POLICY MONITORING AND RESEARCH · PDF filePARASTATALS POLICY ANALYSIS MAXIMISING ZAMBIA'S NATIONAL RESOURCES AND ECONOMIC ... Presidential Review Committee, South Africa 5 Baltic Institute

PMRC PARASTATALS POLICY ANALYSIS

Unlocking Zambia's Potential

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MAXIMISING ZAMBIA’S NATIONAL RESOURCES AND ECONOMIC GROWTH

POLICY MONITORING AND RESEARCH CENTRE

Prepared by: Alex Armitage (Head of Research and Analysis) with the support of Masuzgo Mtawali (Head of Communication). Reviewed by Salim Kaunda (Head of Monitoring and Evaluation) and Chileshe Chaunga (Researcher).

ABBREVIATIONS

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CTPD Centre for Trade, Policy and Development

FRA Food Reserve Agency

GDP Gross Domestic Product

IDC Industrial Development Corporation

IMF International Monetary Fund

IDM Investment and Debt Management

NACL National Airports Corporation Limited

OECD Organisation for Economic Cooperation and Development

PRC Presidential Review Commission

PAC Public Accounts Committee

RBZ Reserve Bank of Zimbabwe

SOE State Owned Enterprise

SAP Structural Adjustment Program

WB World Bank

ZIMCO Zambia Industrial and Mining Corporation Limited

ZPA Zambia Privatisation Agency

ZRL Zambia Railways Limited

PARASTATALS POLICY ANALYSIS

MAXIMISING ZAMBIA'S NATIONAL RESOURCES AND ECONOMIC GROWTH

CTPD Centre for Trade, Policy and Development

FRA Food Reserve Agency

GDP Gross Domestic Product

IDC Industrial Development Corporation

IMF International Monetary Fund

IDM Investment and Debt Management

NACL National Airports Corporation Limited

OECD Organisation for Economic Cooperation and Development

PRC Presidential Review Commission

PAC Public Accounts Committee

RBZ Reserve Bank of Zimbabwe

SOE State Owned Enterprise

SAP Structural Adjustment Program

WB World Bank

ZIMCO Zambia Industrial and Mining Corporation Limited

ZPA Zambia Privatisation Agency

ZRL Zambia Railways Limited

4| PMRC Parastatals Policy Analysis

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5PMRC Parastatals Policy Analysis |

Parastatals form a significant proportion of the economy in many countries across Africa and around the world. The World Bank estimated that parastatals account for close to 20% of the total non-agricultural economic activities in an average low-income developing country, often operating in strategic economic sectors with a focus on achieving public policy goals. The functions, legal frameworks and ownership policies of parastatal organisations differ from country to country, however, broadly speaking, a Parastatal, or State Owned Enterprise (SOE) may be described as ‘a legal entity that undertakes commercial activities on behalf of an owner government’. Parastatals often play a vital role in the provision of services to the population; access to water, electricity, sanitation and transportation in most developing countries in Southern Africa is almost entirely dependent on the state. In principle, parastatals can be powerful instruments of social and economic development. Furthermore, parastatals have potential to provide important contributions to the gross domestic product, and are among the main sources of urban employment in developing countries, playing a central role in upgrading labour skills and raising social standards. However, despite these public benefits, parastatals have a consistently negative reputation. Poor management, weak governance, lack of policy, and unsuitable economic conditions can result in parastatals becoming a ‘crushing financial and political burden’ to nations. In Zambia, between 2010 and 2012, a total of ZMW 18.35 Billion (around US$ 3.5 Billion) was under query for audited parastatals, pointing to significant financial and management issues, and major consequences for the Zambian economy.

The Minister of Finance has stated that ‘the Government…is not satisfied with the overall performance of SOEs as it is not getting the best returns from its investments’. Responsible ownership of enterprises often develops into excessive political interference in the management of companies. Undue state control and support for public investment can also present challenges in maintaining a level playing field in markets, hindering private sector development. Given the involvement of parastatals in providing essential services such as water, power and sanitation to large segments of the population, and the significant national investment in such enterprises, effective governance and performance of these institutions is critical. This would translate into higher revenue returns and increased social and economic development.This PMRC policy analysis begins by presenting an overview of parastatals in Zambia, focusing on the current operations, ownership and economic performance of institutions. The analysis identifies some of the key issues affecting parastatals and provides insight into recent audit information based on reports from the Office of the Auditor General. Looking beyond Zambia, the analysis considers some of the challenges and failures in parastatal organisations around the world, as well as success stories and potential economic benefits. Drawing on these examples, as well as international guidelines, key points for effective operation of parastatals are presented, along with recommendations for future action in Zambia to improve the economic performance and viability of parastatals to ensure a positive contribution to the economy.

INTRODUCTION

1 OECD, 2014, Southern African Guidelines On The Governance Of State-Owned Enterprises, Revised Draft January 2014, OECD Publishing

2 The literature on government-owned enterprises refers to institutions with a variety of terms including parastatals, state-owned enterprises (SOEs), and public enterprises. For the purpose of this policy analysis, the term ‘parastatals’ will be utilized to maintain consistency, however this does not assume a uniform definition of these organisations around the world.

3 Sultan Balbuena, S. (2014), “State-owned Enterprises in Southern Africa: A Stocktaking of Reforms and Challenges”, OECD Corporate Governance Working Papers, No. 13, OECD Publishing.

4 Mokwena, T., 2012, Restructuring of State Owned Enterprises in South Africa, Presidential Review Committee, South Africa

5 Baltic Institute of Corporate Governance, 2012, Governance of State Owned Enterprises in the Baltic States6 Ministry of Finance, 2012. Zambia: State Owned Enterprise Policy. Republic of Zambia7 OECD, 2005, Guidelines on Corporate Governance of State-Owned Enterprises, OECD Publishing, 2005


HISTORY, OWNERSHIP AND LEGAL FRAMEWORK

As with many other African countries, state-owned organisations in Zambia were seen as key institutions to economic growth and development in both pre-and post independence era.

Economic reforms and nationalisation processes in the late 1960s led to the incorporation of the Zambia Industrial and Mining Corporation Limited (ZIMCO), established to maintain direct ownership and management of parastatals. These parastatals accounted for up to 80% of the economic activity of the country at the time.8 However, by the 1980s, poor management and changing economic circumstances meant parastatals had become largely unprofitable, causing a significant drain on the national budget, and leading to repeated calls for privatisation and private-sector growth.9 Consequently, from the early 1990s a substantial privatisation program was implemented.

Following recommendations of the Structural Adjustment Program (SAP), the Zambia Privatisation Agency (ZPA) was established under the Privatisation Act in 1992, and ZIMCO was dissolved in 1995. By 2005, around 280 of the total 320 state owned institutions had been privatised by ZPA.10

Today, the Government is the sole owner of 29 parastatals and shares ownership in 12 enterprises (Table 1). These institutions operate in a range of industries in Zambia, dominating some of the key economic sectors of energy, communications, transport and media. Parastatals are also some of the largest, formal sector employers in Zambia, highlighting their central role in the economy. There is no overarching law, regulation or guiding policy for the operation or governance of parastatals. However, the majority of parastatals are legally founded under the Companies Act. As such, they are required to follow the same rules and procedures as other companies.

Remaining parastatals are statutory corporations established by an Act of Parliament. A number of companies are further subject to sector legislation and subordinate

8 Ministry of Finance, 2012. Zambia: State Owned Enterprise Policy. Republic of Zambia9 World Bank, 2008, Proposal for Strengthening the Governance and Performance Monitoring of Zambia’s State

Owned Enterprises10 Ministry of Finance, 2012. Zambia: State Owned Enterprise Policy. Republic of Zambia

1980’s

2005

320

40

state owned institutions

state owned institutions

PARASTATALS IN ZAMBIA


regulation.11 In addition to these enterprises, a number of other parastatal or statutory bodies exist under the control of various sector

ministries. These institutions are funded by Government and often in place for regulatory purposes, without aims of generating profit.

