Zimbabwe: Selected Issues and Statistical Appendix

The major public enterprises in Zimbabwe face many problems. The shortage of foreign exchange is the single most important obstacle facing the enterprises. Many companies also have a heavy debt burden and lack working capital. Maintenance and rehabilitation have been neglected for many years, and as a result, enterprises are burdened with a depleted capital stock and several operate at very low capacity levels. All public enterprises operate at controlled prices, which constrain their profitability.


The major public enterprises in Zimbabwe face many problems. The shortage of foreign exchange is the single most important obstacle facing the enterprises. Many companies also have a heavy debt burden and lack working capital. Maintenance and rehabilitation have been neglected for many years, and as a result, enterprises are burdened with a depleted capital stock and several operate at very low capacity levels. All public enterprises operate at controlled prices, which constrain their profitability.

VI. Status of Major Public Enterprises and Privatization in Zimbabwe65

117. This chapter reviews the situation of major public enterprises in Zimbabwe. It is based on balance sheets and income statements received from the enterprises, supplemented by staff interviews with representatives of these enterprises. It also discusses the status of the privatization program in Zimbabwe.

118. The major public enterprises66 are the following:

  • Air Zimbabwe (AIRZIM),

  • Cold Storage Company (CSC),

  • Grain Marketing Board (GMB),

  • National Oil Company of Zimbabwe (NOCZIM),

  • National Railways of Zimbabwe (NRZ),

  • Post and Telecommunications Corporation (PTC),

  • Zimbabwe Electricity Supply Authority (ZESA), and

  • Zimbabwe Iron and Steel Company (ZISCO).

These enterprises are part of an ongoing study conducted jointly by the World Bank, the Ministry of Finance, and the Privatization Agency of Zimbabwe (PAZ), who developed a data and monitoring framework in 2000 to review the performance of the eight largest public enterprises on a quarterly basis. This chapter also includes information on Agribank and Wankie Colliery Co.—the latter, although not a public enterprise, is of strategic importance to the Zimbabwean economy.

119. These public enterprises are important for the Zimbabwean economy in several ways. They account for about 3 percent of formal employment and for more than 10 percent of value added in the economy. Roughly 20 percent of total imports into Zimbabwe are conducted through GMB (grain), NOCZIM (fuel), and ZESA (electricity). The group includes major transport services (AIRZIM and NRZ) and major public utilities (ZESA and PTC). ZISCO is the sole steel producer in Zimbabwe, and CSC is the only significant exporter of meat.

120. The remainder of this chapter looks at specific issues as well as the status of the privatization program in Zimbabwe. Section A focuses on profitability, and the debt situation is analyzed in Section B. Section C discusses common problems encountered by public enterprises and Section D provides an outlook for the major public enterprises. Section E provides information on the status of the privatization program in Zimbabwe. Background information on all public enterprises covered in this chapter (as well as on Agribank and Wankie Colliery Co.) is contained in the attachment.

A. Before-Tax Profits and Losses

121. In 2002, the group of eight major public enterprises for which data are available posted a joint profit equivalent to 0.7 percent of GDP—same as in 2001 (Table VI.1).67 The total masks large differences in the performance of individual enterprises (Figure VI.1) and is largely attributable to NOCZIM’s sizeable profits.68 Three groups can be distinguished: (i) profitable enterprises (NOCZIM and PTC), (ii) enterprises that are roughly breaking even (AIRZIM and ZESA), and (iii) loss-making enterprises (CSC, GMB, NRZ, and ZISCO). Losses of the latter have not been covered through budgetary transfers, but rather through bank loans and the issuance of various bonds, in the majority of cases with a government guarantee.

Table VI.1:

Before-Tax Profits/Losses of Major Public Enterprises, 1999–2002

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Sources: Ministry of Finance and staff estimates.
Figure VI.1:
Figure VI.1:

Before-Tax Profits/Losses of Major Public Enterprises ss a Percentage of Total Revenues


Citation: IMF Staff Country Reports 2003, 225; 10.5089/9781451841480.002.A006

122. NOCZIM has been posting sizeable profits in the last two years (2.5 and 3.2 percent of GDP in 2001 and 2002, respectively), as it received foreign exchange at the official exchange rate of Z$55/US$1 from the Reserve Bank of Zimbabwe (RBZ). Until mid-2002, a large share of fuel imports took place in the context of an arrangement with Libya, which involved RBZ guarantees as well as in-kind payments (see Attachment for details). Retail prices for fuel (gasoline, diesel, and jet fuel) were set at a level, which—albeit low by regional standards—provided NOCZIM with a comfortable profit margin. These profits allowed NOCZIM to pay off some domestic debt (including to the government on customs duties and other taxes) as well as build up significant cash reserves during the last two years. In early 2003, the cash reserves were used in a swap arrangement under which NOCZIM secured US$35 million from Anglo American.

123. However, NOCZIM was unable to Import enough fuel to meet domestic demand due to the shortage of foreign exchange In the official market and competing demands (in particular for grain and electricity imports). Shortages of fuel on the domestic market intensified during 2002—illustrated by long fuel queues. Foreign exchange shortages also severely limited NOCZiM’s ability to import spare parts and to service its foreign debt (see below). NOCZIM’s credit rating declined further, and increased the company’s difficulties in securing import financing.

124. The second profitable enterprise In 2082 was the Post and Telecommunications Corporation (PTC), which was unbundled into three separate companies in 2001—NetOne (cellular service), TelOne (fixed line services), and ZIMPOST (postal operations). NetOne, which is competing against two private operators, and TelOne were profitable. ZIMPOST made a small loss, but ongoing reform efforts have caused ZIMPOST’s losses to decrease over the last few years.

