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State Owned Enterprises [parastatals] must observe austerity measures – Mwanakatwe

ADDRESS BY HONOURABLE MARGARET D. MWANAKATWE, MP, MINISTER OF FINANCE, AT THE 2nd IDC GROUP ANNUAL CONFERENCE ON SATURDAY 27th OCTOBER 2018]

Ladies and Gentlemen – It is my pleasure to speak to you this morning. I am especially pleased to have key decision makers in all Enterprises in the IDC Group in one place and share with you my views as Minister of Finance and shareholder of the IDC on behalf of the Zambian Government.

Let me commend the IDC for this important initiative of meeting annually as a Group, sharing ideas, exchanging notes and networking as members of the same family.

Let me also commend the various distinguished speakers who have already shared their knowledge and wisdom to this eminent gathering and those who will share later today, for your participation in this important gathering.

Ladies and Gentlemen – The companies represented in this room this morning embody the wealth of the Zambian people. The IDC consolidated balance sheet valued at US$5.6bn represents the wealth of the tax payers of this country.

Our gathering in Livingstone therefore provides us all with an opportunity to take stock of what we are doing with the wealth of Zambians. It is an opportunity to ask ourselves, have we taken the wealth of the country and invested it wisely? Has it grown since we last met? How can we grow this wealth?

Some progress has been attained in the last one year. We now have the lowest number of State-Owned Enterprises surviving, directly or indirectly, through financing from the Treasury than we’ve probably had in the history of this country. In the last year, we had the lowest number of loss-making State-Owned Enterprises than we have had in the last three decades. In the last one year we recorded the largest number of State-Owned Enterprises making profits and declaring dividends since the advent of liberalisation.

Let me take this opportunity to congratulate all those companies that made profits. A special “Mwabombeni [well done]” to those who went further and declared dividends. These are the stories the Zambian people want to hear. I must therefore recognise Indo Zambia Bank, ZANACO, Mulungushi Village Complex, Indeni and ZAFFICO for declaring dividends for the financial year 2017. I also congratulate ZCCM-IH and Zambia Railways for paying out dividends for profits made in previous years.

Even as we are seeing gratifying signs, we are concerned that progress is slow. There are still too many Companies that have not taken the steps in the right direction. We still have CEOs and Boards who believe Government must finance them.

We still have CEOs who continue to seek the protection of Government rather than take the steps to compete with the private sector. We still have Boards where Directors focus on their own remuneration rather than driving the turnaround of the Companies they have been entrusted to lead. I also note that austerity has not permeated the State Owned Enterprises.

Distinguished Invited Guests, Ladies and Gentlemen – This is why the theme of this year’s conference resonates with us in Government. We have spoken about reforms in SOEs for years but each year only a few of you respond positively. The theme “Driving reforms from within” is an important message for every one of you. The Government has set the agenda, we have pronounced ourselves clearly in terms of policy and we have laid out the environment for you to reform.

Implementing reforms is never easy. Reforms entail changing or moving away from what we know, who we are and how we do things. As a consequence, reforms are challenging and face resistance. SOE reforms are by Government, by the IDC and by the Companies represented here today.

On our part as Government, the IDC itself represents one of the most significant reforms in the management of SOEs. Establishing the IDC entailed Government moving away from controlling Companies to entrusting another institution to oversee the affairs of Companies.

In establishing the IDC, His Excellency, the President, Mr. Edgar Chagwa Lungu announced and I quote “line Ministries will now focus on policy making, giving the IDC direct mandate and authorisation to oversee performance and accountability of the SOEs on behalf of Government. The IDC’s oversight responsibilities include all aspects of governance, commercial, financing, operational and all matters incidental to the interests of the State as shareholder”. It was not an easy decision for Ministries to cede their oversight to the IDC, but it was done.

The second key reform by Government was for Ministers to let go of the power to appoint Boards and CEOs of SOEs. Today all Companies have Boards that are considerably different from the Boards you previously had. Boards are now appointed by the IDC and not Ministers. More significantly, rather than Boards dominated by Civil Servants and Political representatives, we have Boards dominated by qualified professionals and business persons. The IDC Board itself is an example of a Board dominated by persons from the private sector and civil society.
The third key reform we implemented as Government was a change of our mindset. Rather than see you as Companies serving a political agenda, we had to accept that you were established to serve a commercial agenda. That your existence is premised on profit and not politics. This is why we deliberately left out or removed from the IDC portfolio those Companies which provide a public good.

