Issue 9 February - May 2002

Shakur Kalusha

The Movement for Multi-Party Democracy (MMD), which came to power in 1991 had included privatisation in its manifesto, calling it as a centrepiece for economic reform. Privatisation in Zambia came about as a practical method of recapitalising State Owned Enterprises (SOEs) and allowing them to operate viably and efficiently. A large number of SOEs were consuming a great deal of resources from the state in terms of investment requirements and subsidies, but were achieving a negative return to government. In addition, several members of management of the SOEs were allegedly more accountable for political patronage than for commercial return. It was therefore considered an important move to eliminate all political interference in the running of SOEs.

Another reason for instituting the programme was that in the parastatal era there was a monopoly in manufacturing and hence no consumer choice. There was also no capital investment for future growth as the government’s role in providing social goods had become weakened or sidelined. A structured, finalised privatisation programme started in July 1992, with the enactment of the Privatisation Act of 1992 which provided the legal basis for the privatisation programme. It also gave the Zambia Privatisation Agency (ZPA) responsibility for all government privatisation issues. It took some months to establish the physical operations of the agency, but by 1993 it had commenced fully-fledged operations.

From a total working portfolio of 280 companies, ZPA has, to date, transferred over 250 companies and units to the private sector. Of these companies and units sold so far, over 60% have been sold to Zambians. However, just as the privatisation rate has been high, so too has been the casualty rate. The high rate of collapse of SOEs has been an immediate result of over-employment prior to the privatisation programme. These companies, regardless of whether they were profitable or not, were able to sustain their human resource levels due to government subsidies. Once privatised, these companies faced a lack of long-term capital, particularly for local investors, and liberalisation of the market, which resulted in stiff competition. National Drum and Can, for instance, went into receivership after the Management Buy Out (MBO) team collapsed due to lack of working capital. It has however resumed production after the receiver sold the productive assets to a new investor. Former glass maker Kapiri Glass factory—on the outskirts of Kapiri-Mposhi town—is also under receivership after failing to compete with cheap glass products from Tanzania and Zimbabwe. Zambian Breweries, which used to be a major consumer of bottles from the factory, started buying its bottles at a lower price from Zimbabwe. Tour operator Eagle Travel failed due to a general decline in the travel and tourism industry, exacerbated by liquidation of Zambia Airways whose tickets sales they had monopolised before privatisation .The ZPA has denied responsibility for the failure of these companies. “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 privatisation. 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%,” said a senior ZPA analyst. He noted that approximately US$93 million plus ZMK30 billion had been raised from the sale of parastatals. This does not include proceeds from the sale of Zambia Consolidated Copper Mines (ZCCM).

One of the few privatisation success stories has been Zambian Breweries. A new, lean, efficient entity called Zambian Breweries Plc was formed as a joint venture between South African Breweries and Anglo American Corporation Central Africa following the privatisation of the then Zambia Breweries Limited. At the time of privatisation in 1994, Anglo American Corporation and South African Breweries each had acquired a 45% interest in the new company, while 10% was held in a trust fund. In June 1997, this 10% was offered to the Zambian public and brewery employees through the Lusaka Stock Exchange. The company share issue was oversubscribed by 60%. Following the sale by Anglo American Corporation of its 45% interest in Zambian Breweries Plc, the latter is now the major shareholder with a 90% stake. The remaining 10% is still held by Zambians.

The mother of all privatisations in Zambia was the sale of the remaining assets of ZCCM to Anglo-American corporation and Canadian mining giant First Quantum Minerals Limited and Glencore. Nchanga Division, including the Chingola refractory ore dumps, which was part of the package of assets comprising Konkola Division (including Konkola Deep Mining Project (KDMP) and Nampundwe pyrite Mine was sold on competitive tender basis to a consortium comprising Zambia Copper Investment (ZCI), International Finance Company (IFC) and the Commonwealth Development Corporation (CDC). The negotiated purchase consideration comprised cash at close of US$30 million, conditional/deferred cash of US$60 million.The Zambia Consolidated Copper Mines retained interest of 20% plus future copper and cobalt future price participation of US$125 million.

For all privatised companies, only time will tell if they are up to facing the challenge of the rapidly changing global economic environment.