The Privatisation Programme in Zambia
Questions and Answers:
The Privatisation Programme and the Zambia Privatisation
Agency
Q 1. When did the privatisation programme start
in Zambia and why was it started?
A structured, finalised privatisation programme
started in July 1992 with the enactment of the Privatisation Act of 1992,
which gave the legal basis to the privatisation programme and gave the
ZPA the responsibility for all government privatisation issues. It took
some months to establish the physical operations of the Agency and by 1993
the Agency had commenced fully fledged operations.
The MMD govt which came into power in 1991 had
included privatisation in its manifesto as a centrepiece of economic reform.
Privatisation in Zambia came about more as a practical way to recapitalise
the State Owned Enterprises(SOEs) and to let them operate efficiently and
viably.
A large number of SOEs were consuming a lot of
resources from the state in terms of investment requirements and subsidies
whilst achieving a negative return to Government; also several members
of SOE management were allegedly not accountable for commercial return
but for political patronage and, therefore, an important move was to remove
all political interference in the running of SOEs. Furthermore, other reasons
for instituting the programme was that in the parastatal era there was
monopoly in manufacturing and hence no consumer choice; there was no capital
investment for future growth; the government's role in providing social
goods had become weakened/ sidelined.
Q 2. What is the relationship between privatisation
and the Structural Adjustment Programme?
The Stuctural Adjustment Programme is a broad based
economic reform programme initiated by the MMD Government in 1991 to effect
its policy of liberalisation of the economy. The privatisation programme
is an important part of this programme in helping to create a private sector
driven economy with little interference from Government.
Q 3. What is the Divestiture Sequence Plan?
The Divestiture Sequence Plan is a long term plan/list
of SOEs scheduled for privatisation. The plan was drawn at the commencement
of the privatisation programme and had an initial 150 SOEs. This Plan contains
a number of different tranches( groups) of SOEs each with its own timetable.
Q 4. How does the privatisation process work?
Q 5. How far has the programme gone?
As at 28 February, 2005 the ZPA had privatised 262 companies
and units and is currently working on the following SOEs : Zambia
National Commercial Bank,Nitrogen Chemicals,
Mukuba Hotel, Njanji Commuter Services Limited,
Maamba Collieries Limited and
Zambia State Insurance Corporation.
In addition to these, there are still a number
of large complicated transactions to be done such as TAZARA; Mulobezi Railway;
Kariba Minerals Limited; ZAMPOST and ZESCO.
Q 6. What are the achievements?
Q 7. What are the advantages and disadvantages of
privatisation?
The advantages of privatisation can be said to be
the same as its objectives which are:
It is difficult to say that there are disadvantages
as a direct result of privatisation. However, the immediate impact was
that most of the SOEs over-employed prior to the privatisation programme.
Regardless of whether or not they made profit, these SOEs maintained their
levels of labour as they received Government subsidies. After privatisation
it was inevitable that some workers had to be laid off. Nevertheless, it
can be said that there has been a small percentage of privatised companies
in which the objectives of their privatisation were not fully achieved
as they were unable to survive due to circumstances outside privatisation.
The reasons for the collapse of some SOEs after
privatisation vary but include the following:
Examples of companies that have failed are:
However it must be noted that the reason that many
of these companies failed was due to existing problems prior to their privatisation
and not as a result of the privatisation, for example National Drug Company
whose privatisation failed was non-operational even at the time at which
it was privatised; while Crushed Stone Sales had been recommended for closure
while it was a parastatal; LENCO whose engineering operations are not currently
functional, had ceased its manufacturing operations before it was privatised.
Furthermore it must be noted that only 3% of
privatised companies have so far been unsuccessful compared to other countries,
for example, Germany at 15%.
Q 8. What has been the impact of privatisation on
the economy?
Amongst some of the short term effects on the economy
so far are that:
As these are the effects in the short/ medium term,
it must be added that generally, more time should be allowed before a full
and conclusive judgement can be made.
Q 9. What help does ZPA's Social Impact Department
provide to retrenchees?
The Social Impact Department has a limited role to
play in so far as retrenchements are concerned during privatisation. Their
primary responsiblity is to ensure that legitimate retrenchemnts are managed
in the most acceptable and sympathetic manner- and that employees are paid
promptly and in accordance with their approved conditions of service. On
the other hand, ZPA almost always insist that a clause be included in the
sale agreement, that the new owners shall retain all employees in the company
at conditions not less favourable than those obtaining at the time of sale.