125. Both AIRZIM and ZESA have been roughly breaking even for the last several years. In both cases, the enterprises have been able to adjust their tariffs (which are controlled) to levels that cover their costs. ZESA uses two different tariff adjustment mechanisms (one for ad-hoc increases and one for automatic adjustments) which appear to be working reasonably well (see discussion in the Attachment). AIRZIM has increased its fares on an annual basis.

126. The Grain Marketing Board (GMB) is the largest toss-maker—and losses have been increasing in recent years from 1 percent of GDP in 2001 to 1.5 percent of GDP in 2002. GMB’s losses are a subsidy for basic food (mostly mealie meal). In 2002, GMB sold maize to millers at a price of Z$9,600/ton while it procured maize at Z$28,000/ton on the domestic market and at Z$12,100/ton (at the official exchange rate of Z$55/US$1) on the international market. Procurement and consumer prices for wheat were equally unbalanced. This situation was further exacerbated by the government’s decision in April 2003 to raise procurement prices to Z$130,000/ton for maize and to Z$150,000/ton for wheat without any adjustment in consumer prices. GMB’s losses have been financed through government-guaranteed bank loans and grain bills (short-term papers). Since early 2003, GMB has faced difficulties in rolling over its credit and has asked Government to honor the guarantees it had issued.

127. The remaining three loss-making public enterprises are CSC, ZISCO, and NRZ. ZISCO’s and CSC’s losses amount to about 315 and 570 percent of total revenues of these companies, respectively, reflecting their very low output levels. CSC’s operations were shut down for 10 months during 2002, as its assets were attached by domestic banks because of the company’s failure to honor its debt obligations. A debt workout scheme involving the government, CSC, and local banks was agreed in mid-2002, and CSC restarted its operations in late-2002—at a very low level—reflecting, in part the effect of the drought on livestock (the national cattle herd has shrunk) and the spread of foot-and-mouth disease. In addition, CSC lacks access to working capital. CSC’s facilities are reportedly in good working order and require only normal maintenance.

128. ZISCO was operating at about 15 percent of capacity during 2002. It lacks working capital to upgrade operations and to pay for needed inputs (coal from Wankie) and transport services (from NRZ), which has limited its operations to the production of unprocessed steel billets. NRZ is operating below capacity due to a significantly deteriorated capital stock (locomotives, wagons, and tracks). Relative to total revenues, however, NRZ’s losses are much smaller than the ones incurred by ZISCO and CSC. Both ZISCO and NRZ are likely to need large capital investments (on the order of US$150–200 million each) to be able to upgrade their facilities and to become profitable again.

B. Debt and Payment Arrears

129. Total debt of the major public enterprises increased to ZS115.7 billion by end-2002 (Table VI.2). While a significant increase in nominal terms, it decreased from over 16 percent of GDP in 2001 to just under 11 percent of GDP in 2002 as inflation far outpaced interest costs and new borrowing by public enterprises. At end-2002, the total debt stock of public enterprises was equivalent to 66 percent of their 2002 total revenues and to 55 percent of their total assets. New credit in 2002 was almost entirely domestic credit—from the banking sector as well as from nonbank financial institutions (in the form of grain bills and bonds). About 80 percent of all debt is short-term and about the same fraction of debt carries a government guarantee.

Table VI.2:

Debt of Major Public Enterprises, 2001–2002

(In million Zimbabwe dollars)

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Sources: Ministry of Finance and staff estimates.

130. Foreign debt is a significant problem for public enterprises. As a group, the major public enterprises carry foreign debt of about US$630 million, almost all of which is guaranteed by the government. Long-term foreign debt decreased by about US$40 million in 2002. This largely reflects the repayment of a US$32 million loan to the U.S. ExImBank, which had been on-lent by the government to AIRZIM and which was repaid in 2002 to avoid the seizure of AIRZIM’s planes by the creditor.

131. Almost 90 percent of total foreign debt is on the books of three enterprises—ZESA (US$240 million), TelOne (US$207 million), and ZISCO (US$116 million). ZESA has accumulated large arrears on its debt (about US$156 million), and its failure to regularize accounts has led electricity suppliers in Mozambique and South Africa to cut back on deliveries to Zimbabwe. This has forced ZESA to implement load-shedding and power cuts. ZESA claims that it requires about US$5 million per month to meet debt service payments. ZISCO’s foreign debt is also large, in particular in light of the virtual standstill of productive activity in the company. Most of ZISCO’s debt is in arrears and almost all of it carries a government guarantee. TelOne’s foreign debt—90 percent of which was acquired after the unbundling from PTC and has been used for capital investments—is large, but so far the company has been able to service it. Foreign debt levels of other enterprises are much lower—amounting to a total of US$56 million shared between CSC, NRZ, and NetOne.

132. In addition to debt, many public enterprises have large accounts payables as well as large accounts receivable (Table VI.3). Some of the accounts payable are significantly overdue and should be reclassified as arrears. At end-2002, there were sizeable receivables and payables to other public enterprises, amounting to 23 and 37 percent of total revenue, respectively, creating significant bottlenecks in the economy. Payables to government (mostly taxes and customs duties) were about three times higher than receivables from government (mostly payment for utilities). Receivables from customers were high, but most worrisome were large payables to suppliers. Of these, payables in foreign currency amounted to US$263 million at end-2002, including US$160 suppliers’ credits to NOCZIM, almost all of which was in arrears as of end-2002. The remainder of foreign currency payables were accounted for by TelOne (US$61.5 million), ZESA (US$24 million, most of which was overdue), and AIRZIM (US$16 million).

