Effectiveness of Zambian Boards; Expectation of Recently Appointed Zamtel, ZESCO and ZR Board Members

Board Room Setting
  • Corporate turnarounds and profitability is expected from parastatals so that they can pay dividends to government;
  • Transparency through circulation of financial statements will send a strong signal;
  • Implementation of strategic decisions such as unbundling of ZESCO, commercialization of Zambia Railways and ZAMTEL expected;
  • The effectiveness of the boards will be measured by financial performance of parastatals;
  • Board members expectated to exude highest tenets of governance, independence and show no political affiliation;
  • Board composition is highly competent primae facie and the nation expects a lot from them;

The Zambian government recently appointed a number of technocrats from across the industry. Just last week Zambia Railways, Zambia Telecommunications and Zambia Electricity Supply Corporation had complete Boards announced. Board appointments come with mammoth strategic expectations. The recently appointed boards must take cognizance that the onus of strategic turnaround of these parastatals rests squarely on them. Gone are the days that board members took up these appointments and only at high level got involved and got quarterly sitting allowances. The world has since changed. In this increased corporate governance era, board members are responsible for the performance of these entities. If for any reason the Executive management of these parastatals were engaged in mismanagement, the board would be held accountable too. If Executive management were charged with incompetence on account of performance of the entities, the board will be charged too. Free lunches are over in the boardrooms.

Some operational truths about ZESCO, ZR and ZAMTEL

Zambia Electricity Supply Corporation – ZESCO has since indpendence operated on tarrifs that are not cost reflective. This has resulted if poor operational efficiency and a wide cost base. It has been impossible to service generators effectively and consistently due to operating underwater as a result of low contribution to the expense base. It is not a secret that the entity is overstaffed posing questions of presence versus productivity. If it were the private sector, ZESCO can achieve more with lesser than the staffing levels. Unbundling is a very hot topic as a solution to improve efficiency. The proposed unbundling into generation, transmission and distribution of power is the solution to the current inefficiencies experienced. Tariffs have been increased by 50% and an additional 25% is expected first week next month. ZESCO has not shared a set of financials to show transparency in financial performance.

Zambia Telecommunications – ZAMTEL is a very strategic entity for the government but clearly has been loss making for decades. The entity almost privatized in a transaction with Libyan LapGreen which was reversed with a change of government. Many will argue that ZAMTELs performance has been below expected standards due to nationalization. The entity even resorted to converting excess debt into equity at some point. The government has for a long time injected grants into the parastatals operation to very little avail. These parastatals have immense debt that inexplicably never decreases.

Zambia Railways – ZRL has for a long time operated below par. Recent pronouncements especially on bulk cargo transportation will give increased business to the parastatal. With a booming mining and cement manufacturing industry we expects ZR to post good profits eventually. Zambia has lagged in transport development such as commuters like other countries like Kenya, South Africa and Ethiopia have. The rail industry has lagged from policy to infrastructure stage. Zambia Railways at some point in history was the go to bulk transporter with an express train but today the entity is struggling to get into full operational mode.

What the nation expects from recently appointed board members.  

These parastatals have for long underperformed due to either mismanagement or political interference. The new boards are expected to drive performance of these parastatals harder so that they start to generate profits to pay government dividends. Afterall the government is a shareholder and expects a return on its investment in form of a dividend. Most of these parastals are operating under water due to operational models that need complete redesigning. Costs are high due to overstaffing versus productivity levels. ZESCO needs to unbundle into generation, transmission and distribution to operate efficiently while ZAMTEL and ZRL needs a strategic equity partner to allow it to operate competitively. These are areas board members are expected to implement firmly. It would be great to see audited financial statements for these entities for transparency purposes. The performance of these parastals will be used as a yardstick for the effectiveness of these boards. Board members are tied to the parastatals performance through the same ‘principle – agency’ relationship that ties shareholders to actions of Executive management. The gravity is such that if for any reason Executive management are involved in fraudulent activities and are apprehended, so will Board Members be. 

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