africa had been very slow,

with few visible results and a general feeling amongst observers and donors that

government’s commitment to the process was generally half-hearted. This lack of

commitment has resulted in the failure to achieve the visualised objectives of privatisation

in the country. Thus, the government has not designed a clear framework which could guide

the various stakeholders within government, and between government and public

organisations, on the roles of these participants. As a consequence, bottlenecks have

emerged during the process. Lessons for privatisation can be derived from the Zambian

experience in which parliament voted for the Privatisation Act in July 1992 with the Zambia

Privatisation Agency (ZPA) being established two months this. The agency had 12 board

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members who were appointed by the President from a number of interest groups like

labour unions and the private sector; these were to be endorsed by the national assembly,

and would thereafter enjoy independence from government.

The privatisation process in Zambia was guided by a plan of action in which the ZPA was

tasked to recommend to cabinet the privatisation policy guidelines, timetable, or sequence

plan for the sales, and the method on how each individual organisation was going to be sold

(Craig, 2000:360). Furthermore, the agency had to vet potential investors by coming up with

pre-qualification conditions, prepare all documents required for the sale, make plans for

independent valuation of the organisations identified for privatisation, assess the bids by

paying particular attention to the price, and to the reputation of the bidder as well as the

capacity and commitment of the bidder to grow the privatised organisation; the agency also

had to employ independent negotiators for the sale. The conclusion of any sale was subject

to the approval of the Attorney General and the Minister of Finance whilst the ZPA was

expected to make public the bidders and their offers and to justify the selection of the

winning bidder by highlighting the conditions of the sale and the price. Consequently, all

these measures were put in place to ensure a high degree of transparency and

accountability throughout privatisation. It is in the regard that the Zambian experience

offers a good model to be followed by developing countries which are privatising their

public organisations. Moreover, the commitment by the Zambian government and the

institutional arrangements which were put in place contributed to the successful

implementation of its privatisation programme.

Craig (2000:363) argues that the participation of foreign organisations during the process of

privatisation is crucial for creating a vibrant private sector whilst at the same time providing

the much anticipated business opportunities for organisations based in their home

countries. Jerome (2004:3) emphasises that privatisation requires strong political

commitment. In this sense, the process is political as in the long-term some stakeholders

win and others lose whilst the short-term costs are taken care of by defenceless but vocal

groups such as employees. Accordingly, the process requires an organised approach by the

political and administrative leadership as it is important to clearly explain the process to the

stakeholders, develop alliances to support organisational change and deal with the

disaffected.

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5.5 CLEAR OBJECTIVES

According to Nickels et al. (2010:181-182), objectives are specific, short term statements

detailing how to achieve the organisation’s goals. Ghillyer (2009:115) states that objectives

are statements which outline what is to be achieved and which provide the organisation and

its members with the reason for the existence of the organisation and the direction to be

taken. Objectives specify and quantify the goals or targets towards which leadership,

willpower, effort, the investment of resources, and the use of enterprise capability are to be

directed so that the mission and strategic intent are achieved (Morden, 2007:182).

Accordingly, Thompson, Strickland III and Gamble (2010:33) emphasise that the managerial

purpose of setting objectives is to convert the strategic vision into specific performance

targets-results and outcomes that the company’s management wants to achieve.

Achua and Lussier (2010:84) contend that the parts of the writing objectives model are:

• Singular result: each objective should contain only one end result so as to avoid

confusion.

• Specific: the objective should state the exact level of performance expected.

• Measurable: people tasked with achieving objectives must be able to observe and

measure their progress regularly, in order to monitor progress and to determine if the

objective has been met.

• Target date: a specific date should be set for accomplishing the objective. Deadlines

usually motivate people to work harder so that the task at hand is done on time.

• Participatively set: people that participate in setting objectives generally outperform

those that are assigned objectives.

• Commitment: for objectives to be met, employees must accept them.

According to Pamacheche and Koma (2007:18), governments must be very clear on the

objectives of privatisation in order to put in place the necessary conditions for their

successful achievement. Similarly, Grimsey and Lewis (2005:155) identify those high-level

factors in which success appears to be necessary so that each of the major project

participants in a BOT infrastructure project have the maximum chance of achieving their

goals. The objectives should be crafted in such a way that they are explicit, realistic and

achievable. There should also be a sincere desire for a win-win solution where the parties

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involved agree to their mutual and individual objectives. Furthermore, the objectives which

the parties agree to must be clear, realistic and achievable. Parker and Kirkpatrick

(2007:535) conclude that privatisation objectives need to be articulated to include not only

improved economic efficiency (for example, higher productivity) but poverty reduction and

long-term economic development. In this regard, Chittoo and Nowbutsing (2010:174) add

that governments can try to attain other socio-economic objectives through privatisation,

there are:

• relieving the administrative and financial burden

• balancing national budgets by eliminating/reducing subsidies to public sector

• encouraging popular capitalism by wide-shareholding – ‘a nation of shareholders’

• reducing taxes and thereby stimulating the economy

• stimulating economic growth by encouraging entrepreneurship

• developing capital markets

• improving managerial performance and business efficiency

• eliminating the bureaucratic and monopolistic tendencies of parastatals, and

• encouraging foreign direct investments by liberalising the economy, amongst others.

Similarly, Mauritius has successfully implemented this strategy and committed itself to

attaining such objectives (Chitto & Nowbutsing, 2010:174). Similarly, Kauffman and Wegner

(2007:29) argue that, as usually mentioned in their governments’ privatisation legal

framework, the MEDA countries had three main motivations for undertaking privatisation

programmes:

• short-term fiscal benefits brought about by once off privatisation proceeds and the

reduction of the massive subsidies granted to often loss-making parastatals as well as

creating a larger tax base as organisations become profitable

• the positive economic and social impact of privatisation on competition brought by

increased corporate efficiency, lower prices and improved access to services, and

• the development of financial markets and the broadening of local participation in order

to attract foreign direct investment and stimulate private sector development.

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It is important for managers of privatised organisations to go through a transition from

public to private governance and to implement a number of policies so that high

performance gains are achieved (Yonnedi, 2010:543). Therefore, managers should have the

discretion to redefine the organisational objectives through the analysis of industry, market

and technological opportunities. Massey (2010:205) notes that the strategic aim of the

privatisation of Kenya Airways was to isolate the organisation from the general Kenyan

political situation, and to link it firmly in the global setting of international airlines, thereby

protecting it from domestic abuse. The global positioning of Kenya Airways would be

advantageous to Kenya as citizens would be trained to international standards in order to

occupy all positions in the airline.

5.6 THOROUGH PLANNING OF PRIVATISATION PROCESS

According to Jones (2007:79), planning is a process that managers use to identify and select

the appropriate business model and goals for the company. Furthermore, there are three

main stages in the planning process and these include choosing a business model to use,

distributing the organisation’s resources to carry out the model and setting targets which

will be used to evaluate the efficiency and effectiveness of the business model. Thus, such

decisions have to be taken by managers who are knowledgeable as both its success and

failure are the consequence of the planning process. Nickels et al. (2010:179) concur that

planning is a management function that includes anticipating trends and determining the

best strategies and tactics to achieve organisational goals and objectives. Accordingly,

planning assists in monitoring the environment and locating organisational opportunities

and threats. Thus, planning is a very important management function as the attainment of

other functions relies heavily on well crafted plans which are manifest as strategic, tactical,

operational, and contingency plans. The four forms of planning are shown in Table 5.1

below.

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Table 5.1: Four forms of planning

Form of Planning Characteristics of the Plan Strategic Planning • The setting of broad, long-range goals by top managers.

• Analyse organisational features, resources and the environment. Tactical Planning • The identification of specific, short-range objectives by lower level

managers. • Plan links operational plan with the strategic plan. • Plan covers a period of one to two years.

Operational Planning

• Planning by line managers. • The setting of work standards and schedules. • Shorter time-frame.

Contingency Planning

• Back-up plans in case primary plans fail. • Plan to cater for unforeseen developments.

Source: Adapted from Gomez-Mejia et al. (2008:203-205), Ghillyer (2009:113-114), Nickels

et al. (2010:183-184).

Nickels et al. (2010:513) point out that strategic planning is done by top management and

determines the major goals of the organisation as well as the policies, procedures, strategies

and resources it will need to achieve them. The primary components of strategic planning

include creating or updating the vision and mission, conducting an environmental scan,

setting the strategic direction by using goals and strategies, and implementing and updating

the plan (Hickman, 2010:513). According to Gomez-Mejia et al. (2008:203), to be effective, a

strategic action plan should meet the following criteria:

• Proactivity – this is the degree to which the strategic action plan takes a long-term view

of the future and actively moves the company forward in the desired direction.

• Congruency – the extent to which the strategic action plan fits with organisational

characteristics and the external environment.

• Synergy – the integration of the efforts of various organisational subunits to better

accomplish corporation-wide business objectives.

Similarly, Lind et al. (2012:605) observe that long-term predictions are important in business

as they allow enough time for business departments such as procurement, manufacturing,

sales and finance to come up with appropriate plans aimed at developing new products,

new plants or new methods of financing the business.

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Gomez-Mejia et al. (2008:204) argue that tactical planning specifies the activities that must

be performed, when they must be completed, and the resources a division or department

will need to complete the portions of the strategic action plan under its purview. The plan

normally covers a period of one to two years and concentrates on the formulation of

functional plans. Operational planning is the process of setting work standards and

schedules necessary to implement the company’s tactical objectives (Nickels et al.,

2010:184). The plan focuses on resources, methods, timelines, and the quality control issues

relevant to a particular kind of operation. Ghillyer (2009:114) contends that contingency

planning addresses the what-ifs of the manager’s job and gets the manager in the habit of

being prepared and knowing what to do if something goes wrong. These plans cater for

rapid changes in the economic, political and competitive environments.

According to Luqmani and Quraeshi (2011:260), from a marketing, financial, and

government standpoint, the privatisation process can be enhanced by a planning model

with selection, transition, and sustainability phases. The selection for privatisation requires

identifying which organisations are likely to benefit from privatisation and the final section

of organisations from the identified list of good candidates for privatisation. In addition,

senior government officials who lead the privatisation process and believe that state

organisations exist to serve the public need to be persuaded to believe that, in certain

instances, the public can be served better through the private sector. After privatising the

parastatal, the government should continue with its role of balancing the development of

the private sector with public sector support, and in regulating business conduct. The

experience of Eastern Europe has demonstrated that rapid and extensive privatisation,

without a proper framework, can lead to disastrous results (Jerome, 2004:4). Accordingly,

experience has shown that the transactions in the privatisation process have to be

accompanied by proper planning, implementation, supervision and evaluation.

Yonnedi (2010:543) declares that the benefits of privatisation can be achieved by delegating

management functions to professional managers who have the required training and

knowledge at all levels of the company. In addition, the establishment of internal controls,

which include incentives and monitoring instruments, influence professional managers to

act in the interests of the shareholders. Zhou (2000:204) supports this assertion and points

out that the calibre of public enterprise managers is a critical factor in the implementation

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of reform processes. Some factors which need to be considered in the reform process

include the perception of the reform by public organisations’ management and how they

perceive of their roles in the post privatisation era, their capacity, professionalism and their

ability to make decisions.

According to Ngowi (2008:105), in Tanzania, the areas of concern include: the ability of

public sector officials to objectively identify, specify and justify the services to be privatised;

their ability to objectively identify the long-and short-term direct and indirect implications

of privatising specific services, and; the ability to professionally solicit and find private sector

actors with the needed capacity (knowledge, experience, networks, financial and material

resources, credibility and reputation) to deliver the services as per specifications. Mudambi

(2003:566) argues that, as the government of Argentina tried to establish the plan for

transforming YPF, McKinsey & Company, prescribed that the value of YPF could be improved

from an initial estimate of US$3 billion to US$8 billion through transforming and

restructuring the organisation before offering it up for sale. Subsequently, a road map which

was to be undertaken in three years - comprising of eliminating non strategic, unprofitable

assets, restructuring the organisation and offering the organisation to local and foreign

investors - was adopted.

Privatisation in Nigeria was preceded by the establishment of the National Council on

Privatisation (NCP) which had a statutory and policy mandateof formulating policies on

privatisation and commercialisation; the approving of guidelines and the criteria for

valuation of public organisations slated for privatisation;identifying and choosing strategic

investors, share prices and assets of parastatals, privatisation advisers and consultants, as

well as organisations for commercialisation (Etieyibo, 2011:96). Furthermore, the Nigerian

government structured the privatisation process in three phases. The first phase

concentrated on the complete divestment of oil marketing organisations, banks and cement

plants which were already listed on the Nigerian Stock Exchange, phase two focused on the

complete divestment of organisations which operated in competitive markets where no

regulation of prices or market behaviour is of primary concern to the government, and

phase three paid attention to the partial divestment of strategic public organisations which

operated in monopoly or near-monopoly markets like power, telecommunications, airways

and the petroleum plants.

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5.7 EFFECTIVE MONITORING AND EVALUATION SYSTEM

As a development from any quality process, the business plan, once in place and being used,

will need to be monitored to allow the organisation’s management to assess and control

progress by comparing actual and financial projections in relation to the plan (Burtonshaw-

Gunn, 2010:36). Monitoring allows the board of directors and senior managers to

understand the strengths, weaknesses, opportunities and threats of a business; identify the

direction in which the organisation is; and to be in a better position to respond quickly,

intelligently and effectively to situations which may occur. DuBrin (2012:14) notes that the

activities of a monitor are: developing systems that measure or monitor the unit’s overall

performance; using information systems to measure productivity and costs; talking with

group members about progress on assigned tasks, and; overseeing the use of equipment

and facilities (for example, vehicles and office space) to ensure that they are properly used

and maintained. In the evaluation stage of the decision-making process, decision makers

gather information that tells them how well the plan was implemented and whether it was

effective in achieving its goals (Daft, 2008:285).

Fatta (2010:126) emphasises that the government should continuously monitor and

evaluate the privatisation policy and programme adopted in a country. In addition, an

effective monitoring and evaluation system enables the government to review the

effectiveness of the policy and to put in place some corrective measures, as necessary. Selvi

and Yilmaz (2010:684) avow that in 2000 the government of Turkey engaged the loan

project named the Privatisation Social Support Project (PSSP) with the World Bank. This

loan amounted to US$250 million to support the achievement of the objectives of the

government’s Privatisation Program by increasing the productivity of parastatals while

reducing labour costs (that covers labour restructuring, labour redeployment, social

management and project management), mitigating the negative social and economic impact

of the privatisation of parastatals, and monitoring the social impact of privatisation and the

Turkish Economic Recovery Programme.

According to Parker and Kickpatrick (2007:532), institutional capacity has been identified, in

a number of privatisation studies, as the cause of disappointing results. Experience has

shown that these deficiencies have been pronounced in the managerial and administrative

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capacity, within government, to implement a successful privatisation and the drive to

privatise. For instance, this challenge in the political and management system has led to

delays in the privatisation programme of Taiwan. Moreover, there is a need to improve an

array of institutional issues such as the integrity of government, as well as the relevant

political, legal, management and financial competencies, if the policy of privatisation is to

enhance the performance of privatised organisations. Consequently, the failure to address

these issues during privatisation may result in the failure to create a competitive economy;

instead imperfect markets and monopolies are likely to be created.

5.8 SOLID INSTITUTIONAL AND REGULATORY FRAMEWORK

It has been observed that many privatisations fail to achieve their objectives, not because

they were improperly executed, but because they lack the requisite institutional and

regulatory framework (Pamacheche & Koma, 2007:18). In this sense, privatisation which is

undertaken without a regulatory framework to foster competition can result in customers

being worse off than before as they will be exposed to a private monopoly. Massey

(2010:203) argues that if privatisation is located within a context of low corruption and

independent civil society institutions, the rule of law, an independent judiciary and a clear

regulatory framework that is enforced, it may contribute positively; if not, it may contribute

to continuing corruption. Therefore, it is important to put in place an institutional and

regulatory framework so as to achieve a successful privatisation.

According to Gorecki, Lyons and Tol (2011:194), it is also important to set the correct

framework within which to analyse the sale of state assets. Accordingly, the framework

should take on board wider public policy considerations which include competition,

efficiency, resource allocation and economic development. Aboujdiryha (2011:43) supports

this argument and provides evidence that, in Zambia, sufficient resources were invested in

careful program design and preparation. The Zambian Privatisation Agency (ZPA) was

supported by appropriate legislation to perform its function, had adequate resources and its

operations were not affected by political interference. Kikeri and Nellis (2004:107)

emphasise that when ownership change is combined with institutional reforms-aimed at

removing barriers to entry and exit, improving prudential regulation and corporate

governance, hardening budget constraints, and developing capital markets-progress is much

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better. Liao and Young (2011:3) highlight that the experiences of Russia’s privatisation

suggest that the development of institutions for controlling self-dealing is central to the

successful privatisation of large organisations because corrupt privatisation of large

organisations can destroy the success of the whole reform process. According to Paterson et

al. (2006:2), before embarking on the privatisation of organisations that are not doing much

harm in fiscal terms, the government should address other structural reforms to ensure

adequate investment legislation, improved security and infrastructure as well as

streamlined and strengthened regulation. Consequently, it is important for governments to

improve key issues such as the rule of law, security, regulation and infrastructure so as to

add value to public organisations before embarking on their privatisation programme. Craig

(2000:36) concludes that the design of the framework has to leave room for entrepreneurial

action, provide long-term planning and investment security and promote market tailored

infrastructure investment and a modern business structure (retail).

5.8.1 Regulatory framework

According to Kauffmann and Wegner (2007:36), past experiences show that any attempt to

privatise should be preceded by the establishment of an independent and well enforced

regulatory framework to discipline the different stakeholders and provide the appropriate

incentives (notably through tariffs setting) to undertake investments, while preserving

scarce resources. Similarly, Etieyibo (2011:109) postulates that a proper regulatory

framework ensures that privatised organisations are not locked in a Prisoner Dilemma

scenario in which, although doing the ‘right ‘ and ‘lawful’ thing is the rational action to take,

they choose to do the ‘wrong’ and ‘unlawful’ thing, even though this has a suboptimal

outcome. Kikeri and Nellis (2004:109) concur as they highlight that the successful

privatisation of natural monopolies requires the development of regulatory frameworks and

institutions that are independent, accountable, and resistant to capture by the private

provider or the state. These frameworks are important as they protect customers from

abuse by monopolies, guarantee the fair treatment of investors and ensure equality in the

distribution of resources. Latin American countries, such as Chile, that formulated

regulatory frameworks and improved the capacity to enforce regulations before

privatisation realised substantial success in their privatisation. Similarly, the presence of

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regulatory frameworks has worked in favour of privatising countries as there will be no need

to renegotiate contracts as the regulatory framework reduces errors in contracts.

In Egypt, the number of listed companies on the stock market almost doubled from 1992 to

2003 and the market recapitalisation of those companies rose from $3.2 billion in 1992 to

almost $20 billion in 2003 (Kauffmann & Wegner, 2007:41). Furthermore, this performance

is linked to the parallel liberalisation of foreign investment regulations as well as the

presence of an effective regulator that protected shareholders, thus resulting in the Cairo

and Alexandria Stock Exchange becoming one of the foreigner-friendly stock markets in the

MEDA region. The National Telecom Regulatory Authority which was set up to oversee the

privatisation of Telecom Egypt has resulted in a tremendous increase in the number of

licences issued; citizens were thus able to access internet services. In Tunisia, the

privatisation of the Tunisie Telecom (TT) opened the sector anda regulatory framework was

set up at the same time. Similarly, the successful privatisation of Maroc Telecom can be

attributed to the proper sequence of the process which includes the establishment of a

regulatory body before the divestiture.

A study which explored privatised telecommunications in Latin America and Caribbean

countries, found that regulation is an important determinant of telecommunications density

growing quickly (Parker & Kickpatrick, 2007:523). Furthermore, there is a need to establish

an independent regulatory authority and to introduce competition prior to privatisation as it

has been proved that doing so, in the electricity generation industry, is accompanied by an

increase in electricity generation, increased generation capacity and improved capital

utilisation. The case of BAA (London airports) can be seen as a ‘’role model’’ for successful

privatisation, as it led to a marked increase in productivity and to the successful

reorganisation of the structure of the business; this resulted in a massive increase in the

importance of the non-aviation sector (Gerber, 2002:31). The success of the privatisation is

attributed to the efficient fee limit regulation as a result of the single till rule which was

controlled by an independent regulator. The introduction of the independent regulator

facilitated a methodical partnership between the airlines and the airport which resulted in

an increase in the number of passengers.

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5.8.2 Legal framework

Selvi and Yilmaz (2010:683) argue that,apart from privatisation programs requiring a great

deal of careful advance planning from both a political and economic standpoint, it is also

important to put in place a general law on privatisation in the case of privatisation by

divestiture of specific organisations. Furthermore, privatisation laws help to define the legal

authority for the privatisation programme, the principles governing the authority as well as

the institutional arrangements for policy making and implementation. Therefore, the legal

requirements of privatisation should be viewed in consideration of three aspects; namely,

the legal requirements for the formulation of privatisation procedures, the implementation

of privatisation as well as the monitoring and control after privatisation. Craig (2000:361)

contends that Zambia’s Privatisation Act also provided for the establishment of the Zambian

Privatisation Trust Fund (ZPTF) to promote the sale of shares in some of the privatised

companies to Zambian citizens. Thus, the purpose of the trust deed was to buy a minority

interest in the privatised organisations so that these could be sold to Zambian citizens at a

later stage.

In Argentina, the privatisation programme was accompanied by a series of regulatory

reforms designed to allow private companies to provide public services that previously had

been regulated as natural monopolies (Mudambi, 2003:565). As a result, Decree 1055/89

revoked the prevailing restraints on the market for crude oil and opened up concessions and

joint ventures for development. Similarly, Decree 1589/89 opened up the domestic market

and created legislation which removed controls on the import and export of crude oil as well

as the removal of tariffs and duties. Therefore, the deregulation of the market brings with it

competition which makes management creativity strong, thus enabling the organisation to

compete globally and eliminating the cycle of problems.

Etieyibo (2011:95) points out that the government of Nigeria issued the Privatisation and

Commercialisation Decree No. 25 of 1988 as part of the Structural Adjustment Programme

(SAP). Furthermore, the decree established the Technical Committee on Privatisation of

Public Companies (TCPC) which was authorised to coordinate the disposal of Government

equities in the Nigerian capital market and to manage the privatisation programme. The

committee was tasked to privatise one hundred and one (101) public organisations and to

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commercialise thirty four (34). When the privatisation process was suspended in 1993, the

committee had successfully privatised eighty eight (88) out of 111 public organisations,

mostly through public floatation.

Some countries do not adequately protect private property rights, hence, expropriation of

private property remains a constant threat (Parker & Kirkpatrick (2007:531). In some

instances, economies tend to run parallel authoritative planning and state direction, even

where private property rights are protected and where capital markets are progressing,

thereby leading to poor results of privatisation.

5.9 TRANSPARENCY

Transparency is the presentation of a company’s facts and figures in a way that is clear and

apparent to all stakeholders (Nickels et al., 2010:190). According to Aboujdiryha (2011:55),

transparency means that the regulatory process is open to public scrutiny to understand the

grounds for regulatory decisions and facilitate public consultations and challenges.

Therefore, transparency is necessary to explain both the process of decision-making as well

as its outcomes (Crowe & Meade, 2008:766).

Luqmani and Quraeshi (2011:258) suggest that when supportive and transparent marketing

strategies, accompanied by progressive government monitoring and participation, are used

to implement privatisation objectives and initiatives, the entire process is more likely to

succeed. Privatisation should be subject to independent oversight from an auditing body,

which is well resourced and independent from executive powers whichengender the

privatisation process as well as the public authorities carrying it out (Kumar, 2009:9). Thus,

privatisation must be characterised by significant levels of transparency and accountability

through regular disclosure to Parliament and the general public. Transparency is an integral

part of the privatisation process (Jerome, 2004:4). Transparency should include the

appropriate dissemination of information, respect for the rules of the game, its procedures

and monitoring, as a lack of these can lead to reports of corruption, which brings with it

grounds to oppose privatisation and the repulsion of potential investors. Experience has

shown that privatisationin Russia has been opposed as a result of the mass privatisations

which permitted massive corruption where strategic assets were sold at giveaway prices to

a few elites, as there were inadequate institutional controls. Li et al. (2005:465) argue that

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transparency in tender processes, or negotiation, lies with the public client, private

contractor and their advisers. This further suggests that three features are important for

transparency: good communication between the public and private contractor and their

advisers; the private sector openly consulting with the public sector and its adviser, while

maintaining responsibility for all decisions, and; the private sector establishing a clear basis

for making decisions. Ngowi (2008:105) supports this assertion and postulates that both the

public and private sector should be capable of and willing to draft, negotiate and honour

contracts that will give privatisation genuine win-win outcomes to all the involved parties.

Thus, the managerial and leadership implication, in respect of public officials, is the

enthusiasm to shun contracts based on corrupt practices and to practise good governance

practices which include transparency in transactions.

According to Selvi and Yilmaz (2010:674), because most privatisation decisions depend on

high-quality accounting data, the lack of understanding of valuation methods and

accounting concepts as well as the lack of transparency in the exercise can jeopardise entire

privatisation programs. Thus, a privatisation process which lacks accounting data and

transparency will not generate the expected long term economic, social and financial

development outcomes. The importance of accounting during privatisation is that it secures

investor confidence to provide the necessary funds. Kikeri and Nellis (2004:111) support this

assertion as they argue that a lack of transparency leads to allegations and documented

cases of corruption, provides ammunition to opponents, creates a backlash from investors

and the public at large, and it threatens to halt or even reverse privatisation and liberalising

reform in general. In addition, transparency must be strengthened by guaranteeing that

transactions are carried out without special favours to insiders, well publicised procedures,

opening bids in public sessions, vetting actions by outsiders and publicising of the

privatisation contracts. The continued decline in the support of privatisation in Latin

America and elsewhere has been a result of the dissatisfaction with the observed cases of

corruption.

According to Pamacheche and Koma (2007:19), many privatisations face difficulties due to

the lack of transparency in the whole process. Consequently, a lack of transparency leads to

some people viewing the process as a means of making money for a few powerful and

government officials, hence, the public tend not to support it. Etieyibo (2011:109) contend

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that for a privatisation programme to be successful there should be a minimally corrupt

economic environment. In addition, to avoid government officials from benefitting through

privatisation by extracting corrupt or illegal political rents, a country’s corruption level needs

to be low. In this regard, it is evident that the poor performance of privatised organisations

in Nigeria is due to rampant bureaucrat corruption in the country. Accordingly, Nigeria has

been ranked among the top 10 most corrupt countries by the Transparency International

corruption perception index which covered the 1990s and the mid 2000s. Buchs (2003:41)

observes that, in Sub-Saharan Africa, privatisation has created new political patronage

opportunities, which need to be addressed in order to re-establish credibility in the

privatisation process. Ensuring transparency must include measures which observe that

tendering procedures are not bypassed through governance interference; hence, countries

like Gabon (water sector), Cameroon (electricity sector), Uganda (telecoms) and Kenya

(Kenya Airways) have engaged the International Finance Corporation (IFC) as an advisor in

their privatisations. According to Zhou (2000:200), in Zimbabwe, government credibility to

undertake a transparent and accountable public enterprise reform, poised to ensure

equitable distribution of resources, had also been severely dented by such revelations about

corruption in government (for example, the Willowvale Scandal).

5.10 GRADUAL PROCESS

A case-by-case privatisation requires that a special privatisation program be prepared for

each individual organisation, based on the individual characteristics of the organisation and,

after preparing the organisation through restructuring, the organisation is sold

competitively (Simoneti et al., 2005:1605). Moreover, there is a perception that

performance is higher in case-by-case privatisation than in mass privatisation as

governments have all the time to assess the restructuring needs of these organisations and

to select the best new private owner. Accordingly, evidence from Slovakia shows that

organisations sold to strategic investors by the government perform better after sale in

terms of total factor productivity (TFP) than those organisations which are sold by non

regulated private mass privatisation organisations. Likewise, Fatta (2010:124) claims that if

privatisation is to be sustainable and people-centred within the context of developing

countries it has to be a gradual process, relatively crisis-free, untroubled and unforced,

marked by the fashion of collective participation from below and individual participation in

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the market place. This approach should be adopted by developing countries as it will be

erroneous to implement a Western style of privatisation without fully understanding the

country’s economic, social, political, bureaucratic and managerial state of affairs. Josiah et

al. (2010:381) also acknowledges that it is better for privatisation to be done gradually and

carefully rather than speedily and crudely. Bjornskov and Potrafke (2011:204-205) support

this notion as they state that, the main reason, based on Hayekian information economics,

is that right-wing governments would prefer piecemeal, that is gradual, reforms as systemic

changes entail uncertain and in some cases unknowable consequences. Conversely, left-

wing governments preferred swift changes which were based on a positive view of planning

by governments.

Etieyibo (2011:99) argues that only 10% of the 400 privatised organisations in Nigeria are

properly functioning. Moreover, the poor performance of most of these privatised

organisations has been attributed to a lack of effective regulation of the haste at which they

were sold, especially that there was no mechanism in place to ascertain the financial and

technical proficiency of the investors. Other factors which contributed to the poor

performance of privatised organisations in Nigeria included deep-seated ethnic and regional

differences in the country, lack of transparency in the privatisation process and the neglect

of issues related to social and public interest. Conversely, Kikeri and Nellis (2004:112) point

out that evidence from Bulgaria, Mexico, South Africa, and elsewhere indicates that once a

firm is slated for privatisation, delays in completing the transaction lead to declining

operations, asset stripping, and lower sales prices. Furthermore, this results in few bidders

coming forth to buy the dilapidated organisation which, in turn, results in governments

making special and costly concessions. This argument is supported byJerome (2004:18) who

argues that a more rapid and wider privatisation programme especially in infrastructure will

stimulate competition, allay investors’ confidence and encourage private investment and

capital inflows.

5.11 STAKEHOLDER CONSULTATION

According to Nickels et al. (2010:6), stakeholders are all the people who stand to gain or lose

by the policies and activities of a business and whose concerns the business needs to

address. Thus, in any business, stakeholders include shareholders, employees, customers,

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suppliers, dealers, the media, people living in a community, environmentalists as well as

elected government leaders. Therefore, the success of any business transaction hinges on

the recognition and response to the needs of its stakeholders. Farrington (2009:220)

describes a stakeholder as any group or individual that is affected by the firm’s success or

failure; has a vested interest in the survival of the firm; can affect or is affected by the

achievement of the organisation’s objective; has a legitimate claim; from whom the

organisation has voluntarily accepted benefits, and to whom the organisation has therefore

incurred obligations of fairness; holds power over the organisation, and may exert either a

beneficial or a harmful influence on it. Consequently, organisations which maintain good

stakeholder relationships which are rooted in trust and cooperation will tend to enjoy a

competitive advantage at the expense to those which do not. Felsinger (2011:20) posits that

there are several reasons why consultation during a public private partnership has been

recognised as important:

• Insufficient consultation or communication with stakeholders increases the danger of

opposition, potentially late in the process, leading to delays or even cancellation.

• Furthermore, the stakeholders are critical to the sustainability of a Public Private

Partnership.

• Stakeholders provide valuable input to the design and practicality of an approach.

• Broad public support and understanding of the reform agenda encourage politicians to

stay committed.

• Dissemination of information leads to the increased credibility of project partners.

Thus, managers who ignore their stakeholders are usually faced with less commitment from

such stakeholders, hence, the programme is bound to fail.

Stakeholders of privatisation include trade unions, employees, customers, managers and the

employees of public organisations as well as government ministers (Pamacheche & Koma,

2007:19). These groups are affected differently by privatisation as they have different

interests in these organisations. Similarly, it is critical to fully consult these stakeholder

groups before and during privatisation so as to avoid any disruptions in the process. Grimsey

and Lewis (2005:158) postulate that a structured team building process is required, for the

purposes of improving the project results through the development of a mission statement

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and shared goals, the development of trust and commitment amongst the team, clearing

barriers, resolving differences, creating interdependence and accountability amongst team

members and developing problem solving skills. Furthermore, the team can be developed

through the establishment of relationships with the organisations of the relevant

stakeholders, identifying problems which are likely to be experienced during the project and

establishing a project team which is responsive to critical matters.

According to Jerome (2004:3), it is important to gather public perceptions of success when

undertaking a privatisation process.It is equally important to develop an understanding of

the process by all stakeholders by availing the requisite information through public

campaigns. These campaigns are normally effective when they embrace strategies which

encourage the full participation of stakeholders and those which deal with the political and

social costs. Successful privatisation requires the active interest and willingness of

stakeholders such as entrepreneurs, investors and the identified organisations to participate

in the privatisation process (Luqmani & Quraeshi, 2011:265).Those in charge of the

privatisation process must manage the perceptions of stakeholders and clearly highlight the

benefits of privatisation. Thus, the marketing campaigns for privatisation should target its

stakeholders who include the private sector, government organisations, consumers and

consumer activists as well as international organisations and institutions.

Craig (2000:360-361) notes that the Zambian privatisation programme was characterised by

a number of provisions which were put in place so as to assist local investors. The Zambian

Privatisation Act had no restrictions on the participation of foreign investors in the

programme. Accordingly, the ZPA was mandated to divide big organisations into smaller

units where locals could buy shares through instalments. This Act included a provision for

the establishment of the Zambian Privatisation Trust Fund (ZPTF) which could purchase

minority shares which could later sold to locals at a discounted price. Zhou (2000:204) cites

the ‘’lack of a clear strategy and programme’’ as a major impediment in the Zimbabwean

policy environment. Experience has shown that government has made secret decisions to

privatise parastatals without consulting the managers of such organisations and other

stakeholders.

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5.12 PUBLIC AWARENESS CAMPAIGNS

The government should design effective education programmes for the general public so as

to allay their misconceptions about privatisation (Fatta, 2010:126). Therefore, it is necessary

to design a viable public awareness campaign which can be executed through mass media,

workshops, seminars, and other interactive programmes. Public awareness efforts are

aimed at a broad range of stakeholders and designed to increase the general awareness of

an issue (Felsinger, 2011:23). Luqmani and Quareshi (2011:265-266) support this assertion

as they state that it is important to come up with effective public relations campaigns which

are directed to address the benefits of privatisation. Consequently, the privatised

organisations should be aware of the role that they can play in contributing to the goals of

parastatals prior to their privatisation. In Egypt, the government ensured that the process

was transparent and participatory by developing a system of shared decision making

(Kauffmann & Wegner, 2007:39). Similarly, negotiations were held between the Ministry of

Public Enterprises, the Ministry of Manpower and the General Union for Egyptian Workers

in an attempt to make a joint decision. The negotiations involved the Labour Committees in

the earliest stages of the feasibility study of the position of the public organisations which

were making losses and during the discussions with management concerning surplus

employees. The process of shared decision making resulted in the privatisation process

being viewed as participatory and transparent.

5.13 SOCIAL SAFETY NET ISSUES

In Turkey, the introduction of a number of safety net issues eased the burden of

privatisation on employees through the enactment of the Privatisation Law No. 4046 of

1994 (Kauffman & Wegner, 2007:39). The measures which were adopted by the

government included a supplementary unemployment indemnity, separate from job loss

pay, a 30 percent premium on retirement benefits to induce early retirement and the

transfer of dismissed employees to other public organisations. Furthermore, in the case of

Karabuk Steel Plant retrenched employees used their terminal benefits to buy shares in the

newly formed company. The government of Tunisia has mitigated the impact of

privatisation on employment and minimised employees’ resistance by directing the new

owners of privatised organisations to maintain the same levels of employees and to avoid

whole or partial closure of these organisations. Privatisation normally leads to political

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criticism as a result ofthe extensive loss of employment that usuallyaccompanies the

restructuring of large organisations (Kikeri & Nellis, 2004:112). Moreover, some of the

measures which can be used to quell tensions are to enter into dialogue with employees

early so that a compromise is reached; this can be in the form of compensation payments,

free or subsidised share prices, as well as severance and retirement benefits which can

stimulate voluntary departures.