NO. COMPANY SHARES (%) SECTOR ACT

1 Contract Haulage Limited 100 Transport CA

2 Engineering Services Corporation 100 Pontoons CA

3 Indeni Petroleum Products Limited 100 Energy CA

4 Lusaka South Multi-Facility Economic Zone 100 Business CA

5 Medial Stores Limited (MSL) 100 Health CA

6 MOFED (London) Limited 100 Real Estate CA

7 MOFED (Tanzania) Limited 100 Cargo CA

8 Mpulungu Harbour Corporation 100 Marine CA

9 Mulungushi Village Complex 100 Real Estate CA

10 Mupepetwe Engineering Company 100 Engineering CA

11 National Airports Corporation Limited (NACL) 100 Airports CA

12 National Housing Authority 100 Housing AP

13 National Savings and Credit Bank (NSCB) 100 Finance AP

14 Nitrogen Chemicals of Zambia Limited 100 Agriculture CA

15 Postal Services Corporation Limited (ZAMPOST) 100 Communication CA

16 Times of Zambia 100 Media CA

17 Zambia Conslidated Copper Mines Investment 100 Mining CA

18 Zambia Daily Mail 100 Media CA

19 Zambia Education and Publishing House 100 Publishing AP

20 Zambia Electricity Supply Corporation Limited 100 Energy CA

21 Zambia Forest and Forestry Industrial Corp. Ltd 100 Forestry CA

22 Zambia National Broadcasting Corporation 100 Broadcasting AP

23 Zambia National Building Society 100 Housing CA

24 Zambia Printing Company 100 Printing CA

25 Zambia Railways Limited (ZRL) 100 Transport CA

26 Zambia State Insurance Corporation (ZSIC Group) 100 Insurance CA

27 Zambia State Lotteries Board 100 Lottery AP

11 World Bank, 2008, Proposal for Strengthening the Governance and Performance Monitoring of Zambia’s State Owned Enterprises

Table 1: Parastatals Enterprises in Zambia


The Ministry of Finance holds all applicable shares of parastatals. The Investment and Debt Management (IDM) Department of the Ministry of Finance is responsible for monitoring and supervising enterprises, tracking corporate governance procedures, and overseeing Boards and management. Relevant line or sector ministries then control parastatals and their operations. The Ministry plays a key role in the operation of parastatals; most have the Secretary to the Treasury, the Permanent Secretary or other Ministry officials appointed to their board. The Ministry of Finance is further empowered to vet other board candidates, oversee parastatals liquidation and receivership, and provide credit to parastatals.12

KEY CHALLENGES

Parastatal performance has improved since the privatisation program of the 1990s with some dividends and profits, albeit limited, being reported, and sectors such as energy or transportation gradually developing. A number of reforms have been implemented focusing on partial privatisation, increasing professional board membership and commercialisation of enterprises. However, significant challenges remain, relating to the objectives of parastatals, issues of governance, and management and monitoring systems, ultimately affecting the social and economic development of Zambia.

NO. COMPANY SHARES (%) SECTOR ACT

28 Zambia Telecommunications Company Limited 100 Telecomms CA

29 Zamcapitol Enterprises 100 Engineering CA

30 Zambia-China Mulungushi Textiles of Zambia 87.6 Textiles CA

31 Development Bank of Zambia 67 Finance AP

32 Tazama Pipelines Limited 60 Energy CA

33 Kariba Minerals Limited 50 Mining CA

34 Lusaka Trust Hospital 50 Health CA

35 Tanzania-Zambia Railways Authorit (TAZARA) 50 Transport AP

36 Indo-Zambia Bank Limited 40 Finance CA

37 Afrox Zambia Limited 30 Chemical CA

38 Zambia National Commerical Bank (ZNCB) 25 Finance CA

39 Mukuba Hotel 24.4 Hospitality CA

40 Kagem Mining Company 20 Mining CA

41 Nanga Farms Plc 14.27 Agriculture CA

12 Sultan Balbuena, S. (2014), “State-owned Enterprises in Southern Africa: A Stocktaking of Reforms and Challenges”, OECD Corporate Governance Working Papers, No. 13, OECD Publishing.

Source: Accountant General, Ministry of Finance (CA – Companies Act, AP – Act of Parliament)


The goals and intentions of parastatals are not clearly defined: institutions are subject to multiple and competing objectives, on the one hand fulfilling public service obligations whilst on the other needing to operate as profitable, commercial enterprises. Strategic plans were found to be lacking in many parastatals, with the Public Accounts Committee (PAC) identifying this as an issue requiring immediate attention, stating that no organisation can operate without such plans and expect to produce results at the end of each financial year.13

Governance of parastatals also continues to be a challenge in Zambia, with a recent World Bank (WB) study revealing that ‘significant political interference remains in the system’,14 leading to a lack of independence on boards, with the OECD finding most boards have an ‘overwhelming majority of government officials’.15 Parastatals generally have no explicit objectives, targets or performance monitoring for boards or management, and supervision on loss-making parastatals is lacking. The PAC reinforced this in their 2011 report, identifying a ‘clear laxity by supervising boards and management of parastatal bodies’ and pointing to ‘indicators of internal control lapses’ in most of the parastatal bodies. Notable governance weaknesses are further highlighted in research undertaken by the Ministry of Finance, pointing to the absence of a Board or CEO for extended periods

and weak internal controls. The IDM also pointed to a lack of mandate and resources to ensure the state’s ownership rights are exercised effectively, raising questions over ownership responsibilities.

With no concrete performance monitoring framework to develop targets and appraise parastatals, as well as no specific legislation or plans guiding the supervision and monitoring of these enterprises, enforcing and adhering to controls and management procedures remains challenging, as reflected in parastatal audit reports.

PARASTATAL AUDIT FINDINGS

Key challenges of parastatals can be quantified and assessed during auditing processes of institutions. Audits of public expenditure are undertaken by the Office of the Auditor General in order to determine how effectively and efficiently public funds and resources have been utilized for the benefit of society. Their role is to enhance accountability and transparency in the utilisation of public resources appropriated by parliament for the benefit of the people of Zambia. This is achieved through scrutinising both financial and non-financial records to determine if regulations that govern the expenditure of public funds and resources are being complied with, in accordance with Article 121 of the Constitution of Zambia, Public Audit Act, Cap. 378 and the Public

13 Republic of Zambia, 2012, Report Of The Public Accounts Committee On The Report Of The Auditor-General On The Accounts Of Parastatal Bodies For The Year Ended 31 December 2011


15 OECD (2012), OECD Investment Policy Reviews: Zambia 2012, OECD Publishing


Finance Act No. 15 of 2004. Results on how public resources have been applied are reported to Parliament and examined by the Public Accounts Committee (PAC) before a Treasury Minute is compiled listing issues and recommendations.16

The Office of the Auditor General undertakes audits of selected parastatals on an annual basis. A risk profile is completed for each institution, taking into consideration the following:§ Budget (or funded amount): the

higher the amount the greater risk assumed;

§ Date of the previous audit;§ Public interest and concern; and§ Issues raised in the previous

audit.

Each aspect is weighted, and based on this assessment institutions considered higher risk are prioritised

in the auditing schedule. Institutions with lower risk may not be audited during a financial year given budget, time and capacity constraints. Furthermore, the 34 institutions incorporated under The Companies Act are subject to annual external auditing by separate, independent auditors in addition to that of the Auditor General, reducing the pressure on the Auditor General to audit on an annual basis. In other cases where institutions are established by an Act of Parliament, the Office of the Auditor General is the sole auditor, and therefore has the mandate to audit these on an annual basis, either directly or through appointed independent auditors.

Given the scenario that institutions are commonly not audited on an annual basis by the Auditor General, audits assess financial performance over all the years since the last audit.

