By Victor Bhoroma
The successful re-opening of the Cold Storage Company (CSC) as CSC-Boustead Beef on the 18th of August 2022 marks a new chapter in one of the country’s oldest state entities which had been closed for 22 years and a drop of success in Zimbabwe’s privatization story. CSC was formed in 1937 as a commission responsible for the processing and marketing of beef in the country. The government then deregulated the industry in 1992 thereby ending CSC monopoly and paving way to various private players that now dominate the sector. At its peak, the entity exported beef products worth over US$45 million per year and processed up to 150,000 tonnes of beef and associated products per annum. Most of its exports were to the European Union (EU) where it had it had a lucrative export quota of 9,100 tonnes. Further, the giant used to employ over 4,500 people directly and indirectly thereby making it one of the country’s biggest employers. Hence, the revival of the entity is key to the re-industrialization of Bulawayo and access to market for small holder farmers who supply over 90% of beef in the market.
CSC Privatization Deal
In May 2019, the Zimbabwean government signed a US$400 million joint venture farming Concession Agreement with Boustead Beef from the United Kingdom. The venture was based on a Rehabilitation, Operate and Transfer (ROT) funding model. The fund was allocated for capital expenditures and as well as working capital requirements for the business to pay for debt estimated to be over US$43 million. Rentals of US$100,000 per year would be paid to the government during the first five years of the concession agreement. Under the deal, the investor will run CSC abattoirs in Bulawayo, Chinhoyi, Masvingo, Marondera and Kadoma.
Additionally, the investor will manage CSC ranches in Maphandeni, Umguza, Mushandike, Chivumbuni, Darwendale, Dubane and Willsgrove for an initial period of 25 years. The deal also allows the investor to manage CSC’s residential properties and distribution centres in Mutare, Gweru and Harare.
Overall Privatization Plan
Zimbabwe’s target was to raise at least US$350 million for treasury coffers with Telone, NetOne, Telecel, ZimPost and the People’s Own Savings Bank (POSB Bank) at the forefront for disposal by December 2019. The ZMDC mines would be partially privatized by June 2020. The National Railways of Zimbabwe (NRZ), Agribank, Infrastructure Development Bank (IDBZ), Air Zimbabwe, Industrial Development Corporation (IDC), Petrotrade and Road Motor Services (RMS) were supposed to be partially privatized through enlisting strategic partners and listing the last 3 firms on the Zimbabwe Stock Exchange before end of 2020. The government intended to dispose completely loss-making entities such as the Zimbabwe United Passenger Company (ZUPCO), CSC and Willowvale Motor Industries in the same period.
To lure investors, the government approved the takeover of debt worth over US$1 billion by taxpayers for struggling entities such as Air Zimbabwe, ZiscoSteel, National Railways of Zimbabwe (NRZ), Civil Aviation Authority of Zimbabwe (CAAZ) and others as a strategy to clear off their balance sheets. The Air Zimbabwe US$379 million debt resettlement plan involved paying ZW$349 million to local suppliers and US$30 million to foreign creditors. The airline has consistently failed to find potential investors despite frantic efforts by the appointed administrators and consultants. The beleaguered airline is now relying on the government to inject fresh capital and procure new planes for its resuscitation.
Controversy & Success Stories
The government is proceeding with the US$20 million controversial sale of Petrotrade and Genesis assets to the Independent Petroleum Group (IPG). The sale drew the ire of various stakeholders locally who felt that the entity was being undermined and sold for a song to conflicted suppliers up the value chain. Controversy surrounds the ownership structure of Kuvimba Mining House which is now partnering the government in the resuscitation of the Zimbabwe Mining Development Corporation (ZMDC) mines such as Jena, Elvington, Golden Kopje and Sandawana Mines. The rally in commodity prices on the word market has made Zimbabwe’s mining assets very attractive. Zimbabwe’s privatizations plan also included weaning off Silo Food Industries (SFI) from the Grain Marketing Board (GMB) and this has been completed. The Zimbabwe Investment Authority, the Special Economic Zones and the Joint Ventures Unit were merged into the Zimbabwe Investment and Development Agency (ZIDA). The Civil Aviation Authority of Zimbabwe (CAAZ) was demerged into a new regulatory arm and the new Airports Company of Zimbabwe which now manages and operates the country’s 8 airports.