It is therefore important to put in place adequate safety measures to reduce the potential

impact of any negative social impacts (Pamacheche & Koma, 2007:20). Issues related to

labour fears can be overcome through measures such as outplacement assistance,

transitional training and educational programmes as well as earmarked unemployment

benefits. These actions can also influence the employees to buy-in to the privatisation

process. Similarly, Mudambi (2003:566) observes that in Argentina pressure groups such as

labour unions, the Union of Petroleum Workers of the State in particular, actively opposed

the sale of YPF.

5.14 ORGANISATIONAL RESTRUCTURING

Restructuring is redesigning an organisation so it can more effectively and efficiently serve

its customers (Nickels et al., 2010:219). Thompson et al. (2010:276) assert that restructuring

strategies involve divesting some businesses and acquiring others so as to put a whole new

face on the company’s business line up. They further argue that candidates for restructuring

in an organisational restructuring exercise do not only include the weak or up-and-down

performers but also includes those business units which lack strategic fit with the businesses

to be retained and those business units which are incompatible with the organisation’s

modified diversification strategy.

According to Omoleke, Salawu and Hassan (2011:80), it is important to revisit the legal

framework of the organisation by restructuringit and redefining the functions of managers

so as to achieve better efficiency. Subsequently, this process will call for the re-enactment

of the law that previously established the organisation before its transformation to a private

organisation. Thus, this change is expected to bring about accountability as it will be

mandatory for the privatised organisation to keep up-to-date records for the organisation.

When selling public organisations, it is equally important that government take into

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consideration the restructuring needs of individual organisations identified for privatisation

and that they identify suitable new private owners who have the capacity to improve the

performance of such organisations after privatisation (Simoneti et al., 2005:1605). In

Tanzania, the failure to attract interested buyers of the National Merchant Bank (NMB) in

1998 prompted the government to realise that it was important to recruit professional

bankers and microfinance experts who would take over the management and stabilisation

of NMB so that it returned to profitability before privatisation (Cull & Spreng, 2011:256).

Thus, the management of NMB was taken over by a team of banking consultants from

Development Alternatives Inc. (DAI), which was contracted to prepare the bank for

privatisation within three years.

One of the key issues during privatisation is to establish an organisational structure that

facilitates quick and effective decision making and unites individuals and units (Yonnedi,

2010:544). Consequently, the organisational structure identifies reporting relationships,

accountability, resources as well as communication within the organisation. Privatisation

should be accompanied by flattening the organisational structure so as to facilitate quick

decision making which motivates employees to be more productive and innovative. In

Argentina, the restructuring of YPF was accompanied by downsizing the organisation as well

as the reorganisation of its human resources and the organisational structure (Mudambi,

2003:567). Following the idea of restructuring, everybody at YPF, from the top to the

bottom, was offered clear economic incentives to leave the organisation. This strategy

resulted in a successful downsizing in which approximately 50 000 employees were

retrenched from the organisation within two years. The organisation also engaged in a

thorough executive recruitment programme by which key positions were filled by highly

competent people as their selection was based on leadership, intelligence and judgement.

According to Kauffmann and Wegner (2007:38), the restructuring of the labour market in

the early 1990s prompted the government of Egypt to embark on a number of solutions

which were meant to mitigate opposition to the reform by the workers. Thus, in Egypt,

public organisations have restructured their operations and reduced surplus employees

through optional early retirement programmes. Furthermore, Morocco’s privatisation

programme utilised the public-private contract which made it possible for organisations to

restructure their operations thereby improving governance, and the government

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committing itself to transparent procurement processes and the provision of infrastructure.

Selvi and Yilmaz (2010:688) highlight that, in Turkey, before a SOE is privatised, it has to be

turned into a joint stock company and registered under the Capital Market Law; the is

similar to requirement placed on private corporations. Furthermore, the Boards of Directors

of such organisations should be appointed considering their craft competencies rather than

their political membership.

Jerome (2004:9) notes that the South African government established a policy which

differentiated between strategic and non strategic organisations, resulting in the partial sell-

off of minority shares in strategic organisations such as those in the telecommunications

sector, which started in 1997. However, non strategic organisations such as public resorts

could be sold out once corporatisation and other turnaround strategies were put in place.

South Africa then drew up guidelines in five key areas which included: the economic and

social effects of restructuring, the creation of suitable regulatory and competitive

frameworks, endorsing empowerment, corporate governance and developing ways of

improving the restructuring process. When comparing privatisation programmes in Estonia

and Hungary with those of their regional competitors, it can be observed thatthe

programmes in Estonia and Hungary had only a few problems because they implemented

their bank restructuring early where they dealt with bad debt problems, managed difficult

legal and institutional reforms, which included bankruptcy and the protection of minority

shareholders; these moves resulted in a higher inflow of foreign direct investment during

the 1990s (Kikeri & Nellis, 2004:108).

5.15 FEASIBILITY STUDY

Governments engage merchant banks, consultation organisations and even civil servants to

conduct a feasibility study to investigate the public organisations earmarked for

privatisation so that they can provide feedback on the potential, alternatives and

prerequisites for the sale (Aboujdiryha, 2011:47). Moreover, the feasibility study assists

governments in determining which organisations should be privatised and how.

Burtonshaw-Gunn (2010:47) argues that the success of any business is basically how the

business is managed, how marketing activities are conducted and the total amount of

money needed and generated by the business through its operation. Thus, this feasibility

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checkwhich focuses on the three key business features is universally applicable to both

private and public organisations.

Privatisation programmes are characterised by strategic consultants who play a key role in

advising governments on issues such the need for neo-liberal economic reforms which

facilitate an environment conducive for privatisation, the restructuring of organisations

before privatisation as well as the knowledge of gaining political support through offering

stakes in the privatised organisations (Selvi & Yilmaz, 2010:676). Accounting organisations

have been used widely to provide advisory services during the privatisation process.

Mudambi (2003:568) points out that before selling the shares of YPF, an intensive several

month-long preparation analysis which was headed by CS First Boston and Merrill Lynch

experts, preceded the public offering. The analysis included the testing of all the segments

of the business such as strategic and operational plans, its financial position as well as the

strengths and weaknesses of the organisation. According to Zhou (2000:215), countries such

as Malaysia have created special funds meant to finance feasibility studies which are

directed at investigating the necessity for privatisation as well as the privatisation action

plan.

5.16 PROMOTING COMPETITION

Competition refers to other organisations that fight for or try to win an organisation’s

potential or actual customers (Brinkman et al., 2010:186). Similarly, Aboujdiryha (2011:51)

argues that competition is a process of rivalry between participants in the market who

would compete by changing the prices in response to the market condition, thus eliminating

excessive profits and unsatisfied demand.

In the literature on economic theory, an analysis of the competitiveness of a nation analyses

the policies put in place by a nation so as to shape its ability to create and sustain an

environment that maintains more value creation for its organisations and additional wealth

for its citizens (Balkyte & Tvaronaviciene, 2010:344). According to Bender et al. (2011:11),

privatisation and competition seek have been implemented in order to avail superior

incentives which influence the innovation of production methods which are efficient,

thereby delivering the products and services most preferred by customers. Therefore,

competition leads to lower costs and prices as well as new products and innovation. In the

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relevant economics literature, competition is regarded as a reliable mechanism for

stimulating both allocative and technical efficiency (Zhang et al., 2008:9). Furthermore, in a

competitive market the costs of an organisation and the efficiency of input use are

determined by the prices and profits which motivate the organisation to improve internal

efficiency.

Kikeri and Nellis (2004:107) affirm that competition can be promoted through the removal

of entry and exit obstacles and that it is crucial to link privatisation with financial sector

reforms for the development of an ever changing and competitive private sector, which

would lead to a successful privatisation. Therefore, the economic benefits of privatisation

are realised when the process is accompanied by new entry, price deregulation, the division

of large organisations, and the establishment of effective regulatory frameworks which

promote equity and efficiency. Furthermore, competition assists in doing away with import

restrictions and making it simple to start-up a business. Similarly, China’s success is to a

greater extent associated with opening entry to quasi-private organisations and foreign

investors. Correspondingly, Aboujdiryha (2011:25) states that, in an effort to improve the

business environment, Libya revised its existing investment laws that covered economic

actions in the country.In this regard, administrative changes were made in which 51 offices

were opened around the country in an effort to simplify the business application

procedures. Furthermore, a one-stop window was opened with a 30 day limit to approve

applications being adopted. The Libyan government also exempted newly privatised

organisations from paying consumption taxes on operating equipment, spare parts, and raw

materials for a period of five years. The newly privatised organisations were also exempted

from paying income and production taxes so as to attract investors in the privatisation

process. The government also created a facility whereby newly privatised organisations

would receive subsidised loans from local banks at an interest rate of 3 percent per annum.

According to Kauffmann and Wegner (2007:43), despite starting from a low ranking in Doing

Business, Tunisia and Morocco continue to make substantial progress in improving the

climate for private investment, especially through the strengthening of contract

enforcement and the reduction in the administrative hurdles for starting a business.

Furthermore, in Tunisia and Morocco the time to open up a business had been reduced to

11 and 12 days, respectively, in 2006 whilst the regional average time was 41 days. In

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addition, by the mid 1990s, Tunisia had managed to create friendly business investment

rules and a ‘’one stop shop’’ for investors. Similarly, Morocco reduced the number of

activities required for starting a business from 11 to 5 which facilitated its movement from

the bottom half of the economies globally to the top 10 percent between 2003 and 2004.

Similarly, the findings of Doing Business 2007 influenced the World Bank to award Egypt as

one of the top reformers of the year, after the country had managed to improve the

business environment through a one stop-shop for business transactions, simplifying

procedures for starting a business and registration, introduced corporate governance rules

as well as a new competition agency. The successful performance of China’s economy can

be attributed, in part, to opening entry to local quasi-private organisations and to foreign

investors. Kikeri and Nellis (2004:108) highlight that China’s success is also in good part due

to opening entry to domestic quasi-private organisations and foreign investment.

Kauffmann and Wegner (2007:44) note that in Tunisia, foreign investments contributed

about $3.7 billion out of $4.2 billion which was generated by the end of 2006.

According to Jerome (2004:4), some empirical studies have attributed the improved

performance of privatised organisations to competition rather than a change in ownership.

Moreover, the empirical evidence obtained from 24 transition economies concluded that

ownership alone does not produce the expected economic performance improvements.

Such improvements can only be realised when privatisation is accompanied by reforms

which remove barriers to entry and exit, improvements in corporate governance and the

development of enduring capital markets which buttress the benefits of private ownership.

5.17 COUNTRY RISK

Brinkman et al. (2010:206) contend that political risk is the likelihood that political forces

will cause drastic changes in a country’s business environment. Consequently, organisations

are affected by two types of political risk; namely, ownership risk which poses a risk to

property and life as well as operating risk which affects the daily activities of the

organisation. According to Needle (2010:80), risk assessments would be built into the

strategic plan in order toassess the stability of the country as well as the chances and the

likely impact of a change in regime.

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In the first half of the 1990s, Bulgaria and Romania were characterised by an unstable

macroeconomic environment and financial sector distress which made the privatisation of

their banking sectors infeasible (Bonin et al., 2005:2160). Consequently, the Bulgarian

government first privatised its first bank in 1997 after establishing a currency board and

alleviating the macroeconomic environment. This argument is supported by Nguyen

(2010:12) who posits that, to maintain the positive effects of trade liberalisation and

privatisation policies on economic growth, the governments of transition countries would

need to implement macroeconomic stabilisation policies and minimise conflict. Paterson et

al. (2006:2) allege that the general investment climate in Afghanistan is challenging and it is

most likely that the obstacles which have inhibited green field investment in the country

may also discourage investments during the privatisation of public organisations. In respect

of this country, the Doing Business 2006 report ranked Afghanistan last out of 155 countries

in terms of its capacity to protect investors. Moreover, this poor investment environment

resulted in difficulties in attracting potential investors who could operate public

organisations as going concerns. Thus, Paterson et al. (2006) further argue that the current

privatisation programme is tantamount to putting the economic-reform cart before the

horse.

The absence of a particular socio-economic environment in Nigeria has led to privatisation

being viewed as morally wrong because it is regarded as threateningthe country’s economic

efficiency and growth, which is the very purpose it was meant to serve (Etieyibo, 2011:105).

Moreover, the socio-economic environment in Nigeria is characterised by widespread

bureaucratic corruption, poverty and a high rate of unemployment. Therefore, it becomes

morally wrong to embark on privatisation. It is thus important that the divestiture puts on a

‘social face’ and that the implementation of the policy is balanced with other existing

national and local interests as it is recognised that some organisations, like the education

and defence sectors, can be left in the custody of the government even if they can be more

efficient when managed by the private sector. Accordingly, Cull and Spreng (2011:261)

emphasise that it might be difficult to assign an accurate weight to how an enabling

environment contributed to the success of privatisation in Tanzania. Similarly, Aboujdiryha

(2011:59) postulates that the Mexican privatisation programme was a success because the

government embarked on a comprehensive economic reform agenda which embraced trade

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liberalisation, the relaxation of rules governing foreign and local investments as well as

deregulation.

Likewise, Von Weizsacker et al. (2005:216) postulate that in Central and Eastern Europe

where legal, political, cultural and economic conditions were not well defined:

• laws and institutions regulating the privatisation process itself, as well as the functioning

of a market economy, had to be created;

• capital markets did not exist, and the general demand for assets has been weak;

• political support for privatisation and private ownership has been very different from

country to country and has changed considerably over time;

• economic recession appeared to be deeper and its social costs have been higher than

previously expected; and

• a hostile mentality towards the market system or the lack of personal and social

entrepreneurial skills have also been important in many countries.

Therefore, the privatisation process has been adversely affected by these conditions in

many countries.

5.18 THE MARKET

According to Brinkman et al. (2010:179), a market is made up of the individuals or

organisations that require products or services and have the ability and willingness to

purchase those products or services. Lamb et al. (2008:8) postulate that a market consists of

people and organisations with needs and wants; they have the means to pay and willingness

to buy.In this regard, needs motivate people to behave in a certain manner whilst wants are

needs learnt over time.

Josiah et al. (2010:381) point out that during privatisation, a capital market of some

substance has to be in place, with considerable depth and absorptive capacity. Furthermore,

there is a need to reduce political risk so as to develop the stock market and improve

investor confidence. The nature of capital markets can be attributed to the differences in

performance of privatised banks in developed and developing countries (Otchere, 2007:13).

A well-developed capital market will facilitate improved access to capital by privatised

organisations. According to Goel and Budak (2006:102), the successful privatisation of large

organisations requires foreign investors as these have the capacity to contribute much

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needed specialised expertise, new technology and foreign capital towards the process.

Foreign investors are interested in repatriating their earnings; governments should thus

relax foreign exchange controls, including currency conversion, the repatriation of earnings

so as to attract foreign investors, and thereby promote privatisation.

Studies of privatisation have often showed that privatisation yields positive results when an

organisation operates in a competitive market and when the country is good at regulation

and has a market friendly policy environment (Etieyibo, 2011:106).Poor countries are faced

with more challenges in achieving the benefits of privatisation as it is difficult for them to

prepare a suitable terrain for sale. Therefore, a legitimate privatisation programme is one

which is implemented by a country which is in the high or middle income bracket, with a

competitive and stable market environment, in a market-friendly policy environment and

which has an appropriate regulatory framework. Furthermore, the first condition

guarantees that privatisation spreads wealth across the whole population rather than to a

few people, and that the majority of the investors are local rather than foreign, thus

avoiding widening the gap between the poor and the rich. The second and third conditions

prevent privatisation from sustaining monopolies and ensure that the prices of goods and

services are determined by market forces so that they can also be accessed by the poor.

Consequently, in an effort to create a competitive environment, privatisation should be

accompanied by economic reforms like deregulation and liberalisation as they all foster

market competitiveness. Aboujdiryha (2011:25) points out that, in addition to measures to

the liberalisation of the markets and to increased competition, the Libyan government

issued legislation to create a new institutional infrastructure and to stimulate market

exchanges. The government created the General Board of Ownership Transfer (GBOT) to

identify the parastatals to be privatised and how to restructure these organisations as well

as controlling the privatised organisations so as to assist them where necessary. It is thus

necessary to restructure the market in which parastatals operate, so that investors are

protected from illogical political actions, and to protect consumers from the abuse of

monopoly power.

Fundamentally, developing countries suffer from lack of liquid capital markets which act as a

tool to make possible takeovers and share trading which keep watch over management

behaviour in the private sector of nations such as the United States of America and the

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United Kingdom (Parker & Kirkpatrick, 2007:528). However, in other countries, like Japan

and Germany, this management monitoring role is taken care of by banks which have

developed strong relationships with private organisations; however, in developing countries

the banks are not fully capitalised, they have a deficiency of business experience and are

exposed to a fragile regulatory and supervisory management.

5.19 VALUATION OF BUSINESSES

Harvey (2011:181) defines valuation as an estimation of something’s worth, especially

carried out by a professional valuer; this is considered ‘the monetary worth estimated’.

Furthermore, asset valuation approaches include fair market value, fair value, book value

and liquidation value which can be defined as follows:

• Fair market value is the price that a willing buyer would pay and that a willing seller

would accept, each under no compulsion to buy or sell, and each fully aware of the

important factors relating to the sale.

• Fair value is a monetary value derived by appraising the value of the tangible assets,

determining the value of the intangible assets, and adding the two together.

• Book value refers to the value of the assets on the firm’s books. It may or may not bear a

close relationship to the assets’ market value.

• Liquidation value is the estimated value of the firm’s assets if sold off during liquidation

(Harvey, 2011:181).

Business valuation is an attempt to calculate a price that may be paid for an entity by a

willing buyer to a willing seller when neither party is under duress for the transaction (Selvi

& Yilmaz, 2010:678). In this regard, the valuation of organisations which have been

identified for privatisation is critical as it assists in obtaining the appropriate selling price,

thereby sustaining the government’s credibility. Similarly, the valuation of organisations can

be examined through the valuation of assets and liabilities, the valuation of a business as a

going concern as well as the pegging of the final sale price of the company’s assets and

shares. Thus, auditors can be used to improve valuation procedures through auditing

privatisation with an emphasis on getting the appropriate value of the privatised

organisations and thereby increasing public trust during privatisation. Public confidence in

the accurate valuation of public organisations and assets is important as it can instil public

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confidence that the state assets earmarked for privatisation are neither overvalued nor

undervalued (Waigama, 2008:46). Therefore, it is important to accurately value public

organisations as the market value will be used as a benchmark against the values which are

submitted by potential bidders during privatisation (Aboujdiryha, 2011:47). Similarly, Kumar

(2009:11) argues that there is a general agreement that a thorough and independent

valuation of public organisations should be done before any privatisation commences.

Furthermore, there is no ‘one size fits all’ approach when it comes to valuation methods and

the priority is to safeguard the integrity of the valuation procedures, by taking steps to avoid

a conflict of interests. Moreover, transparency and consistency in terms of the valuation

methods employed during privatisation can bestow public trust and credibility on the

process.

5.20 IMPLEMENTING THE SALE

Megginson (2010:9) asserts that any government that intends to privatise parastatals, by

using public share offerings, faces three sets of interrelated decisions: how to transfer

control; how to price the offer, and; how to allocate shares. Furthermore, the decision on

how to transfer control considers whether to sell the whole organisation at once or through

a number of partial sales, whereas the pricing decision includes consideration by the

government of whether to offer the organisation through a tender or a fixed price. The

decision regarding the allocation of shares involves government considerationsas to

whether it will favour one group of potential investors over another, such as allocating

shares to domestic investors or employees at the expense of foreign investors.

Effective privatisation has failed in many countries as a result of their failure to address

financial management issues such as the concepts and methods of valuation of properties,

presentation of financial statements, disclosure requirements, measurement and

classification of financial items as well as the issuance of privatisation procedures vouchers

(Selvi & Yilmaz, 2010:675). Zhou (2000:215) argues that, in Malaysia, an investment

institution which enabled locals to buy shares in privatised organisations was put in place.

Josiah et al. (2010:381) argue that the development of information and accounting systems

make possible the valuation of corporate and its accountability.

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According to Massey (2010:210), during the privatisation of Kenya Airways, the Board

brought in the International Finance Corporation (IFC) which is the private sector of the

World Bank (WB) to assist in the privatisation programme. The incorporation of the IFC was

necessitated by the fact that airlines were too technical to be dealt with by the State

Privatisation and Reconstruction Committee (SPRC). It was necessary to secure a strategic

partner in the form of another international airline with over 25 percent of shares which

could be enough to vote against government interference. Therefore, fifty four airlines were

approached resulting in the short-listing of British Airways (BA), Lufthansa, KLM and South

African Airways. Ultimately, KLM became the successful bidder and paid the government for

26 percent of the company. Oyieke (2002:19) points out that Kenya Airways moved from

100% government ownership to 23% government ownership. Moreover, the remaining 77%

of shares are distributed as follows: 26 percent to KLM, 3 percent to employee share

ownership (ESOP), provident fund and employees, 20 percent to the Kenyan Public, 14

percent to Kenyan institutional investors and 14 percent to international institutional

investors.

5.21 CONCLUSION

One of the most important requirements for a successful privatisation is the identification

and implementation by management of the critical success factors of the process. The

implementation phase can be characterised by some barriers which can be internal or

external hence proper planning, correct management actions and effective communications

are critical. Therefore, to achieve its objectives, a successful privatisation process should be

characterised by key factors which include commitment, clear objectives, thorough

planning, a solid institutional and regulatory framework, transparency, stakeholder

consultation, social safety net issues, effective monitoring and evaluation systems,

organisational restructuring, a feasibility study, country risk analysis and preparation for

sale. Privatisation is based on three dimensions; namely, the government perspective,

societal perspective and organisational perspective. Thus, this chapter was based on the

analysis of the above key success factors of privatisation.

The analysis observes that the success of privatisation hinges on the genuine commitment

of government and top management. This commitment must facilitate the introduction of

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infrastructure which should encompass mechanisms of governance and an appropriate legal

and judicial framework. Accordingly, managers should be committed to concluding

contracts in a transparent manner which is not influenced by corrupt activities. Therefore,

countries which have genuinely committed themselves to privatisation have attracted

investments as they have been viewed as credible.

Furthermore, the process must be accompanied by thorough planning, clear objectives as

well as effective monitoring and evaluation. It is necessary to formulate objectives by

properly analysing both the internal and external environments. The planning process

should include the identification of organisations which can be good candidates for

privatisation. Management should also be able to closely monitor the implementation, and

evaluate the progress, of the process with a view of taking corrective action when goals are

not met. Therefore, it is important to appoint competent managers who have the capacity

to identify the short and long term implications of privatisation as well as soliciting private

actors with a good reputation.

Privatisation has been successfully implemented where there is collective participation from

below and individual participation from the market place. This approach has been

recommended for developing countries, as it is people centred. In this regard, it is good to

consult these stakeholder groups before and during privatisation so as to avoid any

disruptions in the process. Such consultations can be executed through mass media,

workshops, seminars and other interaction programmes. Social safety net issues such as

early retirement packages, and the transfer of dismissed employees to other government

organisations, also need to be addressed so as to minimise resistance to privatisation.

The successful implementation of privatisation calls for a restructuring of the organisation.

Restructuring for privatisation assists in reducing the red tape which prevalent in public

organisations; this is because it brings about flatter organisational structures, redefines the

functions of managers, initiates accountability and introduces new management with

relevant craft competencies. The restructuring exercise should be preceded by a feasibility

study which should be undertaken by competent organisations such as accounting

organisations or experienced individuals.

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There is also a need to introduce competition within the industry so as to find more efficient

production methods, introduce innovation and to deliver products and services which are

preferred by customers. Competition can effectively be introduced where there is a stable

macroenvironment. There is also a need to reduce country risk and to have a viable capital

market which will boost investor confidence. In addition, the valuation of organisations prior

to privatisation is important as this will be used as a benchmark against the market values

that are submitted by potential buyers. Ultimately, it is important for any privatising

government to be clear on how to transfer control, how to price the offer and how to

allocate shares. Chapter 4 offered a discussion of the theoretical overview of privatisation in

developed, transitional and developing countries. This was followed by a discussion of the

key success factors of the implementation of privatisation, in Chapter 5. In Chapter 6 of this

study, a discussion of the hypothetical model of perceptions regarding the privatisation of

parastatals in Zimbabwe will be provided.

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CHAPTER 6

A HYPOTHETICAL MODEL OF PERCEPTIONS OF PRIVATISATION

6.1 INTRODUCTION

The literature on privatisation, as relevant to developed, developing and transition

countries, reveals that there is a relationship between perceptions of privatisation and the

success of a privatisation programme. The implementation of the privatisation policy has

attracted great interest on how policies which are viewed as successful in some contexts can

be adopted and implemented in different or similar environments. According to Nwankwo

and Akam (2011:402), the knowledge of privatisation lies in the conception that individuals

have about it. Furthermore, the acknowledgments which are made by people about

privatisation are strongly dependent on how they perceive the policy in relation to their

personal and social gains. Pamacheche and Koma (2007:17) argue that it is important to

effectively implement privatisation programmes in Sub-Saharan Africa as this can go a long

way towards increasing the region’s competitiveness and income levels with a capacity to

reduce poverty, and increase economic growth.In addition, privatisation can be adopted as

a policy option which can assist countries in Sub-Saharan Africa to achieve some Millennium

Development Goals while at the same time reducing poverty. This assertion is supported by

Birdsall and Nellis (2003:1617) who postulate that the proper implementation of

privatisation has increased profitability, returns to owners and investors, economic

efficiency, as well as welfare and growth. Conversely, experience shows that privatisation

has been viewed negatively by the public and this attitude seems to be worsening.

The previous chapter focussed on the key success factors of implementing the privatisation

process. This chapter focuses on the operationalisation of the selected variables which are

assumed to influence the perceptions of privatisation implementation. The identified

variables consist of independent and dependent variables as depicted in the hypothetical

model, Figure 6.1 below.

6.2 THE MODELLED PERCEPTIONS OF PRIVATISATION

In this study, the hypothetical model (Figure 6.1) has been constructed based on Donaldson

and Wagle’s (1995) road to privatisation model, Aboujdiryha’s (2011) privatisation process

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model, Mudambi’s (2003) privatisation process and outcomes model as well as the

reviewed literature on the privatisation of parastatals in developed, transition and

developing economies. The model is made up of five main independent variables, which are

perceived as critical in the privatisation process, and two main dependent variables of

privatisation. The five independent variables which have been identified in this study are

stakeholder consultation, business conditions, government considerations, institutional

framework and the management of the privatisation process. The dependent variables of

the study have been identified as economic benefits as well as organisational performance.

The five independent variables are further divided into thirteen sub variables whilst the

dependent variables consist of nine sub variables. The model, offered in Figure 6.1 below,

demonstrates how relationships between independent and dependent variables are

perceived during the privatisation process.

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Figure 6.1: The hypothetical model regarding the perceptions of privatisation


H01

H02 H06

H03

H07

H04

H05


Economic benefits

• Investments • Competition • Improved services • Effective corporate governance • Economic growth • Economic empowerment • Trade relations

Business conditions

• Attractiveness to foreign investment

• Macroeconomic conditions



• Trust • Political Intervention • Role conflict • Role ambiguity


• Transparency • Two way communication • Speed and replicability


• Customer satisfaction • Organisational efficiency • Innovation



• Employees • Unions • Management • Customers

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6.3 OPERATIONALISATION OF INDEPENDENT VARIABLES AND HYPOTHESES FORMULATION

6.3.1 Stakeholder consultation

According to Felsinger (2011:22), stakeholder consultation is a less formal process through

which themes and policies of interest are discussed within or across stakeholder groups.

This argument contradicts the views of Pamacheche and Koma (2007:19) who state that the

idea of gathering information on stakeholder views and encouraging them to participate in

the process of formulating policy may slow down the privatisation process. However, it is

worth attempting as such participation will facilitate a successful privatisation. Ramirez and

Quarry (2004:2) contend that the following process skills are needed to facilitate a more

people centred-approach:

• the ability to involve people in decision-making the ability to access people’s views

• the ability to facilitate multi-stakeholder dialogue

• the ability to build capacity and understanding

• the ability to listen to others and share ideas, and

• the ability to ensure participation through sharing knowledge, ideas, enhancement of

debate and feedback.

A critical component of stakeholder consultation is to manage stakeholder expectations by

focussing on how feedback which will be incorporated into the reform agenda (Felsinger,

2011:22). Although such feedback can be viewed as not directly changing the design of the

privatisation process, it is considered to have a great influence on the process. Essentially,

stakeholder consultation aims to obtain information for use by the reformers in

understanding perceptions and the basis of those views. Furthermore, stakeholder

consultation can be accomplished through public awareness and public education using

television, radio, town meetings and newspapers. In addition, public education which should

start early in the process and continue to implementation as it helps to provide stakeholders

with information which facilitates their understanding of an issue. Botswana’s privatisation

policy states thatthe most important thing to be considered for the success of privatisation

programme is the explanation of the anticipated benefits and costs of privatisation to all

stakeholders (Botlhale, 2012:11). However, even though this is a good declaration, evidence

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on the ground indicates otherwise as most stakeholders are not conversant with the real

meaning of privatisation.

Bernstein (2010:31) contends that stakeholder theory argues that managers should consider

and take on board the interests of stakeholders such as employees, customers,

communities, government officials, environmentalists, terrorists and blackmailers, rather

than concentrating solely on financial claimants. Moreover, the stakeholder theory of

capitalism holds business accountable in terms of its financial and environmental

performance. Harvey (2011:118) posits that stakeholders are those people with an

economic interest in the business, be it financial, commercial or operational:

• financial stakeholders provide the financing for the running of the business. They are

mainly debt providers such as banks, secured lenders and the shareholders of the

business,

• commercial stakeholders supply and buy goods and services needed for the running of

the business; these are suppliers, contractors and customers, and

• operational stakeholders include management, employees and trade unions (Harvey,

2011:118).

It is therefore important to analyse the stakeholders and determine some form of priority so

that those stakeholders most important to the success of the reorganisationplan are dealt

with first, while those who are the least affected by the plan or are the least important to its

success are dealt with last (Harvey, 2011:120).

Josiah et al. (2010:385) acknowledge that there is little transparency or consultation during

privatisation and that the public sector often effectively continues to carry much of the risk

where the prices of services continue to increase whilst the quality of services continue to

deteriorate; this results in the marginalisation of the poor. Wated et al. (2008:108) state

that, when stakeholders’ views are not taken into consideration, the viability of future

efforts to advance market based reforms such as privatisation is obscured. Accordingly,

Massey (2010:213) emphasises that any reform programme should take into consideration

the needs, fears, concerns and abilities of those being reformed, and they in turn need to

reflect in the modernisation process the requirements and standards of the new global

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economy. Therefore, this study identifies employees, unions, management and customers

as key stakeholders in the success of privatisation.

(a) Employees

According to Sahoo and Sahu (2009:74), employee engagement is defined as the level to

which employees are fully involved in their work, committed to their work, care about their

organisation and colleagues, and are willing to extend themselves and go the extra mile for

their company in order to ensure its success. Harvey (2011:121) posits that employees play

an important role in any organisation as they are the drivers of the business recovery.In this

regard, it is important to motivate employees so that any reorganisation plan is successful.

When an organisation embarks on an organisational change programme, employees are

faced with several threats. These are threats to their jobs, roles, positions and resources

(Aghaei, Hasanzadeh, Mahdad & Atashpuor, 2010:76). Besides, the change process lowers

employees’ trust of the organisation and their working attitudes determine whether or not

the change will be successful. Kikeri and Nellis (2004:112) point out that the extensive

labour force reductions that usually accompany the restructuring of large state

organisations often lead to political backlash. It is thus very important to consult employees

during the early stages of the programme so that an acceptable solution can be reached.

Governments have solicited for employee buy-in during privatisation through the allocation

of between 5% and 20% of shares to employees through Employee Share Ownership Plans

(ESOPs) (Boubakri, Cosset & Guedhami, 2005:378). Moreover, the wide ownership of shares

amongst individuals constitutes one of the objectives of carrying out privatisation

programmes.

In Zambia, the privatisation of Luanshya and Baluba mines have raised a lot of criticism after

being sold to a bidder who promised not to dismiss any of the 7000 employees (Nellis,

2005:17). However, after signing the contract, the new investor retrenched 3000 workers

and did not make any payments as, under Zambian law, private owners can terminate the

benefits of workers dismissed after sale. Consequently, the organisation went out of

business resulting in the remaining 4000 employees also losing their jobs.

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(b) Unions

Nellis (2005:13) observes that African trade unions and workers’ representatives are

generally opposed to privatisation, as they fear that it will result in the loss of jobs, or

worsen the workers’ terms of service. Jerome (2004:7) supports this assertion and

postulates that, in South Africa, privatisation met with stiff opposition from anti-apartheid

organisations and trade unions led by the Congress of South African Trade Unions (COSATU).

Consequently, out of the five organisations which were identified for privatisation, only

Inscor was sold for 3 billion rands in 1989 while corporatisation, where government retained

ownership, was adopted for the other organisations.

In countries like Ghana, Malawi and Tanzania, opposition to the privatisation process by the

workers and trade unions contributed immensely to the delay of the privatisation process in

the mid-1990s (Buchs, 2003:21).In countries like Benin, Mozambique and Zambia, some

conditions which include employment guarantees have been used as bidding techniques

and these have realised various degrees of success. Similarly, in Botswana, labour unions

have been at the forefront in opposing privatisation (Botlhale (2012:6). Furthermore, their

concerns were based on the potential loss of employment as evidenced in the Zambian

privatisation experience. Pamacheche and Koma (2007:11) postulate that a case in point

was the protest marches organised by the Zambian Congress of Trade Unions calling on

government to rescind its decision to privatise the Zambian National Commercial Bank.

In the context of Irish privatisation, the Telecom Partnership provided a representative

share ownership of approximately 14.9 percent to facilitate employee and trade union

support for the privatisation process (McCarthy, Reeves & Turner, 2010:310; Palcic &

Reeves, 2011:137). Therefore, such ownership provides a sense of compensation for the

adverse effects of privatisation, a real sense of ownership and control in organisational

decision making processes. In Nigeria, the privatisation process has been characterised by

numerous strikes by labour unions who argued that the proposed sale of public

organisations would lead to job losses thereby exacerbating economic inequalities and

poverty as well as the enhancement of the political and economic hegemony of the

politically and economically powerful to buy all the organisations (Etieyibo, 2011:100;

Omoleke et al., 2011:75).

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According to Jerome (2004:8), in South Africa, the conflict between government, business

and labour on privatisation appeared resolved in the National Framework Agreement (NFA)

signed by COSATU, the Federation of Unions of South Africa (FEDUSA), the National Council

of Trade Unions (NACTU) and the government of National Unity through the National

Development and Labour Council (NEDLAC) in 1995. The NFA agreement was the first

occasion pertaining to privatisation which was discussed between the government and

organised labour. Similarly, large, better organised and vociferous labour unions from public

organisations in Thailand have sustained opposition to privatisation (Chulajata & Turner,

2009:46). Moreover, privatisation was opposed as it was viewed as a threat to sovereignty

as parastatals had a duty to fulfil the social responsibilities of government and that

privatisation would result in the neglect of that duty.

(c) Management

According to Schermerhorn (2010:17), management can be defined as the process of

planning, organising, leading, and controlling the use of resources to accomplish

performance goals. Furthermore, all managers in an organisation, regardless of their level in

the hierarchy, have a responsibility of undertaking these four functions. Brinkman et al.

(2010:23) view management as concerned with organising available resources to achieve

organisational objectives. Harvey (2011:53) notes that, while management must be

cohesive, it must also contain all the various disciplines and talents needed to drive the

implementation of the strategic plan.