16 Commonwealth Nations: Zambia – Office of the Auditor General. Sourced at http://www.commonwealthofnations.org/partner/office_of_the_auditor_general/ on 04/03/2013

ZMW 4.7Billion

ZMW 6.5Billion

Category 2010 2011 2012Total No. Institutions with Audit Queries 21 20 19

No. Parastatal Enterprises with Audit Queries 9 5 6

No. Parastatal Bodies / Statutory Bodies with Audit Queries

12 15 13

ZMW 7.1Billion

Figure 1: Parastatal Summary of Audit Queries 2010 - 2012

Source: Adapted by Policy Monitoring and Research Centre (PMRC), 2014 from Auditor General’s Report 2010-2012


For example, the Zambian Wildlife Authority did not appear in the 2009, 2010 or 2011 audit reports, so auditing in 2012 covered the previous 4 years, 2009 – 2012. As such, the figures below cannot be utilised to draw conclusions of improvement or decline in audit queries over the years, as multiple, varying years for institutions are included in each. Over the 3 years under review, a total of ZMW 18.35 Billion (rebased) was under query for audited institutions. Depending on the particular audit and institution, this in some cases includes financial years ranging from 2006 to 2012.

Figure 2 provides an indication of the top five audit query categories listed in the Parastatal Auditor General Reports for 2010, 2011 and 2012. A

number of issues have continued to rank highest across the years for parastatals:§ Uncollected funds / debt;§ Under value / irregular sale;§ Non-remittance of tax;§ Poor record keeping;§ Lack of contracts; and§ Irregular payments.

These recurring issues suggest generally poor financial management, with funding available for operations significantly affected by failure to collect monies owed, sale of assets below value, and irregular payments outside of financial regulations. Poor documentation through lack of record keeping and contracts also suggests generally weak management amongst companies. These issues contribute to a lack

Uncollected Debt / Funds

Non Remittance Of Tax

Poor Planning

Under Value / Irregular Sale

Uncollected Debt / Funds

Poor Record Keeping

Non Remittance of Tax

Lack Of Contracts

Non Remittance of Tax

Irregular Payment

Unvouched Expenditure

Weak Procurement / Contract

Lack Of Contracts

Unpaid Employees

Non Submission of Expenditure Returns

ZMW 2,550,391,912/35.87%ZMW 898,181,317/12.63%

ZMW 855,468,381/18.14%

ZMW 1,444,967,611/22.14%ZMW 3,158,144,489/48.38%

ZMW 2,652,520,517/56.25%

ZMW 820,740,857/11.54%

ZMW 423,208,766/8.97%

ZMW 706,890,060/10.83%

ZMW 728,024,294/10.24%

ZMW 280,868,212/5.96%

ZMW 495,322,173/7.59%

ZMW 456,940,197/6.43%

ZMW 112,799,364/2.39%

ZMW 335,712,190/5.14%

2010

2011

2012

MILLION (ZMW)

Figure 2: Top Five Parastatal Query Categories 2010 – 2012 (ZMW)

Source: Adapted by Policy Monitoring and Research Centre (PMRC), 2014 from Auditor General’s Report 2010-2012


This analysis also reveals the following six Ministries to rank in the top three highest audit query amounts each year:§ Ministry of Finance;§ Ministry of Transport, Works,

Supply and Communication;§ Ministry of Agriculture and

Livestock;§ Ministry of Education, Science,

Vocational Training and Early Education;

§ Ministry of Tourism; and § Ministry of Local Government

and Housing.

Further details of audit query categories and audit query amount per institution are included in Appendix A, along with a summary of parastatal audit queries according to Ministry.

WHAT DO AUDIT FINDINGS AND RESEARCH STUDIES MEAN?

The combination of audit results and review findings highlight ongoing challenges with parastatals despite reforms in the last decade. Ultimately, this suggests that the Government is not receiving optimal economic returns for their investment. Essentially, the 40 parastatal enterprises should be producing dividends, providing value for money for state investment. However, less than a quarter of existing enterprises are achieving this, with a total of ZMW 58.98 Million reported between 2010 and 2012 (Figure 3). Only Nanga Farms, Afrox, Indo-Zambia Bank,

NACL is 100% owned by Government, managed under the Ministry of Transport, Works, Supply and Communication. Audits completed in 2012 for the financial years 2010, 2011 and 2012 revealed a total of ZMW 36.6 Million under query, almost 90% of which related to failure to follow procurement procedures. NACL noted that procurement issues had been challenging and referenced new agreements with Zambia Public Procurement Authority (ZPPA) designed to simplify the process and address challenges of long lead times affecting operations. The Director of Airport Services indicated that NACL has never received a bailout or undergone recapitalisation, with airport operations self-funded. This suggests effective management of the company, enhanced by the fact that the majority of board members of experts in their fields (engineering, aviation etc) adding value to the company. The balance and integration of commercial and social objectives is seen at NACL. The company vision is to make a profit, however, policy goals are also important. Government investment has allowed the expansion of airports across Zambia designed to enhance air travel, trade and tourism and therefore fulfil trade and tourism policy goals. During an interview, the Director of Airport Services also noted the annual losses of Mfuwe Airport, covered by other operations in order to provide economic and support to the region for other sectors.

National Airports Corporation Limited

of profits and revenue generation for the Government. Furthermore, Government is affected by the non-remittance of tax contributions from a number of parastatal organisations. Research has highlighted ongoing issues of weak governance, lack of planning or strategy and lack of monitoring or guiding principles of operation, all of which are reflected in the audit findings.


MoFED London, Zambia National Building Society have continued to report dividends between 2010 and 2012, the majority of whom have much lower percentage ownership by government.

A number of organisations have been recapitalised17 over the years. Whilst this may be a natural process for enterprises aimed at achieving social or policy objectives, it suggests malfunctions in other commercially orientated organisations. One example is the Zambia Railways (ZRL) rehabilitation project; this upgrade will reduce pressure on road infrastructure and lower cargo transport costs promoting economic development and fulfilling a policy

The FRA, a 100% Government-owned parastatal body under the Ministry of Agriculture and Live-stock, was audited in 2011, with the financial years of 2009, 2010 and 2011 under review. The Agency ranked highest in terms of query amount in the 2011 Audit Report, with a total ZMW 3.5 Billion of audit queries, 75% of which was due to poor planning. This included ZMW 1.5 Billion spent on excess procurement of crops and almost ZMW 1.1 billion of excess stock losses, indicating poor planning and management. A recent review undertaken by the Centre for Trade, Policy and Development (CTPD) highlighted ongoing weak-nesses within FRA, as the Agency has reportedly committed to purchasing over 900,000 metric tonnes of maize this season, 28 tonnes above its storage capacity. Furthermore, this amount is 400,000 tonnes above previous purchasing com-mitments aimed at increasing private sector par-ticipation. The CTPD questions the role of FRA in crop marketing and maize price setting beyond previous focus on administering national food re-

serves, reinforcing the need for an overall review and assessment of parastatal organisations and their roles in Zambia. Between 2010 and 2012, significant national resources were committed to FRA, with over 50% of the agriculture budget between 2010 and 2010 allocated to the Agency, however, storage grain losses amounted to 32% in 2013, compared to an average of only 3-5% for private companies. The tendency for FRA to purchase beyond its stated aims is crowding out the private sector (80% of surplus was pur-chased by FRA between 2010 and 2012), reducing competition, and reducing regional compara-tive advantages, as high operating and storage costs resulted in a loss of US$ 91 – 177 per tonne exported between 2010 and 2012. Common argu-ments against parastatals relate to their impact on private sector development, their operational inefficiencies, and their undefined and conflicting roles, all of which need to be considered in the case of the FRA.

Food Reserve Agency

17 Provision of financing including options for shares or bonds to provide greater financial stability.

Figure 3: Parastatal Dividend Reports, 2010-2011 Finance

Source: IDM Department, Ministry of Finance

Mill

ions

(ZM

W)

2010 2011 2012

ZMW

12,

433,

978

ZMW

25,

940,

656

ZMW

20,

607,

274


objective. However, it could be argued that weak management and lack of ongoing maintenance contributed to the declining conditions of rail networks. Regardless of any specific underlying reasons, over the last three years, ZMW 7.47 Billion of additional support has been allocated for parastatals, with key benefactors indicated in Table 2. This is significant when compared to the ZMW 58.98 Million reported as profits or dividends. Whilst a proportion of the amount inputted into parastatals has gone towards upgrades and expansion, specifically for ZESCO, ZRL, and TAZARA, it is clear that parastatal companies are in no way generating sufficient profits to sustain either operational or capital expenditure.