Table VI. 3:

Accounts Receivable and Payable for Major Public Enterprises


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Sources: Ministry of Finance and staff estimates.

C. Common Problems of Public Enterprises

133. The overall economic situation in Zimbabwe has been deteriorating in recent years and this has affected public enterprises as well. Real GDP has declined by about one third in the four-year period since 1999, inflation has been increasing steadily—reaching 200 percent in 2002—and shortages of basic goods and foreign exchange have become pervasive. Public enterprises have been affected by but have also contributed to the decline in GDP. Output dropped significantly for CSC and ZISCO, and smaller declines occurred in the cases of NOCZIM, ZESA, and NRZ. Reduced provision of fuel has further exacerbated the economic decline, as has the inability by NRZ and ZESA to meet the demand for transport services and electricity, respectively.

134. Most public enterprises are affected by the shortage of foreign exchange that has plagued Zimbabwe for some time and that worsened following the tightening of surrender and exchange controls in November 2002. Three public enterprises (GMB, NOCZIM, and ZESA) are receiving the bulk of all foreign exchange allocations from the RBZ for imports of grain, fuel, and electricity, respectively. Foreign exchange allocations for NOCZIM have not allowed the company to import enough fuel for domestic consumption at the controlled prices. Electricity imports have also been curtailed by the availability of foreign exchange and cutbacks by suppliers, forcing the introduction of load-shedding in early 2003.

135. Very few public enterprises have received allocations from the RBZ for imports of spare parts and debt service payments. TelOne appears to be an exception, as it has remained current on its foreign debt and ZESA has been making debt payments on at least one loan. Virtually all companies have had to forgo critical maintenance and rehabilitation projects because of the shortage of foreign exchange for imports of spares and services. This has led to a serious deterioration of the capital stock of many enterprises (most notable NRZ but also ZESA, which would normally spend about US$7 million a month for maintenance and rehabilitation according to its own figures). No public enterprise reported to have received foreign exchange for investment projects from the RBZ.

136. Public enterprises dealt with foreign exchange shortages in a number of ways outside the official market NOCZIM has reportedly accessed the parallel market occasionally and entered into a currency swap arrangement with Anglo American in early 2003, for US$35 million in exchange for domestic currency at a rate of Z$1,400/US$1. ZESA, in March 2003, began charging customers who are net exporters in foreign currency, to generate foreign exchange to pay electricity suppliers in Mozambique and South Africa. These arrangements were approved or at least sanctioned by the Ministry of Finance and/or the RBZ. NetOne reported to have sourced foreign exchange for investments on the parallel market during 2002.

137. Many public enterprises suffer from a severe lack of working capital. The problem is most acute in the cases of ZISCO and CSC. ZISCO lacked working capital even to buy basic inputs (coal) and services (rail transport) and its operations came to a virtual halt in mid-2002 because it was not able to pay its arrears to Wankie Colliery Co. and to NRZ. In November 2002, the government granted ZISCO a Z$3.7 billion 10 year-loan at 15 percent interest which allowed ZISCO to clear some of its arrears and to re-start operations. CSC was unable to service its domestic debt in early 2002 and local banks attached the assets of the company. After a debt workout totaling Z$5.5 billion involving government guarantees, it was able to regain access to its production facilities.

138. There has been no direct budgetary support to public enterprises in 2002, apart from the intervention in the case of ZISCO. Enterprises have had to resort to borrowing—mostly from the domestic banking system—and the issuance of bonds to finance their deficits. A number of enterprises made requests for budgetary transfers in 2002, e.g. ZIMPOST (which has been granted a small transfer in the 2003 budget), and NRZ (to cover losses on commuter trains, which are considered a “social expenditure”), which were not granted. Average interest rates on bank loans have been significantly negative in real terms. Bonds have been issued on behalf of a number of companies (most notably NOCZIM and ZESA). Grain bills issued to finance the losses of the GMB have not been well subscribed.

139. Several public enterprises need large amounts of capital to catch up on regular maintenance and to rehabilitate dilapidated facilities. While it is difficult to come up with good estimates for the amounts involved, the total is likely to be between US$O,5–1.0 billion—some of the figures quoted were US$200 million for NRZ, US$300 million for ZESA,69 and US$175 million for ZISCO.

140. The inability to service foreign debt has severely constrained the operations of a number of enterprises. Both NOCZIM and ZESA are facing difficulties in procuring imports because of their bad credit ratings, and can import only against cash payment; no credit arrangements are available. Clearance of foreign debt arrears has to be dealt with at some point in the future.

D. Outlook

141. If the current economic situation in Zimbabwe continues, the situation of public enterprises is likely to worsen. However, economic reforms would have an impact on the condition of public enterprises, including a devaluation of the exchange rate to a market clearing level, an increase in interest rates as a result of monetary tightening, and the removal of price controls.

142. The initial effect of a devaluation would be negative, as costs—especially for large importers like GMB, NOCZIM, and ZESA—would increase significantly. A devaluation would also increase (in Z$ terms) the debt burden of public enterprises. To the extent that a devaluation would spur economic growth, there would be positive repercussions on the performance of public enterprises.

143. An increase in interest rates will negatively effect almost all public enterprises because of their domestic debt burden. However, the size of the impact will depend on future inflation prior to an adjustment an interest rates, as high inflation effectively lowers the debt burden. The removal of price controls would potentially allow public enterprises to become profitable—assuming that they can operate efficiently at market-clearing prices. There are also other factors that will affect the outlook for individual public enterprises. The following paragraphs look at each enterprise in turn and note crucial issues as well as provide an outlook.