When management introduces reforms and tries to overcome the opposition by unions,

privatisation is expected to bring about decentralised bargaining structures and the

imposition of more flexible procedures (McCarthy et al., 2010:312). Moreover, management

views the cooperation of trade unions as a way of securing the support of employees to the

reform, thereby avoiding conflict. However, Etieyibo (2011:99) affirms that in Nigeria, even

though the government has committed itself to a speedy privatisation programme, there is

still resistance from several stakeholders who are opposing the process. Amongst those

resisting the programme are public organisations’ managers, employees, senior government

officials and civil servants who are largely situated in sectoral ministries and are of the view

that their current influence and perquisites will be reduced after privatisation.

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(d) Customers

Felsinger (2011:23) further argues that, to build support for introducing Private Participation

in Infrastructure (PPI) in water and wastewater services in Metro Manila, the government of

the Philippines embarked on a comprehensive strategic communication programme that

included the promotion of transparency in the PPI transaction among its objectives.

Similarly, in an effort to inform the public about the transparency of the transaction, the

government embarked on a media campaign to explain the process and highlight the

measures being taken several months before the start of the bidding process. In Ethiopia, an

overwhelming opposition to privatisation was experienced when the government

announced the privatisation of historic buildings, landmarks as well as other public

organisations of national identity; this reflected the need for public dialogue before

embarking on any privatisation process (Mengistu & Vogel, 2009:699). In this instance, the

government had already identified this category of parastatals as targets for privatisation.

Botlhale (2012:6) argues that, in Botswana, instructively, when the Policy was adopted,

some villagers asserted that the reform had nothing to do with them as they viewed it as ‘’a

Gaborone thing’’ (Gaborone is the capital city) and this became deep rooted in their minds,

resulting in their resistance to privatisation. Thus, this opposition emanated from a lack of

knowledge regarding the privatisation process.

Accordingly, the above discussion leads to the formulation of the following hypothesis:

Hypothesis H01: Stakeholder consultation does not influence perceptions of

privatisation.


The major problems being faced by most privatisations in Sub-Saharan Africa is that these

have been undertaken in an environment characterised by markedly imperfect market

competition, clear political patronage, the absence of regulations, weak institutional

capacities and unstable macroeconomic conditions (Buchs, 2003:40). In this regard, the

organisations which were privatised suffered from financial distress and debt, hence, the

business conditions were more challenging than the privatisation transactions themselves.

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Moreover, privatisation in this context has produced mixed results in Sub-Saharan Africa

where they have been neither a plain disaster nor a clear success. Broadly speaking, a

government’s inclination to privatisation is normally influenced byfactors such as economic

conditions, government policies and some exogenous influences (Goel & Budak, 2006:100).

Furthermore, privatisation which is carried out in low-income countries impacts negatively

on the performance of privatised organisations; hence, there exists the need to improve a

variety of institutional issues such as the political, legal, management, as well as the

financial situations within these countries (Parker & Kirkpatrick, 2007:526). Consequently, if

these impediments are severe, this can result in the failure of creating a competitive and

dynamic economy as believed by the proponents of privatisation. Instead, monopolies or

imperfect markets can be created.

(a) Attractiveness to foreign investment

Omoleke et al. (2011:78) postulate that direct investment implies the provision of capital

from a foreign nation in shares or any other equity, securities or corporate entities, which

could be in the form of the foreign direct investment of the host country. Consequently, the

quality of the economic and social environment of the host country determines how foreign

direct investment contributes to growth. In this respect, FDI is likely to be attracted to

economies with high rates of savings, open trade regimes and high technological products.

However, FDI can have a negative effect on the host country if they give rise to a significant

reversal of the flow of profits and dividends. The promotion of privatisation, through the

engagement of foreign investors, can be achieved through the relaxation of foreign

exchange controls, repatriation of earnings and currency conversions (Goel & Budak,

2006:102). It has been observed that the participation of foreign investors in the

privatisation programme is largely discouraged by the lack of transparency in the process as

well as the manner in which committees make their decisions (Naguib, 2009:20). According

toRodriguez, Uhlenbruck and Eden (2005:383), multinational organisations make their

decisions to enter and expand into a certain country after understanding the nature of

corruption in that country and comparing its corruption levels with that of other countries.

Moreover, corruption reduces direct investment inflows into a country; hence, it is

negatively linked with openness to international trade and economy-wide growth.

Furthermore, host country conditions which include: investment risk, the culture and the

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structure of the industry as well as the home country conditions of the entering

multinational organisations such as resources, international experience, competitive

advantage and strategic nature are some of the prominent guiding principles of entry.

Similarly, Upreti, Sharma, Pyakuryal and Ghimire (2010:53-54) contend that issues such as

political and social stability, economic prosperity coupled with policies which favour foreign

direct investment, in any country, help it to attract foreign investors.

According to Naguib (2009:14), in 1989, the Egyptian government passed a ‘unified

investment law’; Law 230 of 1989, by which law 43 of 1974 was cancelled and its incentives

were combined with the incentives provided by the ‘new communities’ law (law 59 of 1977).

This law targeted local and foreign investors and aimed at encouraging private investment

in new communities where more incentives were offered for any projects embarked on in

these areas, rather than those undertaken in cities. This new law provided incentives which

allowed private organisations to set their own prices, and it made provisions which

facilitated the reduction of the time taken to approve investment proposals. Conversely, it

can be noted that in Ghana, the overall framework in which public organisations

operatedmade it difficult to attract private entrepreneurs as there were no commercial

returns, which are incentives used to attract foreign investors (Tsamenyi et al., 2010:433).

Evidence of foreign direct investment in Africa indicates slow inflows of such investment in

relation to international standards which have been recorded in the first half of the 1990s.

They show that privatisation related flows represented 5% of the total FDI on averagein

comparison to 43% in Eastern Europe and Central Europe, and 15% in Latin America (Buchs,

2003:23). Similarly, many multinational organisations were reluctant to buy South African

organisations because of international sanctions which were imposed during the apartheid

era (Jerome, 2004:7). Consequently, Nellis (2005:25) concludes that, in Africa, there is an

urgent need for institutional improvements so that the markets can attract and retain

reputable investors who can manage, finance and own infrastructure services in a manner

which can be beneficial to society while at the same time yielding an acceptable return of

capital invested and expertise spent.

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(b) Macroeconomic conditions

According to Olney (2011:4), macroeconomics deals with questions about the behaviour of

groups of people as well as the entire economy. Macroeconomics is normally useful to a

country’s economy although its tools can be applied to a city or region. The study of

macroeconomics is primarily concerned with analysis, with a view to comprehending the

factors which determine aggregate trends in the economy in relation to the production of

goods and services or gross domestic product (GDP), inflation, unemployment and other

international transactions (Snowdon & Vane, 2005:1). This analysis attempts to clarify the

cause and effect of business cycles and the key determinants of economic growth.

Privatisations are executed within an evolving macroeconomic framework in such a manner

that liberalisation policies affect the behaviour and financial performance of public

organisations (Buchs, 2003:16). External economic factors such as price reductions and

business cycles also affect the performance of organisations; this makes it difficult to link

privatisation to organisational performance. The existing political and economic

environment prevailing at any given time can have an obstructive or facilitative effect on the

development and implementation of the privatisation programme, especially where the

privatisation activities are aimed at changing political and economic philosophies (Mengistu

& Vogel, 2009:284). Moreover, the capacity to privatise is a critical matter and involves

political culture, political stability, the availability of an entrepreneurial class as well as the

legitimacy and transparency of the privatisation process. A competitive market environment

has a facilitative effect on privatisation as it can easily be launched and has a high

propensity to produce positive results when the country has an accommodating policy

environment and is able to regulate the process (Etieyibo, 2011:106). On the economic

front, privatisation in South Africa aims to achieve objectives such as attracting foreign

investment, reducing public borrowing, and assisting in the development of an economic

environment that promotes the competitiveness of the industry thereby encouraging

economic growth (Jerome, 2004:13).

An unstable political and macroeconomic environment has an obstructive effect as it can

negatively influence the effects of privatisation and liberalisation policies in promoting

economic growth (Nguyen, 2010:12). There is thus a need for privatising governments to

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implement policies which stabilise macroeconomic variables if governments wish to attain

the positive effects of privatisation and liberalisation policies on economic growth. Boubakri

et al. (2005:387) assert that, considering the prevailing economic and institutional

environments in a country undertaking a privatisation programme, such a government may

opt to privatise or sell higher shares in better performing organisations which will facilitate a

higher concentration of the private ownership of these organisations and it can, at times,

choose to sell fewer shares which may result in a decreased concentration of private

ownership of these organisations.In addition, privatising governments normally do not sell

higher stakes in organisations or sectors which they consider economically and politically

strategic.

According to Von Weizsacker et al. (2005:218), Hungary is leading in the privatisation

campaigns of water, energy and healthcare systems which are mainly done during times of

recession and deteriorating macroeconomic conditions. This argument is supported by

Mestiri (2010:88) who posits that, in the broad sense, governments are normally driven by

macroe conomic concerns - such as budgetary constraints - when adopting privatisation

policies. These motivations are linked to the sphere of activity of the public sector,

development of the capital market and the development of popular capitalism. Similarly,

countries in Central and Eastern Europe were forced to speed up privatisation as a result of

macroeconomic challenges such as fiscal deficits which ultimately motivated these countries

to abandon the absolute preference of local investors in the privatisation policy and invited

foreign investors to participate (Von Weizsacker et al., 2005:218). On average, the adoption

of privatisation reforms has assisted both low and middle income countries to eliminate

subsidies to public organisations (Motasam, 2010:12).

Goel and Budak (2006:104) highlight that studies carried out in transition countries found

that greater economic prosperity, in the form of education and GDP, had a positive effect on

both large-scale and small-scale privatisation. This argument is supported by Josiah et al.

(2010:383) who contend that research has identified key economic, institutional and

political factors such as inflation, income and social inequality, financial crisis, potential

political benefits and a right wing ideological disposition, alongside the existence of

institutional infrastructure, as drivers of privatisation.

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The above discussion, which is based on anecdotal and empirical evidence pertaining to

macroeconomic conditions, leads to the formulation of the following research hypothesis.

Hypothesis H02: Business conditions, as measured by attractiveness to foreign

investment and macroeconomic conditions, do not influence


6.3.3 Government considerations

According to Sanda (2010:10), studies carried out in developing countries showed that the

leadership provided by the organisation’s managers and its motivational influence on

employees towards the creation of a business-oriented work environment to enhance the

privatisation process was enabled by a combination of the following factors:

• Formation of a non-hierarchical work environment

• Creation of a new business-oriented organisational culture entailing the flexibility that

provided leeway for personal innovation, generation of strong staff commitment,

resulting in a display of trust in management decisions and actions

• Removal of roles/functions’ duplication, the clear specification of roles and functions

• Development of trust amongst staff (i.e. getting old staff to fully relate to the new work

culture, and new staff to see more room for innovation and growth)

• Promotion of collaboration and teamwork within divisions and their units, and between

divisions; cooperation from employees due to an efficient information flow and

feedback system; creation of room to encourage staff innovation and motivation.

(a) Trust

Baron, Conway and Warnaby (2010:32) contend that trust is the expectation that the word

of another can be relied upon and implies honesty in negotiations. Furthermore, trust is

viewed as a major factor in any successful relationship as it portrays some commitment.

According to Rudolph and Popp (2009:335), political trust is commonly defined as a global,

emotional orientation toward government that is based largely on the perceived similarity

between individual expectations and government performance. Citizens usually have certain

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expectations on policy results to be delivered by government and if citizens perceive of

government as delivering these outcomes, political trust is expected to flourish. However,

citizens are also concerned about the processes through which these outcomes are

produced and if these processes do not satisfy their expectations their sense of trust in the

government tends to be diminished. Therefore, trust as heuristic opinion means that

support for privatisation will more likely be found amongst the politically trustful and less so

amongst the politically distrustful. Governments can increase trust in their operations

through dealing with conflict, coming up with a shared vision, establishing the necessary

communication channels, decision making and governance structures, availing the

necessary information, and dealing with any breach of trust in an appropriate manner

(Balshaw & Goldberg, 2005:49).

Pierre and Rothstein (2010:1) point out that, in a recent study based on the World Value

Study survey data from 72 countries, ‘’general governance (a composite of the rule of law,

control of corruption and government effectiveness) has a large, even overarching

importance in global citizen evaluations of states’’. On the macro-level, trust is important for

democratic governance and for the legitimacy of the state. Josiah et al. (2010:384) observe

that in South Africa the privatisation programme which was done by the National Party, just

before the abolition of minority rule, had weak economic reasons as it was implemented to

satisfy political reasons. Moreover, the privatisation process took a political face as the

government distributed wealth to its powerful members as it was imminent that its power

was going to be lost.

(b) Political intervention

Bothma and Burgess (2011:243) argue that political intervention is when action by

government forces businesses to ‘’change [their] strategies, policies or operation’’.

Intervention by governments becomes severe when foreign ownership of businesses is

shifted to government or citizens of a country through confiscation, expropriation and

domestication. Governments throughout the world have used laws, regulations, and

institutions to influence and control business transactions in the economy (Rodriguez et al.,

2005:383). Similarly, governments have a duty to determine the policies of doing business

within its boundaries. Goel and Budak (2006:100) claim that, generally, a number of ‘’the

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theoretical arguments of privatization are based on the premise that the harmful effects of

the state intervention have a greater impact under state ownership than under state

regulation’’.

Inevitably, privatisation transactions are coupled with a country’s specific political

conditions and, as such, these policies tend to have conflicting objectives which are usually

short-term and tactical instead of being long-term development programmes (Mengistu &

Vogel, 2009:683). In this regard, the struggle for political control normally overshadows the

need to design an efficient means of service delivery; in addition, the loss of prestige, power

and control of public organisations interferes with successful privatisation. This assertion is

supported by Buchs (2003:25) who posits that, in many countries, the issue of local and

foreign participation in privatisation transactions is extremely political because of its link to

the general public’s acceptance of the privatisation policy and its link to transparency and

governance issues. Moreover, in many countries, the participation of foreign organisations

has been criticised by business groups and these groups have denounced economic re-

colonisation. Essentially, Massey (2010:201) perceivesof governance as representing the

inclusion of civil society as well as the economic, professional and social interest groups into

consideration on the meaning of governance. However, literature from both Western and

African academics clearly reveals that inclusion has never been comprehensive nor has it

been manifest on an equal basis. Governance can therefore be classified as good or bad

with the former aspiring to be transparent in its operations, accountable for its actions in

terms of management, project implementation, financial management, and ethical

operations, operating beyond the boundaries of race, ethnicity, culture, politics as well as

being capable of rectifying other concerns of what it means to be well governed.

In Nigeria, public organisations are viewed as having two closely related roles; such as, being

instruments of legitimising the government’s direct participation in the economy and social

spheres as well as being a tool for building power and wealth for the elite (Omoleke et al.,

2011:73). Government intervention, in this instance, was the result of the amount of initial

investment required, the social dimension of their services and that private initiative which

was not forthcoming. Government thus becomes a substitute for the market in the

provision of public goods. According to Harvey (2011:202-203), in South Africa, in order to

promote the achievement of the constitutional right to equality, increase the broad-based

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and effective participation of black people in the economy and promote a higher growth

rate, increased employment and more equitable income distribution, the key objectives of

the Broad-Based Black Economic Empowerment Act are:

• Promoting economic transformation in order to enable the meaningful participation of

black people in the economy

• Achieving a substantial change in the racial composition of ownership and management

structures and in the skilled occupations of existing and new organisations.

• Increasing the extent to which communities, workers, co-operatives and other collective

organisations own and manage existing and new organisations and increasing their

access to economic activities, infrastructure and skills training

• Increasing the extent to which black women own and manage existing and new

organisations, and increasing their access to economic activities, infrastructure and skills

training

• Promoting investment programmes that lead to broad-based and meaningful

participation in the economy by black people in order to achieve sustainable

development and general prosperity

• Empowering rural and local communities by enabling access to economic activities, land,

infrastructure, ownership and skills; and

• Promoting access to finance for black economic empowerment.

Balshaw and Goldberg (2005:22) stress that the King II Report on Corporate Governance

(King II) recognises that ‘’Companies in South Africa co-exist in an environment where many

of the country’s citizens disturbingly remain on the fringes of society’s economic benefits’’.

Omoleke et al. (2011:78) highlight that the Nigerian government has adopted a policy where

foreigners are now allowed to join with Nigerians to form a company in accordance with the

laws governing how foreigners can engage and do business in Nigeria. This means that a

foreign organisation can directly invest in Nigeria under the law, which is a by product of the

privatisation plan. According toBotlhale (2012:9-10),inline with the objectives of the

Privatisation Policy of 2000, Botswana approved the privatisation of the Botswana

Telecommunications Corporation through the sale of 49 percent of its shares to the public,

through an Initial Public Offering (IPO). However, Parker and Kirkpatrick (2007:532) argue

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that sale to indigenous investors also encourages clientelism and cronyism as large

economic rents can be available and thereafter, when the newly empowered business class

pushes for political special treatment.

(c) Role conflict

According to Naguib (2009:26), a conflict of interests existed within the Egyptian

institutional framework, as state ministers were sometimes the head of the holding

company (which is responsible for deciding which affiliated company is to be privatised),

and members in the Ministerial privatisation committees. This situation meant that, within

the Egyptian institutional framework, issues of implementation and monitoring were not

clearly separated thus resulting in political interference in decision making and slowing

down the privatisation programme.

Buur, Mondlane and Baloi (2011:239-240) highlight that, during privatisation in

Mozambique, one would for the first time see clearly demarcated ideological and systemic

divisions materialise within the Frelimo post-independence set-up that both reflected and

further ‘intensified fragmentation and dissension within the state’ and the party. Moreover,

this resulted in the emergence of three blocs: the ‘hardliners’, the ‘softliners’, and a

‘neoliberal’ bloc. Consequently, hardliners had two positions: there was need for reform but

the reform had to take with it socialist principles (ideological hardliners), whilst systemic

hardliners did not support reform. Softliners supported the reform of the state sector and

called for the development of the private sector and free markets although they did not

recommend total eradication of state involvement but called for restructuring for effective

engagement with the private sector. Furthermore, the neoliberal bloc supported neoliberal

reforms which consisted of Western donors and government officials, mainly from key

ministries such as trade and industry and finance, who were directly involved in the

investment policy making and implementation.

Parker and Kirkpatrick (2007:532) stress that one interesting irony in the privatisation policy

is the apparent belief that governments, which have failed to manage organisations

efficiently and effectively as a result of self-seeking behaviour and incompetence, can

privatise them efficiently and effectively. According to Botlhale (2012:9), the attempt to

privatise in Botswana offers two critical lessons:

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• the need to market privatisation, and

• the need to define the legal-institutional framework so as to clarify the roles of the

Executive and Legislative arms of the government in regard to privatisation.

In this light, the failure to privatise Air Botswana highlights that there are significant issues

regarding the roles of the Executive and Legislative arms of the government during the

privatisation process as the Executive believes that they can implement privatisation

without consulting Parliament whilst Parliament believes that it has sole custody of state

assets. Buur et al. (2011:244) highlight that, during the rehabilitation of the sugar sector in

Mozambique, the role of the government was clearly specified and included issues such as

financing the rehabilitation of estates, limiting opportunities and the creation of an internal

market. The government was also responsible for organising and institutionalising the

sector, implementing and monitoring the sugar strategy as well as promoting small-scale

producers.

(d) Role ambiguity

Schermerhorn (2010:417) contend that role ambiguities set the stage for conflict. This is

because people work at cross purposes as a result of mission uncertainties and a lack of

clarity on what the job entails that they do.

According to Botlhale (2012:10), in Botswana, ‘’the government has decided to centralise

responsibility for the implementation of the privatisation programme under the Public

Enterprises Evaluation and Privatisation Agency (PEEPA)’’ and that ‘’PEEPA has commenced

work on the review of the 2005 Privatisation Master Plan, and a report is expected before

end of March 2011’’. However, there is still a need to revisit the mandate of PEEPA, as it is

not clear, especially in relation to Cabinet. In Ghana, the smooth implementation of the

privatisation programme has been hindered by a lack of clarity on the programme

objectives (Tsamenyi et al., 2010:433).

The literature discussed above leads to the following hypothesis:

Hypothesis H03: Government consideration as measured by perceptions of

trust, political intervention, role conflict and role ambiguity

does not influence perceptions of privatisation.

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6.3.4 Institutional framework

According to Kirkpatrick et al. (2006:149), a ‘’good’’ institutional environment is one that

establishes an incentive structure that reduces uncertainty and promotes efficiency, thereby

contributing to stronger economic performance. The lack of a proper institutional and

regulatory framework, and not improper execution, has contributed to the failure by many

privatisation programmes to achieve their intended objectives (Pamacheche & Koma,

2007:18). Similarly, it is important to design a suitable institutional and regulatory

framework which will enhance the successful implementation of the privatisation process.

(a) Transparency

According to Jalilian et al. (2007:89), transparency is concerned with revealing regulatory

decision making processes to all stakeholders associated with the programme. Jerome

(2004:4) argues that transparency includes timely access to relevant information, observing

the rules of the game and procedures, as well as control. Moreover, transparency is vital

during the privatisation process as a lack of it results in cases of corruption and provides

ammunition to the critics of privatisation so as to oppose it. Dore et al. (2008:195) posit that

transparency of the privatisation programme refers to the steps taken to inform and

educate the public about the programme and to encourage their maximum participation in

the process.

According to Kikeri and Nellis (2004:112), in any privatisation transaction, transparency can

be enhanced through promoting competition which should start from the selection of

advisers up to the selection of the final buyers so as to attain the most desired economic

and financial benefits. Moreover, other measures which can be used include opening bids in

public sessions, announcing the conditions of the contracts, using professional organisations

to vet investors and adhering to the requisite standards. Botlhale (2012:5) highlights that, in

principle, Botswana is guided by the following principles of privatisation:

• Ensuring transparency and equity in the implementation of the privatisation process

• Privatisation for the benefit of all and not a few, and

• Ensuring active citizen participation in the process promoted through constant

communication with all stakeholders.

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In most African countries, transparency has always been a problem during privatisation

transactions and has negatively affected these transactions, thereby questioning the nature

of the competition which is introduced following privatisation (Buchs, 2003:34). In addition,

the privatisation process has been characterised by acts of corruption which has been

highlighted in the local press of most African countries. The lack of transparency which has

been highlighted includes the choice of organisations to be privatised, publication of

information about privatisation, while the approval of transactions has been a government

prerogative, and the use of privatisation proceeds has remained untransparent. Rodriguez

et al. (2005:383) postulate thatcorruption often rewards unproductive behaviour by

directing unmerited contracts and rights to organisations in exchange for bribes, thereby

punishing efficient and innovative organisations who are not involved in corrupt activities.

Corruption is everywhere, but it varies from country to country.

According to Etieyibo (2011:98), the privatisation programme in Nigeria has been dogged by

one controversy after another; this has resulted in the public having a negative perception

of the whole privatisation programme. This negative perception has emanated from

examples such as the failure of the 18 successor organisations to Power Holding Company of

Nigeria (PHCN) to operate properly as a result of the lack of transparency in the whole

process. Likewise, in Africa, the existence of a small number of outright failures and scandals

during privatisation programmes has definitely affected the general public’s perception of

the economic impact of privatisation (Buchs, 2003:17). Even though the example Zambian

privatisation is viewed as a success, the privatisation of copper mines, the most important

sector in the country, went through a messy privatisation process which was characterised

by scandals in the most important mines and the withdrawal of the buyers within two years

of operation. This argument is further supported by Naguib (2009:28) who highlights that, in

Egypt, the lack of public support resulted from a lack of transparency and the public belief

that the process is corrupt and that only a few wealthy local businessmen were benefiting

from the privatisation of the parastatals. The solution to these problems and others relating

to implementation of the privatisation policy is that governments should inform the public

and ensure a high degree of transparency and accountability in the sale of public

organisations (Omoleke et al., 2011:75).

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Although the sale of shares through public floatation is generally considered one of the

most transparent sales approaches, most African countries except Nigeria and South Africa

have not considered this option. This is partially because of the thin or embryonic nature of

capital markets in most countries (Nellis, 2005:20). Sale through tenders can also be

considered transparent but the transparency of the tender process depends heavily on the

integrity and craft competence of those responsible for the administration of the process.

(b) Two way communication

According to Harvey (2011:122), the quickest way to ensure that the business plan fails is

not to communicate honestly and openly with stakeholders. Furthermore, a lack of

communication breeds distrust and a lack of confidence on the proposed plan. The design of

communication strategies entails a level of analysis that ensures that procedures and

relationships are analysed in detail so as to reveal challenges and contradictions which are

unforeseen by central administrators, let alone politicians (Ramirez & Quarry, 2004:1). It is

important to develop support systems which enhance new skills, encourage new feelings

and motivate people to embark on new roles. According to Kwak, Chih and Ibbs (2009:75),

governments should establish two-way communication channels with the private sector

which can be done through hosting regular meetings to share updated information about

Public Private Partnership (PPP) policies and potential projects. This feedback from the

private sector assists in the evaluation of the policies and their subsequent improvements,

thereby enhancing the success of PPP programmes.

The major problem which has been observed during privatisation programmes is that most

privatisations have been pushed top-down with minimum effort to take on board the

contributions of other stakeholders (Wated et al., 2008:108). Mengistu and Vogel

(2009:700) highlight that, considering the point of view of the public, the privatisation of

public organisations in Ethiopia is only a government agenda that does not appear to have

garnered a wide range of public support, with the exception of the majority of the one self-

identified ethnic group.

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(c) Speed and replicability

Von Weizsacker et al. (2005:215) posit that the speed and depth of privatisation has been

regarded by many experts as the key measure of economic success or failure. The

assumption is that if a country has a higher share of private organisations then privatisation

is regarded as a success. Likewise, in many African countries, donors have applied pressure

for governments to privatise without actually performing an adequate assessment of

information needs, limitations, resources and the time needed to carryout effective

transactions (Pamacheche and Koma, 2007:17). These donors emphasise numerical targets

and thus prioritising the quantity of privatised organisations at the expense of the quality of

conducting privatisation. This suggests that privatisation must not be carried out in a rush

and ill-prepared manner. Governments which have taken a cautious approach to

privatisation, and avoid the mistakes which were experienced during the wholesale

ownership transfer in countries such as Russia where legal safeguards were missing or in

infrastructure privatisations where effective regulatory institutions were missing (Nellis,

2006:9). Moreover, the assumption behind keeping large organisations in the hands of the

state until formulating a solid institutional framework is that the organisations will attract

better buyers who will offer higher prices, as well as better and more palatable results.

Mudambi (2003:590) contends that free enterprise is better nurtured through gradual

privatisation processes where property rights are properly negotiated rather than large-

scale rapid privatisations.

In Sub-Saharan Africa, governments have deliberately delayed privatising organisations

where a high social cost could be expected, which has resulted in privatisations targeting

small and medium-sized public organisations (Buchs, 2003:21). Moreover, in Zambia

privatisation contributed to a 30% decline in employment in the non-mining sector and 20%

in the mining sector during the period 1992-2001. The push for the pace and design of

privatisation by the World Bank and other donor institutions has led to a lack of

commitment or consensus from governments. In executing the privatisation process, the

Argentinean government was aggressive and speedy in selling its public organisations, while

the Egyptian government took its time and spent the first two years restructuring its public

organisations and improving their performances (Naguib, 2009:18). Moreover, Argentinean

privatisation was carried out swiftly because of the support the programme enjoyed from

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politicians and the public whilst the Egyptian programme was slow as a result of divisions

amongst government officials regarding the choice of organisations to be privatised and the

methods of their privatisation.

Nellis (2005:9) postulates that the slow pace of sales, the reluctance to place the highest-

potential assets on the market, the failure to sell all shares, poor business and legal

environments, and the deficiencies of government regulation and administration – all

combine to place African states in a dead heat with Eastern and North African countries for

the title of ‘’region with the least foreign investment in infrastructure privatisation.’’

Boubakri et al. (2005:387) argue that governments generally privatise organisations in the

same industry using similar privatisation methods.

Accordingly, the above discussion leads to the following hypothesis:

Hypothesis H04: Institutional framework as measured by transparency, two-

way communication and the speed and replicability of the

privatisation process does not influence perceptions of

privatisation.

6.3.5 Management of the privatisation process

According to Pamacheche and Koma (2007:17), efforts to reduce the problems encountered

in the process of privatisation and increase its benefits have led many to focus on some key

issues, which include:

• Greater attention to social and political concerns

• Encouraging prospective buyers to outline future investment plans

• Linking privatisation programmes with broader development and private-sector

promotion strategies

• Broadening company ownership to include employees and the general public

• Ensuring better follow up and monitoring.

The use of an amalgamation of a transformational and value-based leadership approach

could be implemented by managers of government agencies in most developing countries

to infect positive changes in their work environments when managing the privatisation of

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their organisations (Sanda, 2010:1). Transformational leadership is inspirational and arouses

extraordinary effort and performance (Schermerhorn, 2010:446). Today’s public

administration, in the predominant reform vernacular, should be goal-oriented instead of

rule-bound; it should also emulate private sector management techniques, privatise and

contract out as much of its service production as possible, use evaluation and performance

management and measurement instead of ex ante evaluation, and focus on outcomes

instead of focussing on process. Chittoo and Nowbutsing (2010:173) contend that setting

the right regulations, contemplating more effective alternatives to privatisation, deciding on

the minimum level of government intervention given widespread poverty and market

failuresare some of the important considerations that make privatisation a risky strategy if

handled incorrectly.

Boubakri et al. (2005:382) highlight that the method of privatisation could affect the

evolution of government ownership since private sales generally involve smaller companies

which are often fully privatised, whereas public offerings typically involve larger companies

which are often sold partially. Nellis (2005:7) supports this assertion and notes that, of the

2300 privatisations in Sub-Saharan Africa in the decade 1991-2001, only about 66 involved

these generally higher value and economically more important organisations. African

governments involved in privatisation have held a considerable number of shares back from

the market on the pretext of protecting the interests of citizens against non performing

investors and in order to sell the shares at a higher price in future.

Mengistu and Vogel (2009:685) contend that in Ethiopia even before the development and

codification of privatisation policies, widespread concern was expressed about the transfer

of public wealth to private hands, particularly along ethnic lines of the ruling party, the

Ethiopian Peoples Republic Democratic Front (EPRDF). Purchases by foreigners raised a lot

of issues which related to the autonomy of the national economy as well as the

transparency of the disposal of the proceeds. Buchs (2003:25) highlights that broadening

local participation has sometimes been a decisive element in certain transactions, but it has

never been an explicit strategy in Sub-Saharan African countries. Moreover, the lack of a

clear strategy to increase local ownership is caused by the lack of access to capital by

domestic investors and the lack of management expertise in sensitive sectors. Privatisation

in Kenya has been implemented with caution and fear owing to concerns such as fear that

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government would lose control, fear of the negative effects on social dimensions of

adjustment, fear that privatised organisations would fail, fear of the resurrection of private

monopolies as well as the potential loss of an effective tool of political control (Oyieke,

2002:23).

According to McCarthy et al. (2010:311), the establishment of an Employee Share

Ownership Plan (ESOP), by creating employee shareholders, can be expected to align the

objectives of employees and management, thereby facilitating greater employee

understanding in relation to changes in the conditions of employment. If employees are

offered shares free of charge or at a discounted price, an ESOP can be viewed as providing

compensation to financial losses experienced during the reform. Nellis (2005:23) highlights

that a review of Tanzania’s privatisation revealed that, of the 158 organisations divested

through 1999, 136 (34% of the pre-privatisation universe of 395 parastatals) had been sold,

115 closed or liquidated; an additional 24 organisations had been leased, 8 placed under

management contracts, and the rest were yet to be divested. Privatisation in Botswana has

not been influenced by the WB or the IMF as is the case in many African countries like

Zambia, Mozambique, Tanzania, Nigeria and Central African Republic. Rather, Botswana

adopted the Public Private Partnership (PPP) model which was self-imposed (Botlhale,

2012:2). Furthermore, privatisation was not adopted to address any financial, economic or

political predicament but was adopted in order to augment organisational efficiency in

public and private organisations and to diversify the economy from diamonds. Kwak et al.

(2009:52) define a PPP as a partnership between the public and private sectors; the public

and private sectors work cooperatively towards shared or compatible objectives (such as,

providing infrastructure services); and it involves the sharing of risks and responsibilities

between the public and private sectors.

Having considered the literature discussed above, the following is hypothesised:

Hypothesis H05: Management of the privatisation process does not influence


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6.4 OPERATIONALISATION OF DEPENDENT VARIABLES AND HYPOTHESES

FORMULATION

6.4.1 Economic benefits

Some empirical studies have produced mixed results on the notion by proponents of

privatisation that the transferral of ownership of public organisations to private owners,

leads to higher economic efficiencies, and the superior allocation of resources and benefits

by consumers (Motasam, 2010:14). Some studies have resulted in very high economic

achievements whilst others highlight some negative results. In this regard, Zambian officials

are considering stopping or reversing their privatisation programme which is perceived as

one of the most widespread in Africa in terms of the number of transactions processed,

proceeds generated, percentage of public organisations privatised and which was hailed by

the WB in 1998 as the most successful in Africa (Nellis, 2005:14).

Buchs (2003:16) contends that in Sub-Saharan Africa, three general findings can be derived

from existing country studies over the 1991-2002 period:

• Privatisation results have generally been positive in the manufacturing, industrial and

service sectors.

• Firm turnover and profitability have generally increased immediately after privatisation

– which is to be expected – but the evidence is mixed regarding the sustainability of the

initial post-privatisation upswing.

• Notwithstanding measurement problems, private investment has generally increased

following privatisation, relative to public investment.

This assertion is supported by Nellis (2005:22) who observes that the 212 privatisations

which were reviewed in Ghana showed positive results in terms of easing pressure on the

balance of payments, increases in efficiency, stimulation of domestic capital markets,

improving the inflow of foreign direct investment, extensive quality gains by consumers, and

increased remuneration even though the increase in jobs after privatisation had not

equalled the reduction in the number of workers before privatisation.

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(a) Investment

According to Mengistu and Vogel (2011:683), normative theory addresses the expectation

that privatisation will eliminate waste and inefficiency and lead to the development of

markets for domestic and foreign investments. Privatisation is expected to expand capital

markets while at the same time creating competition. Similarly, Motasam (2010:13)

observes that in middle income countries a positive trend in foreign direct investments has

been evident whilst in low-income countries, where privatisation has been aggressively

implemented, a significant increase of such investments has also been recorded in later

years.In low and middle income economies, privatisation has had an impact on capital

market development. The privatisation process in many countries has been able to attract

significant amounts of foreign investment (Pamacheche & Koma, 2007:11). However,

foreign investment in some African countries has been minimal as a result of certain limits

attached to such investments.

Chittoo and Nowbutsing (2010:172) argue that private ownership is based on the theory

that there is a private sector which is willing to invest. However, this view does not take into

consideration that, in less developed countries, there is a scarcity of resources to finance

privatisation, or some interested buyers might be unacceptable because of their ethnicity or

because they are foreign nationals. However, Josiah et al. (2010:380) is of the opinion that,

when big foreign organisations take part in the privatisation process, they assist in linking

the poor and rich in passing on capital, knowledge and their value system across borders.

Similarly, Buchs (2003:19) states a study carried out in 47 newly privatised organisations in

Ghana indicated that privatisation had assisted in increasing the volume of investments in

the sectors which were privatised as new equipment was introduced and major production

plants were rehabilitated; thiswould not have been possible if privatisation was not

adopted. The flagship example of this is the privatisation of Ashanti Goldfields Company

(AGC) which managed to tap into international capital markets thereby funding investments

in equipment and technology.

