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Keynote Address by Hon Minister Of Finance And Economic Development, Dr I.M.C Chombo - Workshop On Guidelines On “Enhancing Board Effectiveness” And “Performance Management”

Let me begin by thanking the Chief Secretary to the President and Cabinet for inviting me to deliver the opening address at today’s important and timely workshop,

and to say how pleased I am to do so as one of my very first public engagements as Minister of Finance and Economic Development.

 

The issue of State Enterprises reform and, within that context, the need for such entities to comply with sound corporate governance principles, is far from being a new area of interest or concern for Government.

 

I have been in Government for some considerable time and I can clearly recall these issues being brought to Cabinet on a number of occasions in the past.  Decisions were made, clear directives were given, and yet, several years later, here we are, still confronting the same problems of perennial underperformance by our State Enterprise sector, sub-optimal service delivery and generally poor compliance with even the most basic tenets of sound corporate governance.

 

The Sector’s contribution to national GDP growth has slumped to  around 2 % and, often, operational and other inefficiencies serve to inflate an already high cost of doing business, rendering our manufactured and export products uncompetitive.

 

As operational performance and delivery has stagnated or even declined, the same cannot be said for the overall cost of management.  Remuneration, benefits and an impressive array of innovative, often off-payroll disbursements to executive management have continued to grow as a percentage of global operational costs - often exceeding, by far, the Cabinet-stipulated maximum of 30% of total revenue for the Entity.

 

In many cases, whereas anticipatory budgets or estimated revenue inflows are used to validate what are in fact unsustainable levels of executive remuneration, audited financial statements present the true state of affairs and the extent to which, in many instances, Entity-performance does not warrant or justify such levels of remuneration.

 

A 2016 baseline data survey of the Sector and which is now used to benchmark current and future performance, both operational and financial, revealed a very high number of our 107 State Entities to be either “technically insolvent” or “illiquid” : in either case a drain or a potential drain on the Fiscus.

 

As Government, we are simply not in a position to keep on bailing-out underperforming Entities or those which have outlived their usefulness. His Excellency the President could not have been any clearer - in terms of his frustration or his determination to act - than in his pointed remarks about State Entities when he met the private sector early last month.

 

In response to those remarks, all Ministries were directed to provide up-dated status-reports on all State Entities within their respective portfolios, including

  • The relevance of the original mandate
  • The strategic importance of the Entity
  • Whether or not there exist any duplications or role overlaps between different and possibly competing Entities
  • The sustainability of the Entity’s operations
  • Can the Entity be successfully turned around and if so, how?
    • By way of Restructuring?
    • Commercialisation?
    • A Joint Venture Partnership with the private sector?
  • Or should the Entity simply be closed-down or possibly absorbed into the Line Ministry as a Department?

 

The same directive to Ministries stipulated that, in cases where the Line Ministries are convinced that their Entity can be turned-around, they should provide details of the proposed turn-around strategies and - very important - to provide clear sources of funding for that turn-around.

 

Response to that directive has been slow. Relevant Heads of Ministries - together with the respective Management structures of the Entities which fall under them - are advised to devote more time and attention to fulfilling the terms of that directive.

 

In parallel with that exercise is the one which brings us together here this morning: namely, Government’s determination to effectively address the corporate governance weaknesses so prevalent across the State Entities Sector.

 

Directing scarce resources into restructuring or recapitalising potentially salvageable State Entities will serve no purpose if the often wilful, wasteful bad habits of management are not addressed:  and addressed in a manner which leaves no room for doubt that Government is very serious indeed in its determination to ensure strict compliance with the principles of sound corporate governance.

 

Since previously published Corporate Governance Frameworks and Codes have not been taken seriously, and in order to emphasize its seriousness of intent in this regard, Government has developed the Public Entities Corporate Governance Bill which, together with its associated Implementation Regulations, is expected to become law before the end of this year.

 

Allow me to pay tribute to my predecessor, Honourable Chinamasa, for the tireless efforts he and the Ministry staff, working with OPC, SERA and the Attorney General’s Office made to develop the Bill, steer it through Cabinet and into the Parliamentary approval process.

 

The Bill is now ready for its Second Reading and, already the level of cross-Party support for this legal instrument is very clear.

 

We are almost there and it is my expectation, that Management Structures at all State Entities are proactively preparing themselves for full compliance with the reporting requirements stipulated by the Bill.  Likewise, Heads of Line Ministries should be actively preparing for the entry into force of the Bill.

 

The strengthened oversight responsibilities for Line Ministries requested by Cabinet are clearly reflected in the Bill and place additional onus on Ministries in terms of ensuring greater accountability and transparency on the part of their State Entities as well as overall strict corporate governance compliance.

 

The days of No Boards, incomplete Boards, One-man Boards, Non-Existent Board Committees, Indefinite Acting CEO’s, Finance Directors or Heads of Internal Audit, are well and truly gone.

 

Remuneration has to be based on performance - measured and assessed - both of the individual and of the Entity.

Bonuses, if they are to be paid at all, must only be awarded on the basis of annual performance assessments against agreed performance targets AND only after annual audited financial statements confirm a satisfactory overall Entity performance.

 

A recent forensic audit of one Entity revealed that Management had paid itself two bonuses in 2012 and three bonuses in 2013.  Nothing can justify this squandering of public funds.  My Ministry will be acting to ensure recovery of such unjustified payments from all those who benefitted therefrom.

 

These are public funds and the use thereof must be fully justified, and must at all times be accurately and transparently accounted for.

 

Audited financial statements must be submitted every year and on time.  Annual General Meetings at which the operational and financial performance of the Entity is disclosed and opened to the critical scrutiny of relevant Stakeholders BEYOND just the Line Ministry, must be held.

 

The Bill, in seeking to address all these and many other management deficiencies identified in successive Audit Reports, is very clear in what it demands of Management, and equally, what it requires in terms of Line Ministry oversight.

 

In order to facilitate understanding and implementation of the Bills, my Ministry, together with OPC, SERA and experts from the World Bank have developed the two sets of Guidelines or Manuals which will be presented to you today.

 

Work is also underway on the production of an Abridged Version of the Bill - but this can only be completed once the final form of the legislation is known and signed into law by His Excellency the President.

 

As I conclude my remarks, let me once again stress Government’s seriousness of intent in this intensified endeavour to progress State Entity reform and, with it, stricter compliance with sound corporate governance practices.

 

Chief Secretary, Heads of Ministries, Board Chairs and Management of State Entities, Distinguished Guests and Participants:

 

Thank you again for your invitation to be here today and for the attention that this event focuses on issues of key relevance and importance to me, my Ministry and our Government as a whole.

 

I wish you fruitful, interactive deliberations which, I believe, will serve to further build our collective momentum towards a successful implementation of the Bill.

 

With these words, I have pleasure in declaring this Workshop officially open.

 

I Thank You

Crowne Plaza Monomatapa Hotel,

Harare - 25 October 2017

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