144. The privatization of Agribank, which was on the list of priority entities offered by PAZ, has been halted with the government’s decision in March 2003 to transform Agribank into a Land Bank responsible for channeling credits to resettled farmers. Caution needs to be taken not to create an institution that will soon be settled with bad debt. AIRZIM is facing significant pressures for a restructuring of us operations towards more regional travel and freight operations. It is not clear, however, that the company will be able to raise funds for such restructuring outside of a privatization deal. The first-round effect of economic reforms on AIRZIM would be negative, as 70 percent of the company’s expenses but only 40 percent of its revenues are in foreign exchange. Furthermore, fuel—the cost of which if far below market-clearing levels—accounts for a large percentage of domestic costs.

145. A number of obstacles remain for CSC to recover from the slump in 2002, including its inability to secure working capital from local banks and problems with procurement (reduction in national herd) and exports (suspension of exports of meat to the EU). If CSC was thought to be viable as a commercial enterprise then it could be offered for privatization as soon as overall conditions allow. Privatization of CSC had been agreed on in 2001 with the government, but was subsequently opposed by the Ministry of Agriculture. Since CSC is potentially a net exporter, it stands to benefit from exchange rate liberalization.

146. The future of the GMB depends on a number of political decisions—most notably the future of its monopoly on grain imports. If prices for grain were allowed to be determined by the market, private imports would likely be able to satisfy domestic demand, and the role of the GMB could be reduced to managing the strategic grain reserve.

147. NOCZIM’s future is also tied to future price liberalization. With market-determined retail prices for fuel, private imports of fuel (which are already allowed, but not profitable at the current prices) would likely meet domestic demand. The fuel price increases announced in February and April 2003 (on average by 100 percent in both cases) were steps in the right direction, even though the new prices entail a cross-subsidization from petrol to diesel. With complete liberalization of retail prices for fuel, NOCZIM’s role could be reduced to strategic imports.

148. NRZ is in need of substantial capital to rehabilitate its dilapidated facilities. Ideally, this financing would be secured in the context of the privatization of the company—at a minimum a concession agreement to run the railways could be considered.70 In the current situation, NRZ constitutes a major bottleneck for economic activity in Zimbabwe. Proper management will be crucial in making the operations of NRZ sustainable. As a first step towards a future unbundling of some of its operations, NRZ introduced cost centers in 2003.

149. Two of the three unbundled PTC companies (NetOne and TelOne) appear to be doing reasonably well and they should be privatized as soon as overall economic conditions improve and investor interest resurfaces. ZIMPOST is unlikely to be privatized anytime soon, but reforms to reduce losses have already started and appear to be successful. Further commercialization of ZIMPOST’s operations could be considered.

150. ZESA is suffering from two major problems—foreign exchange shortages and arrears on foreign debt. Once the foreign exchange constraint is lifted, ZESA is expected to function reasonably well since it is considered a relatively efficient company, and it already has in place mechanisms for tariff adjustments. Because of the size of ZESA’s foreign debt, a workout of its debt problems is likely to require government assistance, which needs to be considered in the context of the overall fiscal situation. Preparatory work for the privatization of ZESA is underway, although more progress needs to be made on the regulatory front, in particular the establishment of an autonomous regulatory body—the Zimbabwe Energy Regulatory Commission (ZERC).

151. Without an in-depth study it is not possible to assess whether ZISCO could ever be turned into a profitable enterprise. The government should resist the temptation to keep ZISCO afloat because of its purported strategic role. If no investor can be found, then the company should be closed down.

E. The Status of the Privatization Program

152. The Privatization Agency of Zimbabwe (PAZ) was established in September 1999 with a mandate to lead, advise, and manage the country’s privatization program in a transparent manner. PAZ reports to the Office of the President and Cabinet. It liaises with public enterprises, line ministries, and other stakeholders in preparing the privatization proposals for submission to Cabinet through the Inter-Ministerial Committee for Commercialization and Privatization.

153. The privatization program has slowed down recently as a result of the generally poor economic climate and the withdrawal of crucial donor support. Since September 1999, fifteen enterprises were either fully or partially privatized with the assistance of PAZ—raising a total of Z$7.6 billion. About 20 companies remain in the portfolio that PAZ is trying to privatize. Limited investor interest and the withdrawal of donor support (largely from the World Bank) in 2001 have slowed the privatization process.

154. Privatization strategies do exist for a number of major parastatals including ZESA, PTC, and CSC. In the case of ZESA, the legal basis for establishing a regulatory agency (ZERC) and the formation of three successor companies to ZESA for generation, transmission and distribution has been established with the passing of the Electricity Act on January 30, 2002. The unbundling of ZESA’s generation, transmission, and distribution functions as a first step towards privatization is proceeding well, with three separate entities expected to be established as of June 1, 2003, but putting ZERC in place remains a major challenge.

155. PTC has already been unbundled into fixed line, cellular, and postal services and a regulatory agency for the telecom sector—the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ)—has been set up. The first attempt to privatize fixed line services failed, but work in this area continues. A privatization strategy for CSC was developed by government and has been submitted for Cabinet approval. Future privatization was a condition for the participation of government in the debt workout for CSC in 2002.

156. Reforms are also being contemplated for four other major public enterprises—NOCZIM, NRZ, GMB, and Air Zimbabwe. A white paper laying out a program to reform the oil sector and NOCZIM was issued by government. The program aims at opening up oil imports to the private sector and reducing NOCZIM’s role to managing strategic oil reserves, as well as setting up a regulatory agency for the oil sector. The disposal of NOCZIM’s assets has started—NOCZIM sold 49 percent of its shareholdings in Total Zimbabwe for Z$297 million and its Chirundu offices for Z$2.6 million.