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(b) Competition

According to Pamacheche and Koma (2007:10), privatisation encourages competition and

hence leads to all the benefits associated with it, such as improved customer service and

reduced prices. In practice, privatisation is normally accompanied by competition whilst, in

some instances, privatised organisations are given a grace period before competition is

introduced.

This argument is supported by Parker and Kirkpatrick (2007:524) who highlight that the

inference for policy is that privatisation on its own does not lead to the improvement of

performance in terms of services and productivity, hence the introduction of competition

and effective state regulation is necessary before rather than after privatisation.Most

developing countries do not have operative competition laws to control monopolies and

other bad business practices after privatisation. Similarly, Kikeri and Nellis (2004:107) argue

that entry and exit barriers can be removed through the introduction of competition by

linking privatisation with financial sector reforms so as to develop a dynamic and

competitive private sector and attaining successful privatisation. Consequently, competitive

markets assist in strengthening the advantages which are realised through private

ownership.

Mengistu and Vogel (2009:695) note that, in Ethiopia, respondents who self-identified as

Tigrean were the only group with a majority (65%) who felt that the privatisation program

was reducing the number of economic monopolies in Ethiopia and that the program was not

encouraging (59%) more monopolies; neither did they feel that the program was achieving

the goal of helping (59%) the development of a competitive private sector. Therefore, there

is concern regarding who benefits during the privatisation process and where the proceeds

of the programme are directed to. In a competitive market, prices and profits disclose

information pertaining to the costs of the organisation as well as the efficiency of input use,

thereby motivating the organisation to improve its internal efficiency (Zhang et al., 2008:9).

(c) Improved services

Etieyibo (2011:92) contends that, on the view of the laissez-faire individualistic economic

theory, privatisation facilitates individuals to benefit from advantages of the market system

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and competition which is realised through efficient service delivery. Similarly, the

individualistic model confirms that when individuals have more ownership rights to a

particular property where they can gain or lose, they become more inclined to the care and

success of the property. Thus, privatisation will reduce the destruction of common property

as the gains realised by individuals in exploiting it will always outweigh the loss they suffer

as a result of over exploiting it (that is, the tragedy of the commons). This argument is

supported by Josiah et al. (2010:377) who affirm that privatisation benefits the consumers

of products and services through competition, which brings about superior service delivery

and lower prices. Conversely, privatisation is also viewed as being linked to poorer service

delivery to the poor and to some regions.

According to Buchs (2003:37), anecdotal evidence indicates that the quality of products

including customerservices which are provided by privatised organisations, is superior in

some but not all the cases.In this regard, the privatisation of Kenya Airways to a strategic

investor in 1996 turned the airline into one of the best airlines in Africa in terms of its

performance, reliability and service. In Ghana, an impact study found that 50% of the

country’s privatised organisations had improved their performance as they were producing

quality products as a result of enforced quality control measures. Moreover, Yonnedi

(2010:558) points out that, in Indonesia, the perception of management regarding the

quality of the products and services of privatised organisations as measured by the

competitive advantage in product design, after sales/services, technical product/services

capability dimension were significantly superior for the privatised organisations. Therefore,

the general perception of these managers is that privatised organisations perform better in

terms of profitability, product and service quality than public organisations. This assertion is

supported by a study which was carried out to assess the lease agreement which was

entered into to deliver water in Guinea; the results showed that the percentage of the

population with access to water rose from 38% to 47% and the pace of increase was greater

than it had been under public ownership (Nellis, 2005:4). In addition, the quality of the

water which was provided improved greatly. Similarly, Parker and Kirkpatrick (2007:525)

observe that concessions which were offered to private operators in Buenos Aires, Columbia

and Guinea are reported to have led to improved services and higher productivity.

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Conversely, Etieyibo (2011:100) argues that a study which compared the effectiveness of

public and private service delivery in Nigeria provides some support to the notion that there

is ‘’no clear evidence that private service delivery is inherently more effective or less

effective than public service delivery, but rather that each sector has its own strengths and

weaknesses’’. In Nigeria, the profits realised by private organisations are a result of corrupt

or illegal political rents which include public sector connections and influence, inflated

contracts and patronage. Similarly, Omoleke et al. (2011:74-75) argue that the services

offered by most of the privatised organisations in Nigeria fall far below expectations.

Moreover, this situation affects living standards as customers pay higher prices for the poor

quality of services.

(d) Economic empowerment

According to Balshaw and Goldberg (2005:73), in South Africa, the government’s view is that

Broad-Based Black Economic Empowerment, (BBBEE) is an integrated and coherent

socioeconomic process that directly contributes to the economic transformation of South

Africa and brings about significant increases in the number of black people that manage,

own and control the country’s economy, as well as significant decreases in income

inequalities. Bosch et al. (2011:63) argue that Black Economic Empowerment (BEE) means

the economic empowerment of all black people – including women, workers, youth and

people with disabilities and people living in rural areas – through diverse but integrated

socio-economic strategies.

Ndahinda (2011:358) postulates that while the primary goal is the socio-political and

economic empowerment of claimant communities, since it also aims to break cycles of

violations of their individual and collective human rights, indigeneity might not necessarily

be the appropriate framework. It is not clear whether embarking on indigeneity to solve

socio-political and economic empowerment is the best method of overcoming the problems

faced by claimant communities as this may, in the process, create further problems.

Conversely, Nellis (2005:13) believes that African scholars and officials have long been

taught to view the public sector as being in existence to promote and defend indigenous

interests, and to perceive of privatisation as empowering and enriching foreigners.

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In South Africa, BBBEE provides broader exposure for workers to participate economically in

the country and share in its wealth (Harvey, 2011:455). The aim of BBBEE is to create more

jobs and enhance the establishment of small and medium enterprises (SMEs). Similarly,

Balshaw and Goldberg (2005:16) contend that BBBEE aims to effect a more equitable

distribution of economic wealth and has been branded as the essential second wave of

transformation after democratisation and the country’s political miracle. Similarly,

Zimbabwe has put some measures in place which stipulate that foreign businesses should

comply with local ownership requirements whilst most other countries have regulations

which are even stricterin ensuring that the utilization of these resources leaves a legacy of

benefit in the host country and community (Bothma & Burgess, 2011:166). According to

Zhou (2001:239), in Zimbabwe, the reason for the indigenisation arose from the observation

that:

• The foreign component of the private sector dominates the economy.

• Foreign ownership is over 80%.

• The domestic private sector is much smaller and weaker and is dominated by non-

indigenous organisations.

• While the economy heavily depend on agriculture, mining and agro-based

manufacturing industries, foreign investment in these sectors accounts for over 70% of

total investment with the remainder being owned, largely, by non-indigenous

Zimbabweans.

A study commissioned in Zambia, found that, in terms of numbers of sales, 57% of the

buyers were Zambian citizens, and an additional 13% of sales were joint ventures between

Zambians and foreigners; the remaining 30% of sales were to foreigners who had previously

held shares in public organisations and exercised pre-emptive rights to the sales of stakes

(Nellis, 2005:16). However, the concern here is on the value as Zambians only account for

5% of sales, joint ventures 83% and foreigners accounted for 12% with the warehousing and

floating of shares to Zambians, at a later stage, being unsuccessful. The privatisation of

organisations in Nigeria has resulted in the marginalisation of low-income earners as they

do not have the capacity to either buy shares or enjoy the qualityof the products or

services;as such, prices are pegged beyond the reach of the poor (Omoleke et al., 2011:75).

Thus, if this scenario is not checked it is likely to heighten the inequality gap which is

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widening in Nigeria. Privatisation may impact on the relations between ethnicities in that it

can favour a certain ethnic group, especially one that that holds wealth and power as

witnessed in Nigeria (Josiah et al., 2010:383). Issues of indigenous and foreign ownership,

concentration of ownership with already powerful and wealthy tribes, prominent political

figures and the highly connected and elite at the expense of the poor citizens has featured

prominently in Africa.

The participants of a study carried out in Ethiopia expressed some doubt regarding the

likelihood that privatisation would benefit the national economy (Mengistu & Vogel,

2009:691). Moreover, fifty-eight percent of the respondents were of the opinion that

private investors benefited more from privatisation than the national economy whilst thirty-

nine percent felt that Ethiopian investors benefitted more than foreign investors. According

to Josiah et al. (2010:381), a study which looked at the relationship between privatisation

and indigenous ownership, using African evidence, recommends the need to embed

privatisation within broader initiatives in order to nurture the development of local private

enterprise to aid indigenisation. African privatisation is characterised by cash flow problems,

mainly amongst local investors who end up purchasing smaller organisations whilst foreign

investors purchase large organisations. Characteristically, local investors face a transaction

puzzle if the transaction allows them to pay in instalments, as they generally default on such

payments.

(e) Effective corporate governance

According to Schermerhorn (2010:225), corporate governance is the system of control and

performance monitoring of top management. In organisations, board members have a

responsibility to oversee that the organisation is operating in the interests of the

shareholders and that the implementation of the organisational strategy is successful.

Corporate governance is a set of both institutional and market based mechanisms that

encourage the managers of organisations to make decisions which increase the value of the

organisation to its shareholders (Omran, 2009:659). Moreover, the mechanisms help to

reduce the agency costs associated with the owner-manager problem.

Privatisation has been viewed by both agency and public choice theorists as having the

potential to offer some incentives to managers, corporate governance as well as

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information and control systems (Yonnedi, 2010:540). The focal point for agency theorists is

the belief that management normally has goals which conflict with those of the owners.

Furthermore, they believe that these problems can be solved in the private sector through

internal control mechanisms (that is, managerial participation in ownership, a board of

directors and reward systems); as well as external control mechanisms (that is, capital and

corporate control and markets for managers). Therefore, managers with private sector

experience in business development and marketing are required to make the most ofthe

market and technological opportunities. According to Boubakri et al. (2009:19), the method

used to privatise public organisations has a bearing on post privatisation corporate

governance as private sales to strategic investors yield an immediate concentrated

ownership whilst shares issued on the stock market generally produce a diffuse ownership,

especially at the time of privatisations. Concentrated ownership normally leads to

improvements in efficiency and productivity as well as improved governance as managers

arebetter monitored than in more diffused structures. Governments are encouraged to

hand over control and allow for changes in the board of directors of privatised organisations

as changing ownership alone might not produce the anticipated positive results on

organisational performance, unless it is coupled with a new management style (Omran,

2009:659).

Yonnedi (2010:555) highlights that a study of privatised organisations in Indonesia found

that some improvements were recorded in the privatised organisations. This partly

indicated the important role of privatisation in improving corporate performance. The study

found distinct differences in public and privatised organisations; these were largely in terms

of efficiency, cost control and goals in respect of customers. Privatisation reduced

government interference in strategic decision-making as boards were given accountability in

strategic direction and commercial performance.

(f) Economic growth

Mohr, Fourie and Associates (2008:510) argue that economic growth is traditionally defined

as the annual rate of increase in the total production or income of the economy. Perkins et

al. (2006:12) contend that economic growth occurs when there is an increase in the

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production of goods and services in an economy, by whatever means, as well as an increase

in average income.

Privatisation can assist governments in stimulating economic growth by releasing itself from

subsidising non-strategic parastatals and concentrating on creating a political and economic

environment which is conducive to the facilitation of the efficient and effective use of

resources (Oyieke, 2002:23). Privatisation is capable of promoting economic growth by

increasing investment and improving the efficient utilisation of resources; however, in some

cases, it can reduce growth where private investment is not forthcoming as well as where

key sectors of the economy are not performing (Parker & Kirkpatrick, 2007:529). Etieyibo

(2011:91) points out that the proponents of privatisation claim that, over time, privatisation

will lead to less corruption and red tape, and strengthen the role of the private sector in the

economy, thus guaranteeing employment, improved quality of life, and lead to higher

capacity utilisation (e.g. lower prices, make more choices available, and ensure faster

delivery of goods and services). Conversely, critics of privatisation claim that privatisation

would cause a reduction both in income levels and access to basic social goods and services,

lead to a loss of employment, and an increase in the prices of goods and services.

A study carried out in 35 developing countries found that the privatisation increased

economic growth from 0.8% to 1.5% between the sub-periods 1984-1988 and 1988-1992

(Boubakri et al., 2009:21). Another study carried out in 10 developing countries and 8

transition countries found that privatisation is positively correlated to fiscal variables of

growth, unemployment and investment. Buur et al. (2011:238-239) estimate that around

32,000 permanent and temporary direct jobs have been created at the four rehabilitated

sugar estates besides jobs created in outsourced service functions in land preparation,

planting, maintenance and transport, as well as jobs created by independent producers as

well as down- and upstream jobs created along the value chain, making the industry once

again the biggest non-state employer in Mozambique. It is thus evident that the sugar sector

has created a multiplier effect in that other sectors can supply goods and services to this

sector and the employees in this sector have disposable income to buy goods and services

from other sectors of the economy.

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Conversely, Boubakri et al. (2009) further highlight that a study carried out in 63 developing

countries between 1988 and 1997, found that privatisation had a negative effect on

economic growth. The study found that a lack of competition in the private sector arrested

the positive impact of privatisation, in terms of economic growth.

(g) Trade relations

According to Bothma and Burgess (2011:5), at the macro level, international trade is defined

by international trade relations which are the agreements negotiated and the actions

undertaken by nations. Cateora et al. (2009:372) posit that consumer product organisations

market themselves internationally for numerous reasons, such as: gaining exposure to more

customers, keeping up with the competition, extending product life cycles, and growing

sales and profits. Bothma and Burgess (2011:5) contend that international trade and exports

make a significant contribution to the economic development of all countries and thus help

to advance the general standard of living. Furthermore, international trade offers

advantages which include the following:

• Improved exploitation of national resources

• Improved technological development

• Global competitiveness is enhanced

• Access to foreign currency which can be used to pay for critical imports and

technological development

• More jobs are created, thereby reducing unemployment rates.

In light of the above, the following hypothesis is presented:

Hypothesis H06: Perceptions regarding privatisation do not influence the

economic benefits as measured by perceptions of

investments, competition, improved services, effective

corporate governance, economic growth, economic

empowerment and trade relations.

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According to Omran (2009:661), on an organisational level, recent surveys of privatisation

studies show diverse of results, which range from no significant effect of privatisation on

performance, to cautiously concluding that privatisation around the world improves

organisational performance, as well asconcluding - with some degree of confidence - that

privatisation improves organisational performance. This argument is supported byYonnedi

(2010:539) who argues that privatisation theories centrally posit that privatisation increases

organisational performance, though very little is said about what happened to those

organisations in search of organisational performance. Oyieke (2002:21) observes that after

privatisation, Kenya Airways modernised its fleet by the acquisition of state of the art

aircraft and increased route networks to cover 25 cities on three continents. The airline

services 30 domestic and international routes and offers an improved service in terms of

international standards. Conversely, Etieyibo (2011:99) contends that, in Nigeria, some of

the reasons for the discontent and causes of the poor performance of the privatised

organisations are:

• The inchoate or lopsided asset acquisition and share purchase share agreements

• The non enforceable clauses and breach of share purchase agreements

• The carrying out of due diligence exercise of large corporations at the data room of the

Bureau of Public Enterprises (BPE), instead of a full financial and physical audit

• The undervaluation of assets of parastatals, and

• The practice of aggressive asset stripping by private sector organisations acquiring

parastatals.

Kikeri and Nellis (2004:92) highlight that studies found that privatisation improves

performance and increases returns for new owners and shareholders; findings also

indicated a strong improvement in high-and middle-income countries as opposed to low-

income countries. Parker and Kirkpatrick (2007:516) are of the opinion that performance

may change as a result of economic events which are running simultaneously with

privatisation, including more macroeconomic stability, fiscal prudence, freer capital

movements, promotion of competition and regulatory changes. Therefore, as a result of

these factors, assessing the impact of privatisation on performance can be problematic.

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(a) Customer satisfaction

According to Lamb et al. (2008:5), customer satisfaction is therefore a response (a

judgement) to a product or service in terms of the extent to which consumption meets their

expectations. Perreault et al. (2008:5) argue that customer satisfaction is the extent to

which a firm fulfils a customer’s needs, desires, and expectations. In this regard, satisfying

customers requires that managers adopt the marketing concept by taking the customer’s

point of view. In addition, customers consider the benefits and costs which they would

derive from products and services thereby leading to the concept of customer value.

Consequently, customers become satisfied when the benefits realised, from a product or

service, are higher than the costs. Tsamenyi et al. (2010:430) point out that the customer

perspective therefore determines how the company wishes to be viewed by its customers.

The customer perspective includes measures such as customer satisfaction, customer

retention, market share, reliability of the system of delivery and lead-time.

Organisations which are focussed on building long term relationships with customers should

be able to identify the needs, wants and expectations of their customers (Kurtz, 2010:316).

Moreover, gathering this information is important as it assists organisations in

implementing systems which they can use to measure customer satisfaction. Customer

satisfaction measurement should also provide insights into aspects that are important or

specific to a certain industry or firm; such as, the price perceptions of customers, or service

delivery speed or the image of a brand. If customers are satisfied with a service or product,

they inform others positively about the organisation and they buy more of the products or

services, which results in the organisation making higher profits. Conversely, Pierre and

Rothstein (2010:4) highlight that, if customers are dissatisfied with the service they receive,

instead of appealing to the rules guarding their rights, citizens should ‘’vote with their feet’’

by choosing another service provider in the market. This results in managers coming up with

market-like incentives which make some changes in the service.

(b) Organisational efficiency

According to Etieyibo (2011:92), the argument that public sector ownership is an instance of

‘the tragedy of the commons’ and that, when people individually own property they tend to

care for it better, observes that, when an organisation is privately operated and owned,

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market forces provide the gauge for its efficiency and the needed drive for the performance

of the managers. Some economists have argued that some public goods may be allocated

efficiently by the market mechanism, thereby reducing the political influence of rent seekers

and pressure groups associated with the politicisation of parastatals appointment of board

members (Omoleke et al., 2011:76). According to Zhang et al. (2008:8), privatisation is

expected to raise economic efficiency by:

• Changing the allocation of property rights, which leads to a different structure of

incentives for management and hence to changes in managerial behaviour

• Removing the ‘soft budget’ constraint of taxpayer support and exposing organisations to

the disciplines of the private capital market

• Introducing more precise and measurable objectives, thus reducing transaction costs,

especially those associated with principals which monitor management (agent)

behaviour, and

• Removing political interference in the management of organisations and capture by

special interest groups.

Boubakri et al. (2005:372) avow that privatisation transfers ownership to outside investors

who place greater emphasis on profits and efficiency. Institutional investors place more

emphasis on the monitoring of management performance so that superior returns are

realised. Privatisation is more likely to result in increased efficiency and improved equity

results if it is entrenched in a set of conceptually appropriate, functioning legal and

economic institutions that support and guide its market operations (Josiah et al., 2010:382).

Similarly, Tsamenyi et al. (2010:429) contend that competition in the private sector enables

private organisations to allocate resources more efficiently than public organisations.

Motasam (2010:9) observes that, after privatisation, Tunisair experienced a better economic

efficiency, as its technical efficiency scores have increased from 0.743 to scores close to 1. In

Cote d’Ivoire, an impact study applied to 81 privatisations covering not just infrastructure

organisations but a range of organisations already operating in competitive markets such as

agriculture, agro-industries, tradable and non-tradable sectors concluded that organisations

performed better after privatisation and that they performed better than they would have

had they remained under public ownership (Buchs, 2003:18). A study on the privatisation of

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Kenya Airways, which investigated its efficiency in terms of its output to input ratio,

recorded a statistically significant improvement in efficiency (Oyieke, 2002:20).

This assertion is supported by Josiah et al. (2010:378) who point out that a study influenced

by the theories of property, public choice and agency, pointing to privatisation’s efficiency,

tests the relationship between privatisation and efficiency in six privatised organisations in

Malawi. This study concluded that privatisation significantly increased efficiency. Similarly,

Parker and Kirkpatrick (2007:519) highlight that a study carried out in developing countries,

to examine the financial and operating performance of 79 organisations in 21 economies

over the period 1980-1992, found significant improvements in profitability, operating

efficiency, capital investment, output, total employment and dividends. However,

Pamacheche and Koma (2007:8) state that, in Mali, the lack of improvement in efficiency

and productivity was explained by the poor handling of the privatisation process itself. This

poor performance was a result of selling organisations to investors who had neither the

capacity to manage the organisations nor the ability to pay the purchase price which was

required to be paid in instalments.

(c) Innovation

According to Sahney (2009:49), innovation has been defined as ‘’an idea, practice or an

object that is perceived as new by an individual or other unit of adoption’’ and as ‘’the

process by which an innovation is communicated through specific channels over time

among members of a social system that are linked via networks’’. Perreault et al. (2008:6)

define innovation as the development and spread of new ideas, goods, and services.

Innovation fosters competition as a variety of products and services will be on offer to

customers and this will result in a reduction of the prices of products and services.

According to Bothma and Burgess (2011:573), innovativeness refers to the capacity to be

innovative and is observed in the introduction of new processes, products or ideas in an

organisation. Furthermore, innovativeness has an impact on business performance; hence,

it is very important in the international marketing environment.

Schermerhorn (2010:267) observes that innovation in and by organisations has traditionally

been addressed in three broad forms:

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• Product innovations, which result in the creation of new or improved goods and services

• Process innovations, which result in better ways of doing things, and

• Business model innovations, which result in new ways of making money for the firm.

Innovative organisations are characterised by the organisational strategy, culture, values,

structures, top management and recruitment which supports innovation. Mudambi

(2003:590) argues that product innovations help to meet the growing expectations of

consumers who have discretionary incomes created through risk-taking in the new

economy. Process innovations assist in the absorption of foreign technologies into the

domestic set up, thereby creating efficient manufacturing systems which are normally

reported after privatisation.

The privatisation process encourages a shift in the management style from being

fundamentally reactive and restricted for political reasons to being proactive and guided

primarily by the interests of shareholders in the search for greater innovation and a change

in organisational culture (Zabalza & Matey, 2011:1744).

Therefore, after considering the relationship between organisational performance and

perceptions regarding privatisation, as discussed above, the following hypothesis is

formulated:

Hypothesis H07: Perceptions regarding privatisation do not influence

organisational performance as measured by perceptions of

customer satisfaction, organisational efficiency and

innovation.

6.5 CONCLUSION

This chapter operationalised the hypothetical model regarding the perceptions of

privatisation (as depicted in Figure 5.1). The model is derived from three privatisation

models and the relevant literature on privatisation. The model is comprised of five main

independent variables, namely: stakeholder consultation, business conditions, government

considerations, institutional framework and the management of the privatisation process.

Other factors under each main variable have been identified and discussed. The identified

factors were discussed to highlight their relationships with perceptions of privatisation using

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anecdotal and empirical evidence from the literature on privatisation. As such, five

hypotheses which showed the relationships discussed herein, were initially presented in this

chapter. The literature highlights the importance of these factors in the implementation of

the privatisation process.

The model also comprises two dependent variables, namely: economic benefits and

organisational performance with some other factors under each variable. Similarly,

anecdotal and empirical evidence was used to present the relationships between these

variables and perceptions of privatisation. This resulted in another two hypotheses being

presented for the study. Thus, a total of seven hypotheses were presented in this chapter.

Evidence from the literature highlighted mixed feelings about privatisation, especially in

developing countries.

Chapter 7 presents the research design and methodology of this study. The areas which are

going to be tackled in this endeavour include: research paradigm, sampling, data collection,

questionnaire design, data analysis as well as the reliability and validity of the measuring

instrument.

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CHAPTER 7

RESEARCH METHODOLOGY

7.1 INTRODUCTION

The purpose of this chapter is to explain the research methodology that was used to address

the primary objective of the study. Good research generates dependable data that is

derived by professionally conducted practices that are reliable and can be used for decision

making (Cooper & Schindler, 2011:12). Chapter 7 presents the methodology and statistical

procedures which were undertaken for the research design and how the conceptual model

presented in Chapter 5 was assessed. The chapter introduces the population studied and

describes the sampling technique used in this study. A summary of the biographical

information of the participants is presented as well as the research instrument design and

administration of the questionnaire presented. The statistical methods used to assess the

validity and reliability of the results are explained herein. The chapter also presents the

ethical procedures which were followed in carrying out the research. Finally, the chapter

clarifies the development of the measuring instruments used in this study.

The empirical research is based on factors contained in the conceptual model which was

constructed after carrying out a literature review on the implementation of privatisation in

developed, transition and developing countries. A self-administered questionnaire was

developed based on the factors contained in the model, which was later administered to the

managers of parastatals in Zimbabwe.

7.2 PURPOSE OF THE STUDY

The purpose of this study is to solicit management perceptions regarding the privatisation of

parastatals in Zimbabwe. The implementation of privatisation in developing countries in

general, and Zimbabwe in particular, has been characterised by criticisms related to the

pace, transparency and the impact that the privatisation will have on society (Tambudzai,

2003:166). This study, therefore, tries to identify critical factors for the implementation of a

successful privatisation so as to formulate guidelines which can be applied during

privatisation in Zimbabwe.

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7.2.1 Primary research objective

The primary objective of this study is to examine the perceptions of stakeholders regarding


7.2.2 Secondary research objectives

The following secondary research objectives will assist in achieving the primary objective of

the study.

• To critically review the literature pertaining to privatisation.

• To develop a measuring instrument to test management perceptions of privatisation of

parastatals in Zimbabwe.

• To empirically assess the perceptions of stakeholders on privatisation of parastatals in

Zimbabwe.

• To provide managerial guidelines and recommendations on privatisation that needed to

be improved in Zimbabwe.

7.2.3 Research questions

The research questions of this study will be based on the purpose and objectives of this

research. The following are the research questions to be addressed in this study:

• Are stakeholders adequately consulted during the privatisation of parastatals in

Zimbabwe?

• Is the business environment prevailing in Zimbabwe conducive to privatisation?

• Is the government showing commitment to replicate its models and to improve the

speed of privatisation?

• Is government receptiveness sufficient to promote a suitable environment for

privatisation?

• Is there an appropriate institutional framework for privatisation in Zimbabwe?

• Will privatisation create economic benefits in Zimbabwe?

• Will privatisation improve the organisational performance of parastatals in Zimbabwe?

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7.3 RESEARCH PARADIGMS

The methodological framework of the research project is comprisedof a narration of all the

ways and means by which the research was actually carried out (Quinlan, 2011:205).

According to Thyer (2010:27), research methodology is the study of the research process,

which, in the quantitative framework, generally involves identifying a problem, formulating

a hypothesis, collecting data to test the hypothesis, and then testing the hypothesis through

the use of statistical procedures. The quantitative approach depends on data which can be

numerically quantified. Zikmund et al. (2010:134) argue that quantitative business research

can be defined as business research that addresses research objectives through empirical

assessments that involve numerical measurements and analytical approaches.

In deductive research, theories or hypotheses are developed and these are then tested

through empirical observation (Crowther & Lancaster, 2009:23). Similarly, Wilson (2010:7)

asserts that a deductive approach encompasses the development of a hypothesis (or

hypotheses) based on existing theory, and then designing a research strategy to test the

hypothesis. Furthermore, a deductive approach is normally linked to the quantitative

approach. Babbie, Halley, Wagner III, and Zaino (2011:9) assert that when conducting

deductive research, social scientists proceed from the general (theory) to the specific (data

collection) and return to theory:

• Theory

• Deduce hypotheses

• Collect data

• Analyse data

• Evaluate hypotheses.

Chilisa and Preece (2005:94) highlight that common quantitative approaches within the

paradigm are experimental research, correlational research and descriptive or survey

research.

Conversely, qualitative research includes an array of interpretive techniques which seek to

describe, decode, translate, and otherwise come to terms with the meaning, not the

frequency, of certain more or less naturally occurring phenomena in the social world

(Cooper & Schindler, 2011:160). In this sense, qualitative research serves to inform the

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researcher as to how and why things happen. Gill and Johnson (2010:148) postulate that

qualitative researchers use methods, such as ethnography, in order to describe and explain

people’s behaviour for a specific reason: they think that it enables the investigation of how

the actors, whose behaviour they are attempting to describe and explain, experience,

sustain, articulate and share with others are socially constructed everyday realities that lead

them to behave in particular ways. Rossman and Rallis (2012:5) argue that qualitative

inquiry is rooted in empiricism, that is, the philosophical tradition that posits that

knowledge is obtained by direct experience through the physical senses. Furthermore,

qualitative research relies on the principles of inductive logic where reasoning starts from

the particular to more general statements, and moves towards theory. Qualitative research

emphasises the ‘hows’ and ‘whys’ of behaviours and therefore addresses how and why

questions by employing data from more subjective experiences. Babbie et al. (2011:9) argue

that, in the case of inductive research, researchers move from the specific (data collection)

to the general (theory), as they:

• Collect data

• Analyse data

• Induce a theory to account for data.

The differences between qualitative and quantitative research are shown in Table 7.1

below.

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Table 7.1: Differences between qualitative and quantitative research

Research Aspect Qualitative Quantitative Focus of Research

• Understand and interpret • Describe and explain

Researcher Involvement

• High – researcher is participant or catalyst

• Limited – controlled to prevent bias.

Research purpose

• In depth understanding; theory building.

• Describe or predict; build and test theory.

Sample design • Nonprobability • Probability Sample size • Small • Large Research design • May evolve or adjust during

the course of the project. • Often uses multiple methods

simultaneously or sequentially.

• Consistency is not expected. • Involves a longitudinal

approach

• Determined before commencing the project.

• Uses single method or mixed methods.

• Consistency is critical. • Involves either a cross-sectional

or a longitudinal approach.

Participant preparation

• Pretasking is common • No preparation desired to avoid biasing the participant.

Data type and preparation

• Verbal or pictorial descriptions

• Reduced to verbal codes (sometimes with computer assistance)

• Verbal descriptions • Reduced to numerical codes for

computerised analysis.

Data analysis • Human analysis following computer or human coding; primarily non quantitative.

• Computerised analysis – statistical and mathematical methods dominate.

Source: Adapted from Cooper and Schindler (2011:163)

According to Chilisa and Preece (2005:184), quantitative research is seen as ill suited to

studying the complexity of people and their social situations. Qualitative research is viewed

as unstructured, less precise and not simple enough to generalise the findings. Zikmund et

al. (2010:135) postulate that quantitative researchers direct a considerable amount of

activity toward measuring concepts with scales that either directly or indirectly provide

numeric values. Conversely, qualitative researchers are intimately involved in the research

process through observing, listening and interpreting. Thus, in qualitative research, the

results are subjective as they are dependent on how the researcher interprets them.

In this study, a quantitative approach was used. A similar study (Yonnedi 2010) used a

quantitative approach to investigate privatisation, organisational change and performance

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in Indonesia. A survey was used to collect data through the use of a self-administered

questionnaire. Farquhar (2012:70) posits that surveys can capture quite simple information;

for example, measuring attitudes towards changes in office design, staff perceptions of

changes to working hours or more complex ideas such as measuring a theoretical construct,

such as job satisfaction. A self administered questionnaire can be used in a survey where

participants give answers using a multiple choice response which ranges from options like

‘completely satisfied’ to ‘completely dissatisfied’.

Figure 7.1 below shows the stages which can be followed in selecting a sample.

Figure 7.1: Stages in the selection of a sample

Source: Adapted from Zikmund et al. (2010:391).

Define the target population

Select a sampling frame

Determine if the probability or non probability samplingmethod will be used

Plan procedure for selecting sampling units

Determine sample size

Select actual sampling units

Conduct fieldwork

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7.3.1 Population

The population of a study can be defined as all the individuals, elements or objects which

are considered relevant to the study (Quinlan, 2011:206). Saunders, Lewis & Thornhill

(2009:212) argue that a population is a full set of cases from which a sample is taken. The

target population must be clearly defined at the start of the sampling process so that the

sources from which data will be collected are identified (Zikmund et al., 2010:390).

Moreover, the target population can be defined through identifying the crucial

characteristics of the population. The target population in this study consists of all the

managers of the 69 parastatals in Zimbabwe.

7.3.2 The sampling procedure

According to Zikmund et al. (2010:68), sampling involves any procedure that draws

conclusions based on measurements of a portion of the population under study. In any

research, the size of the population, the time allocated for the research and the

requirements of the research are used to make decisions regarding whether to use the

whole population or a sample of the population in the study (Quinlan, 2011:208). Whatever

decision is adopted, it is important to clearly define the sample, explain why that sample

was selected and to identify the sampling method which is to be used. Furthermore, the aim

of describing the sample is to ascertain how representative the sample is of the population.

The fundamental idea of sampling is that, when some elements of the population are

selected, conclusions can be drawn about the whole population (Cooper & Schindler,

2011:364). Similarly, Wilson (2010:191) contends that sampling can be used to make

assumptions about a population or to make generalisations in relation to existing theory.

Two sampling methods which are normally used in research are probability sampling and

non-probability sampling.

In probability sampling, the chance or probability of each case being selected from the

population is known and is usually equal for all cases (Saunders et al., 2009:213).

Furthermore, the technique aidsthe researcher in answering the research questions and

attaining the objectives which require the statistical estimation of the characteristics of the

population derived from the sample. Probability sampling assists the researcher in claiming

that the sample that is selected is representative of the population under study (Quinlan,

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2011:209). Moreover, the techniques of probability sampling include: simple random

sampling; systematic sampling; stratified sampling and cluster sampling. Probability

sampling is based on the concept of random selection –a controlled procedure that assures

that each population element is given a known nonzero chance of selection (Cooper &

Schindler, 2011:369). As this is the case, the researcher, in order to engage in probability

sampling, must have a complete list (or map, or chart), of every member of the population

(Quinlan, 2011:209). This list is called a sampling frame from which each member of the

sample is randomly selected.

In this study, a simple random sampling technique was used to select parastatals which

were used in the study. Each parastatal from the sampling frame obtained from the Ministry

of State Enterprises and Parastatals was assigned a number. These numbers were written on

small slips and placed in a bowl. The numbers were picked randomly from the bowl and the

parastatal with a number matching the one picked was identified for the study. This process

was repeated until the required number of 27 parastatals was obtained. When using a

simple random sampling technique, a sample is selected at random from a sampling frame

(Quinlan, 2011:210). Probability samples must provide a known nonzero probability of

selection for each population element; the simple random sample is observed asa special

technique in that every element in the population has a known and equal chance of being

selected (Cooper & Schindler, 2011:377).

In non-probability samples, the probability of selecting each case from the population is not

known and it becomes impossible to address objectives or answer questions where

statistical inferences about the characteristics of the population are required (Saunders et

al., 2009:213). Hair, Money, Samouel and Page (2007:174) posit that, with non-probability

sampling, the researcher decides on the elements which will be included or excluded in a

sample. The examples of non-probability sampling techniques are convenience, judgement,

snowball/referral, and quota sampling.

In this study convenience sampling was used to select managers of the identified

parastatals. The researchers visited the identified parastatals and distributed questionnaires

to managers who were found in their offices and willing to participate in the study. A

convenience sample involves selecting sample elements that are most readily available to

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participate in the study and who can provide the information required (Hair et al.,

2007:181). Cooper and Schindler (2011:385) state that a researcher can take such a sample

to test ideas or to gain ideas about a subject of interest. Likewise, Matanda and Ndubisi

(2009:390) argue that key respondents can be chosen in recognition of their knowledge of

the issues under investigation, their formal roles in the organisation and their willingness to

participate in a study. Convenience sampling is generally used by researchers when a large

number of completed questionnaires are required quickly and with minimum costs and

when it is impossible to obtain a sample using other techniques (Zikmund & Babin,

2010:424).

7.3.3 Identification of the sample frame

A sampling frame is a list of the actual cases from which your sample will be drawn (Wilson,

2010:191). It is very important that the sampling frame is representative of the population.

Saunders et al. (2009:214) contend that the sampling frame for any probability sample

consists of a complete list of all the cases in the population from which the sample will be

drawn. When the entire population is not accurately represented or when some sample

elements are not included in the sampling frame, the sampling process is bound to

experience a sampling error (Zikmund et al., 2010:393).