CURRENT STEPS AND ACTION TO ADDRESS PARASTATAL CHALLENGES

The lack of action to address ongoing issues and operational impediments is a cause for concern. The PAC Report 2011 highlights minimal improvement regarding irregularities relating to the failure to prepare financial statements, key to assessing financial performance and transparency in operations. Furthermore, there have been ‘repeated calls for implementation’ of recommendations to develop performance indicators for management teams and prepare a status report on the loss-making parastatal bodies, to no avail. The World Bank identified reform action items following a review and engagement with the Ministry

Table 2: Parastatal Budget Allocations 2012, 2013 and 2014

Source: Estimates of Revenue and Expenditure for Years 2012, 2013 and 2014

YEAR AMOUNT APPROVED (ZMW) KEY BENEFACTORS AMOUNT (ZMW)

2012 1,311,269,506

ZESCO Power Rehabilitation Project 864,000,000

ZRA Modernisation 120,000,000

2013 3,340,599,243ZESCO Minihydros 719,747,527

ZRL Rail Line Rehabilitation 612,000,000

2014 2,823,043,271

ZESCO Recapitalisation 550,000,000

ZCCM-IH Recapitalisation 270,000,000

TAZARA Recapitalisation 216,000,000


of Finance in 2007/8. Key reform recommendations included the creation of an ownership unit and policy, a performance monitoring regime, and legislation to support the new framework, yet many of these reforms remain in progress or unimplemented.

A State Owned Enterprise Policy was drafted by the Ministry of Finance and approved by Cabinet Office in 2012 in an attempt to address and respond to World Bank reform recommendations.

These steps suggest overall efforts to improve management and control in parastatals. An implementation framework was outlined in the Policy, however, political developments and

changing priorities have hindered policy implementation. Debate around the introduction of an Industrial Development Corporation (IDC) to oversee parastatals followed the approval of the Policy. The IDC has been incorporated, however, little information on its roles and responsibilities, organisational structures, or aims and priorities is available, nor is it clear to what extent the IDC will follow the State Owned Enterprise Policy. Minimal progress has been made in implementing the IDC or any reforms to address ongoing challenges with parastatals, meaning poor performance, audit queries and weak governance remain significant barriers to economic growth of parastatals.

Source: Adapted by PMRC, State Owned Enterprise Policy, Ministry of Finance

Figure 4: State Owned Enterprise Policy Recommendations

A supervisory and performance

monitoring regime;

1 4

2

5

3

6Development of corporate governance guidelines;

Institutional arrangements for coordination and

supervision of enterprises;

Capacity building programmes

for sustainable monitoring and

supervision; and

The enactment of specific

legislation relating to ownership,

reporting functions and an Ownership Unit;

The conversion of statutory

companies to companies under the

Companies Act.


Unfortunately, there is no shortage of examples of unsuccessful parastatals around the world, with reports of significant financial losses, continuing subsidies and government support, bailouts and eventual privatisation common. The following outlines the status and key challenges with parastatals in Zimbabwe, South Africa and Nigeria. Given the role parastatals play in supporting policy goals and service delivery for the population, the developmental status of these countries has also been considered, to determine to what extent linkages exist between parastatals performance and the support they provide to economic and social growth.

ZIMBABWE

Zimbabwe has 76 public enterprises or “parastatals”. Of these, 18 enterprises are 100 percent owned by the Government, and another 14 have a major Government stake through shares held by the Reserve Bank of Zimbabwe (RBZ) In addition, there are local authorities that are fully owned by the Government of Zimbabwe but operate under specific Acts. The macroeconomic conditions during the last decade and priorities of Government planning led to the significant deterioration of

infrastructure in many parastatals. Most of the generation, transmission, and distribution assets in the electricity sector are currently in poor condition, with additional financial support concerns. Similarly, the technical, operational, and financial performance of the railway sector is deteriorated, implying significant operational and investment needs.18 Reports in early 2014 indicated that state owned enterprises owed each other more than US$ 1 Billion, and much of the country’s US$ 6.1 Billion public debt was attributed to losses by poorly managed parastatals.19 Reform programmes have been discussed and outlined, yet changes and implementation of such reforms remains slow.

SOUTH AFRICA

Reports of parastatals in South Africa indicate a history of inefficient management and underperformance, with the need for numerous government interventions and bailouts over the years. Concerns about mismanagement, uncertainty and growing employee dissatisfaction have posed challenges for good governance and accountability within these public entities.20 Furthermore, it is argued that the state has become a major driver of inflation, as state owned port, railway, road, power and

18 Poverty Reduction and Economic Management Unit, Africa Region Zimbabwe Public Expenditure Notes: Financial and Regulatory Challenges in Infrastructure Parastatals and Sectors, August 2010, World Bank

19 Kasanda, J. 2014, Public Discussion Paper on the Establishment of the Industrial Development Corporation, Presented to the Economics Association of Zambia Discussion Forum, Lusaka, Zambia

20 Parker, S. 2010, Are South Africa`s Parastatals Accountable Enough, Institute for Security Studies

LESSONS LEARNT: CHALLENGES WITH PARASTATALS


airport authorities have increased prices at rates that are considerably above the targeted or actual inflation rates, fuelling further downstream inflation.21 Poor performance of parastatals led to the creation of the Presidential Review Commission (PRC) in 2009 to define parastatals and their role in the developmental State, while investigating the state of enterprises in relation to the objectives of government, looking at governance and ownership, business viability, and strategic management and operational effectiveness.22 With extensive national resources allocated for public investment, with ZAR 3.2 trillion earmarked in 2012 for major development projects by parastatals such as Transet and Eskom, the assessment was much needed given performance concerns.23 The macro review undertaken by PRC revealed 715 entities serving various social and commercial objectives in different spheres of Government. The PRC highlighted significant weaknesses and threats to enterprises achieving these objectives and responding to the States developmental agenda. The review concluded with a series of reform principles focusing on the need for a clear guiding strategy, improved governance and policies, and monitoring and evaluation for parastatals.

However, implementation of these reforms, and potential benefits or

improvements to parastatals, is still in progress.24

NIGERIA

Studies in Nigeria over the last two decades indicated key challenges with parastatal operations. Many were seen to be unresponsive to changing economic conditions, without management and technical capabilities to undertake successful commercial operations. Significant investments were made in parastatal sectors yet performance was poor, reportedly due to conflicting objectives, excessive government control, absence of a competitive market, and inadequate techno-managerial capacity.

According to the International Monetary Fund (IMF), the drain of SOEs in 1998 was equal to 5% of the nation’s GDP, with around US$3.1 Billion spent on the institutions. Research in 2003 indicated average returns on investments of less than 0.5%.25 Whilst the creation of parastatals at independence was considered appropriate, the changing circumstances and poor performances indicate a need to review government participation and macro-economic policy.

21 Ashton, G. 2011, How South Africa’s State Owned Enterprises Drive Up Inflation, The South African Civil Society Information Service

22 Prinsloo, L. 2010, ‘Gigaba signals yet more taxpayer support for State firms’ http://www.engineeringnews.co.za/article/gigaba-signals-yet-more-taxpayer-support-for-state-firms-2010-12-06

23 Finweek, 2012, http://finweek.com/2012/09/10/government-reconsiders-parastatals-model/24 Presidential Review Committee on State Owned Enterprises, 2013, Executive Summary of the Final Report,

Volume 1, Republic of South Africa25 Tsunabavyon, A. 2014, Performance of Public Enterprises in Nigeria and the Privatization Option, International

Journal of Public Administration and Management Research (IJPAMR), Vol. 2, No 2, March, 2014


PARASTATALS AND DEVELOPMENT INDICATORS

The examples above indicate generally weak performance and management of parastatals in Zimbabwe, South Africa and Nigeria.

Steps are being taken to implement reforms, however, the results or outcomes of these reforms are largely unknown. What is significant, is the participation of parastatals in service delivery across all the above countries, as well as Zambia.

The World Bank indicated that around 20% of the total non-agricultural economic activities in an average low-income developing country relate to parastatals. As such, it is interesting to consider key indicators of water supply, power, sanitation, transport and communication given parastatal intervention in these sectors.