157. PAZ and the Ministry of Lands, Agriculture, and Rural Resettlement are preparing a proposal to separate GMB’s commercial and other activities. The aim is to privatize the commercial activities of GMB and to reduce the role of the restructured GMB to managing the strategic grain reserves. The government has also amended the Railways Act to provide the legal basis for reforming the railways sector. Work on a privatization strategy for NRZ is continuing. A task force exists to coordinate the implementation of a restructuring program for Air Zimbabwe. A privatization strategy for ZISCO has not yet been developed, and the planned privatization of Agribank was effectively halted by the government’s decision to transform Agribank into a Land Bank.

158. At present, the government is focusing on commercialization of its activities and work in this area is expected to continue in 2003/2004. A number of government functions have already been commercialized including the Central Mechanical Depot. Among the entities currently earmarked for commercialization—with the assistance by PAZ—are the Cotton Research Institute, the Coffee Research Station, the Wildlife Veterinary Unit, the Dairy Services Unit, the Tobacco Research Board, the Central Computing Services, the Micro Enterprise Development Program, the Deeds, Companies and Intellectual Property Department, the Urban Development Corporation, and ZIMPOST.

Attachment: Background and Selected Recent Developments

Agricultural Bank (Agribank)

159. In 2000, the Agricultural Finance Corporation (AFC) was transformed into a 100 percent state-owned commercial bank—Agribank. AFC was lending only to the agricultural sector. Since 2000, there has been some diversification in the operations of Agribank, which also serves as a window for the Agricultural Development Fund on behalf of the government. In 2002, Agribank showed a small loss of about 0.1 percent of GDP.

160. Agribank is undercapitalized and is negotiating with the government about a capital injection of Z$2.2 billion. About 35 percent of the bank’s loan portfolio is nonperforming—part of the nonperforming loan portfolio is related to assets inherited from AFC, the other part are loans to farmers who have lost access to their land in the context of the fast-track land reform and are no longer servicing their loans. No bad loans have been written off since 2000, and Agribank is asking the government for compensation for the nonperforming loans to minimize the effect to its balance sheet.

161. In March 2003, the government announced that Agribank will be converted into a Land Bank, through which agricultural credit to farmers resettled under the fast-track land reform and provided by the public sector will be disbursed, coordinated, and administered. This move, which is a supporting measure in the fast-track land reform, essentially ended any hopes for a privatization of Agribank, which had been on the priority list of the Privatization Authority of Zimbabwe (PAZ).

Air Zimbabwe (AIRZIM)

162. AIRZIM was founded in 1946 and is the only airline in Zimbabwe. It operates mostly domestic and regional routes with two Boeing aircrafts (owned by AIRZIM) and two leased Fokker 50s, but also services a few international routes. About 85 percent of AIRZIM’s revenue comes from passenger business.

163. AIRZIM ran a small loss in 2002. Capacity utilization in 2002 was only about 50 percent and the company is overstaffed (about a quarter of its 1,300 employees are redundant). Fuel costs account for 36 percent of AIRZIM’s local expenditures and it is a net user of foreign exchange as 70 percent of its expenses, but only 40 percent of its revenue are in foreign exchange.

164. AIRZIM is contemplating major restructuring efforts. It is trying to replace the existing two Boeing aircrafts with two smaller ones which would be employed in regional travel and for freight operations. However, lack of working capital is a significant stumbling block in these efforts.

Cold Storage Company (CSC)

165. CSC was established in 1937 to procure, process and market beef, lamb, goat and related products. The company owns five slaughterhouses, several ranches and feedlots, and two canning plants. It also operates distribution depots in several large cities.

166. In early 2002, CSC’s assets were seized by local banks as a result of CSC’s failure to service its debt. Operations were virtually closed down during February-November 2002. During this time, a debt-workout scheme for the company’s Z$5.5 billion debt was put together. Under this deal involving the government, CSC, and local banks, CSC’s debt is being restructured, e.g. replaced by government-guaranteed bonds. CSC restarted operations in December 2002 on a very small scale and in early 2003 was operating at about 20 percent of capacity.

167. About half of CSC’s production is exported. Even before the closure in 2002, CSC’s share of the domestic market was only 40 percent—as it faces considerable competition from smaller suppliers, who can operate at lower cost. CSC is the only company in Zimbabwe with facilities certified for exports to the EU and it used to be a large net earner of foreign exchange on account of exports of beef to the EU (Zimbabwe had an annual quota of 9,100 tons). After exports of fresh meat were suspended in late-2001 because of an outbreak of foot and mouth disease in Zimbabwe, CSC continues to export canned meat to the EU. Fresh meat is exported to Mozambique and Malawi.

168. In 2002, CSC had a large operating loss—while sales dropped significantly, it did not lay off any of its workers and granted substantial wage increases (80 percent in 2002, and 58 percent on January 1, 2003). It is estimated that over 10 percent of the company’s 1,300 workers will need to be retrenched even if the company returns to normal operating levels. The company’s main problem is debt—in 2002 it had interest of Z$2.2 million falling due—none of which was paid. The debt restructuring lowered the interest burden, but it will remain a significant cost factor.

169. The company’s equipment is reportedly in good working order and requires only normal maintenance. It is expected that production and exports will pick up again in 2003. There are some uncertainties, however. First, land reform has reduced the cattle herd and most cattle is now owned by small-scale farmers, which increases the cost of procuring inputs. For exports to pick up again, the country needs to control foot and mouth disease—a prerequisite for becoming recertified for exports to the EU. It is expected that exports of fresh meat to Malaysia will start in mid-2003. In addition, CSC will have to regain access to new credits for working capital.