A simple random sampling technique in which elements are randomly selected to give every

element an equal chance of being selected is the ideal method tousewhen the population or

a good sampling frame can easily be accessible (Gill & Johnson, 2010:127). Similarly, Hair,

Babin, Money and Samouel, (2003:212) state that simple random sampling is a

straightforward method of sampling that gives each element of the target population an

equal chance of being selected. In this study, the sampling frame of parastatals was

obtained from the Ministry of State Enterprises and Parastatals in Zimbabwe.

7.3.4 The sample size and selection of sampling elements

It is important to have a sufficient sample as working with inadequate samples may result in

researchers failing to interpret their results of the factor solution or it can be difficult to

repeat the solution using a different sample (Burton & Mazerolle, 2011:33). If the sample

size is inadequate, researchers may be unable to interpret the results of the factor solution

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or they may not be able to repeat the solution when using a different sample. Likewise, a

sample which is sufficient should have at least 10 respondents per survey item or not less

than 300 respondents. Hair et al. (2003:218) state that, when using statistical formulas to

determine the sample size, the following decisions must be made: the degree of confidence

(often 95 percent); the specified level of precision (amount of acceptable error); and the

amount of variability (population homogeneity).

Table 7.2, below, shows the demographic profile of the respondents in this study.

7.3.5 Demographic profile of respondents

Table 7.2: Demographic profile of respondents

Demographics Range N % Position in the organisation Senior Management

Middle Management Supervisory Other

39 102 117 43

13 34 39 14

301 100 Gender Female

Male 70 231

23 77

301 100 Age Group 21-30

31-40 41-50 51-60 Above 60

37 80 116 53 15

12 27 38 18 5

301 100 Educational level ‘O’ Level

‘A’Level/Diploma Bachelor’s Degree Post graduate degree/diploma Other

32 96 91 76 6

11 32 30 25 2

301 100 Tenure of employees 1-5

6-10 11-15 16-20 21 and above

61 59 45 43 93

20 20 15 14 31

301 100 Sector Manufacturing

Agriculture Tourism Energy Financial Information Communication Technology Infrastructure Development Other

53 41 2 49 9 71 4 72

18 14 1 16 3 23 1 24

301 100 Size of organisation Less than 50 2 1

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51-100 101-150 151-200 Above 200

2 17 19 261

1 6 6 86

301 100 Years of existence of organisation

1-5 6-10 11-15 16-20 Over 21

18 11 11 4 257

6 4 4 1 85

301 100 Annual turnover of organisation Less than US$ 500 000

US$ 500 000 -999999 US$ 1 000 000 - 1 499 999 US$ 1 500 000 - 1 999 999 Above US$ 2 000 000

16 4 2 4 275

5 1 1 1 92

301 100 Source: Own construction.

Table 7.2 shows that thirteen percent (13%) of the participants occupied senior

management positions and thirty fourpercent (34%) occupied middle management

positions. Thirty nine percent (39%) occupied supervisory positions while fourteen percent

(14%) occupied other managerial positions. Male participants were the majority and

constituted seventy seven percent (77%) and female participants constituted twenty three

percent (23%) of the sample population.

Twelve percent (12%) of the participants belonged to the 21-30 years age group while

twenty seven percent (27%) were in the 31-40 years age group. The majority of the

participants, who constituted thirty eight percent (38%), were 51-60 years of age. Eleven

percent (11%) of the participants had attained an ‘O’ level qualification while the majority,

thirty two percent (32%), had ‘A’ level/Diploma qualifications. Thirty (30%) percent had

attained a Bachelor’s degree, twenty five percent (25%) had a post graduate

degree/diploma and only two percent (2%) had other qualifications.

Participants who had been employed in their current parastatals for 1-5 years and 6-10

years constituted twenty percent (20%), respectively. Fifteen percent (15%) of the

participants had been employed for 11-15 years while fourteen percent (14%) had been

with the organisation for 16-20 years. Participants who had been employed in their current

organisations for 21 or more years were the majority and they constituted thirty one

percent (31%) of the respondents. Eighteen percent (18%) of the participants were

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employed in the manufacturing sector while fourteen percent (14%) were employed in the

agriculture sector. One percent (1%) of the participants came from the tourism sector, and

the energy sector constitutedsixteen percent (16%) of the participants. The majority of the

participants, twenty four percent (24%), were employed in other sectors while twenty three

percent (23%) and one percent (1%) were employed in the Information Communication

Technology and Infrastructure development sectors, respectively.

One percent (1%) of the participants was drawn from parastatals which employ less than

fifty employees and those which employ 51-100 employees, respectively. The majority of

the participants, eighty six percent (86%), were drawn from parastatals which employ above

two hundred employees andsix percent (6%) came from parastatals which employ 101-150

and 151-200 employees, respectively. Six percent (6%) of the participants indicated that

their parastatals had been in existence for 1-5 years while four percent (4%) indicated that

their parastatals had been in existence for 6-10 years and 11-15 years, respectively. The

majority of the participants, eighty five percent (85%), indicated that their parastatals had

been in existence for over twenty one years while one percent (1%) indicated that their

parastatals had been in existence for 16-20 years.

Five percent (5%) of the participants indicated that their organisations had an annual

turnover of less than US$500 000 and one percent (1%) of the participants indicated that

their parastatals had an annual turnover of US$500 000-US$999 999, US$1 000 000-1 499

999 and US$1 500 000-1 999 999 respectively. Most of the participants, ninety two percent

(92%), showed that their parastatals had an annual turnover of over US$2 000 000.

7.3.6 The research instrument design

A questionnaire consists of a chain of questions which are designed to present precise

information from every member of the sample (Crowther & Lancaster, 2009:153).When

designing a questionnaire, it is important to have clear knowledge of the objectives of the

study, the information to be secured and how the results will be summarised. The relevance

of a questionnaire is premised on the extent to which all the information collected assists

the decision maker in tackling the prevailing business problem (Zikmund et al., 2010:336). A

questionnaire should use simple, unambiguous and non-emotive words so as to obtain

accurate answers from respondents. In addition, when designing a questionnaire, it is

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important to minimise error so as to ensure the validity of the study (Chilisa & Preece,

2005:111). Moreover, it is important to minimise error by ensuring that the items in the

questionnaire answer the research questions and address the objectives of the study.

Generally, questionnaire design differs in how it is administered and the extent of contact

with the participantsin particular (Saunders et al., 2009:362).

According to Burton and Mazerolle (2011:29), instrument development includes four steps:

• Step one consists of defining constructs and determining domain content

• Step two involves generating items for the survey and judging the appropriateness of

the items

• Step three is to design and conduct studies to test the scale

• Step four involves finalising the scale based on data collected in the third step.

Item development requires that the researcher has a strong understanding of the existing

literature, the purpose of the study and the existing scales, which include the 5 point and 7

point Likert scales. Furthermore, the questions which researchers use are largely based on

the information which is required; this can be attitudes, beliefs or behaviours. It is thus

important to maintain a logical sequencing of questions, to use neutral language which does

not lead the respondent onto ask only one question at a time. Moreover, when the items

have been developed, it is important to have experts review the instrument for clarity,

readability and any changes to be made. Thus, the instrument can be pilot tested.

In this study, two professors from the Department of Business Management and two

research experts at the Nelson Mandela Metropolitan University were requested to inspect

the questionnaire and make offer their judgements on the relevance, meaning and wording

of the items. Thus, the content validity of the measuring instrument was established.

According to Cooper and Schindler (2011:281), when determining the content validity of an

instrument, one needs to use a panel of experts to review how well the instrument meets

the standard. A covering letter, written on a Nelson Mandela Metropolitan University letter

head, which introduced the study to the respondents and highlighted the purpose of the

study, was attached to the questionnaire.

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In this study, stakeholder consultation, business conditions, government considerations,

institutional framework, management of the privatisation process, economic benefits and

organisational performance are major variables in the questionnaire. The questionnaire

solicited management perceptions regarding the privatisation of parastatals in Zimbabwe.

These variables were derived from the privatisation models of Donaldson and Wagle (1995),

Aboujdiryha (2011) and Mudambi (2003) as well as the theoretical model developed for the

purpose of this study. The identified variables also emanate from an extensive literature

search on the privatisation of parastatals in developed and developing countries.

To measure the variables of the study, as shown in the model presented in Figure 5.1, the

questionnaire comprised of positively expressed self-developed measuring instruments and,

where possible, items from previous studies which proved to be valid and reliable were also

used. The questionnaire comprised of Section A and Section B. In Section A there were

eighty two (82) questionnaire items which were tested using a seven-point Likert scale. The

seven response options, namely: strongly disagree (1), disagree (2), somewhat disagree (3),

neutral (4), somewhat agree (5), agree (6) and strongly agree (7) were used to score the

responses to each questionnaire item. Section B comprised of statements which sought to

solicit biographical information from the respondents. The questionnaire items in Section A

were meant to measure the following independent and dependent variables of the study.

(a) Stakeholder consultation

For the purposes of this study, stakeholder consultation refers to all the transparent

processes which are undertaken by the government to engage stakeholdersin designing a

privatisation programme; these include employees, unions, management and customers.

This is an independent variable that is measured by a ten-item scale linked to a seven-point

Likert Scale. The items are adapted from Yonnedi (2010:550) who measured the importance

of the decision making process using a three-item scale which included the importance of

unions in the decision making process, which recorded a Cronbach alpha value of 0.716. A

study by Wated et al. (2008:118), which included items related to the participation of

government employees, recorded a Cronbach’s alpha reliability equal to 0.80.

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(b) Business conditions

In this study, business conditions refer to the attractiveness of foreign direct investment and

the interaction through markets which determine the overall economic activity in a country

during the privatisation process. This is an independent variable that is measured by a nine-

item scale which is linked to a seven-point Likert Scale. The items were self developed from

the relevant literature on privatisation.

(c) Government considerations

For the purposes of this study, government considerations refers to the trust bestowed to

the government by its citizens, government intervention in the economy as well as role

conflict and role ambiguity during the privatisation process. This is an independent variable

that is measured by a twelve item scale which is linked to a seven-point Likert scale. The

items are adapted from Vo and Nguyen (2011:41) who measured the organisational-

integration construct using a six-item scale and recorded a Cronbach alpha value of 0.84.

Yonnedi (2010:551) measured organisational structure and integration by using a 5-item

scale and recorded a Cronbach alpha value of 0.715.

(d) Institutional framework

For the purposes of this study, institutional framework is an independent variable which can

be defined as informal and formal rules that reduce uncertainty and promote efficiency so

as to realise the better economic performance of organisations after privatisation. The

variable is measured by using a ten item scale linked to a seven-point Likert scale.

(e) Management of the privatisation process

In this study, management of the privatisation process is an independent variable which can

be defined as the balancing of the external and internal influences, the coordination of

activities and people, and placing focus on key issues so as to reduce the problems

encountered in the privatisation process. The variable is measured by a nine-item scale

linked to a seven-point Likert scale. The items have been self developed based on the

relevant literature on privatisation.

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(f) Perceptions of privatisation

For the purposes of this study, perceptions of privatisation refer to how stakeholders view

the reasons for privatisation as well as way their impressions ofthe way in which

government handles the privatisation process. This is an intervening variable measured by a

nine-item scale linked to a seven-point Likert scale.

(g) Economic benefits

In this study, economic benefits are dependent variables which refer to the increased

economic efficiencies of privatised organisations, better allocation of resources, improved

services to customers as well as improved trade with other countries after privatisation. The

variable is measured by a sixteen-item scale linked to a seven-point Likert scale. Yonnedi

(2010:550) measured organisational goals and objectives using a seven-item scale which

included service or product quality and recorded a high Cronbach alpha value of 0.851. Vo

and Nguyen (2011:41) measured the market-orientation dimension using a four-item scale

and recorded a Cronbach alpha value of 0.75.

(h) Organisational performance

In this study, organisational performance is a dependent variable which refers to an increase

in organisational performance which can be realised by customer satisfaction,

organisational efficiency and innovation within the privatised organisation. The variable is

measured by a seven-item scale linked to a seven-point scale. In a study on performance

using a five-item scale, Yonnedi (2010:551) recorded a Cronbach alpha value of 0.879.

Mosavi, Amirzadeh and Dadmehr (2011:5910) measured customer expectations and

recorded a Cronbach alpha value of 0.985.

Table 7.3, below, indicates the instruments which were used for the demographic profiles of

respondents.

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Table 7.3: Demographic variables of the study

Position in the organisation

Senior Management 1 Supervisory 3

Middle Management 2 Other 4

Gender

Male 1 Female 2

Age

21 - 30 years 1 51 - 60 years 4

31 - 40 years 2 Above 60 years 5

41 - 50 years 3

Educational level

‘O’ Level 1 Post Graduate Degree/Diploma 4

‘A’Level/Diploma 2 Other 5

Bachelor’s Degree 3

Tenure of employees

1 – 5 1 16 – 20 4

6 – 10 2 21 and above 5

11 – 15 3

Sector of the organisation

Manufacturing 1 Financial 6

Agriculture 2 Natural Resources 7

Mining 3 Information Communication Technology 8

Tourism 4 Infrastructure Development 9

Energy 5

The size of the organisation

Less than 50 1 151 - 200 4

51 – 100 2 Above 200 5

101 – 150 3

The years of existence of the organisation

1 – 5 1 16 – 20 4

6 – 10 2 Over 21 5

11 – 15 3

Annual turnover

<US$ 500 000 1 US$ 1 500 000 - 1 999 999 4

US$ 500 000 - 999 999 2 >US$ 2 000 000 5

US$ 1 000 000 - 1 499 999 3

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7.3.7 Pilot study

According to Gill and Johnson (2010:144), a pilot study is a test of the research design which

is done on a subsample of participants who share the same characteristics asthose who will

be selected in the main survey. Moreover, a pilot study is carried out so as to identify any

problems in the questionnaire, as it is difficult to foresee how respondents will interpret and

react to questions. Similarly, Saunders et al. (2009:394) argue that a pilot study is carried

out to improve the questionnaire so that participants do not encounter any problems in

answering the questions and to eliminate the problems encountered in recording data.In

addition, a pilot study is carried out in an attempt to answer the investigative questions of

the study.

Zikmund et al. (2010:361) posit that a questionnaire is usually written, adjusted, and

distributed to other people so that they can give their feedback and it is thereafter

corrected again. Pretesting the questionnaire assists the researcher in establishing whether

participants understand the questions and identifying ambiguous questions. According to

Cooper and Schindler (2011:347), pretesting individual questions, questionnaires, and

interview schedules is premised on the following:

• Discovering ways to increase participant interest,

• Increasing the likelihood that participants will remain engaged to the completion of the

survey,

• Discovering question content, wording, and sequencing problems,

• Discovering target question groups where researcher training is needed, and

• Exploring ways to improve the overall quality of survey data.

In this study, the questionnaire was subjected to a pilot test amongst 39 participants to

ensure that the participants understood the questions, to simplify the questions and to

identify whether the questionnaire answered the investigative objectives of the study.

Furthermore, the feedback received from the participants in the pilot study was used to

make some minor changes to the questions in the questionnaire. Some of the contributions

offered by pilot study participants included some suggestions on the addition of questions

which they thought were relevant to the study, as well as some advice for the researcher on

how to avoid loaded questions and questions which were two pronged. Generally, the

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participants acknowledged that most of the statements were easy to understand and were

relevant to the study.

7.3.8 Administration of the questionnaire

Self administered questionnaires can either be distributed electronically using the internet

or intranet, posted to participants who return them through post after completing them or

they can be delivered by hand to the participants and collected once they are completed

(Saunders et al., 2009:362). According to Crowther and Lancaster (2009:152), the researcher

needs to consider the following factors when implementing and administering the

questionnaire:

• Method of administering the questionnaire, such as face-to-face or non-personal

• Methods of distributing/returning questionnaires, such as telephone, mail or computer

based

• Methods used to record responses.

The study was carried out in Zimbabwe during the months of May to August 2012. In this

study, permission to distribute the questionnaires was sought from the Chief Executive

Officers of the sampled parastatals and, where permission was granted, the questionnaires

where physically distributed to the identified participants by the researcher with the

assistance of two research assistants. The questionnaires were accompanied by a covering

letter which highlighted the main objective of the study, the purpose of the study and

assured the participants of the anonymity and confidentiality of the data collected. The

covering letter was written on a Nelson Mandela Metropolitan University letterhead and

was signed by the research coordinators and the researcher. As a measure of accounting for

the questionnaires which were distributed and returned, a record of such questionnaires

was kept by the researcher. The record assisted the researcher in following up with the

participants through physical visits at their workplaces and through telephone calls, where

applicable. The completed questionnaires were then physically collected from the

participants by the researcher and research assistants. The response rate is as indicated in

Table 7.4, below.

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Table 7.4: Response rate

Respondents

Questionnaires administered 700

Usable questionnaires received 301

Unusable questionnaires received 23

Response rate 43%

Source: Own Construction.

In this study, a total of 700 questionnaires were distributed to the managers of parastatals

in Zimbabwe. A total of 301 usable questionnaires and 23 unusable questionnaires were

received from the participants; this resulted in a response rate of 43%.

7.4 THE CRITERIA FOR EVALUATING MEASURING INSTRUMENT

7.4.1 Reliability

Cooper and Schindler (2011:280) postulate that the reliability of the measuring instrument

is concerned with estimates of the degree to which a measurement is free from random

error. Instruments that are reliable tend to work well at different times and under divergent

conditions. According to Zikmund et al. (2010:305), a measure is reliable when different

attempts at measuring something produce the same results. The idea of reliability revolves

around consistency; this is affirmed by Marx, Menezes, Horovitz, Jones and Warren

(2003:730) who argue that reliability refers to the consistency of scores obtained by the

same researchers when the same test is redone at different times or with different sets of

the same sets of items.

(a) Test-retest reliability

According to Zikmund et al. (2010:306), the test-retest method of determining reliability is

achieved by applying the same scale or measure to the same participants at two different

times in order to test for stability. A stable measure should produce the same results when

administered under the same conditions, each time. Peter and Peter (2008:991) posit that

the test-retest reliability administers the same scale at two different times and measures

the correlation between the results. The reliability of a measurement is concerned with the

extent to which the measuring instrument will produce the same results (consistency) when

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it is applied more than once to the same person and under similar conditions (Gill &

Johnson, 2010:143). Reliability can be tested by repeating the same questions to the same

respondents at different times and assessing the degree of correlation or through phrasing

the same question in different ways at varied places in the questionnaire.

(b) Internal consistency tests

According to Zikmund et al. (2010:306), internal consistency represents the extent to which

every pointer of an idea shares a common meaning. The internal consistency approach is

normally executed to measure the reliability of a summated scale where a number of items

are added up to form a total score (Peter & Peter, 2008:991). Likewise, Harms and Biocca

(2004:3) point out that a factor can be considered to be internally consistent when

responses by participants on one item in the factor are the same as their responses to other

items which are assumed to be part of the same factor.

Reliability can be checked by using the split-half method where half of the items from a

scale, (for example, odd numbered items) can be checked against the results of the even

numbered items in the other half (Zikmund et al., 2010:306). It is also important that the

two scale halves should produce the same results and show a significant relationship.

Similarly, Hair et al. (2007:244) contend that when determining split-half reliability, the scale

items are randomly divided into half by the researcher and thereafter the two sets of items

are compared. There is high reliability when there is a high correlation between the two

halves. This argument is also supported by Marx et al. (2003:730) who argue that internal

consistency reliability can be measured by dividing the instrument into two equal parts (i.e.,

split-half reliability) (Peter & Peter, 2008:991), and then comparing the scores of the two

halves.

According to Hair et al. (2007:244), the second type of internal consistency reliability is

coefficient alpha, which can also be referred to as Cronbach’s alpha. Accordingly, Peter and

Peter (2008:992) define Cronbach’s alpha as ‘’the average of all possible split-half

coefficients resulting from different ways of splitting the scale items’’. The Cronbach’s alpha

method is the most commonly used estimate of a multiple-item scale’s reliability (Blaikie,

2003:219; Zikmund et al., 2010:306). The values of coefficient alpha range from zero to one:

where zero means there is no consistency, while one means that there is complete

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consistency. Furthermore, scores which are considered as having a very good reliability

range from 0.80 to 0.95 while those with a coefficient alpha ranging from 0.70 to 0.80 are

viewed as having a good reliability, and a coefficient alpha ranging from 0.60 and 0.70

depict a fair reliability. Similarly, Zait and Bertea (2011:217) postulate that a value of more

than 0.7 for alpha Cronbach is considered acceptable. Gau (2011:491) contends that even

though Cronbach’s alpha is one of the most common methods used by researchers to reveal

the consistency of scales, this statistic does not demonstrate unidimensionality, revealing

that a high alpha is no assurance that a particular scale taps one and only one hidden

construct.

In this study the Cronbach’s alpha test was used to assess the scale reliability.

7.4.2 Validity

According to Gill and Johnson (2010:143), validity refers to the degree to which a scale

whichis prearranged into a set of questions actually measures the variable it is supposed to

measure. Similarly, Cooper and Schindler (2011:280) argue that validity is the extent to

which a test actually measures a variable which is intended to be calculated. Validity

consists of three major forms, namely: content validity; criterion–related validity; and

construct validity. Validity refers to how reasonable, honest, strong, sound, sensible,

important and useful the research in question is (Quinlan, 2011:42). Validity is the precision

of a measure or the extent to which a score honestly represents an idea (Zikmund et al.,

2010:307).

(a) Content validity

According to Ley (2007:174), content validity refers to the extent to which a test adequately

samples the population or area of items which it intends to measure. Similarly, Cooper and

Schindler (2011:281) contend that the content validity of a measuring instrument is the

extent to which the instrument sufficiently covers the investigative questions which direct

the study. Moreover, content validity is mainly concerned with inferences about test

construction rather than inferences about test scores. Lyon, Mollering and Saunders

(2012:261) claim that content validity is concerned with checking whether the items which

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have been chosen to investigate a variable actually represent the field, and is largely a

matter of judgement.

(b) Criterion-related validity

According to Zikmund et al. (2010:308), criterion validity is the ability of a measure to

correlate with other standard measures of similar constructs or established criteria,

Saunders et al. (2009:373) posit that criterion-related validity is concerned with the ability

of the measures (questions) to make accurate predictions.

According to Lu (2006:83), criterion-related validity represents concurrent validity and

predictive validity. Lyon et al. (2012:263) postulate that predictive validity refers to the

extent to which a study properly demonstrates a causal relationship between a presumed

cause and effect. Predictive validity assesses the ability of a construct measured at one point

in time to predict another criterion at a future point in time (Hair et al., 2007:247). To

demonstrate the concurrent validity of a construct some prespecified association must be

established between the scores on the construct being validated and the scores on a

dependent variable, as determined by theory (Hair et al., 2007:247). Burton and Mazerolle

(2011:28) contend that criterion-related validity testing demonstrates the accuracy of the

measure by comparing it to a previously established and valid instrument or some other

external criterion (e.g., comparing scores from a short and long version of the same

instrument).

(c) Construct validity

According to Lyon et al. (2012:260), construct validity addresses whether a study’s

constructs measure what is intended; for example, producing observations consistent with

the theoretical properties of each construct. Zikmund et al. (2010:308) posit that construct

validity exists when a measure reliably measures and truthfully represents a unique

concept. Furthermore, construct validity includes other components like face validity,

content validity, criterion validity, convergent validity as well as discriminant validity.

Western and Rosenthal (2003:609) posit that construct validity is an estimate of the extent

to which variance in the measure reflects variance in the underlying construct.

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Construct validity is assessed by seeing whether scores on a test which purports to measure

a given trait are associated with behavioural differences which a theory says should be

associated with that trait (Ley 2007:175). Zait and Bertea (2011:217) contend that construct

validity is primarily concerned with the choice of the instrument and its ability to capture

the latent variable. Lu (2006:83) argues that construct validity involves the testing of the

hypothesised constructs which represent the concept that researchers try to measure; a

number of replicated studies will earn it credibility in terms of validating the hypothesised

constructs. Construct validity allows researchers to draw legitimate conclusions from their

findings when or if no criterion or content has been accepted as adequate (Burton &

Mazerolle 2011:28).

In this study, construct validity was used to clarify whether the measuring instrument which

was used in this study actually measured what it intended to measure.

• Convergent validity

According to Carlson and Herdman (2012:18), convergent validity reflects the extent to

which two measures capture a common construct. Furthermore, when convergent validity is

poor at any given point, the magnitudes and interpretability of the research findings are

affected. Gau (2011:491) contends that convergent validity is a measure of the strength of

the relationships between the items that are predicted to represent a single latent

construct. The validity of a measure has to be estimated through a comparison with other

measures of the same concept which were developed through other methods (Bryman &

Bell, 2007:166).

• Discriminant validity

Farrell and Rudd (2009:2) argue that discriminant validity refers to the degree to which

hidden variable X differentiates from other factors which are hidden (e.g., Y, Z). Likewise,

Gau (2011:491) postulate that discriminant validity involves the relationship between a

particular latent construct and others of a similar nature. In addition, discriminant validity is

there when the correlations among observable pointers of a single construct are more than

the correlations between those items and the items representing other hidden factors.

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According to Farrell and Rudd (2009:2-3), discriminant validity means that a latent variable

is able to account for more variance in the observed variables associated with it than:

measurement error or similar external, unmeasured influences; and/or; other constructs

within the conceptual framework. Farrell (2010:324) observes that, the implication is that

the hidden variable is capable of taking into consideration more variance within the

observed variables which are related to it than other unmeasured similar external influences

as well as other ideas which are within the conceptual framework. Moreover, failure to

establish discriminant validity results in drawing incorrect conclusions pertaining to

relationships between constructs under investigation. The concern regarding discriminant

validity emanates from the constant and usually strong relationship between the two

constructs (Gau 2011:491).

7.5 DATA ANALYSIS

7.5.1 Descriptive statistics

Descriptive statistics refer to the methods used to organise, summarise and present data in

an enlightening manner (Lind et al., 2012:6). When using descriptive statistics, data can be

organised into frequency distributions by which various charts can be used to describe data.

Furthermore, frequency distribution is concerned with the alignment of data into equally

exclusive classes where the number of observations in each class is shown (Lind et al.,

2012:29). Descriptive statistics can be defined as the process of collecting, organising, and

presenting data in such a way that the data can quickly and easily be described (Burns &

Burns, 2008:7). Descriptive statistics reduce large volumes of data to one or two values,

such as averages and percentages, which can easily be understood.

In this study, descriptive statistics were used to reduce the biographical data of the

participants into percentages and averages.

7.5.2 Factor analysis

According to Hair et al. (2007:368), factor analysis is a technique used to summarise a large

number of variables into a smaller number of variables or factors. Burton and Mazerolle

(2011:30) postulate that researchers use factor analysis to ‘’examine empirically the

interrelationships among the items and to identify clusters of items that share sufficient

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variation to justify their existence as a factor or construct to be measured by the

instrument’’. Zikmund et al. (2010:593) contend that factor analysis is a technique of

statistically identifying a reduced number of factors from a larger number of measured

variables. Moreover, factor analysis can be divided into exploratory factor analysis and

confirmatory factor analysis.

(a) Confirmatory factor analysis (CFA)

Gau (2011:491) argues that CFA is a structural equation modelling (SEM) technique that

allows researchers to propose theory-driven factor structures and then determine how

closely those proposed models reproduce the pattern of observed covariances among the

variables under examination. Harms and Biocca (2004:3) note that CFA, though not a

sufficient test for construct validation, surpasses Exploratory Factor Analysis which often

produces fewer factors than there are underlying variables in the data, and disguises errors

for bad items. Farrell and Rudd (2009:3) are of the opinion that when conducting a CFA, one

should never be governed solely by the fit indices of the model.

CFA allows researchers to specify a priori models, to assess how well each hypothesised

model matches the underlying covariances in the data, and to compare the relative fits of

competing models to determine which one appears to be a better representation of the

data (Gau 2011:492). Farrell and Rudd (2009:5) contend that researchers should not only

evaluate CFA based on model fit statistics but should also pay close attention to factor

loadings. CFA should not be used as a standalone to assess convergent and discriminant

validity, as it is not the most stringent test for discriminant validity. Zikmund et al.

(2010:593) argue that confirmatory factor analysis is performed when the researcher has

strong theoretical expectations about the factor structure (number of factors and which

variables relate to each factor) before performing the analysis. Confirmatory factor analysis

can be used to assess construct validity as it provides a test of how well the researcher’s

theory about the factor structure fits the observations obtained from the study.

(b) Exploratory factor analysis (EFA)

EFA is an important tool for instrument development because it allows researchers to

develop a survey that contains the minimum number of items needed so as to fully

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understand the constructs (Burton & Mazerolle 2011:30-31). EFA is normally done if the

researcher is doubtful as to the number of factors which could be available amongst a set of

variables (Zikmund & Babin, 2010:625).

Similarly, exploratory factor analysis is performed when the researcher is uncertain about

how many factors may exist among a set of variables (Zikmund et al., 2010:593). According

to Burton and Mazerolle (2011:31), EFA provides the researcher with information that will

help reduce the number of items in a proposed survey so that the remaining items can best

explain the constructs under investigation. This assertion is supported by Cramer (2003:13)

who argues that factor analysis is primarily used to assess whether the responses from a set

of questions from a measuring instrument can be grouped together in order to establish a

general indication of that perception. According to Tolmie, Muijs and McAteer (2011:174),

exploratory factor analysis should be used with large samples. A sample of 200 participants

would represent a fair sample size while a sample of 300 participants is a good size. Cramer

(2003:15) argues that, when using factor analysis, the cases should not be less that 100 per

analysis and there should be a minimum of five cases in each variable under study.

In this study, exploratory factor analysis was used to reduce the number of items in the

measuring instrument so that the remaining items could clearly explain the idea under

investigation.

(c) Factor loading

According to Zikmund and Babin (2010:626), a factor loading shows the strength of the

relationship between a factor and the variable which is being measured. A hidden

perception can be understood on the basis of the loadings and the content of the variables.

Furthermore, it becomes easy to interprete factor loadings when they clearly emerge.

Similarly, Burns and Burns (2008:446) state that a factor loading is the correlation between

a variable and a factor that has been extracted from the data. The factor loading must be at

least 0.30 and any loading which is below 0.4 is weak; while any loading between 0.4 and

0.6 is considered to be moderate. Thus, variables that load heavily on a factor assist the

researcher to point out what the factor means or what it is measuring. Blaikie (2003:221)

affirms that for a level of significance of 0.01 (two tailed), the minimum loading for a sample

of 50 is 0.72, for 100 is 0.51, for 200 is 0.36, for 300 is 0.30, for 600 is 0.21 and for 1000 is

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0.16. In addition, it is also recommended that loadings of 0.40 and above should be

considered seriously although some recommendations also consider loadings of 0.30 and

above.

Burns and Burns (2008:444) declare that high loadings represent surface attributes which

are strongly influenced by the factor. Blaikie (2003:221) argues that when a sample is being

used, its size is important in determining whether a loading is statistically significant; that is,

whether it can also be expected to exist in the population from which the sample was

drawn. In this study, factor loadings of 0.5 and above were considered statistically

significant and were thus considered for further analysis.

(d) Factor rotation

Zikmund and Babin (2010:628) define factor rotation as a mathematical way of

simplifyingthe results obtained through factor analysis. Moreover, the results clearly

indicate which variables load on which factors. Rotation assists by clarifying things as it

produces more clear patterns of loadings. Burns and Burns (2008:449) affirm that there are

two major categories of rotations: orthogonal rotations, which produce uncorrelated

factors, and oblique rotations, which produce correlated factors. Moreover, the best and

most commonly used orthogonal rotation is the Varimax as it is capable of increasing

interpretability by rotating factors which result in discrimination between high loading

(which move closer to 1) and low loading (which move closer to 0) variables. Yang, Hou,

Wang and Zhang (2010:23) posit that the Varimax rotation method is an algorithm that

makes each variable load highly on one and only one factor. This method can be used to

transform the factors so that they can be easily interpreted.

(e) Naming of factors

Burns and Burns (2008:447) contend that, in more complex conditions, the naming

operation is more difficult and quite subjective, but a factor should generally be named on

the basis of the variables which contribute the most to that factor (usually variables with

loadings greater that 5

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7.5.3 Regression analysis

According to Zikmund et al. (2010:564), regression analysis is another technique for

measuring the linear association between a dependent and an independent variable.

Regression analysis tries to forecast the values of a continuous, interval scaled dependent

variable from specific values of the independent variable. Moreover, with simple regression,

there is a dependent variable which is linked to the independent variable. Furthermore,

multiple regression analysis extends from simple regression analysis and allows a metric

dependent variable to be forecast by several independent variables. Thus, proposed

theoretical models are normally tested using multiple regression models. Aron et al.

(2008:95) contend that multipleregression is a process which is used to estimate scores on a

dependent variable from scores derived from two or more independent variables. Similarly,

Hair et al. (2007:267) are of the opinion that regression analysis is perhaps the most widely

applied data analysis technique for measuring linear relationships between two or more

variables. The existence of a relationship between two variables as well as the strength of

the relationship is indicated by correlation. Similarly, Hair et al. (2003:296) claim that the

multipleregression model is a more realistic model because, in the world in which we live,

predictions almost always depend upon multiple factors, not just one.

There are two ways which are often used in multiple regression (Cramer, 2003:59). The first

method is called the stepwise multiple regression which is used to determine the variables

which explain the greatest and considerable portion of the variance on the variable under

study, and show what these proportions are. The second method is the hierarchical multiple

regression which is used to determine whether a particular variable or set of variables

explains a considerable share of the variance of interest after taking into account certain

variables and finding out what this share is.

In this study, multiple regression analysis was used to predict the relationships between the

independent variables of the study: perceptions of privatisation and the outcomes of

privatisation.

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7.5.4 Correlation analysis

According to Hair et al. (2007:368), correlation examines the association between two

metric variables. The correlation coefficient is used to measure the strength of the

association. Cooper and Schindler (2011:493) affirm that correlation coefficients reveal the

magnitude and direction of relationships. Similarly, correlation coefficients assist in

measuring the extent of linear association between two variables and they range from -1.00

which represents a negative linear relationship, through 0 which reflects no relationship or

+1.00 which shows a perfect positive linear relationship (Aron, Aron & Coups, 2008:79;

Cramer, 2003:16). Similarly, Lind et al. (2012:465) argue that a correlation coefficient of -

1.00 shows a perfect relationship whilst a correlation coefficient which is close to 0 indicates

a weak linear association. In addition, coefficients of -0.91 and +0.91 show a strong

relationship between two variables. Correlation analysis is most appropriate for measuring

the strength of the relationship between two sets of interval ratio variables (Aron et al.,

2008:68; Lind et al., 2012:465; Zikmund & Babin, 2010:591). According to Lind et al.

(2012:534), when independent variables are correlated, multicollinearity exists. Moreover,

multicollinearity makes it difficult to make assumptions about the individual regression

coefficients and to deduce their effects on the dependent variable.

In this study, correlation analysis was used to assess the nature and size of linear

relationships between the independent variables identified in the study and perceptions of

privatisation, as well as the outcomes of privatisation (economic benefits).

7.6 RESEARCH ETHICS

According to Cooper and Schindler (2011:32), ethics are customs or standards of behaviour

that underpin good choices about our behaviour and how people relate to others. Unethical

actions include the breach of nondisclosure agreements, failing to observe participant

confidentiality, misrepresenting results and misleading people. Thus, research must be

structured in such a way that respondents do not suffer physical harm, lose their privacy or

are humiliated. Similarly, Wilson (2010:21) asserts that ethics are main beliefs and morals

that underline how researchers should carryout their research.