Table 3 presents indicators for the above countries under review as well as the United Kingdom, France and Norway, all countries below with successful parastatal involvement The population is considerably younger in developing countries, with a much lower life expectancy, lower GDP per capita and higher percentage of population below the poverty line, as would be expected.

Whilst these indicators obviously are not solely dependent on parastatals, service provision to the population will contribute to such outcomes.

Comparisons of road and rail networks to the country land size reveal much lower figures across all developing countries than developed nations, as do comparisons of the number of mobile subscribers and internet hosts to population figures.

Again, these aspects are also dependent on factors such as available funding and national capacity, however, all the above countries have specifically targeted transport and communication sectors for parastatal involvement. South Africa performs better than Zimbabwe, Nigeria and Zambia in terms of access to water and sanitation, and mobile and internet connectivity (Table 3), significant given the review and reform process across parastatals underway since 2009.

The need for continued investment and reforms in parastatal organisations is reinforced by the lower performance of indicators in these countries.

20%of the total non-agricultural economic activities in an average low-income developing country

RELATE TO PARASTATALS


Indicator Zimbabwe RSA Nigeria Zambia UK France Norway

Population Below 15 Years 38.40% 28.30% 43.20% 46.20% 17.30% 18.70% 18.20%

Life Expectancy at Birth 55.7 49.5 52.6 51.8 80.4 81.6 81.6

GDP per Capita US$ 600 US$ 11,500

US$ 2,800

US$ 1,800

US$ 37,300

US$ 35,700

US$ 55,400

Public Debt (% of GDP) 202% 45% 19% 32% 91.10% 93.40% 30.10%

Population Below Poverty Line 68% 31% 70% 61% 16.20% 7.90% N/A

Unemployment 95% 25% 24% 15% 7.20% 10.20% 3.60%

Access to Improved Water Supply: Urban

97% 99% 79% 85% 100% 100% 100%

Access to Improved Water Supply: Rural

69% 88% 49% 49% 100% 100% 100%

Access to Improved Sanitation: Urban

52% 82% 31% 56% 100% 100% 100%

Access to Improved Sanitation: Rural

32% 62% 25% 34% 100% 100% 100%

Roadways (km for every 1000 km2) 47 51 31 49 1630 1605 3085

Railways (km for every 1000 km2) 8 16 3 3 68 46 14

Mobile cellular subscribers (for every 1000 people)

900 1400 600 700 1300 9399 1113

Internet Hosts (for every 1000 people)

2 90 0.7 1 1270 2600 6970

Table 3: Key Development and Economic Indicators

Source: CIA World Factbook

DEVELOPING COUNTRIES DEVELOPED COUNTRIES


Despite challenges and weaknesses in operations of parastatals in Zambia and elsewhere in Africa, parastatals around the world remain significant actors in competitive markets, both domestically and globally. The OECD identifies a number of potential benefits of parastatal organizations, including the ability to correct market failures, to provide a reliable method of generating government revenue, to foster industries that are economically or socially desirable, and to create efficiency through the creation of monopolies, for instance in the large-scale provision of goods and services.26

Zambia was not alone in undertaking large scale privatization and reducing state ownership of enterprises in the 1980s and 1990s. However, state ownership has in several instances elsewhere expanded rather than

declined over the last decade. Such expansion has had notable success; 204 of the world’s 2,000 largest publicly listed firms were identified as parastatals in 2010-2011. The combined sales of these parastatals amounted to US$ 3.6 Trillion, representing more than 10% of the aggregate sales of the 2,000 world’s largest companies. The value of sales of these parastatals is tantamount to almost 6% of the world GDP.

Parastatals form a significant proportion of many developed countries economies, with a large proportion of enterprises operation in the utilities sector. In OECD countries, almost half of total parastatal employment was in the power and transportation sectors in 2009. A further quarter was found in the financial sector.27 France has the largest number of

LESSONS LEARNT: POTENTIAL BENEFITS OF PARASTATALS

26 Kowalski, P. et al. (2013), “State-Owned Enterprises: Trade Effects and Policy Implications”, OECD Trade Policy Papers, No. 147, OECD Publishing

of the world’s 2,000 largest publicly listed firms were identified as parastatals in 2010-2011

Combined sales of these parastatals amounted to

204

US$ 3.6 TrillionThe value of sales of these parastatals is tantamount to almost

of the world GDP.6%


employees in parastatal companies, at 838,574 in 2009/10, with a total value exceeding US$ 157.7 Billion (Table 2). Norway is lower at 230,195, however, this represents 9% of total formal employment in the country. Parastatals in many OECD countries represent an average of around 15% of Gross Domestic Product (GDP). This increases to 20-30% in countries such as Finland, Czech Republic, Poland and Norway.28

Parastatals have been noted as generating important economic gains for economies, enabling access to better technologies and cheaper inputs and unleashing competitive pressures that raise productivity.29 Parastatals are also contributing to development agendas; one study in Ireland noted that parastatals are responsible for delivering a substantial part of Ireland’s National Development Plan (2007 – 2013) and are taking on significant liabilities to enable them to deliver on this.30

Despite successes, the trend of increasing parastatal involvement is slowing; comparison of parastatal employment figures to previous OECD studies reveal an average of 10% of country’s employment in parastatals in 2005 compared to less than 3% in 2010. Countries with a continued strong presence

of parastatals reflect this; French parastatal employment declined from 5% to 3% of total employment, and Finnish from 10% to less than 4% between 2005 and 2010.31 In some cases poor financial or operational results have led to recent transfers of parastatals to private investors.

The extent of state ownership today is related to a country’s history, its level of economic and institutional development, political system, macroeconomic situation, access to various resources, and integration with international trade and investment markets.32

What cannot be overlooked is the continuing contribution of parastatals to the global economy, to national GDP and employment. Furthermore, some contemporary state-owned enterprises today are among the largest and fastest expanding multinational companies around the world, competing with private firms for resources, ideas and consumers in both domestic and international markets.

As such, with the right policies, management and governance practices and procedures in place, parastatals can have significant economic benefits.

27 Christiansen, H. (2011), “The Size and Composition of the SOE Sector in OECD Countries”, OECD Corporate Governance Working Papers, No. 5, OECD Publishing

28 Christiansen, H. (2011), “The Size and Composition of the SOE Sector in OECD Countries”, OECD Corporate Governance Working Papers, No. 5, OECD Publishing

29 Kowalski, P. et al. (2013), “State-Owned Enterprises: Trade Effects and Policy Implications”, OECD Trade Policy Papers, No. 147, OECD Publishing.

30 Forfas, 2010, The Role of State Enterprises: Providing Infrastructure and Supporting Economic Recovery: Ireland31 Christiansen, H. (2011), “The Size and Composition of the SOE Sector in OECD Countries”, OECD Corporate

Governance Working Papers, No. 5, OECD Publishing.32 Kowalski, P. et al. (2013), “State-Owned Enterprises: Trade Effects and Policy Implications”, OECD Trade Policy

Papers, No. 147, OECD Publishing


The successes, challenges and downfalls of parastatals experienced by countries around the world, provide critical lessons for Zambia. It is important to consider the factors behind effective development, the guidelines for operation, and challenges faced by parastatals, in order to compare and apply these to Zambia to contribute to development and improve the governance and use of public resources. Parastatal restructuring processes in South African highlighted that there is no single consideration or simplistic framework of issues to determine how public enterprises can be more effective.33 It is certainly correct that there is no template or guide that can be appropriate to all, given the unique situations of history, politics, development and national goals that have led to present day country scenarios.

STRATEGY AND REGULATORY FRAMEWORK

Core to the management of parastatals is the development of a strategy to inform a states evolution and the specific

role of public enterprises to achieve long-term sustainable growth. This should involve the development of a typology separating parastatals according to their main objectives, including commercial, semi-commercial, or fully sponsored with social or public objectives.34

As such, clear goals can be defined and success properly evaluated. Recent parastatal reforms in countries such as Estonia and Lithuania have targeted a clear separation of companies working under commercial objectives and companies working to achieve policy objectives.