Grain Marketing Board (GMB)

170. Since early 2002, the Grain Marketing Board (GMB) has been the sole importer of grain into Zimbabwe (Statutory Instrument 235A). The current food crisis has put a lot of strain on GMB, which has had to import and distribute large amounts of grain. During the 2002/03 fiscal year (April 2002 - March 2003), GMB reports to have procured 1.1 million tons of maize on international markets, of which 865,000 had actually been brought into the country by mid-March 2003—the rest being in transit. Similarly, about 50,000 tons of wheat have been procured on international markets. In addition, the GMB has procured 50,000 tons of maize and 170,000 tons of wheat domestically. The GMB sells both imported and domestically procured grain mostly to millers.

171. GMB had a before-tax loss of about 1.5 percent of GDP in 2002—up from a loss of about 1 percent in 2001. The loss is the result of artificially low administered prices at which both maize and wheat are being sold to millers. The selling price for maize of Z$9,600/ton and the selling price for wheat of Z$30,000 have been in effect since 2001. During the 2002/03 fiscal year, GMB procured maize domestically at Z$28,000/ton and wheat for Z$70,000/ton. Import prices were Z$12,100/ton for maize and Z$13,750/ton for wheat (at the official exchange rate of Z$55/US$1). As a result, GMB was incurring significant losses for all maize sold as well as on domestically procured wheat. Some cross-subsidization took place through imported wheat, which was sold at a profit. In April 2003, the government announced new domestic procurement prices of Z$130,000/ton for maize and Z$170,000/ton for wheat—thereby Increasing the subsidy on grain—unless selling prices will also be adjusted upward significantly.

172. GMB’s deficits in recent years have been financed by the domestic banking system through short-term loans and grain bills. At end-2002, outstanding short-term debt to the domestic banking system—all of which was guaranteed by the government—amounted to about 2.6 percent of GDP.

National Railways of Zimbabwe (NRZ)

173. NRZ has a monopoly on freight and passenger operations in Zimbabwe. It operates a network of 4,300 km with a capacity to carry 16 million tons of freight annually. Operations of the National Railways of Zimbabwe have been declining significantly in recent years. In 2002, NRZ moved 9.6 million tons of freight—down from over 14 million in the early 1990s and an estimated 12 million which could be achieved currently if additional locomotives were available. Only 58 percent of NRZ’s locomotives are operational at the moment and the situation is equally grim for wagons—reflecting mainly neglected maintenance over many years which led to a deterioration in the capital stock. NRZ is only able to take 60 percent of business on offer—and many customers have already switched to other modes of transport.

174. NRZ’s rehabilitation needs are large—with estimates being as high as US$200 million to rehabilitate fleet and tracks. The company admits that there has always been some backlog in maintenance, but this situation has worsened over the last few years due to the unavailability of foreign exchange which is needed to import spare parts.

175. NRZ had an operating loss of about 0.2 percent of GDP in 2002—most losses stem from passenger operations. Commuter fares are kept artificially low and NRZ claims that the government “owes” NRZ about Z$4.4 billion, which are the total recapitalization needs resulting from losses of passenger operations, which are considered “social obligations”. Freight operations are more profitable. Tariffs for freight operations increased by 40 percent in 2002, but at the moment tariffs are frozen as a result of the November 2002 price freeze.

176. Wage costs are very high—80 percent of revenue is used to pay wages, which is an improvement compared to the situation in the late 1990s. About 8 percent of NRZ’s 9,700 employees are considered redundant—based on about 12 million tons of freight moved, which is above the current level of operations. While NRZ is not heavily burdened with debt to the banking system or the government, it owes Z$4.2 billion to its own pension fund.

National Oil Company of Zimbabwe (NOCZIM)

177. NOCZIM is a government-owned company responsible for importing and wholesaling refined oil. NOCZIM has de-facto become the sole importer of fuel into Zimbabwe, imports by other entities—even though they are legal—are estimated to have amount to only 1–3 percent of the total in 2002. This situation is a result of controlled retail prices, which render imports of fuel unprofitable at the parallel market exchange rate, and the fact that NOCZIM 4s the only oil-importing company that has access to foreign exchange through official RBZ channels. The retail business is left to private companies, several of which are international oil companies. NOCZIM also manages the National Strategic Oil Reserves. Oil is brought into the country mainly through a pipeline from Beira in Mozambique.

178. According to NOCZIM, foreign exchange allocations from the RBZ have amounted to about US$5 million/month during 2002—a level not sufficient to satisfy domestic demand, thereby causing severe shortages of fuel. NOCZIM is facing large difficulties in importing fuel, in particular since an arrangement with Libya collapsed in mid-2002. In 2001, a US$360 million facility was agreed upon between NOCZIM, the RBZ and the Libyan Arab Foreign Bank. US$ 111 million was disbursed, of which US$53 million was repaid—partly in cash and partly in the form of meat exports to Libya and shares in Zimbabwean companies including the Rainbow Tourism Group. During 2001 and through the first half of 2002, NOCZIM imported the majority of its fuel needs from Libya under this arrangement. In 2002, Zimbabwe began to accumulate arrears under this deal and it collapsed in mid-2002. Since then, Libya’s TAMOIL has been providing fuel only on a cash-basis.

179. Notwithstanding the fuel shortages, NOCZIM posted a profit of 3.2 percent of GDP in 2002—up from 2.5 percent in 2001. Profits are the result of controlled retail prices, which during 2002 were set at a level that would have allowed NOCZIM to make profits even if foreign exchange had to be purchased at an average rate of about Z$150/US$1. NOCZIM was, however, getting foreign exchange from the RBZ at the official exchange rate of Z$55/US$1. NOCZIM used the resulting liquidity to repay domestic debt and to build up cash reserves.