However, these may fluctuate upwards or downwards depending on the economic
environment that may affect the firm with time.
Q 10. What is the Privatisation Trust Fund?
The ZPTF is a fund where some designated shares of
a privatised company are held in trust for eventual sale (as market conditons
permit) to the citizens of Zambia and the investor public through the Lusaka
Stock Exchange (LuSE).
Q 11. How many companies from the privatisation programme
have been floated on the Stock Exchange and which companies have been earmarked
for flotation?
Flotations so far:
Chilanga Cement
Rothmans
Zambia Sugar
Zambia Breweries
National Breweries
Pamodzi Hotel
BP Zambia
Shoprite Checkers
ZAMEFA
Planned Flotations:
ZamHort
Lonrho
Refined Oil Producers
Agip
Kafironda
Nanga Farms
Mpongwe Development Company
Zamox
Northern Breweries
ZCCM (Stage 2 of its privatisation)
Q 12. Why Should ZPA not float all the companies
on the LUSE?
Of the approximately one hundred and fifty companies
to be privatised, probably no more than thirty companies are good candidates
for public flotation. Public companies, quoted on the Stock Exchange, are
generally large companies with a good capital base and established markets
for their products.The remainder are companies that are smaller, or where
the business risk associated with the company and its products are significant,
and these will be offered for trade sale using an open competitive tender
system. This allows investors who have appropriate technical expertise
and business experience to own and run the company, take the risks, and
ensure viability. There are a few number of companies that are owned jointly
by the Goverment and minority share holders who have legal rights of preemption.
This means they have the first right to purchase the shares being offered
by the goverment. The ZPA recognised that some of these companies are also
candidates for public flotation and therefore the negotiation strategy
requests the minority shareholder to waive part of their rights to shareholding
so that the Zambian citizens can purchase those shares and participate
in the future of the company.
Q 13. How can one buy shares of a public company
?
You can buy shares and become a shareholder by purchasing
shares from a registered broker/dealer in a ZPA sponsored parastatal company
when it is privatised the Privatisation Trust Fund, or by buying existing
shares already quoted on the LUSE
Transparency in the Privatisation Programme
Does Zpa follow up cases of asset stripping?
Yes, ZPA does follow up cases of asset stripping
- and this is under the Internal Audit Unit of the Agency, a professional
team which monitors and investigates any alleged wrongdoing to ensure that
public assets in parastatal companies are protected - and that those involved
in asset stripping are investigated and prosecuted.
Apart from ZPA, the Directorate of Sate Owned
Enterprises also has a responsibility to ensure that assets of parastatal
companies are safeguarded until they are properly disposed of by ZPA.
To what extent do political leaders have an advantage
in the privatisation process ?
Political leaders have no advantage in the process.
Politicians are treated on equal terms as any other bidder wishing to purchase
a company. In fact, there are a number of cases where bids by political
leaders have failed due to stiff competition from other bidders, or their
own inability to raise the necesssary funding. Furthermore, political leaders
have an obligation to disclose their intention to bid for any SOE; this
requirement is enshrined in the Privatisation Act.
What measures are in place to ensure that political
leaders or others, do not buy companies through third parties?
There is a requirement under the Privatisation Act
for the bidder to disclose full information about himself and those actually
constituting the investor group/company. Anybody using a surrogate third
party to avoid identification does so at their own risk and detriment.
Should the bid be successful, the shares will be issued to the person or
company that bid for the SOE and not to an unknown third party. It is unlikely
that a majority of political leaders can take the risk that their appointed
surrogates may turn around and say they own the company and leave the politician
with no legal recourse.
Can it really be said that the ZPA is not corrupt?
How can one be convinced that behind closed doors non-transparent transactions
are not made?
Does ZPA check the reputations and background of
investors coming in to invest in Zambia through the purchase of a privatised
company, especially as this might impact on employees and Zambians in general?
ZPA does check the background, track record, and
business plans of the investor/ potential buyer. ZPA then negotiates a
Sales Agreement whereby explicit intentions and commitments are undertaken
with respect to Zambia's interests and participation of employees. Typically
this may cover conditions of service, training and development, possible
equity purchase by employees and other forms of employee involvement -
also plans for sourcing goods in Zambia, sale of shares to Zambians, Zambian
participation at Management and Board levels, etc. ZPA is however, not
an investigating agency and this role lies squarely with other law enforcement
agencies.