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In this study, research ethics were observed by applying for clearance from the Nelson

Mandela Metropolitan University Research Ethics Committee. Thus, a full ethics clearance

was not applied for as the study did not pose any risk of harm to the participants and it was

not targeting vulnerable people in terms of age. In addition, the covering letter of the

questionnaire assured the participants of their privacy, as well as the anonymity and

confidentiality of the data collected.

7.7 CONCLUSION

Chapter 7 presented the methodology which was used to conduct the study in accordance

with the research design developed by Zikmund et al. (2010:391). This chapter presented

the sampling procedure, highlighted the research instrument design, as well as the

procedure which was used to conduct the pilot study. This chapter also described how the

questionnaire was distributed to the respondents. The reliability and validity of the

measurement techniques were also described. Furthermore, the chapter described the

descriptive statistics, factor analysis, regression analysis and correlation analysis methods

which were used to analyse the data collected in this study. The research ethics, which were

considered in this study, were also outlined in this chapter. Consequently, Chapter 8

provides the complete analysis of the data gathered in this study.

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CHAPTER 8

EMPIRICAL EVALUATION OF MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF

PARASTATALS IN ZIMBABWE

8.1 INTRODUCTION

Chapter 7 presented the research methodology used to assess management perceptions

regarding the privatisation of parastatals in Zimbabwe. The overview underlined the several

statistical procedures which were used to analyse data in this study. This chapter presents

the results obtained in the assessment of the reliability and validity of the questionnaire

used in this study. In line with this assessment, conclusions are also drawn in respect of the

hypotheses which were drawn after testing the theoretical model.

8.2 SUMMARY OF THE EMPIRICAL INVESTIGATION OBJECTIVES

The main objective of this study is to assess management perceptions regarding the

privatisation of parastatals in Zimbabwe through the use of variables such as stakeholder

consultation, business conditions, government considerations, institutional framework,

management of the privatisation process, perceptions of privatisation, economic benefits of

privatisation as well as organisational performance, as shown in Figure 8.1. A self

administered questionnaire was used to collect data related to the perceptions of managers

of parastatals in Zimbabwe. In an effort to depict the outlook of the study, the hypotheses

of the study are presented again.

Based on the hypothetical model (Figure 8.1 below) for privatisation, as relevant to this

study, the following research hypotheses are identified:

H01: Stakeholder consultation does not influence perceptions of privatisation.

H02: Business conditions as measured by attractiveness to foreign investment and

macroeconomic conditions do not influence perceptions of privatisation.

H03: Government consideration as measured by perceptions of trust, political intervention,

role conflict and role ambiguity does not influence perceptions of privatisation.

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H04: Institutional framework as measured by transparency, two-way communication and

speed and replicability of the privatisation process does not influence perceptions of

privatisation.

H05: Management of the privatisation process does not influence perceptions of

privatisation.

H06: Perceptions regarding privatisation do not influence the economic benefits as

measured by perceptions of investments, competition, improved services, effective

corporate governance and economic growth.

H07: Perceptions regarding privatisation do not influence organisational performance as

measured by perceptions of customer satisfaction, organisational efficiency and

innovation.

These hypotheses were empirically tested and are illustrated in Figure 8.1, below.

Figure 8.1: Theoretical model regarding the perceptions of privatisation




Business conditions




Economic benefits


H01

H02

H03

H04 H07

H06


H05

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8.3 DATA ANALYSIS RESULTS

In this study, the data analysis was conducted in four stages and the empirical results are

presented in the following manner:

• The first stage of the analysis was to evaluate the discriminant validity of the

instrument that was used in the study. Factor analysis was used to gauge whether

the items used predicted underlying dimensions which were being assessed. This

was done so as to confirm validity.

• The second stage of the analysis was to calculate the Cronbach’s alpha values

through the use of a computer programme STATISTICA (Version 10). The purpose of

this stage was to measure the internal reliability of the instruments used in the

study.

• In the third stage, multiple regression analysis was used to assess how the

dependent variables were influenced by the independent variables, as reflected in

the conceptual model Figure 8. 1.

• The fourth, and final, stage was concerned with testing the hypothesised

relationships of the study.

Table 8.1, below, shows the abbreviations of the independent and dependent variables of

this study as identified in Figure 8.1 above.

Table 8.1: Abbreviations of variables

VARIABLE ABBREVIATION Independent Stakeholder Consultation SC Business Conditions BC Government Considerations GC Institutional Framework IF Management of the Privatisation Process MPP Perceptions of Privatisation PP Dependent Economic Benefits EB Organisational Performance OP

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8.3.1 Internal reliability of the measuring instrument

Internal consistency is used in research to measure the degree to which each pointer of an

idea has some common meaning (Zikmund & Babin, 2010:334). In this study, the Cronbach’s

alpha was used to measure the internal consistency of the factors under study as shown in

Table 8.11. Cronbach’s alpha is commonly used for testing scale reliability (Blaikie, 2003:19;

Bryman & Bell, 2007:164). A computer package, STATISTICA (Version 10), was used for this

function. The study considered a value of >0.6 as representing a sufficient standard. This

value was used in agreement with the works of Hair et al. (2007:244) who state that

researchers normally use a minimum alpha of 0.7 but can also use lower coefficient values

in accordance with the objectives of the study.

8.3.2 Factor analysis

Factor analysis is a term which is generally used to describe several specific techniques

which are used to compute relationship patterns among selected variables (Cooper &

Schindler, 2011:545). Moreover, the purpose of these techniques is to reduce large sets of

variables so as to design a more manageable number of factors based on the nature of

these relationships. Thus, reducing the number of variables assists researchers in simplifying

ensuing analyses. Factor analysis is necessary as it simplifies and categorises basic primary

variables that explain a large number of related factors in a prudent manner (Burns & Burns,

2008:440). Therefore, factor analysis tries to place together those items which are closely

related so as to design a theoretical construct which shows the relationships amongst

factors.

According to Cooper and Schindler (2011:530), factor analysis is concerned with identifying

patterns between factors with a view to determining whether a primary grouping of original

factors is capable of summarising the original set.

(a) Validity of the measuring instruments

As discussed in Chapter 7, construct validity is concerned with identifying whether the

constructs of a study produce observations which are consistent with the theoretical

characteristics of the idea. Furthermore, the components of construct validity are face,

content, criterion, convergent and discriminant validity. Thus, in principle, construct validity

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deals with identifying the extent of the relationship between the instrument and the idea

which is under investigation.

According to Choi, Chung, Lee, Kwon, Lee and Park (2011:3), discriminant validity is one

component of construct validity that shows the extent to which an instrument differentiates

between different constructs. The discriminant validity of a technique or instrument refers

to the degree to which differential relationships are observed amongst what is achieved and

different standard factors (Metcalfe & Metcalfe, 2012:7).

According to Farrell (2010:326), exploratory factor analysis can be used to detect whether

discriminant validity concerns are manifest by cross-loading items. Thus, the removal of

cross-loading items improves discriminant validity.

Discriminant validity, in this study, was assessed through the use of a computer package

titled STATISTICA (Version 10). According to Burns and Burns (2008:446), factor loadings

range from +1.00 to -1.00. In this study, a loading of 0.5 and above was considered

significant to confirm convergent validity. A cut off point of three (3) items loading in a

factor was considered significant in this study.

(b) Management perceptions of stakeholder consultation

The results provided in Table 8.2, below, indicate that respondents perceived of stakeholder

consultation as a two-pronged variable. This means that respondents viewed ‘stakeholder

consultation’ as consisting of a dimension related to ‘stakeholder participation’ on the one

hand and ‘union consultation’ on the other. Seven (SC1, SC2, SC6, SC7, SC8, SC9, and SC10)

of the ten items that were expected to measure ‘stakeholder consultation’ loaded onto

factor one (1); thisis termed ‘stakeholder participation’. Three items (SC3, SC4 and SC5)

loaded onto factor two (2) which is termed ‘union consultation’. The fact that items that

were expected to measure stakeholder consultation loaded onto two different factors, with

values greater than 0.2, demonstrates sufficient discriminant validity for further analysis.

Table 8.2, below, indicates factor loadings in respect of management perceptions regarding

privatisation and stakeholder consultation.

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Table 8.2: Factor loadings: management perceptions of stakeholder consultation

Items Factor 1 Factor 2 Stakeholder participation Union consultation

SC1 0.545363 0.253995 SC2 0.574775 0.255474 SC3 0.439370 0.595131 SC4 0.022718 0.838741 SC5 -0.143575 0.785927 SC6 0.578923 0.363166 SC7 0.713386 0.075170 SC8 0.802851 0.034736 SC9 0.812589 -0.036525 SC10 0.788182 -0.092399 Expl. Var 3.612136 1.953748 Prp. Totl 0.361214 0.195375

Loadings of 0.5 and above were considered significant.


privatisation and business conditions.

(c) Management perceptions of business conditions

Table 8.3, below, indicates that the respondents viewed business conditions as a two-

dimensional variable. This indicates that the respondents did not perceive of ‘business

conditions’ as a single construct. Six (BC1, BC2, BC3, BC4, BC5 and BC9) of the nine items

that were expected to measure ‘business conditions’ loaded onto factor one (1); these items

are termed ‘attractiveness to foreign investments’. Three items (BC6, BC7 and BC8) loaded

onto factor two (2), and these items are termed ‘stable macroeconomic conditions’. the fact

that items that were expected to measure business conditions loaded onto two different

factors, with values greater than 0.2, demonstrates sufficient discriminant validity for

further analysis.

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Table 8.3: Factor loadings: management perceptions of business conditions

Items Factor 1 Factor 2 Attractiveness to foreign investment Stable macroeconomic conditions BC1 0.546659 -0.056049 BC2 0.537122 0.430369 BC3 0.738082 0.079995 BC4 0.718065 0.323123 BC5 0.677958 0.369951 BC6 0.060470 0.806553 BC7 0.289957 0.754804 BC8 0.004125 0.677779 BC9 0.619957 -0.192809 Expl. Var 2.579439 2.152847 Prp. Totl 0.286604 0.239205

Factor loadings of 0.5 and above were considered significant.

Table 8.4, below, indicates the factor loadings in respect of management perceptions

regarding privatisation and government considerations.

(d) Management perceptions of government considerations

Table 8.4, below, indicates that government considerations is a two-dimensional variable.

Five items (GC1, GC2, GC7, GC11 and GC12) that were expected to measure ‘government

considerations’ loaded onto factor one (1); these items are termed ‘role ambiguity’. Four

items (GC3, GC4, GC6 and GC10) loaded on factor two (2), and are termed ‘political

intervention’. Of the twelve items, only nine items loaded perfectly onto factors one and

two. One item (GC5) could not load to a significant extent (p < 0.5) and two items (GC8

and GC9) loaded onto factor three (3); all items that loaded onto factor 3 were deleted on

the basis of lack of sufficient validity. The fact that items that were expected to measure

government considerations loaded onto two different factors, with values greater than 0.2,

demonstrates sufficient discriminant validity for further analysis.

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Table 8.4: Factor loadings: management perceptions of government considerations

Items Factor 1 Factor 2 Factor 3 Role ambiguity Political intervention N/A

GC1 0.648329 0.259228 0.009930 GC2 0.724983 0.080382 0.115827 GC3 0.102360 0.742834 0.114731 GC4 -0.026789 0.753191 0.086129 GC5 0.114235 0.485952 0.008161 GC6 0.190827 0.617054 -0.068318 GC7 0.786984 -0.012554 0.070629 GC8 0.073301 0.093744 0.881669 GC9 -0.188287 0.019091 0.846186 GC10 0.126491 0.542925 0.114903 GC11 0.697377 0.062337 -0.193678 GC12 0.817936 0.062597 -0.195376 Expl. Var 2.838112 2.121545 1.626075 Prp. Totl 0.236509 0.176795 0.135506

Loadings of 0.5 and above are considered significant.


privatisation and institutional framework.

(e) Management perceptions of the institutional framework

Table 8.5, below, reveals that four of the ten items (IF1, IF2, IF3 and IF4) that were expected

to measure ‘institutional framework’ loaded onto factor one (1); these items are termed

‘government transparency’. Three items (IF8, IF9 and IF10) which were intended to measure

‘institutional framework’ loaded onto factor three (3); these are termed ‘government

commitment’. This indicates that respondents did not perceive ‘institutional framework’ as a

single construct but as a two-dimension variable. One item (IF7) could not load to a

significant extent (p < 0.5) and two items (IF5 and IF6) loaded onto factor two (2); all items

that loaded onto factor 2 were deleted due to a lack of sufficient validity. The fact that items

that were expected to measure institutional framework loaded onto two different factors,

with values greater than 0.2, demonstrates sufficient discriminant validity for further

analysis.

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Table 8.5: Factor loadings: management perceptions of the institutional framework

Items Factor 1 Factor 2 Factor 3 Government transparency N/A Government commitment

IF1 0.834758 0.090436 0.085645 IF2 0.862202 0.078897 0.244020 IF3 0.847862 0.061548 0.255992 IF4 0.771148 0.124504 0.294976 IF5 0.159785 0.822979 -0.060270 IF6 0.018834 0.897236 0.067224 IF7 0.407798 0.446113 0.206052 IF8 0.229546 0.050535 0.822384 IF9 0.263119 -0.018986 0.800066 IF10 0.265452 0.044728 0.687475 Expl. Var 3.138326 1.719951 2.059076 Prp.Totl 0.313833 0.171995 0.205908

Loadings with a value of 0.5 and above were considered significant.

Table 8.6, below, indicates factor loadings in respect of management perceptions of

privatisation and the management of the privatisation process.

(f) Management perceptions of the management of the privatisation process

Table 8.6, below, indicates that the respondents perceived of management of the

privatisation process as a two-pronged construct. Three items (MPP1, MPP8 and MPP9) that

were expected to measure ‘management of the privatisation process’ loaded onto factor

one (1); these items are termed ‘privatisation process-plan’. Four items (MPP2, MPP3,

MPP6 and MPP7) that were expected to measure ‘management of the privatisation process’

loaded on factor two (2), and are termed ‘privatisation process implementation’. Table 8.6,

below, further indicates that two items (MPP4 and MPP5) that were expected to measure

‘management of privatisation process’ loaded onto factor three (3); all items that loaded on

factor 3 were deleted on the basis of lack of sufficient validity. The fact that items that were

expected to measure stakeholder consultation loaded onto two different factors, with

values greater than 0.2, demonstrates sufficient discriminant validity for further analysis.

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Table 8.6: Factor loadings: management perceptions of the management of the privatisation process

Items Factor 1 Factor 2 Factor 3 Privatisation process plan Privatisation process

implementation N/A

MPP1 0.756785 0.200787 0.114668 MPP2 0.239444 0.709071 -0.169801 MPP3 -0.298556 0.714226 0.153513 MPP4 0.156022 0.154104 0.741246 MPP5 0.197431 -0.038875 0.778546 MPP6 0.006213 0.766812 0.028551 MPP7 0.253833 0.735624 0.140448 MPP8 0.848401 -0.003158 0.105091 MPP9 0.759241 -0.007382 0.231019 Expl. Var 2.143215 2.207683 1.306081 Prp. Totl 0.238135 0.245298 0.145120

Loadings with a value of 0.5 and above were considered significant.

Table 8.7, below, indicates factor loadings in respect of management perceptions of

privatisation.

(g) Management perceptions of privatisation

Respondents in this study perceived ‘perceptions of privatisation’ as a single construct.

Table 8.7, below, reveals that six (PP2, PP3, PP4, PP6, PP8 and PP9) of the 9 items used to

measure ‘perceptions of privatisation’ loaded onto factor one (1). Table 8.7 further indicates

that two items (PP5 and PP7) that were expected to measure ‘perceptions of privatisation’

loaded onto factor two (2); all the items that loaded onto factor 2 were deleted due to a

lack of sufficient validity for further analysis.

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Table 8.7: Factor loadings: management perceptions of privatisation

Items Factor 1 Factor 2 Perceptions of privatisation N/A

PP1 -0.330983 0.447311 PP2 0.641743 0.108083 PP3 0.699965 -0.000087 PP4 0.767165 0.077364 PP5 0.206751 0.733419 PP6 0.654870 -0.042939 PP7 -0.009355 0.748000 PP8 0.544870 0.341826 PP9 0.607039 0.112983 Expl. Var 2.736945 1.446615 Prp. Totl 0.304105 0.160735

Loadings with values of 0.5 and above were considered significant.


privatisation and economic benefits.

(h) Management perceptions of economic benefits of privatisation

As is evident in Table 8.8, the respondents perceived of the ‘economic benefits’ of

privatisation as a three-dimensional construct. Seven items (EB6, EB7, EB8, EB9, EB10, EB11

and EB16) which were meant to measure ‘economic benefits’ loaded onto factor one (1),

and are termed ‘effective governance’. Three items (EB3, EB4 and EB5) which were meant to

measure ‘economic benefits’ loaded onto factor two (2), and are termed ‘competitive

advantage regarding foreign investment’. Furthermore, six (6) items (EB1, EB2, EB12, EB13,

EB14 and EB15) which were meant to measure ‘economic benefits’ loaded onto factor three

(3); these are termed ‘economic empowerment’. Table 8.8, below, also indicates that three

items (EB6, EB12 and EB15) cross-loaded and are therefore not considered for further

analysis. The fact that items that were expected to measure economic benefits loaded onto

three different factors, with values greater than 0.2, demonstrates sufficient discriminant

validity for further analysis.

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Table 8.8: Factor loadings: management perceptions of economic benefits of privatisation

Items Factor 1 Factor 2 Factor 3 Effective governance Competitive advantage regarding

foreign investment Economic Empowerment

EB1 0.102880 0.311853 0.633166 EB2 -0.010030 0.282592 0.689065 EB3 0.199181 0.669633 0.194765 EB4 0.249734 0.772289 0.132602 EB5 0.144885 0.668045 0.138370 EB6 0.574647 0.567974 -0.015598 EB7 0.732136 0.414780 0.120732 EB8 0.791115 0.232830 0.182425 EB9 0.817686 0.232289 0.215097 EB10 0.841489 0.097875 0.265603 EB11 0.722052 0.056799 0.365579 EB12 0.533299 -0.062241 0.618743 EB13 0.479585 0.074381 0.688293 EB14 0.391283 0.042279 0.738609 EB15 0.508206 0.259268 0.544623 EB16 0.525595 0.302871 0.391074 Expl. Var 4.725932 2.453988 3.100618 Prp.Totl 0.295371 0.153374 0.193789



privatisation and organisational performance.

(i) Management perceptions of organisational performance

Table 8.9, below, indicates that respondents perceived of ‘organisational performance’ as a

single construct. All the items (OP1, OP2, OP3, OP4, OP5, OP6 and OP7) that were meant to

measure ‘organisational performance’ loaded onto factor one (1).

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Table 8.9: Factor loadings: management perceptions of organisational performance

Items Factor 1 Organisational performance

OP1 -0.830684 OP2 -0.852226 OP3 -0.871900 OP4 -0.889896 OP5 -0.859073 OP6 -0.802624 OP7 -0.858163 Expl. Var 5.087106 Prp. Totl 0.726729


In this study, Tables 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7 indicate that the variables (stakeholder

consultation, business conditions, government considerations, institutional framework and

management of the privatisation process) were split into two different variables (SP, UC;

AFI, SMC; RA, PI; GT, GC; PPP and PPI), respectively, as a result of the exploratory factor

analysis. Similarly, Table 8.8 indicates that economic benefits were also split into three

different variables (EG, CAFI and EE). However, Table 8.9 indicates that organisational

performance was perceived as a single construct. As a result of these changes in the

variables, the hypotheses in this study were reformulated resulting in the adaptation of the

theoretical model.

Table 8.10, below, shows the empirical factor structure of the independent and dependent

variables of the study.

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Table 8.10: Empirical factor structure: independent and dependent variables

Variables Individual items Independent Stakeholder Participation (SP) SC1, SC2, SC6, SC7, SC8, SC9, SC10 Union Consultation (UC) SC3, SC4, SC5 Attractiveness to Foreign Investment (AFI) BC1, BC2, BC3, BC4, BC5, BC9 Stable Macroeconomic Condition (SMC) BC6, BC7, BC8 Role Ambiguity (RA) GC1, GC2, GC7, GC11, GC12 Political Intervention (PI) GC3, GC4, GC6, GC10 Government Transparency (GT) IF1, IF2, IF3, IF4 Government Commitment (GC) IF8, IF9, IF10 Privatisation Process Plan (PPP) MP1, MP8, MP9 Privatisation Process Implementation (PPI) MP2, MP3, MP6, MP7 Perceptions of Privatisation (PP) PP2, PP3, PP4, PP6, PP8,PP9 Dependent Effective Governance (EG) EB7, EB8, EB9, EB10, EB11, EB16 Competitive Advantage regarding Foreign Investment (CAFI)

EB3, EB4, EB5,

Economic Empowerment (EE) EB1, EB2, EB13, Organisational Performance (OP) OP1, OP2, OP3, OP4, OP5, OP6, OP7

Table 8.10, above, summarises the empirical factor structure which is to be subjected to

regression analysis. The individual items which significantly loaded are then used to adapt a

model: Figure 8.2.

8.3.3 Cronbach alpha values of measuring instruments

The Cronbach’s alpha values shown in Table 8.11, below, indicate values which range from

0.6 to 0.9. According to Hair, et al. (2007:244), Cronbach’s alpha values ranging from 0.6 to

≥0.9 are considered to be moderate to excellent, respectively.

Table 8.11, below, indicates the Cronbach’s alpha values obtained in this study.

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Table 8.11: Cronbach alpha values of measuring instruments

Measuring instrument Cronbach’s alpha Stakeholder Participation (SP) 0.829 Union Consultation ( UC) 0.655 Attractiveness to FI (AFI) 0.744 Stable Macroeconomic Condition (SMC) 0.691 Role Ambiguity (RA) 0.799 Political Intervention(PI) 0.647 Government Transparency (GT) 0.888 Government Commitment (GC) 0.746 Privatisation process plan(PPP) 0.752 Privatisation process implementation (PPI) 0.720 Perceptions of Privatisation(PP) 0.747 Effective Governance(EG) 0.907 Competitive Advantage regarding Foreign Investment (CAFI) 0.702 Economic Empowerment(EE) 0.764 Organisational Performance (OP) 0.936

The Cronbach’s alpha values obtained in this study were all above the cut-off point of 0.6

and, as such, all the variables were considered for further analysis.

The removal of individual items from any of the variables did not improve their internal

reliability and were therefore all retained.

Table 8.12 below shows the Cronbach alpha coefficients of the latent variables based on the comprehensive exploratory factor analysis.

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Table 8.12: Cronbach alpha coefficients of the latent variables based on the

comprehensive exploratory factor analysis

Variables Individual items Cronbach’s alpha Independent Stakeholder Participation (SP) SC1, SC2, SC6, SC7, SC8, SC9, SC10 0.829 Union Consultation (UC) SC3, SC4, SC5 0.655 Attractiveness to Foreign Investment (AFI)

BC1, BC2, BC3, BC4, BC5, BC9 0.744

Stable Macroeconomic Condition (SMC)

BC6, BC7, BC8 0.691

Role Ambiguity (RA) GC1, GC2, GC7, GC11, GC12 0.799 Political Intervention (PI) GC3, GC4, GC6, GC10 0.647 Government Transparency (GT) IF1, IF2, IF3, IF4 0.888 Government Commitment (GC) IF8, IF9, IF10 0.746 Privatisation Process Plan (PPP) MP1, MP8, MP9 0.752 Privatisation Process Implementation (PPI)

MP2, MP3, MP6, MP7 0.720

Perceptions of Privatisation (PP) PP2, PP3, PP4, PP6, PP8,PP9 0.747 Dependent Effective Governance (EG) EB7, EB8, EB9, EB10, EB11, EB16 0.907 Competitive Advantage regarding Foreign Investment (CAFI)

EB3, EB4, EB5, 0.702

Economic Empowerment (EE) EB1, EB2, EB13, 0.764 Organisational Performance (OP) OP1, OP2, OP3, OP4, OP5, OP6,

OP7 0.936

As some items were deletedand new variables formed as a result of the discriminant validity

assessment with the exploratory factor analysis, the original theoretical model had to be

adapted. The reliability of the new and adapted variables had to be reassessed.

(a) The adapted model of management perceptions regarding the privatisation of

parastatals in Zimbabwe.

Figure 8.2, below, shows the adapted model of management perceptions regarding the


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Figure 8.2: The adapted model of management perceptions regarding the privatisation of parastatals in

Zimbabwe

SP

SC1

SC10

SC9

SC8

SC2

SC6

SC7

SMC

BC6

BC7

BC8

RA

GC1

GC12

GC23

GC7

GC11

PI

GC3

GC4

GC6

GC10

GT

IF1

IF2

IF3

IF4

GC

IF8

IF9

IF10

PPP

MP1

MP8

MP9

AFI

BC1

BC9

BC5

BC2

BC3

BC4

UC

SC3

SC4

SC5

CAFI

EB3

EB4

EB5

EE

EB1

EB2

EB13

OP

OP1

OP7

OP6

OP5

OP2

OP3

OP4

PP

PP2

PP9

PP8

PP3

PP4

PP6

EG

EB7

EB16

EB11

EB8

EB9

EB10

PPI

MP2

MP3

MP6

MP7

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As a result of the formulation of the adapted model, the tested hypotheses had to be

reformulated.

The hypotheses which were subjected to empirical verification (Figure 8.3) were:

• H01: Stakeholder consultation does not influence perceptions of privatisation.

HO1 is modified to HO1.1 and HO1.2:

• HO1.1 Stakeholder participation does not influence perceptions of privatisation.

• HO1.2 Union consultation does not influence perceptions of privatisation.

• HO2: Business conditions do not influence perceptions of privatisation.

HO2is modified to HO2.1 and HO2.2:

• HO2.1 Attractiveness to foreign investment does not influence perceptions of

privatisation.

• HO2.2 Stable macroeconomic conditions do not influence perceptions of

privatisation.

• HO3: Government consideration does not influence perceptions of privatisation.


• HO3.1 Role ambiguity does not influence perceptions of privatisation.

• HO3.2 Political intervention does not influence perceptions of privatisation.

• HO4: Institutional framework does not influence perceptions of privatisation.


• HO4.1 Government transparency does not influence perceptions of privatisation.

• HO4.2 Government commitment does not influence perceptions of privatisation.

• H05: Management of the privatisation process does not influence perceptions of

privatisation.


• HO5.1 Privatisation process plan does not influence perceptions of privatisation.

• HO5.2 Privatisation process implementation does not influence perceptions of

privatisation.

OUTCOMES

• H06: Perceptions regarding privatisation do not influence economic benefits.

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HO6 is modified to HO6.1, HO6.2 and HO6.3:

• HO6.1 Perceptions regarding privatisation do not influence effective governance.

• HO6.2 Perceptions regarding privatisation do not influence competitive advantage

regarding foreign investment.

• HO6.3 Perceptions regarding privatisation do not influence economic empowerment.

• H07: Perceptions regarding privatisation do not influence organisational

performance.

Figure 8.3, below, shows the adapted model of management perceptions regarding the


302

Figure 8.3: The hypothesised model of the management perceptions regarding the privatisation of parastatals in Zimbabwe

EB7

EB16

EB11

EB8

EB9

EB10

HO5.1

SP

SC1

SC10

SC9

SC8

SC2

SC6

SC7

SMC

BC6

BC7

BC8

RA

GC1

GC12

GC23

GC7

GC11

PI

GC3

GC4

GC6

GC10

GT

IF1

IF2

IF3

IF4

GC

IF8

IF9

IF10

PPP

MP1

MP8

MP9

PPI

MP2

MP3

MP6

MP7

AFI

BC1

BC9

BC5

BC2

BC3

BC4

UC

SC3

SC4

SC5

CAFI

EB3

EB4

EB5

EE

EB1

EB2

EB13

OP

OP1

OP7

OP6

OP5

OP2

OP3

OP4

PP

PP2

PP9

PP8

PP3

PP4

PP6

EG

HO1.1

HO1.2

HO2.1

HO2.2

HO3.1

HO3.2

HO4.1

HO4.2

HO5.2

HO6.1

HO6.2

HO6.3

HO7

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8.3.4 Descriptive statistics

Table 8.3 shows the mean and standard deviation values of variables which were obtained

from the empirical study.

Table 8.13: Descriptive statistics for variables: responses per category

Variable Mean Standard deviation SP 3.502 1.255 UC 4.043 1.464 AFI 4.454 1.081 SMC 3.199 1.331 RA 3.957 1.244 PI 5.030 1.145 GT 3.576 1.520 GC 3.661 1.386 PPP 3.834 1.360 PPI 5.575 1.051 PP 3.375 1.150 EG 5.591 1.131 CAFI 5.506 1.110 EE 4.740 1.240 OP 5.707 1.080

In this study, a seven-point Likert scale was used to measure each variable. Respondents

were requested to indicate their degree of agreement with the statements by selecting

options 5 to 7 whilst their extent of disagreement was reflected by selecting options 1 to 3.

The selection of option 4 indicated the neutrality of the respondent in relation to the item.

The descriptive statistics of the variables under consideration are as depicted in Table 8.13.

The descriptive statistics indicate that the respondents were neutralas to whether

stakeholders participated (mean scores 3.502) or whether unions were consulted (mean

score 4.043). This score implies that the respondents were not aware of any stakeholder

participation or union consultation during privatisation. The table indicates that some

respondents held neutral perceptionsof attractiveness to foreign investment (mean score

4.454). This means that respondents underestimated attractiveness to foreign investment

during privatisation. The results also indicate that some respondents somewhat disagreed

that organisations operated in stable macroeconomic conditions (mean score 3.199) during

304

privatisation. This perception implies that organisations operate in unstable macroeconomic

conditions during privatisation.

Table 8.13 shows that some respondents were neutral on the matter of role ambiguity

(mean score 3.957) during privatisation. This means that respondents underestimated their

roles during privatisation. As is shown in Table 8.13, some respondents somewhat agreed

that political intervention (mean score 5.030) had a facilitative impact on the success of

privatisation. This implies that the absence of political intervention facilitates a successful

privatisation. The results further show that the respondents were neutral on the matter of

government transparency (mean score 3.576) prevailing during privatisation. Table 8.13

shows that respondents were also neutral on government commitment (mean score 3.661)

during privatisation. This implies that respondents underestimate government transparency

and government commitment during privatisation.

Table 8.13 shows that some respondents were neutral regarding the existence of a

privatisation process plan (mean score of 3.834). This implies that respondents

underestimated the existence of a privatisation process plan. The results indicate that some

respondents agreed that the implementation of a proper privatisation process (mean score

5.575) enhances the credibility of privatisation. This means that the implementation of a

proper privatisation process is critical for successful privatisation. The results also indicate

that respondents somewhat disagreed with items measuring perceptions of privatisation

(mean score 3.375).

Table 8.13 shows that respondents agreed that effective governance (mean score 5.591),

competitive advantage on foreign investment (mean score 5.506) and economic

empowerment (mean score 4.740) contribute towards the economic benefits of

privatisation. This implies that privatisation brings about economic benefits. Finally, Table

8.13 shows that the respondents agreed with statements on organisational performance, as

reflected by a mean score of 5.707. This implies that privatisation improves organisational

performance.

305

8.4 REGRESSION ANALYSIS

Regression analysis is commonly used to measure linear relationships between two or more

variables (Hair et al., 2007:367; Tolmie et al., 2011:99). According to Burns and Burns

(2008:367), regression assists to predict the likely values of a dependent variable from

known values of an independent variable. Moreover, the strength of the relationship

between the variables assists in accurately predicting the values. Similarly, Blaikie

(2003:125) argues that regression analysis presumes that there is a linear relationship

between variables where an increase in the values of one variable is connected to an

increase (which is a positive correlation) or a decrease on the other variable (negative

relationship) and that the changes in value of the variables occur at the same rate.

Linear regression is a technique which is used to summarise how the average values of a

numerical dependent variable change over subpopulations which are defined by the linear

functions of forecasters (Gelman & Hill, 2007). Regression analysis is used to make simple

and multiple forecasts (Cooper & Schindler, 2011:503). When using regression analysis, the

value of one variable can be predicted based on other variables (Keller, 2008:616). This can

be achieved by developing a model which describes the dependent variable to be estimated

and other variables which are believed to be related to the dependent variable. Thus, the

linear regression procedure makes it possible for the researcher to discard or not to discard

the hypotheses.

In this study, multiple regression analysis was used to investigate whether the identified

independent variables had a considerable influence on management perceptions regarding

privatisation. Apart from being a descriptive technique, multiple regression can also be used

as an assumption in testing hypotheses and the estimation of population values (Cooper &

Schindler, 2011:530). Equally, multiple regression is a method which is used to quantify the

impact of independent variables on the dependent or criterion variable (Burns & Burns,

2008:385).

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8.4.1 The influence of management perceptions regarding the privatisation of parastatals

(a) Influences of privatisation on management perceptions of privatisation

Table 8.14, below, indicates that R2 of (0.536) points out that 54% of variability in the model

is explained by perceptions of privatisation. Table 8.14 also shows that stakeholder

participation (SP) is positively related to perceptions of privatisation (b = 0.114, p < 0.044).

This implies that management perceives that stakeholders participate during privatisation

and that there are shared common goals with government. This also implies that the needs

of customers are put ahead of privatisation initiatives.

The results indicate that a stable macroeconomic condition (SMC) is positively related to

perceptions of privatisation (b = 0.093, p < 0.047). This finding implies that parastatals

operate in a stable macroenvironment which encourages government to privatise

parastatals. Furthermore, the results show that government transparency (GT) is positively

related to perceptions of privatisation (b = 0.098, p < 0.034). This implies that there are clear

guidelines and policies, as well as effective communication, regarding privatisation.

The results show that a privatisation process plan (PPP) is positively related to perceptions

of privatisation (b = 0.400, p < 0.000). This implies that privatisation is guided by a formal

plan of action where stakeholders have access to the schedule of organisations identified for

privatisation. Table 8.14 shows that ‘privatisation process implementation’ (b = -0.116, p <

0.026) and r = -0.106 has a negative influence on perceptions of privatisation. This implies

that management perceives that structural capacity, as well as the proper valuation of

assets and organisations is lacking during privatisation.

Table 8.14 shows that ‘union consultation’, ‘role ambiguity’ and ‘political intervention’

0.003) do not exert a significant influence on perceptions of privatisation. The table also

indicates that ‘attractiveness to foreign investment’ (0.030) and ‘government commitment’

(0.042) does not exert a significant influence on the ‘perceptions of privatisation’.

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Table 8.14: Regression analysis: Influences of privatisation on management perceptions of

privatisation

Parameter

Regression summary for dependent variable: perceptions of privatisation

Beta b* Std Error

of b*

b Std Error

of b

t(290) p-value

Intercept 1.2922 0.3000 4.307 0.0000

StakeholderParticipation (SP)

0.1244 0.0613 0.1140 0.0562 2.028 0.0435*

Union Consultation (UC) -0.0301 0.0451 -0.0237 0.0354 -0.669 0.5041

Attractiveness to Foreign Investment (AFI)

0.0297 0.0530 0.0316 0.0565 0.559 0.5763

Stable Macroeconomic Condition (SMC)

0.1071 0.0536 0.0925 0.0463 1.997 0.0468*

Role Ambiguity (RA) -0.0021 0.0713 -0.0020 0.0659 -0.030 0.9761

Political Intervention (PI) -0.0028 0.0507 -0.0028 0.0510 -0.055 0.9561

Government Transparency (GT)

0.1295 0.0607 0.0979 0.0459 2.133 0.0338*

Government Commitment (GC)

0.0415 0.0534 0.0345 0.0443 0.778 0.4371

Privatisation Process Plan(PPP)

0.4740 0.0582 0.4009 0.0492 8.148 0.0000***

Privatisation Process Implementation (PPI)

-0.1064 0.0476 -0.1164 0.0521 -2.234 0.0263*

PP: R R2 F Std Error of estimate P

0.7321 0.5359 33.487 0.79697 p < 0.0000

* = p < 0.05

** = p < 0.01

*** = p < 0.001

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In this study, the higher t-values indicate a stronger influence of the independent variables

on the perceptions of privatisation whilst low t-values indicate weak relationships with

‘perceptions of privatisation’. Table 8.14, above, indicates the relationship between

perceptions of privatisation and the independent variables of the study. As illustrated in the

t-values presented, it is evident that ‘privatisation process plan’ (PPP) has the strongest

influence (t = 8.148) on perceptions of privatisation. This is followed by weak relationships

on ‘government transparency’ (GT) with a (t =2.133) stakeholder participation (SP) with a (t

= 2.028) and ‘stable macroeconomic condition’ (SMC) which recorded a t-value of (t = 1.997)

statistical significance. The results reveal that privatisation process implementation

recorded a negative relationship with a (t = -2.234) statistical significance.