180. In early 2003, NOCZIM entered into a currency swap arrangement with Anglo American, under which the latter made available to NOCZIM US$35 million at an exchange rate of Z$1,400/US$1. This deal was possible because of the large cash reserves that NOCZIM had accumulated during 2002. Contrary to other reports, NOCZIM maintained that this was the first time it had sourced foreign exchange outside of RBZ channels.

181. NOCZIM has a significant debt problem. The majority of its total debt (classified as accounts payable) is in foreign exchange and most of it is short-term debt that is in arrears—a situation that makes the financing of future imports very difficult.

Post and Telecommunications Corporation (PTC)

182. In 2001, the Post and Telecommunications Corporations (PTC) was unbundled into three separate entities—NetOne (cellular services), TelOne (fixed line services), and ZIMPOST (postal services). The unbundling was to be the first step toward privatizing the first two entities. A regulatory agency—the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ)—was established in 2000 to issue licenses for private service providers and to regulate the sector. Tariff increases have to be approved by POTRAZ.


183. NetOne—which is 100 percent government owned—is one of three mobile phone companies in Zimbabwe. The other two companies—Econet and Telecel—are privately owned. NetOne has the widest geographical coverage and has been posting a small operating profit in recent years. While tariff are low by regional standards, so are expenditures. The scarcity of foreign exchange has been constraining NetOne’s operations. The company has large investment needs, which in 2002 were partly met by sourcing foreign exchange through the parallel market, as it was not possible to obtain foreign exchange from the RBZ. NetOne claims that its investments are profitable, but as a result of the foreign exchange shortages, it has not been able to service its foreign debt—which stands at about US$10 million—in 2002. It is also in arrears on domestic debt, which was inherited during the unbundling of PTC. NetOne is negotiating repayment terms on these domestic loans, which were supposed to be dealt with during privatization. The latter, however, has been put on hold following the failed privatization of its sister company—TelOne—in 2002.


184. The fixed line telecommunications company TelOne was offered for privatization in 2002. Four foreign bidders withdrew their bids for TelOne at the last moment, partly because of the difficult overall economic situation in Zimbabwe. It is not clear how and when privatization of TelOne will be attempted again.

185. TelOne has been achieving small operating profits of about 0.5 percent of GDP during the last two years. The company feels that profits could be increased if further capital investments could be financed. TelOne reports to have received foreign exchange from the RBZ at the official exchange rate to import equipment, but says that it has not received any funds for capital investments. As a result, TelOne has had to postpone several projects, including the digitalization of two additional provinces.

186. TelOne has foreign debt of about US$200 million. About 10 percent of this amount pertains to a loan that the company inherited during the unbundling of PTC. TelOne is not currently servicing this loan, which was supposed to be restructured during privatization. It is, however, current on its obligations on the majority of its other foreign loans acquired after unbundling. TelOne claims to have received foreign exchange to service these loans from the RBZ at the official exchange rate.


187. Prior to the unbundling of PTC in 2001, postal operations were cross-subsidized by other operations. ZIMPOST has been running small—and declining—operating deficits since unbundling, About 20 percent of ZIMPOST’s total network of about 300 offices nationwide is profitable, the remainder (in particular those offices located in remote rural areas) are making losses. In 2002, ZIMPOST requested a ZS960 million subsidy (0.1 percent of GDP) from the budget to cover losses and to finance investments, however, the subsidy was not given and losses have been covered through loans from the domestic banking system. As a result, ZIMPOST—which came out of the unbundling of PTC with zero debt—now carries a domestic debt of Z$390 million.

188. A 5-year postal reform program (2002–2006) is underway which aims to significantly reduce the losses of postal operations. The reform program entails cost reduction measures as well as cooperation initiatives with other companies to expand the services provided in post offices. Tariff increases have also assisted in reducing losses—the cost of mailing a letter rose from Z$2 in 2000 to Z$60 as of January 1, 2003. Further tariff increases are envisaged to bring revenues in line with expenditures.

189. ZIMPOST needs additional funds for capital investments—in particular for an expansion of the post office network and upgrading of buildings and the vehicle fleet. The 2003 budget provides a Z$103 million allocation to ZIMPOST earmarked for building 10 new post offices in rural areas.

Wankie Colliery Co.

190. Wankie Colliery Co. (Wankie) is a publicly quoted company in which the government holds a 40 percent share. It is listed on the London, Johannesburg, and Harare stock exchanges. Wankie is of strategic importance for the economy, as it is the sole supplier of coal for power generation—ZESA consumes 40–45 percent of total output. Wankie also supplies coal to ZISCO and for curing tobacco, as well as coke for the ferrochrome industry.

191. In early 2003, Wankie was operating at 50 percent of capacity. Capacity utilization fell from about 70 percent in early 2002 to about 50 percent at end-2002. Transport of coal is a major bottleneck, as NRZ has not been able to provide enough capacity, and this has in particular effected deliveries of coal to ZISCO. Another problem are large receivables—ZISCO is in arrears to Wankie for a total of US$1.8 million. ZESA is also often late in paying.

192. Wankie was making a loss in 2002. Prices were at roughly cost-recovery level at the beginning of 2002, but by end-2002 inflation had taken its toll, and prices were only at about 50 percent of what was needed for cost recovery. Coal is covered by the price freeze introduced in November, but Wankie has applied for price increases through the Ministry of Mines and the Ministry of Industry and Trade.

193. Maintenance of its equipment is a major challenge for Wankie. Its foreign exchange earnings (from exports of small amounts of coal to Zambia and about 17 percent of total coke production to South Africa) were not subject to the surrender requirement in 2002, but RBZ approval was needed for imports. In any event, foreign exchange earnings were not sufficient to finance all necessary imports for spare parts. Maintenance has thus been neglected for several years and it is estimated that US$100 million would be needed for a complete rehabilitation of Wankie’s facilities.

