CGD in the News

Zimbabwe's privatisation push stutters along (fDi Magazine)

June 13, 2019

From the article:

Tired of public enterprises’ perpetual strain on the national purse, Zimbabwe has put at least 34 public enterprises up for sale in a drive towards fostering a private sector led economy.

Alan Gelb, a senior fellow at the US-based Centre for Global Development, says studies of privatised firms in Ghana, Tanzania and Côte d’Ivoire have found that they tended to perform better than when they were in state hands. “They may shed labour as the new owners come in and restructure, but some have the possibility to turn around and grow again. These were usually regular commercial firms, not major utilities or infrastructure,” he says. 

In Zimbabwe, Mr Gelb says, some commercial firms may have better prospects with private ownership even though they will still need to operate within a very difficult business environment. He adds, however, that larger infrastructure and utility companies have been more problematic to privatise, and bringing in private owners may not improve them much because many of their difficulties are due to political interference – which will potentially still be there – or features of the regulatory and business climate that look set to remain unchanged.  

“Governments have often been reluctant privatisers. They try to sell firms, or parts of them, only when faced with insurmountable fiscal problems and large continuing losses by the firms. They see themselves as forced into privatisation, whether by their creditors, the IMF or sometimes the World Bank,” says Mr Gelb. 

He adds that owing to political and regulatory interference, it is often difficult for privatisation programmes to attract high-quality investors with the capital and expertise needed to restructure and recapitalise state firms. He says the success of privatisation depends to a large extent on the credibility of the government and its commitment to maintain rule of law, and a good regulatory and business environment – factors that Zimbabwe is not considered to have in abundance.  

“There are companies in some attractive sectors, such as telecoms, that have generally done well in Africa and these could find buyers. Without a more extensive and credible economic and governance reform, I doubt that too much can be expected from privatisation in Zimbabwe,” says Mr Gelb.