This strategy for development needs to be supported by an effective regulatory framework that is both enforceable and implementable. Research in the Baltic States highlighted that countries that have strong and well-enforced legal frameworks tend to have better governed parastatals.35

Such an overarching regulatory framework for parastatals, although

LESSONS FOR FUTURE PARASTATAL DEVELOPMENT IN ZAMBIA

However, reviews and evaluations of parastatals operating around the world since the mid-1900s provide sound principals to consider, specifically:

§ A guiding strategy and regulatory framework;

§ The ownership status and role of Government;

§ The parastatal board; and§ Reporting and auditing processes.

33 Mokwena, T., 2012, Restructuring of State Owned Enterprises in South Africa, Presidential Review Committee, South Africa


35 Baltic Institute of Corporate Governance, 2012, Governance of State Owned Enterprises in the Baltic States


recommended in the recent State Owned Enterprises Policy, is still lacking in Zambia, as is a long-term strategy outlining the development and role of parastatals to social and economic development.

OWNERSHIP AND ROLE OF GOVERNMENT

One of the key issues affecting parastatals and drawing considerable public criticism and concern, is the extent

of involvement of Government in institutions, and the potential compromises to effective governance and operation this entails. The OECD guidelines for Southern Africa highlight the need for a clear separation between the states ownership functions and other state functions that may influence the conditions for parastatals. Government should not be involved in day-to-day management of institutions, but rather afford companies full autonomy to achieve their objectives.36

A review of parastatals in South Africa pointed to the multiple, potentially conflicting roles of Government, as shareholder, policy maker and regulator of parastatals. As such, the review notes the insufficiency of oversight mechanisms, and the lack of competition and fair market conditions, given that parastatals are insulated failure, provided with

bailouts when necessary.37

Direct involvement of the state in operational decisions is considered poor practice, leading to calls for improved corporate governance. The OECD guidelines highlight the need for an ownership policy that defines the overall objectives and rationale for state ownership and the state’s role in the governance of parastatals. A review of parastatals in Zambia undertaken by the World Bank in 2007/8 identified this as a key concern, recommending that ownership functions be strengthened and an Ownership Unit and Policy with supporting legislation be created to improve corporate governance.

Plans for the creation of such a unit and policy were included in the Zambia State Owned Enterprise Policy that remains unimplemented. Similar recommendations have been included in reforms elsewhere, such as Estonia and Latvia, which have established Ownership Units to support ministries and improve transparency in the use of state capital.38

PARASTATAL BOARD

Key to the operation of parastatals, and one of the principle tools of good governance, is a professional board of

directors that provides oversight over executives. This goes hand


37 Institute of Directors Southern Africa, 2011, State-owned enterprises: Governance responsibility and accountability, Public Sector Working Group: Position Paper 3

38 Baltic Institute of Corporate Governance, 2012, Governance of State Owned Enterprises in the Baltic States


in hand with the development of ownership policies, limiting the direct involvement of the state, controlling political influence over operations, and ensuring independent and professional management of institutions. A core issue identified with parastatals in South Africa was the lack of qualified and experienced board members, with the need to appoint a board with suitable qualifications and balance of non-executive directors strongly recommended during reviews.39 Global OECD Guidelines on Parastatals highlight the key roles of a board in developing corporate strategies to achieve objectives and in monitoring the implementation of these strategies by senior management. A Board needs to exercise objective and independent judgement over an institution, and is critical to its success.40 Furthermore, membership on Boards needs to be subject to annual performance evaluations and monitoring, to ensure constant good governance, success and transparency in operations.41

REPORTING AND AUDITING

Following the establishment of an effective legal framework, long-term vision, strategy,

ownership policy, and operational structures, procedures need to be put

in place to continue progress, focusing on clear systems of reporting and auditing. Good governance relies on such systems of control to minimise risk, the potential for corruption and conflicts of interest. As such, it is essential that parastatals develop efficient internal audit processes and be subjected to an annual, independent external audit based on international standards. These auditing and accounting standards should be of the same, high quality as listed companies.42

In South Africa it was noted that the Government must adopt a strategy to review the progress and performance of public enterprises in the form of periodic reviews. This entails not only auditing, but the production of an annual integrated report, focusing on the impact of an organisation in economic, environmental and social contexts, and including a statement on the effectiveness of financial controls.43

The OECD further supports this, importantly calling for the publishing and disclosure of information on financial performance, value and progress of parastatals to ensure public accountability.44

39 Institute of Directors Southern Africa, 2011, State-owned enterprises: Governance responsibility and accountability, Public Sector Working Group: Position Paper 3



42 OECD, 2005, Guidelines on Corporate Governance of State-Owned Enterprises, OECD Publishing, 200543 Institute of Directors Southern Africa, 2011, State-owned enterprises: Governance responsibility and

accountability, Public Sector Working Group: Position Paper 344 OECD (2012), OECD Investment Policy Reviews: Zambia 2012, OECD Publishing


Review of parastatal audit reports over the last three years reveals significant amounts of public resources under query, with repeated cases of uncollected funds or debt, under value or irregular sales, non-remittance of tax, poor record keeping, lack of contracts and irregular payments affecting numerous parastatal enterprises or bodies. Reported dividends for parastatals between 2010 and 2012 amounted to ZMW 58.98 Million, however, budget allocations in the same period amounted to ZMW 7.47 Billion.

It is clear that issues of governance, management, planning, monitoring and evaluation need to be addressed in order for Government to get the best returns on their investments and serve the interests of the nation. Significant parastatal reforms and restructuring have been undertaken over the last two decades, reducing Government’s investment portfolio and financial risk or losses. However, continued action, attention and reforms are needed to ensure constant progression. The implications of parastatal involvement on social and economic development cannot be under-estimated, nor can the economic benefits, employment creation and skills generation seen in other countries around the world.

Zambia has received support from the World Bank and OECD in undertaking

reviews and recommending reforms based on experiences elsewhere and economic best practice. The steps taken by the Investment and Debt Management Department in Ministry of Finance indicate positive progress in responding to these recommendations and improving parastatal performance.

However, the lack of implementation of the State Owned Enterprises Policy as well as the debate and lack of clarity or action around the Industrial Development Corporation (IDC) have severely limited the potential for impact or improvement. Given the time lapse since the introduction of this Policy in 2012, and ongoing economic changes and developments, PMRC therefore recommends the following as immediate actions to improve the situation:

§ Further comprehensive review of all parastatal organisations to determine their individual financial and management status in comparison to Government financial contributions and reported dividends or profits;

§ Development of a plan or strategy mapping the overall objectives and development strategy for parastatals as well as defining policy, social and commercial objectives that need to be achieved;

§ Reconsideration of the State Owned Enterprise Policy in

RECOMMENDATIONS AND CONCLUSION


light of Government priorities to determine an implementation strategy and plan to ensure key elements are actioned, parastatal boards and management are improved and monitored, and relevant legal frameworks and provisions enacted to support developments;

§ Review of IDC progress and provision of information on the role, functions, framework, and implementation of the corporation to the public to promote public debate and discussion and ensure citizens remain informed and aware of national developments;

§ Review of controls and procedures in revenue collection, planning, financial management, reporting and monitoring to reduce unnecessary financial losses, maximise national

resources, and ensure regular reporting to inform the general public and key stakeholders of progress; and

§ Review of auditing processes at the Office of the Auditor General and available capacity, skills and resources to improve auditing and enhance transparency and accountability of parastatal organisations.

With the implementation of the above recommendations, Zambia can continue to improve parastatal performance, increase revenue collection, and reduce the loss or abuse of public resources. Furthermore, Zambia can continue to support and grown key economic sectors such as energy, transport, communications, and media to foster social and economic development and reduce poverty.


REFERENCES

Ashton, G. 2011, How South Africa’s State Owned Enterprises Drive Up Inflation, The South African Civil Society Information Service

Baltic Institute of Corporate Governance, 2012, Governance of State Owned Enterprises in the Baltic States

Centre for Trade, Policy and Development (CTPD), 2014, ‘Zambia needs to re-look at the current role of the Food Reserve Agency if maize marketing is to work for Zambia’, Article published in The Post, Wednesday 8th October, 2014.