194. Wankie is currently negotiating a US$5.3 million loan with the South African ExImBank—to be guaranteed by the Zimbabwean government. It is expected that proceeds from the loan would allow for an upgrading of facilities and would result in export earnings of about US$1.5 million per month, which would be sufficient to finance regular maintenance expenditures and spares.

Zimbabwe Electricity Supply Authority (ZESA)

195. ZESA is a government monopoly responsible for generating, importing, transmitting, and distributing electricity. It operates five generating plants. ZESA distributes about 12,000 gWh of energy per year. Of the total, about 70 percent is produced domestically—in about equal amounts in two power plants (Hwange, which uses coal, and Kariba, which is a hydro power plant), the other three plants only contribute small amounts. The remaining 30 percent are imported. Cahora Bassa (Mozambique) is the main source of imports (about 80 percent)—the remainder is coming from SNEL (DRC, 12 percent), and ESKOM (South Africa, 8 percent).

196. ZESA recorded a small before-tax loss in 2002, after moderate profits in 2000–2001. ZESA’s tariffs are adjusted regularly and are meant to be at a cost-recovery level. Two mechanisms for tariff adjustments exist side-by-side—increases in base tariffs, which require Cabinet approval and which happen irregularly, and automatic tariff increases in response to changes in input costs which give rise to more frequent changes in tariffs. ZESA maintains different tariffs for households and for commercial customers. As of March 1, 2003, ZESA also introduced a new tariff structure for commercial customers which are net exporters.

197. Base tariffs are currently set at US$0.06/kWH for households and US$0.08/kWh for commercial customers. Base tariff increases are designed to increase the profitability of ZESA over time and to compensate for the continuous erosion of profitability on account of the partial pass-through of cost increases through the automatic tariff formula. The last base tariff increase of 40 percent was approved in June 2002—and became effective in two equal tranches in July and October 2002, respectively.

198. Electricity prices also increase automatically (as often as monthly) in response to changes in a number of cost components (e.g. the prices of coal and diesel fuel), the exchange rate, and inflation. Specifically, all factors have an effect on tariffs for commercial customers, but for households adjustments are made only for changes in inflation. In any case, ZESA absorbs 10 percent of any increase in input costs, thereby eroding profitability over time.

199. As of March 1, 2003, ZESA introduced a new tariff for commercial customers who are net exporters—these are to pay US$0.038/kWh in foreign currency. This new tariffs is meant to provide ZESA with additional foreign exchange to finance imports and to pay off some of its foreign debt.

200. ZESA carries a large foreign debt (US$240 million), of which US$156 million are in arrears. ZESA estimates that it needs about US$5 million per month to service its foreign debt, which it has not been able to do during 2002, with the exception of a small loan from Société Général which is used to finance the refurbishing of the two main power plants. This situation has led to significantly reduced deliveries from Mozambique and ESKOM, which in turn have necessitated load-shedding and cutoffs of energy in Zimbabwe.

Zimbabwe Iron and Steel Corporation (ZISCO)

201. ZISCO Steelworks is a 100 percent government owned company. Its output consists of unprocessed steel (billets) and processed products. 70 percent of (unprocessed) billets are exported (mainly to the Far East) and 30 percent of billets are processed further and sold domestically. Exports are not profitable for ZISCO, but it lacks working capital to finance more processing (which requires large inputs of coal and gas).71

202. During 2002, ZISCO was operating at only 15 percent of capacity—with the lack of working capital being a major reason for this situation. ZISCO has large arrears to both Wankie Colliery (which provides coal) and NRZ (which transports the coal from Wankie to ZISCO). After a partial clearance of arrears during 2002, Wankie and NRZ were providing coal and transport services, respectively, to ZISCO against cash payments as of early 2003.

203. During the last two years, ZISCO has been running a before-tax loss of about 1 percent of GDP. Low capacity utilization, production (and exports) of mainly low value-added unprocessed products, and keeping its entire workforce on the payroll are the main reasons for this situation.

204. ZISCO has very high debt levels. Its total debt is about Z$25 billion—of which about 25 percent are in foreign currency (US$116 million). During 2002, ZISCO made almost no debt service payments, so arrears on outstanding debt increased further. According to the company’s own estimate, about US$175 million would be needed to upgrade facilities, increase processing capacity, and generate a small profit.


Prepared by Helga Treichel (FIN).


There are about 30 public enterprises remaining in Zimbabwe—the ones treated in detail in this chapter are the eight largest and strategically most important ones.


These figures need to be interpreted with some caution as they are based on unaudited data received from the enterprises. Furthermore, public enterprises operate in an environment of controlled prices—for both inputs and outputs, and interest rates are sharply negative in real terms.


Excluding NOCZIM, major public enterprises recorded losses of 1.7 and 2.4 percent of GDP in 2001 and 2002, respectively.


This figure actually refers to a loan currently being negotiated with an Indian financial institution. The loan is supposed to finance rural electrification and other infrastructure investments.


In 1999, the government gave a concession to a South African consortium for the 150 km long Beitbridge-Bulawayo route. In late 1999, the government signed a MOU with this consortium for concessioning the entire rail network. However, the MOU was later rescinded in the context of strong objections from the World Bank and other stakeholders.


ZISCO uses coal from Wankie Colliery Co. The coal is transported via a 700 km long dedicated rail line which is owned and operated by NRZ.

Zimbabwe: Selected Issues and Statistical Appendix
Author: International Monetary Fund