Advisory fees bump
The planned disposal of ZUPCO and Telone have stalled because the companies have failed to raise consultancy and advisory fees to the auditors appointed as transactional advisors. The same fate also fell on POSB, Telone and Netone. The last two telecommunications outfits were on the shelf as a bundle to attract investors. To address the advisory fees issue, the government sought consultancy services for targeted entities from the International Finance Corporation (IFC), a unit of the World Bank. The IFC does not need upfront payment of a fixed fee as their fees are success based.
Political interference cannot be ruled out in the privatization of state entities as clearly demonstrated in the repeated failures of the National Railways of Zimbabwe (NRZ) privatization story. In 2018, government signed a US$408 million deal with the Diaspora Infrastructure Development Group (DIDG) to recapitalize NRZ. However, in October 2019, the government cancelled the contract claiming the consortium had failed to show it had the financial backing to complete the project despite guarantees from DIDG-Transnet has secured funds amounting to more than US$1 billion from different South African banks and international financial institutions. The consortium provided proof of those funds from Standard Bank Ltd, Rand Merchant Bank, Nedbank, Industrial Development Corporation, and an Italian company called Concrete Finance. However, it is widely believed that the recapitalization of NRZ will be a death nail to various haulage and trucking companies owned by politicians and Politically Exposed Persons (PEPs)
Loss of investor appetite
Most of the targeted investors in state entities have generally taken a wait and see approach on Zimbabwe as an investment destination as reflected by the country’s low foreign investment inflows. The country is still regarded as a risky and hostile investment destination with most foreign investors pessimistic about the country’s ability to uphold investor property rights and respect the rule of law. Similarly, the independence of the country’s judiciary has been questioned on several occasions when the government muscled its way into private property through cancelling licenses or tenders, seizing assets and parceling awarded mining permits to controversial investors despite pending court orders. The political interference in the unprocedural suspension of the ZSE and unprocedural delisting of multinational companies in June 2020 all but confirm the above investor fears.
Addressing investor concerns
Apart from debt assumption, the country’s foreign exchange regulations and inconsistent monetary policies have been a pain to most investors on the local and international market. Several foreign investors have significantly reduced their portfolios locally while others have divested totally. Multinational corporations operating in the country have found it difficult to repatriate dividends to their foreign shareholders or settle foreign obligations in the last 3 years. To attract investment in state entities, investors need guarantees that they will be able to repatriate their dividends through formal banking channels and exit the market (if necessary) without regulatory bottlenecks. Zimbabwe needs free market policies that allow free movement of capital in and out of the local market (subject to standard banking regulations). Lastly, the government needs to address the issue of political interference and bureaucracy on the privatization and operations of various state entities. Ideally, privatization transactions should be handled via the independent State Entities Restructuring Agency (SERA) to avoid parent ministry sabotage which is evident on commercial entities. Political risk in state entities earmarked for privatization remains extremely high.
Similarly, the local economy remains volatile with high levels of inflation and foreign exchange challenges for businesses. The constant change of government policies has only but entrenched a sense that Zimbabwe is not yet prepared to wean off its loss-making state entities. Privatization has remained more of rhetoric with limited political will to see a turnaround in the affairs of state-owned enterprises. Political goals have become a priority at the expense of the dire need to resuscitate state entities. It is imperative to point that capital has the same rules globally and investors look for markets where they can repatriate their capital without overregulation or policy discord from the host government. There has been limited quality investment enquiries on the assets to be privatized in Zimbabwe due to known political, legal and governance risks. Investors envisage an investment environment where their property is protected by the rule of law (through the judiciary) and not by political interests as those can shift overnight. Overall, the privatization plan has not yielded the desired results and the burden on the taxpayer keeps piling.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email email@example.com or Twitter @VictorBhoroma1.