(b) The influence of management perceptions of privatisation on effective governance

Table 8.15, below, indicates that the R2 of (0.024) points out that 2% of variability in the

model is explained by effective governance. This shows that perceptions of privatisation

(PP) (b = 0.1514, p < 0.0074) have a positive relationship with effective governance (EG).

This implies that privatisation leads to improved corporate governance as board member

appointments are based on professionalism.

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Table 8.15: Regression analysis: the influence of management perceptions of privatisation

on effective governance

Parameter

Regression summary for dependent variable: economic benefits

Beta b* Std Error

of b*

b Std Error

of b

t(299) p-value

Intercept 5.0799 0.2002 25.371 0.0000

PP 0.1540 0.0571 0.1514 0.0562 2.695 0.0074***

EG: R R2 F Std Error of estimate 15% 0.024 7.2654 1.119 p < 0.007

* =p < 0.05

** = p < 0.01

*** = p < 0.001

The results in Table 8.15 show a moderate relationship between ‘perceptions of

privatisation’ (t = 2.695) and ‘effective governance’ (EG).

(c) The influence of perceptions of privatisation on competitive advantage regarding

foreign investment

The results shown in Table 8.16, below, indicate that perceptions of privatisation do not

exert a significant influence on competitive advantage regarding foreign investment (CAFI)

(b = -0.010).

310

Table 8.16: Regression analysis: the influence of perceptions of privatisation on competitive advantage regarding foreign investment

Parameter


Beta b* Std Error

of b*

b Std Error

of b

t(299) p-value

Intercept 5.5396 0.1990 27.835 0.0000

PP -0.0103 0.0578 -0.0099 0.0558 -0.178 0.8591

CAFI: R R2 F Std Error estimate

0.010 0 0.032 1.1122 p < 0.85909

** = p < 0.05

** = p < 0.01

*** = p < 0.001

(d) The influence of perceptions of privatisation on economic empowerment

Although Table 8.17, below, indicates that perceptions of privatisation (b = 0.3153, p <

0.000) have a positive relationship with economic empowerment (EE), it also shows that the

R2 of 0.082 indicates that only 8% of variability in the model is explained by economic

empowerment. This implies that privatisation has been a driving force behind the increased

flow of investments and that privatisation economically empowers citizens.

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Table 8.17: Regression analysis: the influence of perceptions of privatisation on economic empowerment

Parameter


Beta b* Std Error

of b*

b Std Error

of b

t(290) p-value

Intercept 3.6761 0.2125 17.297 0.000

PP 0.2924 0.0553 0.3153 0.0596 5.288 0.000***

EE: R R2 F Std Error of estimate

29% 0.086 27.964 1.1877 p < 0.000

* = p < 0.05

** = p < 0.01

***= p < 0.001

As evident in Table 8.17, ‘perceptions of privatisation’ have a strong influence (t = 5.288) on ‘economic empowerment’ (EE).

(e) The influence of perceptions of privatisation on organisational performance

Although Table 8.18, below, indicates that perceptions of privatisation (PP) (b = 0.1385, p <

0.010) have a positive relationship with organisational performance, R2 of 0.022 indicates

that only 2% of variability in the model is explained by organisational performance. This

implies that privatisation is failing to improve the service delivery of frontline staff and the

availability of quality products and services which lead to customer satisfaction.

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Table 8.18: Regression analysis: the influence of perceptions of privatisation on

organisational performance

Parameter


Beta b* Std Error

of b*

b Std Error

of b

t(299) p-value

Intercept 5.2394 0.1915 27.358 0.000

PP 0.1474 0.0572 0.1385 0.0537 2.577 0.010**

OP: R R2 F Std Error of estimate p

14% 0.022 6.6421 1.0703 p < 0.01044

** = p < 0.05

** = p < 0.01

*** = p < 0.001

Table 8.18 indicatesa moderate influence (t = 2.577) of ‘perceptions of privatisation’ on

‘organisational performance’ (OP).

8.5 CORRELATION ANALYSIS OF THE HYPOTHESES

Correlation highlights whether a relationship exists between two variables and also shows

the overall strength of the relationship (Burns & Burns, 2008:342; Cramer, 2003:16; Hair et

al. 2007:367). According to Aron, Coups and Aron (2011:76), a correlation coefficient

measures the degree of linear relationship connecting two variables which range from a

perfect negative linear relationship (-1) through no relationship (0) up to a perfect positive

linear relationship (+1). A statistical correlation coefficient (r) takes values which are

between -1.0 and +1.0 (Burns & Burns, 2008:343; Zikmund & Babin, 2010:591). Equally, a

positive relationship exists when the value of r equals +1.0 and a negative relationship exists

when the value of r equals -1.0.When r equals 0 no correlation exists. Values which are

more than 10.0 usually indicate collinearity or multicollinearity (Cooper & Schindler,

2011:533). Furthermore, collinearity refers to a situation where two independent variables

have a high relationship and multicollinearity is where two or more independent variables

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are extremely correlated (Cooper & Schindler, 2011:533). Multicollinearity occurs whenan

independent variable is explained by other independent variables (Hardy & Bryman,

2009:178).

Table 8.19, below, indicates correlations between the variables of the study.

314

Table 8.19: Correlation matrix of variables of study

Means Std Dev.

SP UC AFI SMC PI RA GT GC PPP PPI PP EG CAFI EE OP

SP 3.5017 1.2546 1.000 0.272 0.339 0.547 0.678 0.086 0.575 0.472 0.561 0.051 0.538 0.063 -0.015 0.127 0.098 UC 4.0432 1.4641 0.272 1.000 0.313 0.070 0.171 0.253 0.073 0.014 0.101 0.284 0.047 0.223 0.209 0.197 0.163 AFI 4.4540 1.0807 0.339 0.313 1.000 0.372 0.443 0.512 0.271 0.147 0.238 0.365 0.215 0.143 0.141 0.326 0.125 SMC 3.1993 1.3312 0.547 0.070 0.372 1.000 0.593 0.208 0.465 0.475 0.450 0.115 0.463 0.055 -0.076 0.156 0.038 RA 3.9568 1.2442 0.678 0.171 0.443 0.593 1.000 0.244 0.696 0.544 0.635 0.135 0.552 0.091 0.044 0.179 0.090 PI 5.0299 1.1454 0.086 0.253 0.512 0.208 0.244 1.000 0.135 0.029 0.153 0.465 0.079 0.230 0.278 0.268 0.125 GT 3.5764 1.5204 0.575 0.073 0.271 0.465 0.696 0.135 1.000 0.540 0.610 0.011 0.565 0.089 0.009 0.184 0.073 GC 3.6611 1.3863 0.472 0.014 0.147 0.475 0.544 0.029 0.540 1.000 0.561 0.061 0.483 -0.045 -0.057 0.015 0.033 PPP 3.8339 1.3602 0.561 0.101 0.238 0.450 0.635 0.153 0.610 0.561 1.000 0.163 0.679 0.094 0.056 0.147 0.134 PPI 5.5748 1.0511 0.051 0.284 0.365 0.115 0.135 0.465 0.011 0.061 0.163 1.000 -0.006 0.428 0.421 0.361 0.407 PP 3.3749 1.1502 0.538 0.047 0.215 0.463 0.552 0.079 0.565 0.483 0.679 -0.006 1.000 0.154 -0.010 0.292 0.147 EG 5.5908 1.1306 0.063 0.223 0.143 0.055 0.091 0.230 0.089 -0.045 0.094 0.428 0.154 1.000 0.495 0.617 0.815 CAFI 5.5061 1.1104 -0.015 0.209 0.141 -0.076 0.044 0.278 0.009 -0.057 0.056 0.421 -0.010 0.495 1.000 0.418 0.480 EE 4.7400 1.2399 0.127 0.197 0.326 0.156 0.179 0.268 0.184 0.015 0.147 0.361 0.292 0.617 0.418 1.000 0.546 OP 5.7067 1.0803 0.098 0.163 0.125 0.038 0.090 0.125 0.073 0.033 0.134 0.407 0.147 0.815 0.480 0.546 1.000

315

The results in Table 8.19 indicate that there is a positive correlation between stakeholder

participation and perceptions of privatisation, with a coefficient of 0.538. This implies that

there are shared common goals amongst managers of parastatals and government during

privatisation and that privatisation is established in a framework that ensures the broad

participation of managers, employees and customers. Stable macroeconomic conditions

have a positive correlation with perceptions of privatisation, with a coefficient of 0.463. This

indicates that parastatals operate in stable macroeconomic conditions.

The results show that government transparency has a positive correlation with perceptions

of privatisation, with a coefficient of 0.565. This means that there are clear guidelines and

policies regarding the privatisation process, and that regular feedback is provided to all

parties involved in the privatisation process. The table further indicates that a privatisation

process plan has a positive correlation with perceptions of privatisation, with a coefficient of

0.679. This implies that the schedule parastatals identified for privatisation are accessible to

all stakeholders and that privatisation is done without special concessions or privileges. The

results also show that privatisation process implementation has a negative correlation with

perceptions of privatisation, with a coefficient of -0.006. This means that there is poor

valuation of assets and organisations during privatisation; hence the programme is not

credible.

Table 8.19 indicates that perceptions of privatisation have a positive correlation with

effective governance, with a coefficient of 0.154. This implies that privatisation leads to

adherence to corporate governance principles as board members are appointed based on

professionalism. The results further indicate that perceptions of privatisation have a positive

correlation with economic empowerment, with a coefficient of 0.292. This implies that

privatisation broadens local participation and empowers citizens. The table also indicates

that perceptions of privatisation have a positive correlation with organisational

performance, with a coefficient of 0.147. This means that privatisation leads to improved

organisational efficiency as a result of better management practices.

8.5.1 Findings on the first set of hypotheses

• HO1.1 Stakeholder participation does not influence perceptions of privatisation

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Tables 8.14 and 8.19 reported a statistically significant positive relationship between

stakeholder participation (p < 0.044) and management perceptions of privatisation. This

means that there is a significant positive correlation between stakeholder participation

and management perceptions of privatisation, with a correlation coefficient of 0.538.

Therefore, HO1.1 is rejected and the alternative hypothesis is accepted.

• HO1.2 Union consultation does not influence perceptions of privatisation

Table 8.14 reported that union consultation is not significantly related to management

perceptions of privatisation (r = -0.03, NS). Table 8.19 shows that there is no significant

correlation between union consultation and management perceptions of privatisation,

with a correlation coefficient of 0.047. Therefore, HO1.2 is accepted.

• HO2.1 Attractiveness to foreign investment does not influence perceptions of

privatisation

Table 8.14 reported that attractiveness to foreign investment does not exert a

significant influence on management perceptions of privatisation (r = 0.03, NS). Table

8.19 indicates that there is no significant correlation between attractiveness to foreign

investment and management perceptions of privatisation, with a correlation coefficient

of 0.215. Therefore, HO2.1 is accepted.

• HO2.2 Stable macroeconomic conditions do not influence perceptions of

privatisation

Table 8.14 reported a statistically significant positive relationship between stable

macroeconomic conditions (p < 0.0468) and management perceptions of privatisation.

Table 8.19 indicates that there is a significant positive correlation between a stable

macroeconomic environment and management perceptions of privatisation, with a

correlation coefficient of 0.463. Therefore, HO2.2 is rejected and the alternative

hypothesis is accepted.

• HO3.1 Role ambiguity does not influence perceptions of privatisation

Table 8.14 indicated that role ambiguity does not have a significant relationship to

management perceptions of privatisation (r = -0.002, NS). Table 8.19 revealed that role

317

ambiguity is not significantly related to management perceptions of privatisation. This

means that there is no relationship between role ambiguity and management

perceptions of privatisation, with a correlation of 0.552. Therefore, HO3.1 is accepted.

• HO3.2 Political intervention does not influence perceptions of privatisation

Tables 8.14 and 8.19 reported that political intervention does not exert significant

influence over management perceptions of privatisation (r = -0.003, NS). This means that

there is no relationship between political intervention and management perceptions of

privatisation with a correlation of 0.079. Therefore, HO3.2 is accepted.

• HO4.1 Government transparency does not influence perceptions of privatisation

The results in Table 8.14 reported a statistically significant positive relationship between

government transparency (p < 0.034) and management perceptions of privatisation.

Table 8.19 indicates that there is a significant positive correlation between government

transparency and management perceptions of privatisation, with a correlation

coefficient of 0.565. Therefore, HO4.1 is rejected and the alternative hypothesis is

accepted.

• HO4.2 Government commitment does not influence perceptions of privatisation

Table 8.14 reported that there is no relationship between government commitment (r =

0.042, NS) and management perceptions of privatisation. Table 8.19 shows that there is

no significant correlation between government commitment and management

perceptions of privatisation, with a correlation coefficient of 0.483. Therefore, HO4.2 is

accepted.

• HO5.1 Privatisation process plan does not influence perceptions of privatisation

Table 8.14 reported a statistically positive relationship between a privatisation process

plan (p < 0.001) and management perceptions of privatisation. Table 8.19 indicates that

there is a significant positive correlation between privatisation process plan and

management perceptions of privatisation, with a correlation coefficient of 0.679.

Therefore, HO5.1 is rejected and the alternative hypothesis is accepted.

318

• HO5.2 Privatisation process implementation does not influence perceptions of

privatisation

Table 8.14 reported a statistically negative relationship between privatisation process

implementation (p < 0.0263), (r = -0.106) and management perceptions of privatisation.

Table 8.19 indicates that there is a negative correlation between privatisation process

implementation and management perceptions of privatisation, with a correlation of -

0.006. Therefore, HO5.2 is rejected and the alternative hypothesis is accepted.

8.5.2 Findings on the second set of hypotheses

• HO6.1 Perceptions regarding privatisation do not influence effective governance

Tables 8.15 reported a statistically positive relationship between management

perceptions of privatisation (p < 0.007) and effective governance. Table 8.19 indicates

that there is a significant positive correlation between management perceptions of

privatisation and effective governance, with a correlation coefficient of 0.154. This

means that there is a relationship between management perceptions of privatisation

and effective governance. Therefore, HO6.1 is rejected and the alternative hypothesis is

accepted.

• HO6.2 Perceptions regarding privatisation do not influence competitive advantage

regarding foreign investment

Table 8.16 reported that management perceptions of privatisation do not exert a

significant influence on competitive advantage regarding foreign investments (r = -0.010,

NS). Table 8.19 indicates that management perceptions of privatisation do not correlate

to competitive advantage, with a correlation coefficient of -0.010. This implies that there

is no relationship between management perceptions of privatisation and competitive

advantage on foreign investment. Therefore, HO6.2 is accepted.

• HO6.3 Perceptions regarding privatisation do not influence economic empowerment

Table 8.17 reported a statistically positive relationship between perceptions of

privatisation (p < 0.000) and economic empowerment. Table 8.19 shows that there is a

significant positive correlation between management perceptions of privatisation and

319

economic empowerment, with a correlation coefficient of 0.292. This means that there

is a positive relationship between management perceptions and economic

empowerment. Therefore, HO6.3 is rejected and the alternative hypothesis is accepted.

• H07: Perceptions regarding privatisation do not influence organisational

performance.

Table 8.18 reported a statistically positive relationship between management

perceptions of privatisation (p < 0.010) and organisational performance. Table 8.19

shows that there is a correlation between management perceptions of privatisation and

organisational performance, with a correlation of 0.147. This means that there is a

positive relationship between management perceptions of privatisation and

organisational performance. Therefore, HO7 is rejected and the alternative hypothesis is

accepted.

The regression analysis results are summarised in Figure 8.4, below.

320

Figure 8.4: The regression analysis model of the management perceptions regarding the privatisation of parastatals

SP

SC1

SC10

SC9

SC8

SC2

SC6

SC7

SMC

BC6

BC7

BC8

RA

GC1

GC12

GC23

GC7

GC11

PI

GC3

GC4

GC6

GC10

GT

IF1

IF2

IF3

IF4

GC

IF8

IF9

IF10

PPP

MP1

MP8

MP9

PPI

MP2

MP3

MP6

MP7

AFI

BC1

BC9

BC5

BC2

BC3

BC4

UC

SC3

SC4

SC5

CAFI

EB3

EB4

EB5

EE

EB1

EB2

EB13

OP

OP1

OP7

OP6

OP5

OP2

OP3

OP4

PP

PP2

PP9

PP8

PP3

PP4

PP6

EG

EB7

EB16

EB11

EB8

EB9

EB10

b* = 0.1540; p < 0.01

b* = -0.0103; p > 0.05

b* = 0.1244; p < 0.05

b* = -0.0301; p > 0.05

b* = 0.0297; p > 0.05

b* = 0.1071; p < 0.05

b* = 0.2924; p < 0.05

b* = -0.0021; p >0.05

b* = -0.0028; p > 0.05

b* = 0.1295; p < 0.05

b* = 0.0415; p > 0.05

b* = 0.4740; p < 0.01

b* = -0.1064; p < 0.05

b* = 0.1474; p < 0.05

321

8.6 CONCLUSION

In conclusion, Chapter 8 has explored the relevant elements of the empirical evaluation of

management perceptions on the privatisation of parastatals in Zimbabwe. The chapter

presented a summary of the empirical investigation objectives, discussed the Cronbach’s

alpha values, analysed the descriptive statistics, analysed the variables using factor analysis,

regression analysis and it analysed the correlations. The chapter also examined all the

fourteen hypotheses which were reformulated. Chapter 9 examines the results of the study

in detail and finally outlines the managerial implications, summary, conclusions and

recommendations of the study.

322

CHAPTER 9

SUMMARY, CONCLUSIONS, MANAGERIAL IMPLICATIONS AND RECOMMENDATIONS

9.1 INTRODUCTION

Chapter 9 provides a summary, managerial implications, conclusions and recommendations

of this study, as reported in Chapter 8. This chapter highlights literature from previous

researchers with a view of presenting appropriate implications. Chapter 9 also summarises

all the chapters which were discussed in this study, discusses some of the managerial

implications arising from the study, makes some recommendations based on the empirical

findings of the study, presents the contribution to the study, highlights the limitations of the

study and suggests areas for future research. Finally, the chapter provides a conclusion

which is drawn from the findings of the study.

The primary objective of this research was to examine management perceptions regarding


9.2 SUMMARY OF OBJECTIVES AND FINDINGS OF THE CHAPTERS

Chapter 1 introduced the study and highlighted the problem statement, outlined the

primary and secondary research objectives, research questions and hypotheses to be

answered, significance of the study. This chapter also offered a brief discussion of the

concepts of the study and presented the methodology which was used to carry out the

study. Literature relevant to this study was also briefly discussed in this chapter.

Furthermore, the scope of the study was presented and, finally, a summary of prior research

on the privatisation of parastatals in Zimbabwe was presented.

Chapter 2 offer an analysis of the contemporary business environment prevailing in

Zimbabwe, with a view to address the second and fourth research questions. The analysis

explored both the domestic and foreign business environments which impact on Zimbabwe.

The domestic business environment analysis concentrated on the micro business

environment, market business environment as well as the macro business environment

which prevails in Zimbabwe. Chapter 2 also analysed the business environment prevailing in

Zimbabwe in relation to the global environment. The analysis highlighted the strengths and

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weaknesses of the business environment currently prevailing in Zimbabwe, with a view to

highlight its suitability for a successful privatisation programme.

Chapter 3 provided the theoretical overview of privatisation with the objective of

addressing research questions six and seven of this study. The chapter provided a definition

of the concept of privatisation in relation to this study and presented a debate on the notion

of public and private ownership of organisations. The chapter offered further discussion of

the implementation of privatisation in developed, transition and paid particular attention to

developing countries; this discussion highlighted the rationale, management of the

privatisation process, benefits of privatisation, criticism of privatisation as well as lessons to

be learnt during privatisation. This chapter assisted in conceptualising the concept of

privatisation and highlighted the merits of the proper implementation of privatisation and

the demerits of poor implementation of privatisation.

Chapter 4 offered a discussion of the implementation of privatisation in Zimbabwe with the

objective of addressing research questions one, three, four and five as presented in Chapter

1 of this study. The chapter provided a discussion of how parastatals in Zimbabwe were

developed as well as the performance of these parastatals before privatisation.

Furthermore, the chapter provided the rationale behind the privatisation of parastatals in

Zimbabwe, the impact of privatisation on privatised organisations as well as the criticism of

privatisation. The chapter highlighted that privatisation in Zimbabwe has been criticised for

its slow pace, lack of an autonomous institution to monitor the process, as well as the lack

of a clear privatisation plan and policy to ensure the economic empowerment of

Zimbabweans. However, the chapter also highlighted that organisations which were

privatised in Zimbabwe have improved their performance and are now contributing to the

fiscus through the payment of taxes and dividends to the government.

Chapter 5 provided a discussion of the critical success factors of privatisation

implementation with the objective of addressing research questions one, three and five of

this study. The chapter presented an overview of the critical success factors of privatisation

and identified and discussed those factors considered critical to the implementation of a

successful privatisation. Moreover, the analysis observed that government commitment,

clear objectives, thorough planning, solid institutional and regulatory frameworks,

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transparency, stakeholder consultation, existence of social safety net issues, effective

monitoring and evaluation systems, organisational restructuring, feasibility studies, country

risk as well as the preparation for sale are critical factors to be considered for successful

privatisation. The chapter further highlighted that the proper implementation of these

factors has resulted in successful privatisation programmes.

Chapter 6 revealed the procedure which was followed in designing the hypothetical model

of this study. In this chapter, five independent variables which were perceived to be having

an influence on the perceptions of privatisation were identified. The identified variables are:

stakeholder consultation; business conditions; government considerations; institutional

framework; and, management of privatisation. Two dependent variables, namely: economic

benefits; and, organisational performance were also identified as the outcomes of

privatisation. The chapter provided a discussion of the independent variables and

highlighted their relationships with perceptions of privatisation. The relationships between

perceptions of privatisation and the dependent variables were also discussed using

anecdotal and empirical evidence. This resulted in seven hypotheses being presented for

the study.

Chapter 7 presented the methodology as well as the statistical procedures that were used

to carry out the research and to measure the hypothetical model that was developed, as

shown in Chapter 6. The chapter discussed the population of the study, sampling technique,

research instrument design as well as the pilot study which was carried prior to the main

study. The chapter included a description of how data was collected through the use of self

administered questionnaires and the criteria used for evaluating the reliability, validity and

internal consistency of the measurement instrument used. The collected data was analysed

through the means of descriptive statistics, factor analysis, regression analysis as well as

correlation analysis. Chapter 7 also highlighted that a total sample of 700 managers of

parastatals was used to collect data where 301 usable questionnaires were received; thus,

representing a response rate of 43%. The chapter also offered a description of the ethical

considerations of the study.

Chapter 8 explored elements related to the empirical evaluation of management

perceptions regarding the privatisation of parastatals in Zimbabwe. STATISTICA (Version 10)

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was used to present the results of the study. The seven hypotheses in this study were

reformulated and examined and the main findings of management perceptions regarding

privatisation of parastatals in Zimbabwe were presented in this chapter.

9.3 CONCLUSIONS ON PROBLEM STATEMENT AND RESEARCH QUESTIONS OF THE

STUDY

In this study, both the literature review and the empirical results attempted to examine

problems related to the privatisation of parastatals in Zimbabwe:

9.3.1 Gap in Zimbabwean literature: Influence of the approach to privatisation of

parastatals in Zimbabwe

This study provides a review of literature which is related to the approach taken towards

successfully implementing privatisation both in developed and developing countries. Apart

from the theory on the approach towards implementing a successful privatisation, the study

also provides empirical results on the relationships that exist in regards to the approach to

privatisation and management perceptions regarding the privatisation of parastatals in

Zimbabwe.

The literature in this study provided a detailed discussion of the approach to privatisation in

developed and developing countries. The discussion tried to clarify the various approaches

to privatisation which have been adopted by different countries with a view to identifying

the most suitable approach to be adopted in Zimbabwe, considering the contemporary

business environment prevailing in the country. The approach was extensively discussed

through paying particular attention to the critical success factors of privatisation in relation

to the prevailing business environment in Zimbabwe. The discussion also paid particular

attention to how other countries (developing countries) approached the privatisation of

their parastatals. Furthermore, the study provides a discussion of how privatisation has

been carried out in Zimbabwe by paying particular attention to the rationale for

privatisation, the methods used for privatisation, the success stories of privatisation as well

as the criticism of privatisation.

The empirical results of this study led to the conclusion that management perceived of the

privatisation of parastatals as being implemented without adequate participation of

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stakeholders or union consultation; as a result their roles were not clear during

privatisation. Management also perceived of the macroeconomic conditions prevailing in

Zimbabwe as unstable, hence failing to attract foreign investments which could increase the

chances of a successful privatisation. Furthermore, management perceived of political

intervention as hindering progress during the privatisation process. The empirical results

also indicate that management underestimated the existence of a privatisation process plan

and that there was a need to have an autonomous institution to manage privatisation in

Zimbabwe. Luqmani and Quraeshi (2011:258-265) argue that privatisation can be improved

through the incorporation of a planning process, supportive marketing strategies,

government monitoring and participation as well as the participation of other stakeholders.

9.3.2 Gap in Zimbabwean literature: Influence of an appropriate institutional framework

on privatisation of parastatals in Zimbabwe

The second research problem was concerned with the transparency and commitment of

government during the privatisation process in Zimbabwe. The empirical results of this

study indicate that management underestimated the transparency as well as government

commitment during privatisation in Zimbabwe. Management perceived that information

dissemination in respect to issues such as the bidding process, regular feedback to

stakeholders, clear guidelines and policies regarding privatisation as well as upward and

downward communication processes were not accessible to all parties involved in the

privatisation process. Furthermore, management indicated that the lack of government

commitment has slowed the privatisation process down and that there were a lot of key

role players in the privatisation process in Zimbabwe. Transparency is an integral part of

privatisation as it is necessary to disseminate information pertaining to the rules of the

process, procedures to be followed and the monitoring mechanisms put in place (Jerome,

2004:4).

9.3.3 Conclusions to the research questions of the study

Table 9.1 shows the research questions of the study and the conclusions which have been

drawn in an effort to address the research questions.

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Table 9.1: Conclusions to the research questions of the study

Research questions Attempts made / resolutions RQ1: Are stakeholders adequately consulted during the privatisation of parastatals in Zimbabwe?

Stakeholders in the privatisation process include employees, managers and customers and the privatisation process affects these groups differently. Pamacheche and Koma (2007) support this notion. The design and implementation of privatisation should include the participation of stakeholders. In most instances, privatisation is pushed top-down without taking into consideration the input of other stakeholders. This has resulted in stakeholders viewing privatisation as a government agenda; hence it has not been fully supported. Mengistu and Vogel (2009) as well as Wohlmuth et al. (2004) support this assertion. The process of privatisation should be vigorously marketed so that stakeholders fully participate in privatisation. Thus, it is important that governments which are engaged in privatisation fully inform stakeholders on how the process is being undertaken, through public awareness campaigns which should clearly highlight the benefits of privatisation. This notion is supported by Botlhale (2012), Jerome (2004) and Omeleke et al. (2011). Consultation with stakeholders is important because inadequate consultation with stakeholders leads to opposition to or delays of privatisation; stakeholders provide helpful input in the design of the process, and proper spreading of the information results in a credible project. This assertion is supported by Felsinger (2011).

RQ2: Is the business environment prevalent in Zimbabwe conducive to privatisation?

A country’s attractiveness to foreign investments involves the availability of factors which create opportunities as well as incentives for international organisations to invest so as to create jobs. In light of this, investors will always assess the prevailing business conditions in a country where they intend to invest. A number of researchers have supported this notion. (Vickers, 2007; Wild et al., 2008). The business environment in Zimbabwe is characterised by political risk, high interest rates and economic sanctions imposed by the West; these have negatively affected economic activities in the country. This

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situation has resulted in the country suffering from a lack of investor confidence. This notion has been supported by a number of researchers (Chavunduka & Bromley, 2010; Chiboiwa et al., 2010). Zimbabwe has remained less attractive to foreign investors as a result of the lack of adequate infrastructure, wage pressures which have increased operational costs as well as the poor business climate prevailing in the country. Investors have also shunned Zimbabwe as a result of an uncertain investment climate which is characterised by uncertainty in regards to the ownership of private property. Various researchers have supported this idea (Kramarenko et al., 2010; Pushak & Briceno-Garmendia, 2011). The macroeconomic conditions prevailing in a country are very important factors to be considered when privatising public organisations, as privatisation heavily depends on these. Businesses which intend to operate in a foreign country carefully consider the stability of the macroeconomic conditions in a country they intend to operate from. Cateora et al. (2009) as well as Goel and Budak (2006) support this assertion. Zimbabwe has been in a recession for about a decade; this was characterised by the closure or downsizing of critical manufacturing organisations which led to a loss in the country’s productive capacity. The country is currently experiencing a fragile recovery. This recovery has been facilitated by the existence of an inclusive government. A number of researchers have supported this assertion (Chinomona et al., 2010; Kramarenko et al., 2010; Makochekanwa & Kwaramba, 2010; Nabli, 2010). The recovery phase has been characterised by the adoption of the multicurrency system and the relaxation of exchange controls which allowed organisations operating in the country to repatriate their profits. Various researchers have supported this notion (Besada & Werner, 2010; Kararach et al. 2010). Zimbabwe is experiencing an unstable macroeconomic environment which is not conducive to privatisation. Developed countries have an advantage over developing countries during privatisation because they

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have a viable financial system which is characterised by mature capital markets, experienced business entrepreneurs and religious adherence to ethical business practices. Various researchers support this idea (Parker & Kirkpatrick, 2007; Tambudzai, 2003).

RQ3: Is the government showing commitment to replicating its models and to improving the speed of privatisation?

Privatisation requires strong government commitment which can be marked by partial privatisation, or full privatisation, which is implemented quickly. Boubakri et al. (2011) and Jerome (2004) support this assertion. Developing countries have always been criticised for their lack of commitment to privatisation. In Zimbabwe, the lack of government commitment and credibility in privatisation has slowed down privatisation as the process is characterised by mistrust between government and labour, business and some social groups. This view has arisen as a result of the lack of transparency in the privatisation process; hence, there is a need for the government to further persuade the public and investors that it is committed to privatisation. Dore et al. (2008), Otchere (2007) and Zhou (2000) support this assertion. Privatisation in Zimbabwe has been criticised for its slow pace and efficiency. The privatisation of parastatals in Zimbabwe has been selective as some sectors such as transport, electricity, telecommunications and water have been spared from privatisation. McDonald and Ruiters (2005) as well as Tambudzai (2003) support this idea.

RQ4: Is government receptiveness sufficient to promote a suitable environment for privatisation?

The transparency of the privatisation process in Zimbabwe has always been a cause for concern. The activities of the State Enterprises Restructuring Agency (SERA) have also been criticised in terms of its independence and effectiveness. Tambudzai (2003) supports this notion. Lack of transparency in the evaluation of assets, bidding procedures and selection of the successful bidder, as well as disclosure of the price is a problem during privatisation. In this regard, the lack of transparency results in the public viewing the process as corrupt and that a few rich individuals benefit. Therefore, the lack of transparency leads to a platform from which the opponents of privatisation can oppose it. Various

330

researchers have supported this argument (Fatta, 2010; Naguib, 2009). The public choice and property rights theory explain the failure of public ownership of organisations and challenges the idea of government intervention in business. Equally, neo-classical economists believe that the absence of political intervention will lead to economic prosperity which cascades down to the poor in society. Various researchers have supported this notion (Palcic & Reeves, 2011; Waigama, 2008). Lack of clarity on the indigenisation policy in Zimbabwe has resulted in investors losing confidence in investing in the country as they believe that their organisations will be taken over by the government. Various researchers have supported this assertion (Magure, 2012; Moyo, 2011).

RQ5: Is there an appropriate institutional framework for privatisation in Zimbabwe?

Privatisation programmes should be accompanied by thorough planning, implementation and the monitoring of privatisation transactions. Governments which are engaged in privatisation should put in place new institutions which are meant to properly manage the process. In Zimbabwe, privatisation was embarked on without a legally constituted privatisation plan of action and has been characterised by bureaucratic tendencies. This view has been supported by various researchers (Botlhale, 2012; Parker & Saal, 2003; Tambudzai, 2003; Zhou, 2001).

RQ6: Will privatisation create economic benefits in Zimbabwe?

Economists view privatisation as a policy which brings about economic benefits to any privatising government. The government of Zimbabwe has faced challenges in turning around the performance of its parastatals which have continued to make losses and the only option of sustaining these organisations is through strategic partnerships with foreign investors. Various researchers have supported this idea (Josiah et al., 2010; Magure, 2012). Privatisation in less developed and middle income countries has attracted foreign direct investments which have facilitated the availability of foreign currency and access to global technology. Equally, privatisation attracts foreign direct investments which have the capacity to turnaround loss-making public organisations.

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Privatisation creates sectors which are competitive as well as private organisations which facilitate economic growth. This view is supported by Josiah et al. (2010), Motasam (2010), Nguyen (2010), Parker & Saal (2003) and Yonnedi (2010). In Zimbabwe, policy documents have shown some weaknesses as they do not highlight the strategies used to economically empower the indigenous groups, although economic empowerment was one of the major objectives of adopting privatisation in Zimbabwe. In other developing countries, privatisation has been used as a vehicle for economically empowering the disenfranchised people. Various researchers have supported this view (Pitcher, 2012; Tambudzai, 2003; Zhou, 2000).

RQ7: Will privatisation improve the organisational performance of parastatals in Zimbabwe?

Many governments have adopted privatisation in an effort to alleviate the poor performance of public organisations. Broad international studies on privatisation have perceived of privatisation as leading to an improvement in the performance of public organisations. Similarly, developing countries have used the policy of privatisation to improve the productivity of public organisations which ranks quite low in comparison to the productivity of private organisations. Various researchers support this notion (Buchs, 2003; Kikeri & Kolo, 2005; Palcific & Reeves, 2011). Privatisation has facilitated the effectiveness and efficiency of organisations as well as employment practices which are fair and based on merit. Equally, privatisation results in the improved performance of public organisations when it is carried out during expansive economic cycles. Garcia and Anson (2007) as well as Wated et al. (2008) support this notion. Privatised organisations such as Dairiboard Zimbabwe Limited and the Cotton Company of Zimbabwe have been considered success stories as they have improved their performance in terms of profitability, foreign currency generation, capitalisation as well as contribution to the fiscus. Various researchers have supported this notion (Dore et al., 2008; Gono, 2009).

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9.4 EMPIRICAL FINDINGS AND MANAGERIAL IMPLICATIONS OF THE STUDY

In this study, the variables indicated in Figure 9.1, below, show that there are fourteen

influences on the perceptions of privatisation. The influences are categorised into fourteen

factors, namely: stakeholder participation; union consultation; attractiveness to foreign

investment; stable macroeconomic conditions; role ambiguity; political intervention;

government transparency; government commitment; privatisation process plan;

privatisation process implementation; effective governance; competitive advantage

regarding foreign investment; economic empowerment and organisational performance.