We did not implement these reforms because they were easy, we implemented reforms because change was inevitable, or our State-Owned Enterprises would die, one by one. It is therefore frustrating to us when the very Companies for whose survival we undertook reforms become the source of resistance to the reforms.

Ladies and Gentlemen – Let me be very categorical. The reforms we have embarked on to reshape State Owned Enterprises will not fail. We will not tolerate Boards and CEOs that resist reform. If you are not prepared to be the drivers of reforms, you leave, or we will get rid of you.

The days when CEOs stayed in their jobs through political patronage, paying for workshops in Ministries or the travel of Permanent Secretaries and Ministers must end. CEOs must remain in their jobs because they are implementers of reforms; people who deliver profit and dividend to their Shareholders.

Board members who attend meetings to get envelopes rather than drive reforms will not survive. Boards are not retirement packages or sources of additional income. We appoint you to Boards to drive reforms, deliver change and ensure the Companies are profitable.

Companies that come to the Treasury with begging bowls will not be tolerated. Treasury is tired of supporting entities that instead of contributing to the Treasury, are instead draining the Treasury.

If the IDC as your shareholder cannot intervene, don’t come to the Ministry of Finance. If your Companies and the IDC cannot find amongst yourselves the solution to your sustainable future, do not come to the Treasury seeking some miracle of sorts.

Ladies and Gentlemen – I view of what I have earlier highlighted, I wish to direct as follows:

(a) There is need for all State Owned Enterprises (SOEs) to observe austerity measures;

(b) All SOEs not making profits must downgrade their travel class;

(c) There is need for Performance Contracts and benchmarks between IDC and Boards;

(d) Only contracts for those CEOs that meet the benchmarks will be renewed;

(e) No board chairpersons to be accorded offices and personal to holder vehicles; and

(f) Companies to resolve their tax liabilities to the Zambia Revenue Authority as pointed out by the Auditor General.

Ladies and Gentlemen – Implementing reforms is challenging but the rewards are great. Unity of purpose makes it easier to achieve transformation and we in Government have led the way. Each key player must take the initiative to drive reforms at their level.

At this point let me address the IDC. We in Government have ceded control to you by transferring my shares which my office held on behalf of the Zambian people to you; we have allowed you to appoint Boards; and we have empowered you to intervene directly in the affairs and futures of SOEs. The transformation of these SOEs is your responsibility. We will hold you accountable for any failures and congratulate you for successes and we expect successes.

To the Board Chairpersons, we will not tolerate excuses or inertia. We have given you the support and authority to drive reform in the Companies you oversee. Board appointments should not be about prestige. It is about hard work and dedication; a strong desire to make a difference and leave the company better than how you found it. We expect you to make the same decisions you would make if you owned the company over which you preside.

To the CEOs, your job is to deliver returns on investment. You are the leaders who must implement the reforms. Implementing reforms can only be effective when a leader walks the talk. If you as CEOs do not change, nothing in the company will change. If you as CEOs are wasteful or fail to change your attitudes and understand that time to change has come, nothing will change.

Your job is not to do politics or invest in appeasement. Your job is to deliver profits and personally lead the way in changing attitudes and negative cultures in your Companies. For the senior managers in these Companies, your too have the responsibility of embracing reforms and supporting your CEOs in implementing key reforms.

As I had indicated in my Budget Address to Parliament, not all the reforms can be handled by ourselves. There are cases where we must admit we need help.

We will at times need the support of others such as Strategic Equity Partners who must bring to the table capital and technical know-how. SOEs must compliment the private sector and therefore partnerships must be a key part of our reform agenda.

Board Chairpersons, CEOs, Ladies and Gentlemen – The journey to a fully transformed SOE sector is a long one. I take comfort that it is a journey we have began and we are already seeing the rewards. Let us all take personal responsibility to drive reforms from within.

You have the support of the Government. His Excellency the President, Mr Edgar Chagwa Lungu who is also Chairman of the IDC Board has led the way by placing himself as the champion of SOE reform in this country. We each have a role to play and let us play our role with dedication.

You have the support of my Ministry. We will be there for you in creating the policy environment and economic landscape within which you can thrive. You have the support of the IDC Board and Management.

Be bold, be ambitious and work with us to write a new and exciting chapter in the story of Zambian State-Owned Enterprises.

THANK YOU AND MAY GOD BLESS YOU ALL.

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