ZPA Funding
How much money has been realised by the ZPA since
the privatisation programme began?
Approximately US$ 101 million plus K25.6bn cash has
been raised from the sale of parastatals.This does not include proceeds
from the sale of ZCCM.
In addition, a further US$150 million and K65
billion in liabilities have been assumed by purchasers. Approximately US$300
million and K9 billion have been pledged as capital expenditure commitments.
(NB: ALL figures above are as at 31st January,
2004).
Where do the proceeds of sale of companies go?
The proceeds of sales go into an account held and
controlled by the Ministry of Finance called the Privatisation Revenue
Account (PRA). It is up to the Government to decide what to do with the
money within the alternatives provided for in the Privatisation Act. Section
39 (2) of the Privatisation Act provides for use of proceeds as follows:
How much donor funds does ZPA obtain?
The ZPA receives technical and financial assistance
from different donors which has included USAID, GTZ, World Bank, UNDP,
Danida, Norad and ODA. This assistance is mainly in support personnel,
privatisation studies and computer equipment.
USAID alone has spent around US$20 million on
privatisation support and the World Bank a minimum of US$2 million so far.
It is not easy to determine the amounts involved because the funds are
not made through the Agency but are rather paid directly to the Government
by the donor agencies.
Isn't the money that the ZPA generates from the sales
of parastatals enough to cover all its costs?
Initially, it was hoped that the programme would
provide a considerable direct return of capital to Government. Whilst there
has in fact been a financial return, it has been considerably less than
was first estimated. One of the reasons for this is that as the ZPA embarked
on the privatisation programme, it became obvious that some companies were
in a poor managerial, financial and technological state; many were in such
a poor state that they had to be liquidated with considerable lay-offs;
and therefore the monies that were expected to be realised from these companies
in fact were not. Nevertheless, having said that, it must be remembered
that amongst the most significant and lasting benefits will not be the
immediate cash received but the capital investments the new owners make
into privatised companies and the capacity of those investments to create
more wealth, quality goods and services for both the investors and the
Zambian people.
Furthermore, from the money that ZPA realises
from sales, it is Government, specifically the Ministry of Finance, that
decides what portion of this is to return to ZPA for its operations and
how much of it is to be spent on other Government projects, as is tabled
in Section 39 of the Privatisation Act.
Is the Zambia Privatisation Agency subject to Audit?
Yes, ZPA is subject to Audit - the Agency has an
Internal Audit department which reports to the ZPA Board. Periodic audits
are also carried out by independent auditors. Furthermore, ZPA is subject
to random audits by the Auditor General's Office.
It must be noted that the Privatisation Revenue
Account is audited by the Auditor General's office and independent audits
are carried out by public accounting firms regularly commissioned by ZPA
to look at all aspects of accounting, financial and procedures of ZPA's
operations.
The requirement of such audits is provided for
in the Privatisation Act.
ZPA and Post Privatisation Monitoring
Which institution has the responsibility of monitoring
investment pledges made by investors and enshrined in the sales agreement?
The ZPA is responsible for this. It has a Post Privatisation
Unit which monitors investment pledges. In addition, the unit is currently
undertaking a comprehensive post privatisation study to assess the impact
of privatisation since the inception of the Agency.
What is the role of ZPA in companies already privatised?
ZPA has a responsiblity to ensure that an investor
lives up to all agreements and commitments made in the negotiations for
sale of each company - including terms of payment, capital to be invested,
treatment of employees, conditions of service at least comparable to their
parastatal terms, and various other commitments such as Zambian participation,
etc
The ZPA reponsibility, however, does not extend
to involvement in the day-to-day running of these companies as this would
defeat the fundamental purpose of privatisation.
Social impact of privatisation
How is privatisation helping resuscitate the Zambian
economy and how is it improving the welfare of the Zambian workforce as
some workers are laid off at privatisation because of over employment during
the "state-owned" era?
What is a Golden Share and does Government intend
using such a share under the privatisation programme?
A Golden Share is a share with special rights to
enable the Government in the national interest to intervene in the operations
of the privatised company. The intervention may be initiated by Government
due to actions taken by the company that may not be in the interest of
the nation. Golden Shares are held only in exceptional cases in strategic
companies for example in privatised units of ZCCM.
Incentives to foreign investors
Are foreign investors favoured by government compared
to local investors through the provision of better incentives to the former?
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