Commentary, 31st July - 7th August, 09

The government should assess the viability of all remaining parastatal companies with the hope of making strategic restructuring decisions that will lead to reasonable purchase values. Much government owned companies including mining companies fetched lower values at the time of sale because these institutions were sold when they were no longer viable. As long as we leave it too late to make a decision of offloading parastatals, valuation will always yield negative values, a situation that favours bidding companies.

Most of the companies targeted for sale to strategic partners have attracted high values months after sale because of changed perception, goodwill and post-privatization financial and management restructuring. The fact remains that the balance sheets for most parastatal companies are negative at present and this poses a huge threat to the treasury and taxpayers in the long run. The situation is actually deteriorating. Several others are actually insolvent and are not in a position to settle statutory, trade and establishment liabilities.

The provisions for gratuities and under-valued pension liabilities for staff has been a further cause for the worsening balance sheets to the point some of these companies are in urgent need of recapitalization beyond their present values. The situation could not have become worse if these companies were recapitalized by the government at the time of liberalizing the market. A number of those that attempted to recapitalize operations from internally generated funds have still failed to compete in the market, realize profitable benchmarks and make an impact to shareholders.

Just recently, the Minister of Finance and National Planning expressed disappointment at the level of contribution these companies were making to the treasury. The truth is that they have no capacity to re-engineer operations without sufficient and well-diversified equity capital, strong governance structures, accountability among staff and a strong desire to succeed. On the balance of things, the net present value of these investments is negative such that under-dosages of capital will lead to further problems.

It is against this background the government should assess and re-value these parastatals, make strategic decisions to recapitalize and restructure their operations and make them profitable before seeking to sell them. It is much more profitable for the government to address the current challenges facing parastatals, improve their values and offload them at a later stage. As things stand now, we are leaving it too late to make a decision and we lose out in the process.