Christiansen, H. (2011), “The Size and Composition of the SOE Sector in OECD Countries”, OECD Corporate Governance Working Papers, No. 5, OECD Publishing. http://dx.doi.org/10.1787/5kg54cwps0s3-en

Finweek, 2012, ‘Government Reconsiders Parastatal Model in South Africa, http://finweek.com/2012/09/10/government-reconsiders-parastatals-model/

Forfas, 2010, The Role of State Enterprises: Providing Infrastructure and Supporting Economic Recovery: Ireland

Institute of Directors Southern Africa, 2011, State-owned enterprises: Governance responsibility and accountability, Public Sector Working Group: Position Paper 3

Kasanda, J. 2014, Public Discussion Paper on the Establishment of the Industrial Development Corporation, Presented to the Economics Association of Zambia Discussion Forum, Lusaka, Zambia

Kowalski, P. et al. (2013), “State-Owned Enterprises: Trade Effects and Policy Implications”, OECD Trade Policy Papers, No. 147, OECD Publishing. http://dx.doi.org/10.1787/5k4869ckqk7l-en

Mokwena, T., 2012, Restructuring of State Owned Enterprises in South Africa, Presidential Review Committee, South Africa

OECD (2012), OECD Investment Policy Reviews: Zambia 2012, OECD Publishing, http://dx.doi.org/10.1787/9789264169050-en

OECD, 2005, Guidelines on Corporate Governance of State-Owned Enterprises, OECD Publishing, 2005

OECD, 2014, Southern African Guidelines On The Governance Of State-Owned Enterprises, Revised Draft January 2014, OECD Publishing

Parker, S. 2010, Are South Africa`s Parastatals Accountable Enough, Institute for Security Studies

Poverty Reduction and Economic Management Unit, Africa Region, Zimbabwe Public Expenditure Notes: Financial and Regulatory Challenges in Infrastructure Parastatals and Sectors, August 2010, World Bank

Presidential Review Committee on State Owned Enterprises, 2013, Executive Summary of the Final Report, Volume 1, Republic of South Africa

Prinsloo, L. 2010, ‘Gigaba signals yet more taxpayer support for State firms’, Engineering News, http://www.engineeringnews.co.za/article/gigaba-signals-yet-more-taxpayer-support-for-state-firms-2010-12-06

Republic of Zambia, 2012, Report Of The Public Accounts Committee On The Report Of The Auditor-General On The Accounts Of Parastatal Bodies For The Year Ended 31 December 2011


Sultan Balbuena, S. (2014), “State-owned Enterprises in Southern Africa: A Stocktaking of Reforms and Challenges”, OECD Corporate Governance Working Papers, No. 13, OECD Publishing. http://dx.doi.org/10.1787/5jzb5zntk5r8-en

Tsunabavyon, A. 2014, Performance of Public Enterprises in Nigeria and the Privatization Option, International Journal of Public Administration and Management Research (IJPAMR), Vol. 2, No 2, March, 2014

World Bank, 2008, Proposal for Strengthening the Governance and Performance Monitoring of Zambia’s State Owned Enterprises


APPENDIX A

The following tables present audit query data from the Auditor General Reports for Parastatals for 2010, 2011 and 2012. Audit Queries are first disaggregated according to query category for each of the years, presenting query amounts and the percentage distribution (Tables 1 – 3). Tables 4 – 6 present audit queries according to institution, indicating the audit query amount, highest query category, and years included in the audit.

Table 1: Parastatal Audit Queries by Category, 2010

CATEGORY: 2010 TOTAL (ZMW) PERCENTAGE DISTRIBUTION

Uncollected Debt / Funds 2,550,391,912 35.87%Under Value / Irregular Sale 898,181,317 12.63%Non Remittance of Tax 820,740,857 11.54%Irregular Payment 728,024,294 10.24%Lack Of Contracts 456,940,197 6.43%Unpaid Employees 453,372,355 6.38%Failure To Follow Procurement Procedures 314,769,434 4.43%Unpaid Accounts / Debt 289,930,201 4.08%Unaccounted For Funds 228,286,214 3.21%Overpayment 106,229,827 1.49%Misapplication Of Funds 93,406,067 1.31%Unvouched Expenditure 49,030,770 0.69%Poor Record Keeping 45,725,626 0.64%Weak Procurement / Contract Work 33,684,699 0.47%Unaccounted For Stores 18,975,239 0.27%Unretired Imprest 6,132,181 0.09%Non Recovery Of Loans And Advance 5,008,348 0.07%Wasteful Expenditure 4,896,046 0.07%Undelivered Material 2,949,722 0.04%Others 1,376,475 0.02%Unreconciled Accounts 1,028,425 0.01%Misappropriation Of Funds 752,082 0.01%Irregular Drawing Of Fuel 367,751 0.01%Non Submission Of Expenditure Returns 110,625 0.00%Unaccounted For Revenue 15,003 0.00%TOTAL 7,110,325,667 100.00%


Table 2: Parastatal Audit Queries by Category, 2011


Poor Planning 2,652,520,517 56.25%Poor Record Keeping 855,468,381 18.14%Non Remittance Of Tax 423,208,766 8.97%Weak Procurement / Contract 280,868,212 5.96%Non Submission of Expenditure Returns 112,799,364 2.39%Unpaid Employees 83,086,796 1.76%Uncollected Debt / Funds 80,786,896 1.71%Irregular Payment 79,922,722 1.69%Wasteful Expenditure 50,203,470 1.06%Unvouched Expenditure 26,640,254 0.56%Unreconciled Accounts 24,749,193 0.52%Failure To Follow Procurement Procedure 18,454,527 0.39%Unaccounted For Stores 7,292,236 0.15%Lack Of Contracts 6,936,103 0.15%Unaccounted For Funds 3,843,712 0.08%Unretired Imprest 2,925,638 0.06%Lack of Insurance 2,049,981 0.04%Under Value / Irregular Sale 1,970,240 0.04%Overpayment 1,306,391 0.03%Others 284,378 0.01%Irregular Drawing Of Fuel 186,101 0.00%Undelivered Materials 143,180 0.00%Unapproved expenditure 100,907 0.00%Unaccounted For Revenue 99,457 0.00%Misappropiation of Funds 24,830 0.00%Overdrawing Of Funds 15,902 0.00%

TOTAL 4,715,888,155 100.00%


Table 3: Parastatals Audit Queries by Category, 2012


Non Remittance Of Tax 3,158,144,489 48.38%Uncollected Debt / Funds 1,444,967,611 22.14%Lack Of Contracts 706,890,060 10.83%Unvouched Expenditure 495,322,173 7.59%Unpaid Employees 335,712,190 5.14%Unaccounted For Stores 142,317,875 2.18%Weak Procurement / Contract Work 96,670,754 1.48%Lack of Insurance 39,359,350 0.60%Irregular Payment 36,837,807 0.56%Failure To Follow Procurement Procedure 26,486,768 0.41%Unpaid Accounts / Debt 24,569,104 0.38%Wasteful Expenditure 5,493,905 0.08%Undelivered Materials 5,296,792 0.08%Poor Record Keeping 4,089,464 0.06%Unretired Imprest 2,189,609 0.03%Under Value / Irregular Sale 2,165,124 0.03%Others 914,125 0.01%Unaccounted for Funds 222,673 0.00%Non Submission of Expenditure Returns 76,652 0.00%Non Recovery Of Loans And Advances 66,000 0.00%Overpayment 44,474 0.00%Unaccounted For Revenue 25,065 0.00%

TOTAL 6,527,862,065 100.00%


Table 4: Parastatal Audit Queries According to Institutions, 2010

PARASTATAL: 2010 TOTAL (ZMW) MOST SIGNIFICANT CATEGORY

% OF TOTAL QUERIES

YEARS AUDITED

National Pension Scheme Authority 2,863,322,288 Uncollected Debt /

Funds 79.33% 2008 - 2010

Tanzania Zambia Railways 1,298,569,543 Non-Remittance of Tax 47.08% 2006 - 2010

Zambia Telecommunication Company 1,205,306,176 Under Value /

Irregular Sale 69.53% 2009 - 2010

Tobbaco Board of Zambia 648,453,051 Irregular Payment 99.04% 2005 - 2010University Of Zambia 388,182,860 Unpaid Employees 80.53% 2009 - 2010Citizens Economic Empowerment Commission 171,560,867 Uncollected Debt /