Figure 9.1: Empirical evaluation of the proposed influences and outcomes of management perceptions regarding the privatisation of parastatals in Zimbabwe

+

Competitive advantage for foreign

Union consultation

Perceptions of

Stakeholder participation

Economic empowerment

Stable macroeconomic

Attractiveness to foreign investment

Role ambiguity


Privatisation process plan

Privatisation process implementation

Effective governance

Political i i

Government transparency

Government commitment

+

NS

+

+

+

NS

NS

+

NS

NS

+

NS

+

-

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9.4.1 The empirical findings and implications based on management perceptions of the

stakeholder participation dimension

Stakeholder participation refers to the notion of collecting the views of stakeholders as well

as motivating them to be a part of the policy formulation process (Pamacheche & Koma,

2007:19). According to Felsinger (2011:22), stakeholder participation refers to a process

which takes on board stakeholders and considers their input when policies are being

discussed and implemented. Stakeholder participation is important for a successful

privatisation process.

The empirical results show that there is a significant correlation between stakeholder

participation and management perceptions of privatisation. The empirical results indicate

that management perceives that the employees are informed by government as to why

parastatals are being privatised and that employees contribute to the decision to privatise

parastatals. The results further indicate that managers are encouraged to participate during

privatisation and that there are shared goals between management and government in

terms of privatising parastatals. Management also perceived that privatisation is done

within a framework that ensures access of information to customers and that they actively

participate during the privatisation of parastatals; they also perceive that the needs of

customers are put ahead of privatisation initiatives. It is important to involve stakeholders

before and during any privatisation so that the process is carried out without any

disruptions (Pamacheche & Koma, 2007).


stable macroeconomic conditions dimension

Stable macroeconomic conditions refer to a favourable environment in an economy in

terms of the production of goods and services, unemployment levels as well as inflation

(Snowdon & Vane, 2005:1). According to Yueh and Chamberlain (2006:4), stable

macroeconomic conditions refer to how individuals, organisations and industry sectors

freely interact in an economy. Stable macroeconomic conditions should always be

maintained if a country is to experience a successful privatisation.

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The empirical results of this study reveal that management perceive that there is a

significant positive correlation between stable macroeconomic conditions and perceptions

of privatisation. The research findings indicate that parastatals operate in a stable

macroeconomic environment which encourages government to privatise its organisations

and that government is implementing macroeconomic stabilisation policies which assist in

achieving successful privatisation. The results also indicated that there is limited financial

sector distress, which makes privatisation feasible. Unstable macroeconomic conditions can

negatively influence the outcomes of privatisation in promoting economic growth (Nguyen,

2010:12).


government transparency dimension

Government transparency refers to the ability of citizens to demand and obtain relevant

information from the government (Jalilian et al., 2007:89). According to Dore et al.

(2008:195), government transparency is concerned with the steps which the government

adopts to inform and encourage the public to participate in the privatisation programme.

The continuous production of policies that lack credibility results in citizens losing trust on

the government.

The empirical research findings of this study show that management perceived that

government transparency has a significant positive correlation with the perceptions of

privatisation. The findings show that information regarding the bidding process, policies and

guidelines regarding privatisation is accessible to all parties who are involved in the

privatisation process. The results also show that there is regular feedback as well as upward

and downward communication to all the parties involved in the privatisation process. This

notion is supported by other researchers who argue that transparency can only be realised

when citizens actively participate in the privatisation process and that the lack of

transparency leads to allegations of corruption; it also creates a platform for opponents of

privatisation to resist the process and it erodes investor confidence (Ball, 2009:293).

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privatisation process plan dimension

Planning refers to the activities which are carried out by management in order to choose a

suitable business model, objectives as well as setting targets for evaluating the

organisational business model (Jones, 2007:79). Planning is a management role which

involves predicting developments and designing suitable strategies which will assist in the

achievement of organisational objectives (Nickels et al. 2010:179). Planning is important as

it assists in the monitoring of the environment and identifying some opportunities and

threats.

In this study, the empirical results show that management perceived that the privatisation

process plan has a significant positive correlation with perceptions of privatisation. The

results also indicate that the privatisation process is guided by a formal plan of action and

that the schedule of all parastatals identified for privatisation is equally accessible to all

stakeholders. The results also indicate that privatisation is done with no special concessions

or privileges when selling parastatals. Privatisation can be improved by putting in place a

privatisation model comprising of phases such as selection, transition and sustainability

(Luqmani & Quraeshi, 2011:260).


privatisation process implementation dimension

Privatisation process implementation refers to how the government transfers assets or

services from the public sector to the private sector (Ohemeng & Grant, 2011:289).

According to Joseph (2010:146), privatisation implementation refers to the approach

adopted by the government in transferring government assets and the transfer of the

management of public organisations to private operators. The proper management of the

privatisation process results in the achievement of the privatisation objectives.

The empirical results in this study revealed that management perceived of the privatisation

implementation process as having a negative relationship with perceptions of privatisation.

The results indicate that there is a lack of structural capacity to enhance the privatisation

process and that there is no autonomous institution to lead and manage the privatisation

336

process. The results also indicate that there is a lack of proper valuation of assets to

enhance the credibility of the privatisation process. Furthermore, the valuation of

organisations allows certain investors to acquire public organisations and assets at prices

which are lower than market prices. Several researchers support the idea that organisations

earmarked for privatisation should be valuated properly, so as to enhance the credibility of

the privatisation process (Selvi & Yilmaz, 2010; Waigama, 2008).


effective governance dimension

Corporate governance refers to the system which is put in place to monitor and control the

activities of top level management (Schermerhorn, 2010:225). Effective corporate

governance is concerned with the distribution of responsibilities amongst managers and

board members as well as clearly spelling out the procedures to be followed in decision

making (Naicker & Saungweme, 2009:326). Effective governance is important as it

contributes towards the efficient and effective delivery of goods and services by

organisations.

The empirical results in this study revealed that perceptions of privatisation are positively

related to effective governance. The results indicate that management perceived of

privatisation as capable of improving service delivery by offering high quality products and

services as a result of the recruitment of qualified employees. The results also show that

privatisation results in corporate governance practices which are characterised by fairness,

accountability, responsibility and transparency as board appointments are based on

professionalism. The empirical results also show that privatisation facilitates economic

growth and improves trade relations between local and foreign investors. This idea is

supported by several researchers who argue that, through privatisation, individuals benefit

as a result of completion which brings about efficient service delivery (Etieyibo, 2011). After

privatisation, corporate governance is improved as a result of the changes in the board of

directors of privatised organisations which brings about a new management style (Boubakri

et al., 2009; Omran, 2009).

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economic empowerment dimension

Economic empowerment refers to a system which provides opportunities for indigenous

citizens to embark on the economic activities of the country thereby reducing economic

inequalities (Balshaw & Goldberg, 2005:73). According to Harvey (2011:455), economic

empowerment facilitates workers to be active participants in the economy so as to share

the country’s wealth. Economic empowerment programmes are important during

privatisation as they encourage citizens to support the privatisation process.

The empirical results of this study indicate that there is a positive correlation between

perceptions of privatisation and economic empowerment. The results show that

management perceived of privatisation as creating an environment which is beneficial to

both local and foreign investors and that privatisation is critical as it attracts the flow of

foreign investments. The results also revealed that management perceived of privatisation

as broadening local participation and economically empowering local citizens through the

creation of jobs and enhancing the establishment of small and medium enterprises. This

finding is supported by several researchers who argue that economic empowerment

programmes should be embedded in privatisation so as to develop indigenous private

organisations (Josiah et al., 2010).


organisational performance dimension

According to Richard, Devinney, Yip and Johnson (2009:723), organisational performance

refers to the outcomes of an organisation which manifest through financial performance

(e.g., profits and return on investments), shareholder return and product market

performance (e.g., market share). Organisational performance is concerned with the

compatibility between the organisational structure and how the organisation conducts its

business practices as well as its competitive strategies (Smart & Conant, 2011:31). The

privatisation of parastatals has been adopted to improve the performance of such

parastatals.

338

The empirical results of this study show that perceptions of privatisation have a negative

relationship with organisational performance. The results of the study indicate that

management perceived that privatisation is failing to improve the availability of quality

products and services as well as the service delivery of frontline staff which leads to

customer satisfaction. Furthermore, the results indicate that privatisation is failing to

improve organisational efficiency as improved management practices are not implemented.

The empirical results also reveal that privatisation is failing to facilitate organisational

learning; it is thus becoming less innovative in meeting customers’ demands. Privatisation

has failed to shift the management style from being fundamentally reactive to being

proactive through encouragement of innovation; this leads to a lack of development of new

products and services.

9.5 RECOMMENDATIONS FOR THE PRIVATISATION OF PARASTATALS IN ZIMBABWE

9.5.1 Stakeholder participation

It is important for government to make sure that managers, employees and customers of

parastatals participate in and contribute towards the decision to privatise parastatals. The

participation of these stakeholders will impact on the privatisation process as there will be

shared goals between the government and managers, employees and customers of

parastatals. Some preliminary negotiations should be conducted to look at how the

different stakeholder groups are involved in privatisation. Furthermore, relevant

information pertaining to the privatisation of parastatals should always be made available to

managers, employees and customers of parastatals so that these stakeholders can

effectively debate the issues arising from privatisation as they are affected differently by the

privatisation process.

Government should ensure that managers, employees and customers participate in the

privatisation programme by taking on board their views during decision making, providing

relevant information pertaining to privatisation and that there are shared goals among all

stakeholders. Pamacheche and Koma (2007) support this assertion as they observe that

stakeholder participation is important during privatisation because these stakeholders can

easily disrupt the process if they do not actively participate. Felsinger (2011) recommends

stakeholder participation during privatisation because such participation reduces opposition

339

to the process, stakeholders offer valuable input when designing and implementing

privatisation, and the participation of stakeholders fosters government commitment, while

the availability of relevant information leads to a credible process.

9.5.2 Stable macroeconomic conditions

It is important for government to stabilise the macroeconomic conditions by creating an

environment which is conducive to the privatisation of parastatals through addressing issues

related to unemployment, inflation and the production of goods and services. Government

should ensure that there is limited financial sector distress so as to achieve a successful

privatisation. Bonin et al. (2005) support the assertion that unstable macroeconomic

conditions and financial sector distress make privatisation infeasible. It is therefore

necessary for the government to stabilise macroeconomic conditions during privatisation so

that the country can attain its anticipated economic growth. Nguyen (2010) supports this

argument.

9.5.3 Government transparency

Government should be transparent in all its activities during privatisation; this can be done

through the prompt dissemination of information related to the bidding process for all

parastatals identified for privatisation to all parties involved. There is a need to come up

with clear policies and guidelines which will be used to guide the privatisation process.

Effective upward and downward communication has to be put in place so that the input of

all stakeholders is considered during privatisation so as to enhance the credibility of the

process as well as the buy-in to privatisation. Government should always provide regular

feedback to all parties involved in the privatisation process.

Transparency should be enhanced in the privatisation process through informing and

educating the public so that they can be active participants in the programme. Dore et al.

(2008) support this idea. A transparent privatisation programme should divulge information

about the bidding process as well as the final buyers of the privatised parastatals so that the

anticipated benefits are realised. Transparency in the bidding process can be achieved

through openly announcing the conditions of bidding and the conditions of the contracts as

340

well as engaging professional institutions to look into the backgrounds of the potential

investors. Kikeri and Nellis (2004) support this assertion.

9.5.4 Privatisation process plan

It is important for the government to design a clear privatisation process plan which can be

used to guide the privatisation process so as to achieve its intended objectives.

Government should also provide clear and planned objectives which are specific,

measurable, attainable, realistic and time bound so that the process remains focussed. It is

also important that government avails the schedule of all parastatals which have been

identified for privatisation so that all the stakeholders can easily access such a schedule. It is

also important that the management of the privatisation process is characterised by a few

flexible directives. Government should set clear lines of responsibility in the privatisation

process so as to set the stage for a successful programme. Moreover, government should

ensure that privatisation is done fairly, without special concessions or privileges being given

to certain individuals.

Planning is important in any organisation as it is used to identify a suitable business model

which can be used to achieve the organisational goals. Various researchers support this idea

(Jones, 2007; Nickels et al. 2010). Whenever governments embark on a privatisation

programme, it is important that a clear plan which is accompanied by proper

implementation, supervision and an effective evaluation process is put in place so that the

privatisation objectives can be achieved. This assertion is supported by Jerome (2004).

9.5.5 Privatisation process implementation

Government must set up an autonomous institution which should be responsible for leading

and managing the implementation of the privatisation process so that the objectives of

privatisation are realised. It is also necessary for government to engage people with the

structural capacity in the implementation of privatisation so as to enhance the privatisation

process. Government should also engage qualified people or institutions who should be

involved in the valuation of organisations and assets earmarked for privatisation so that

these are acquired at market related rates in order to improve the credibility of

privatisation. Government should ensure that corrupt practices are eliminated so as to

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enhance trust in government during privatisation. Several researchers support the idea that

successful privatisation has been achieved in other countries through the engagement of

professional institutions in the valuation of organisations identified for privatisation

(Massey, 2010; Meggisson, 2010).

9.5.6 Effective governance

Government should be aware that privatisation improves service delivery by offering high

quality goods and services through the employment of qualified employees. Government

should appoint board members to lead parastatals based on professionalism so as to

enhance the practice of corporate governance principles of accountability, fairness,

responsibility and transparency. Yonnedi (2010) supports the notion that privatisation

enhances the practice of corporate governance principles in organisations.

Government should put in place all the critical factors of implementing a successful

privatisation so as to realise economic growth. Oyieke (2002) supports this notion by

observing that governments can arouse economic growth through attracting foreign

investment. Government should also encourage trade relations between local and foreign

investors through economic development. Several researchers support this idea (Bothma &

Burgess, 2011).

9.5.7 Economic empowerment

Government should encourage partnerships between local and foreign investors so that the

much needed investments are attracted into the country for the benefit of local and foreign

investors. It is also important that government broadens the participation of indigenous

citizens during privatisation so as to enhance the economic empowerment of locals. Several

researchers have supported the argument that it is important for local citizens to participate

in the economic activities of their countries so as to economically empower them (Balshaw

& Goldberg, 2005; Harvey, 2011).


The government should ensure that privatisation leads to customer satisfaction through the

production of quality goods and services by encouraging partnerships between local

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parastatals and foreign investors who can bring in the required capital and modern

technology as well as the expertise necessary to enhance productivity. Government should

also employ qualified staff or engage them in training sessions so that they can develop

their competencies to deliver better services to their customers. It is also important for

government to appoint qualified and competent managers who have the capacity to plan

for the operations of their organisations so that they become innovative and proactive,

rather than reactive. Several researchers support the argument that privatisation improves

the quality of managers as these managers tend to be proactive in their operations (Zabalza

& Matey, 2011).

9.6 CONTRIBUTIONS OF THE STUDY

• This study has contributed to the existing body of knowledge by developing a theoretical

model which can be utilised in other developing countries, where capital markets are

underdeveloped, to test perceptions regarding the privatisation of parastatals. This

model will act as a foundation for other studies investigating the factors influencing

perceptions of privatisation and the outcomes of privatisation.

• The study will assist the government, parastatals and other stakeholders by providing

feedback regarding the privatisation of parastatals in Zimbabwe, so that remedial action

can be implemented where deviations are recorded.

• The findings of this study will assist the government of Zimbabwe by providing

guidelines which can be adopted to implement a successful privatisation programme.

• This study will also assist governments in implementing credible privatisations which are

characterised by transparency, participation of stakeholders, stable macroeconomic

conditions and formal privatisation process plans. The implementation of credible

privatisation will result in the support of privatisation, thus resulting in the attainment of

privatisation goals.

• The results of the study could also be replicated by other parastatals in other developing

countries so as to ensure successful privatisation.

• The findings of this study can inform strategy policy formulation and implementation in

other parastatals so as to assist with privatisation.

343

• The measuring instrument and model developed can also be used by other parastatals in

other countries.

• This study provided useful and very practical guidelines to parastatals so as to ensure

successful privatisation.

• The study used a sound and well developed research design and methodology which

have been critically justified and applied. This can also be used by other similar studies

to conduct empirical research.

9.7 LIMITATIONS OF THE STUDY

Firstly, the study faced some limitations as it was carried out during a time when Zimbabwe

was experiencing an unstable macroenvironment as a result of a fragile Government of

National Unity. This environment is characterised by a lack of trust, hence the respondents

were not comfortable with the motives of the study even though the researcher tried to

explain the purpose verbally and through a letter which was attached to the questionnaire.

This situation could have contributed to respondents having to provide biased responses in

an effort to secure their jobs.

Secondly, the study also faced some limitations in the distribution of questionnaires and the

pace at which the completed questionnaires were returned. The completed questionnaires

were collected by the researcher with the assistance of two research assistants and, in most

cases, the managers required appointments to be secured before meeting with them. In

most cases, the managers could not be located in their offices as they would be attending

meetings and, at times, they indicated that they were overwhelmed by the number of

questionnaires from other students which they had to complete. This situation required

high level skills of relationship building and persuasion in order to convenience them that it

was necessary for them to complete the questionnaire.

Thirdly, the study also faced some challenges in getting the requisite authority to carry out

research in some parastatals which were identified for this study, for security reasons. This

phase was characterised by bureaucracy as some Chief Executive Officers did not have the

ultimate power to authorise participation of their organisations and had to refer such

applications to security organs of the government, for vetting the researcher. This situation

affected the researcher in terms of time which was very limited. The study also faced time

344

constraints as the researcher had to travel between South Africa and Zimbabwe for the

study.

The fourth limitation identified in this study was related to the measuring instrument used

in this study. There is a possibility that the respondents could have answered the items in

the manner in which they viewed the items and not in the manner in which the items were

intended to measure the variables of the study. The use of a self administered questionnaire

could not allow the researcher to explain the items to the respondents. The respondents

could have given other people the opportunity to complete the questionnaires on their

behalf, as the researcher had no control over such issues.

9.8 IMPLICATIONS FOR FUTURE RESEARCH

This study has partly investigated management perceptions regarding the privatisation of

parastatals in Zimbabwe and has opened avenues which can be taken for future research.

Other researchers who are interested in the area of privatisation can utilise the model

developed in this study to measure management perceptions regarding privatisation in

other developing countries.

Secondly, other researchers could explore the impact of privatisation in respect of social

issues such as employment in Zimbabwe as this study concentrated primarily on the

economic outcomes of privatisation. Research on other dimensions is necessary so as to

have a complete picture of the impact of privatisation in Zimbabwe.

Thirdly, other studies can investigate the privatisation methods which are suitable for use in

Zimbabwe and other developing countries as some of the methods which have previously

been used have resulted in criticisms as they are viewed as isolating the less privileged and

favouring the rich.

9.9 CONCLUSIONS

The empirical results of this study show that independent the variables of the study;

namely, stakeholder consultation, transparency, stable macroeconomic conditions,

privatisation process planas well as privatisation process implementation have an influence

on management perceptions of privatisation in Zimbabwe. Equally, the study indicates that

perceptions of privatisation have a positive influence on the dependent variables of the

345

study, namely: effective governance, economic empowerment and organisational

performance during privatisation in Zimbabwe. It is therefore important for government and

parastatals’ management to take into consideration these perceptions when carrying out

the privatisation process.

The conclusions of this study will assist governments in developing countries which are

engaged in privatisation to implement credible privatisation programmes which are

acceptable to all stakeholders whilst at the same time bringing about economic benefits as

well as improved organisational performance. The study also creates a platform for other

researchers to fill in the gaps that exist in the body of knowledge related to privatisation in

Zimbabwe.

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APPENDIX A

373

ETHICS PROFORMA FORM

Please type or complete in black ink

FACULTY: BUSINESS AND ECONOMIC SCIENCES

SCHOOL/DEPARTMENT: DEPARTMENT OF BUSINESS MANAGEMENT

I, (surname and initials of supervisor) Mazibuko, N.E. and Smith, E.E. the promoter and co-

promoter for (surname and initials ofcandidate) Tshuma E. (student number) 210247452

a candidate for the degree of

Ph. D

with a treatise entitled (full title of treatise):

Management perceptions regarding privatisation of parastatals in Zimbabwe

considering the following ethics criteria (please tick the appropriate block):

YES NO

1. Is there any risk of harm, embarrassment of offence, however slight or temporary, to the participant, third parties or to the communities at large?

X

2. Is the study based on a research population defined as ‘vulnerable’ in terms of age (e.g children of school going age, students, and the aged), physical characteristics and/or disease status?

X

3. Does the research / data that will be collected require an ethics clearance number in order to obtain institutional authority for this study?

X

4. Will the participant’s privacy, anonymity and confidentiality be compromised?

X

5. Will official feedback on the outcome of the research be required by the Institutional Authority?

X

374

Please note that if any of the questions above have been answered in the affirmative the student will need to complete the full ethics clearance form and submit to the Faculty Ethics Co-ordinator.

hereby certify that the student has given his/her research ethical consideration and full ethics approval is not required.

14 August 2012

SUPERVISOR/PROMOTER DATE

14 August 2012

HEAD OF DEPARTMENT DATE

14 August 2012

STUDENT DATE

Please ensure that the research methodology section from the proposal is attached to this form.

375

APPENDIX B

376

Unit for Applied Management Sciences Summerstrand South Campus

DEPARTMENT OF BUSINESS MANAGEMENT

The Chief Executive Officer

Zimbabwe Power Company

RESEARCH PROJECT: MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF PARASTATALS IN ZIMBABWE

I am a registered PhD student in the Department of Business Management at the Nelson Mandela Metropolitan University in Port Elizabeth, South Africa. I am currently busy with an empirical study (Pilot study) investigating the perceptions of management regarding the privatisation of parastatals in Zimbabwe.It is envisaged that this study will provide useful insight in identifying key aspects related to the privatisation of parastatals. Previous research has shown that privatisation of parastatals both in developed and developing countries has been characterised by many controversies and obstacles.

The purpose of this study is to investigate how managers in State Owned Enterprises perceive privatisation and its economic benefits in Zimbabwe. The questionnaire consists of two sections. Section A investigates management perceptions regarding privatisation. Section B solicits biographical data of respondents.All data sources will be treated as confidential and would be used for research purposes only. The majority of the data will be reported in statistical form and no individual respondents will be identified.

Attached is a questionnaire which I intend to use for gathering data.

I therefore request for permission to carry out the research in your organisation.

Yours Faithfully

Mr E Tshuma

Researcher

Prof NE Mazibuko and Prof EE Smith

Research coordinators

• PO Box 77000 • NelsonMandelaMetropolitanUniversity • Port Elizabeth • 6031 • South Africa • http://www.nmmu.ac.za/busman

377

APPENDIX C

378

379

APPENDIX D

380

Unit for Applied Management Sciences Summerstrand South Campus

DEPARTMENT OF BUSINESS MANAGEMENT [email protected]

Tel: +27 415042031

18 June 2012

Dear Participant

RESEARCH PROJECT: MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF PARASTATALS IN ZIMBABWE.

Mr E Tshuma is a registered PhD student in the Department of Business Management at the Nelson Mandela Metropolitan University in Port Elizabeth, South Africa. He is currently busy with an empirical study investigating the perceptions of management regarding the privatisation of parastatals in Zimbabwe.It is envisaged that this study will provide useful insight in identifying key aspects related to the privatisation of parastatals. Previous research has shown that privatisation of parastatals, both in developed and developing countries, has been characterised by many controversies and obstacles.

The purpose of this study is to investigate how managers in State Owned Enterprises perceive privatisation and its economic benefits in Zimbabwe. The questionnaire consists of two sections. Section A investigates management perceptions regarding privatisation. Section B solicits biographical data of respondents. All data sources will be treated as confidential and would be used for research purposes only. The majority of the data will be reported in statistical form and no individual respondents will be identified. You can complete the questionnaire anonymously. Thank you very much for your willingness and time to complete this questionnaire.

Regards

• PO Box 77000 • NelsonMandelaMetropolitanUniversity • Port Elizabeth • 6031 • South Africa • http://www.nmmu.ac.za/busman

381

mailto:[email protected]

APPENDIX E

382

QUESTIONNAIRE

MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF PARASTATALS IN ZIMBABWE

This questionnaire consists of two sections. In Section A, a seven-point Likert-scale is used as follows: 1 = Strongly disagree, 2 = Disagree, 3 = Somewhat disagree, 4 = Neutral, 5 = Somewhat agree, 6 = Agree, 7 = Strongly agree. Please indicate the extent of your agreement with these statements by means of a cross (X) in any one of the boxes provided. Section B seeks to solicit your biographic data. Please indicate your response to the statements by making a cross (X) in the appropriate numbered box.

SECTION A

PERCEPTIONS REGARDING FACTORS IMPACTING PRIVATISATION OF PARASTATALS IN ZIMBABWE

In my parastatal...

Stro

ngly

disa

gree

Disa

gree

Som

ewha

t disa

gree

Neut

ral

Som

ewha

t agr

ee

Agre

e

Stro

ngly

agre

e

1 Employees contribute to the decision to privatise state owned organisations.

1 2 3 4 5 6 7

2 Government informs employees as to why privatisation is being implemented.

1 2 3 4 5 6 7

3 Unions actively participate in the final approval of privatisation schemes. 1 2 3 4 5 6 7 4 Consultation with unions plays a decisive and positive role in the

process of designing and implementing privatisation. 1 2 3 4 5 6 7

5 The buy-in of trade unions speed up the privatisation process. 1 2 3 4 5 6 7 6 Participation of managers is encouraged during the privatisation

process. 1 2 3 4 5 6 7

7 There are shared common goals among managers of public organisations and government during privatisation.

1 2 3 4 5 6 7

8 The needs of customers are put ahead of privatisation initiatives. 1 2 3 4 5 6 7 9 Privatisation decisions are made in a framework that ensures customer’s

debate and broad participation. 1 2 3 4 5 6 7

10 Privatisation decisions are made in a framework that ensures customer’s access to relevant information.

1 2 3 4 5 6 7

11 Political stability attracts investors during privatisation. 1 2 3 4 5 6 7 12 There are strict anti-corruption controls in place which assist in attracting

foreign investments. 1 2 3 4 5 6 7

13 Foreign investors are allowed to exploit their specific ownership objectives in privatised organisations.

1 2 3 4 5 6 7

14 There is legal protection of private property which attracts foreign investments.

1 2 3 4 5 6 7

15 There is a flexible regulatory framework which encourages foreign investments.

1 2 3 4 5 6 7

383

In my parastatal...

Stro

ngly

disa

gree

Disa

gree

Som

ewha

t di

sagr

ee

Neut

ral

Som

ewha

t agr

ee

Agre

e

Stro

ngly

agre

e

16 The organisation operates in a stable macroeconomic environment (e.g. unemployment, inflation, output of goods and services) which encourages government to privatise its organisations.

1 2 3 4 5 6 7

17 Macroeconomic stabilisation policies are implemented which assist to achieve successful privatisation.

1 2 3 4 5 6 7

18 There is limited impact caused by financial sector distress, which makes privatisation feasible.

1 2 3 4 5 6 7

19 Stable macroeconomic factors foster potential foreign investments. 1 2 3 4 5 6 7 20 Government makes a substantial effort to engage managers of public

organisations during privatisation. 1 2 3 4 5 6 7

21 The public trusts that government uses privatisation policies based on a legal framework.

1 2 3 4 5 6 7

22 The absence of corrupt practices contributes to trust in government during privatisation.

1 2 3 4 5 6 7

23 The practise of avoiding the seizing of business assets by authority without any compensation (confiscation government intervention) has a facilitative impact on the success of privatisation.

1 2 3 4 5 6 7

24 The practise of 51% partial ownership by Zimbabwean nationals facilitates the privatisation process.

1 2 3 4 5 6 7

25 There is unrestricted reimbursement of profits and dividends generated from the business which facilitate the success of the privatisation process.

1 2 3 4 5 6 7

26 I always work according to well defined policies and guidelines during privatisation.

1 2 3 4 5 6 7

27 I often receive conflicting requests from two or more people during privatisation.

1 2 3 4 5 6 7

28 I often have to work under vague directives during the privatisation process.

1 2 3 4 5 6 7

29 Setting clear lines of responsibility by government in the privatisation process sets the stage for a successful program.

1 2 3 4 5 6 7

30 I feel certain about how much authority I have during privatisation. 1 2 3 4 5 6 7 31 There are clear, planned goals and objectives for my job during

privatisation. 1 2 3 4 5 6 7

32 Information on the bidding process during privatisation is accessible to all parties involved.

1 2 3 4 5 6 7

33 There are clear guidelines and policies regarding the privatisation process accessible to all parties involved.

1 2 3 4 5 6 7

34 There is regular feedback to all parties involved regarding the privatisation process.

1 2 3 4 5 6 7

35 There is effective communication regarding the privatisation process through upward and downward management hierarchical levels.

1 2 3 4 5 6 7

36 Two-way communication between government and all parties involved enhances buy-in to privatisation.

1 2 3 4 5 6 7

37 A systematic approach to communication helps to achieve a well tailored privatisation process and private sector participation program.

1 2 3 4 5 6 7

384

In my parastatal... St

rong

ly di

sagr

ee

Disa

gree

Som

ewha

t disa

gree

Neut

ral

Som

ewha

t agr

ee

Agre

e

Stro

ngly

agre

e

38 Some preliminary negotiations are conducted to look at how the different stakeholder groups are involved in privatisation.

1 2 3 4 5 6 7

39 Government commitment has accelerated the privatisation process. 1 2 3 4 5 6 7 40 Government supports the replication of privatisation models which have

been used before. 1 2 3 4 5 6 7

41 The number of key role players is limited to speed up the privatisation process.

1 2 3 4 5 6 7

42 The privatisation process is guided by a formal plan of action. 1 2 3 4 5 6 7 43 Existence of structural capacity enhances the privatisation process. 1 2 3 4 5 6 7 44 There is a need to have an autonomous institution to lead and manage

the privatisation process. 1 2 3 4 5 6 7

45 The management of the privatisation process is characterised by few flexible directives.

1 2 3 4 5 6 7

46 Government has accelerated privatisation where a high social cost is expected (e.g. loss of employment).

1 2 3 4 5 6 7

47 Proper valuation of assets enhances credibility of the privatisation process.

1 2 3 4 5 6 7

48 The valuation of organisations allows certain investors to acquire public organisations and assets at market-related prices.

1 2 3 4 5 6 7

49 The schedule of state owned organisations to be privatised is equally accessible to all stakeholders.

1 2 3 4 5 6 7

50 Privatisation is done properly with no special concessions or privileges when selling public organisations.

1 2 3 4 5 6 7

51 Privatisation is influenced by the country’s political conditions. 1 2 3 4 5 6 7 52 All stakeholders support the process of privatisation. 1 2 3 4 5 6 7 53 There are equal investor opportunities to acquire State Owned

Enterprises (SOEs). 1 2 3 4 5 6 7

54 Due thoroughness is carried out to ascertain the financial and technical competence of investors.

1 2 3 4 5 6 7

55 Privatisation is driven by foreign investments to enhance the performance of local enterprises.

1 2 3 4 5 6 7

56 Indigenous Zimbabweans are active participants in the privatisation process.

1 2 3 4 5 6 7

57 Privatisation is influenced by donor agencies like the World Bank and the International Monetary Fund.

1 2 3 4 5 6 7

58 Privatisation benefits the poor by creating opportunities in the economy. 1 2 3 4 5 6 7 59 There is zero tolerance of political influence regarding strategic decision

making on privatisation, as board appointments are based on professionalism.

1 2 3 4 5 6 7

60 Privatisation creates an environment which is beneficial to local and foreign investors.

1 2 3 4 5 6 7

61 Privatisation has been a driving force behind the increased flow of investments.

1 2 3 4 5 6 7

62 Foreign investments are necessary for the success of privatisation. 1 2 3 4 5 6 7 63 Privatisation encourages the development of a competitive private sector

economy. 1 2 3 4 5 6 7

385

In my parastatal... St

rong

ly di

sagr

ee

Disa

gree

Som

ewha

t disa

gree

Neut

ral

Som

ewha

t agr

ee

Agre

e

Stro

ngly

agre

e

64 Privatisation promotes competition by removing foreign business marketing entry and exit barriers.

1 2 3 4 5 6 7

65 Privatisation improves the exposure of stakeholders to advanced technology to produce high quality products and services.

1 2 3 4 5 6 7

66 Privatisation improves service delivery by offering high quality products and services.

1 2 3 4 5 6 7

67 Service quality improves through privatisation as qualified employees are recruited.

1 2 3 4 5 6 7

68 Privatisation leads to improved corporate governance as board member appointments will be based on professionalism.

1 2 3 4 5 6 7

69 Privatisation facilitates adherence to corporate governance principles (e.g. of fairness, accountability, responsibility and transparency).

1 2 3 4 5 6 7

70 Privatisation is a major road map to sustainable economic growth. 1 2 3 4 5 6 7 71 Privatisation encourages a fair distribution of scarce resources. 1 2 3 4 5 6 7 72 Privatisation economically empowers citizens through the creation of

jobs and enhancing the establishment of small and medium enterprises. 1 2 3 4 5 6 7

73 Privatisation broadens local participation and economically empowers citizens.

1 2 3 4 5 6 7

74 Privatisation is furthering strategic objectives by strengthening trade in goods and services through foreign trade relationships.

1 2 3 4 5 6 7

75 Privatisation enhances trade relations within and between local and foreign investors.

1 2 3 4 5 6 7

76 Privatisation improves the availability of quality products and services which leads to customer satisfaction.

1 2 3 4 5 6 7

77 Privatisation improves service delivery of frontline staff which leads to customer satisfaction.

1 2 3 4 5 6 7

78 Privatisation leads to improved organisational efficiency (productivity). 1 2 3 4 5 6 7 79 Privatisation increases efficiency through better management practices. 1 2 3 4 5 6 7 80 Privatisation facilitates organisational learning, thus becoming more

innovative in meeting customers’ demands. 1 2 3 4 5 6 7

81 Privatisation leads to a shift in management style from being fundamentally reactive to being proactive by encouraging innovation.

1 2 3 4 5 6 7

82 Privatisation encourages creativity which leads to the development of new products and services.

1 2 3 4 5 6 7

386

SECTION B: BIOGRAPHIC INFORMATION

1. Please indicate your position in the organisation

Senior Management 1 Middle Management 2 Supervisory 3 Other 4

2. Please indicate your gender

Female 1 Male 2

3. Please indicate your age group (Years)

21 - 30 1 31–40 2 41–50 3 51 – 60 4 >60 5

4. Please indicate your highest educational qualification(s)

‘O’ Level 1 ‘A’ Level/Diploma 2 Bachelor’s degree

3 Post graduate degree/diploma

4 Other (please specify)

5

5. Please indicate your period of current employment (Years)

1 – 5 1 6–10 2 11–15 3 16-20 4 21 and above 5

6. Please indicate the sector of your organisation

Manufacturing 1 Financial 6 Agriculture 2 Natural Resources 7 Mining 3 Information Communication Technology 8 Tourism 4 Infrastructure Development 9 Energy 5 Other (Please specify) 10

7. Please indicate the number of employees in your organisation

≤50 1 51-100 2 101-150 3 151–200 4 >200 5

8. Please indicate the years of existence of your organisation

1 - 5 1 6 – 10 2 11 - 15 3 16 – 20 4 Over 21 5

9. Please indicate the annual turnover of your organisation

< US$ 500 000 1 US$ 500 000 – 999 999 2 US$ 1 000 000 – 1 499 999 3 US$ 1 500 000 – 1 999 999 4 >US$ 2 000 000 5

THANK YOU FOR YOUR TIME AND COOPERATION

387

Documents

MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF … · 2018. 1. 8. · MANAGEMENT PERCEPTIONS REGARDING PRIVATISATION OF . PARASTATALS IN ZIMBABWE . By . Edward Tshuma . Submitted