Funds 87.20% 2009 - 2010

Zambia Postal Services Corporation 161,248,008 Non Remittance

of Tax 94.78% 2008 - 2010

University Teaching Hospital 92,621,839 Poor Record Keeping 49.28% 2009 - 2010Administrator General and Official Receiver 55,404,396 Irregular Payment 75.78% 2008 - 2010

MOFED Tanzania Limited 42,339,573 Failure To Follow Procurement Procedures

55.18% 2008 - 2010

National Housing Authority 40,845,502 Non Remittance of Tax 39.59% 2009 - 2010

Lusaka Water And Sewerage Company 29,070,214 Weak Procurement /

Contract Work 68.80% 2007 - 2010

Ministry of Education 25,616,437 Unvouched Expenditure 35.67% 2010

Electoral Commission Of Zambia 25,174,609 Unvouched Expenditure 48.03% 2009 - 2010

Zambia National Building Society 19,678,114 Non Remittance of Tax 58.40% 2007 - 2010

Mulungushi International Conference Centre 15,287,002 Non Remittance

of Tax 80.11% 2010

National Institute Of Public Administration 14,766,393 Unaccounted For

Stores 65.72% 2008 - 2010

ZESCO 10,644,901 Weak Procurement / Contract Work 100.00% 2005-2010

National Savings And Credit Bank 1,028,425 Unreconciled Accounts 100.00% 2010

Examination Council Of Zambia 606,830 Lack Of Contracts 22.25% 2010

Road Traffic and Safety Agency 598,640 Wasteful Expenditure 100.00% 2010

TOTAL 7,110,325,667 UNCOLLECTED DEBT / FUNDS 35.87% -




% OF TOTAL QUERIES

YEARS AUDITED

Food Reserve Agency 3,530,590,269 Poor Planning 75.13% 2009 - 2011

Copperbelt University 354,496,881 Non Remittance Of Tax 75.19% 2009 - 2011

Zambia Revenue Authority 323,681,967 Weak Procurement / Contract 80.08% 2010 - 2011

TAZAMA Pipelines Limited 121,676,511 Non Remittance Of Tax 43.78% 2009 - 2011

Energy Regulation Board 115,239,261 Non Submission of Expenditure Returns 97.58% 2008 - 2011

Zambia National Broadcasting Corporation 92,222,885 Non Remittance

Of Tax 97.93% 2009 - 2011

Public Service Pension Fund 51,838,024 Wasteful Expenditure 94.42% 2009 - 2011

Workers' Compensation Fund Control Board 37,576,199 Uncollected Debt /

Funds 45.51% 2008 - 2011

Nkana Water And Sewerage Company Limited 20,647,106 Unreconciled

Accounts 100.00% 2009 - 2011

Electoral Commision of Zambia 15,846,160 Unvouched Expenditure 51.30% 2011

MOFED Tanzania Limited 13,492,031 Uncollected Debt / Funds 38.65% 2011

North Western Water Supply And Sewerage Company Limited 11,890,183 Non Remittance

Of Tax 64.57% 2008 - 2011

Zambia Daily Mail Limited 9,214,581 Unaccounted For Stores 61.81% 2009 - 2011

Examination Council Of Zambia 4,886,761 Unreconciled Accounts 83.94% 2011

Office Of The Administrator General And Official Receiver 3,917,639 Uncollected Debt /

Funds 46.75% 2011

Mweru and Bangweulu Water Transport Boards 2,314,878 Poor Record Keeping 49.46% 2009 - 2011

Zambia Enviromental Management Agency 1,810,235 Uncollected Debt /

Funds 81.39% 2009 - 2011

Western Water And Sewerage Company Limited 1,702,040 Lack of Insurance 96.11% 2009 - 2011

Mpulungu Harbour Corporation Limited 1,683,020 Under Value /

Irregular Sale 92.31% 2009 - 2011

Rural Electrification Authority 1,161,524 Unvouched Expenditure 66.57% 2009 - 2011

TOTAL 4,715,888,155 POOR PLANNING 56.25% -




% OF TOTAL QUERIES

YEARS AUDITED

Zambia Wildlife Authority 2,425,782,979 Non Remittance Of Tax 99.14% 2009 - 2012

National Pension Scheme Authority 1,997,625,298 Uncollected Debt /

Funds 65.92% 2011 - 2012

Southern Water And Sewerage Company 538,994,995 Unvouched

Expenditure 90.45% 2010- 2012

University Of Zambia 333,820,132 Unpaid Employees 97.96% 2011 - 2012

Times Printpak Zambia 294,937,015 Non Remittance Of Tax 98.94% 2010- 2012

Nitrogen Chemicals Of Zambia 242,784,299 Non Remittance Of Tax 89.50% 2009 - 2012

Zambia Railways Limited 230,075,426 Non Remittance Of Tax 63.49% 2009 - 2012

ZSIC Group Of Companies 195,785,340 Uncollected Debt / Funds 53.85% 2010- 2012

The Judiciary 52,090,137 Weak Procurement / Contract Work 94.42% 2011 - 2012

Lukanga Water And Sewerage Company 48,271,637 Unaccounted For

Stores 93.10% 2010- 2012

National Airports Corporation Limited 36,601,825 Irregular Payment 90.25% 2010- 2012

Mulungushi University 32,969,679 Non Remittance Of Tax 72.84% 2009 - 2012

Zambia Development Agency 32,371,839 Lack Of Contracts 46.42% 2010- 2012Eastern Water And Sewerage Company 21,905,319 Unaccounted For

Stores 72.43% 2011 - 2012

Citizens Economic Empowerment Commission 13,094,288 Weak Procurement /

Contract Work 59.84% 2011 - 2012

Electoral Commission Of Zambia 12,800,486 Unaccounted For Stores 50.84% 2012

ZAMNET Communications System 8,098,938 Non Remittance Of Tax 59.61% 2010- 2012

Zambia Bureau Of Standards 6,403,744 Poor Record Keeping 63.86% 2009 - 2012Indeni Petroleum Refinery Company Limited 3,448,690 Undelivered

Materials 100.00% 2012

TOTAL 6,527,862,065 NON REMITTANCE OF TAX 48.38% -


Table 7: Summary of Parastatal Audit Queries by Ministry, 2010

MINISTRY NO. OF PARASTATALS TOTAL (ZMW)

Ministry of Finance 3 2,884,028,827Ministry of Transport, Works, Supply and Communication 5 2,708,061,939Ministry of Agriculture and Livestock 1 648,453,051Ministry of Education, Science, Vocational Training and Early Education 3 414,406,127Ministry of Commerce, Trade and Industry 1 171,560,867Office of the President 3 95,345,398Ministry of Health 1 92,621,839Ministry of Local Government and Housing 2 69,915,716Ministry of Tourism 1 15,287,002Ministry of Mines, Energy and Water Development 1 10,644,901TOTAL 21 7,110,325,667



Ministry of Agriculture and Livestock 1 3,530,590,269Ministry of Education, Science, Vocational Training and Early Education 2 359,383,642Ministry of Finance 1 323,681,967Ministry of Mines, Energy and Water Development 4 239,887,531Ministry of Information, Broadcasting and Labour 3 139,013,665Office of the President 3 71,601,823Ministry of Local Government and Housing 3 34,852,167Ministry of Transport, Works, Supply and Communication 1 13,492,031Ministry of Lands, Natural Resources and Environmental Protection 1 1,702,040Ministry of Commerce, Trade and Industry 1 1,683,020TOTAL 20 4,715,888,155



Ministry of Tourism 1 2,425,782,979Ministry of Finance 2 2,193,410,638Ministry of Local Government and Housing 3 609,171,951Ministry of Education, Science, Vocational Training and Early Education 2 366,789,811Ministry of Information, Broadcasting and Labour 2 303,035,953Ministry of Transport, Works, Supply and Communication 2 266,677,250Ministry of Agriculture and Livestock 1 242,784,299Office of the President 2 64,890,623Ministry of Commerce, Trade and Industry 3 51,869,872Ministry of Mines, Energy and Water Development 1 3,448,690TOTAL 19 6,527,862,065


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