THE INDUSTRIAL DEVELOPMENT CORPORATION (IDC) WAS A BAD IDEA, IS A SCAM AND IT NEEDS TO BE DONE AWAY WITH BY THE UPND (PART 3)
By Shalala Oliver Sepiso
IT IS IDC WHICH IS A BAD IDEA NOT INDECO
Today I will later write about Indo-Zambia Bank and why it is failing under IDC. But before I handle today’s serving, lets get one thing clear.
I have seen many people jump the gun without following this series and suggest that I am condemning the genesis and reason for establishing INDECO. No, this series is looking at why we should not have IDC currently. INDECO, to a large extent, was justified even though it eventually petered out and MMD hit the last nail in its coffin. INDECO did well and went on to establish such influential entities as Nitrogen Chemicals of Zambia, Livingstone Motor Assemblies, Mulungushi textiles, Kawambwa Tea, Kafue Textiles of Zambia, Mansa Batteries, etc. On the other hand, it is not remiss to say that IDC on the other hand was a bad idea and it should be gotten rid of.
To manage Zambia resources and bring about economic growth in Zambia through mechanisation, industrialisation, speedy economic growth and strategic investments, the first Republic in Zambia created INDECO, alongside the likes of MEMACO, ZCCM, ZIMCO and FINDECO, as strategic conglomerates. These all eventually disappeared because they failed. They went burst. Bankrupt.
By the time we hit the 1980s, INDECO had become a huge liability because it was suffering from under capitalization and most of the goods and services it was producing or providing were of inferior quality and over priced. One of the reasons for the under-capitalisation was the reality where profits from the firms under INDECO where being diverted to political activities including the liberation efforts for South Africa, Zimbabwe, Angola and Namibia. Of course, like I already alluded to, there was lack of creativity, nepotism and cronyism, terrible business practices, poor business modelling, bad business decisions, disproportionately high social spending and bloated labour forces in the INDECO group of companies. These state conglomerates, instead of raising that dollar and fattening the national wallet, became a huge drain on the national treasury instead. They failed to be wealth creators. Instead they were now depleting the very wallet whose funds should be developing the nation and improving Zambian lives. These failed conglomerates were excellent examples of short-sightedness and bad corporate leadership and no one wanted to be associated with them. It was therefore not shocking to see that most managers who worked in these conglomerates were so ashamed of them and their catastrophic failures that they later didn’t go on and reflect their stints within these institutions on their curriculum vitaes.
The MMD didn’t attempt to restructure INDECO but took the route they felt was the best and that was to disband INDECO. And they were right.
When the MMD disbanded INDECO, Zambia still had a good number of parastatals or state-owned enterprises in existent. At that point, the Zambian government had wound down or sold off more than 300 parastatals.
THE CURRENT IDC IS INTRODUCED BY THE PF
Then came the PF who reincarnated INDECO as the Industrial Development Corporation (IDC).
On 23rd January 2014, a statement from President Michael Sata on the Industrial Development Corporation, incorporated under the Companies Act as a 100% government-owned corporation, stated that the Industrial Development Corporation (IDC) be the holding company of all state-owned enterprises that are incorporated under the Companies Act or the Banking and Financial Services Act with an initial authorized capital is K20 million of which K10 million was already paid up using funds from the Privatisation Revenue Account as sanctioned by Section 39 Subsection (2) (J) of the Privatisation Act, Cap 386 of the Laws of Zambia. The Sovereign Wealth Fund would focus on stimulating investment in strategic non-mining industries among others, thereby expanding the country’s investment portfolio and thus creating jobs. President Michael Sata added that the IDC would be a tool for the modernisation and diversification of the economy in order to create jobs, wealth and prosperity for the Zambian people.
IDC was poorly modelled on UNIP’s INDECO. The IDC was resurrected for the purpose of bringing parastatals under one umbrella or professional oversight, alignment with national vision, control of operations and indeed professional management. There were about 35 parastatals that were placed under the umbrella or IDC. IDC was given the mandate to run them. These parastatals, had survived the privatisation programme under the MMD. A good number of these parastatals were deemed either too strategic or too financially viable to be sold off to the private hands that were snapping up bargains all over Zambia. In reality though, by the time IDC was coming to take over the parastatals, almost all of them were largely companies whose net-worths were in the red.
Of course, the PF will get 100% for effort of introducing the IDC. The PF knew that he who never tries or is afraid of past failures can’t count on success as their destiny. For the rest of us, we have watched as IDC evolved. It was like we all believed in “he who feels it cannot be done shouldn’t disturb he who is trying”.
But the PF should get less votes for innovation and sustainability. This is because “he who refuses to learn from history is destined to make the same mistakes”. The IDC was created without the needed environment and all.
But warnings were issued at the time it was introduced.
In 2015, Felix Tembo said: “Honestly, I have also been of the view that the creation of the IDC is one of the many worst decisions made by this government. Our memories are still fresh on how we mismanaged INDECO, ZIMCO and even ZCCM. Why form another ‘monster’ that we know will just be a drain on our national coffers? To make matters worse, we even make the presidency to be the chairperson. Are we saying the president does not have so many responsibilities that we have to add some more? If this government means well, let them shelve the establishment of this ‘drain’ the way they have done with the national airline. We are already struggling to efficiently run existing parastatals like ZESCO which are not supposed to be making losses.”
“IDC is just another sick elephant organisation which is already a troubled organisation. You cannot lift a sick elephant. It is too cumbersome,” another person commented.
“Even in the far East where we borrowed this idea. They have failed. Russia is now dismantling state companies. Even Chairman Mao of China and Gorbachev of Russia would laugh at them” then MMD vice president for Political Affairs Dr. Michael Kaingu said in 2014, as he insisted that IDC could only work if government embarked on nationalisation policies because the economic idea was tried and it failed. “We tried this in the sixties, seventies and later on it failed. It can only operate under a state-command economy. Are they going to nationalise some companies?”.
Mr Kaingu was right. We had tried nationalising companies before and INDECO thrived back then. In 1964, Mr Andreas Sardanis, who immigrated into then Northern Rhodesia in 1950 and became involved in the independence movement, was appointed chairman and managing director of INDECO, the Zambian Industrial Development Corporation. One of his first tasks was to go on and negotiate contracts for building the road to Dar es Salaam saving the economy from collapse. Mr Andrew Sardanis presided over the nationalisation of mines and other companies in Zambia through the Mulungushi Reforms. Although Zambia became independent in 1964, the British did not want to give up the copper mines. In 1969, Sardanis negotiated the takeover of 51% of the shares of the copper mines. He did this in his role as Industrial Development Corporation (INDECO) managing director. Some of the Zambian businesses went on to have serious turnovers that put them among the top 100 largest companies in the world at the time. To his death, Sardanis strongly defended the nationalisation policy saying it was necessary to give black Zambians a start in business, which hitherto was foreign-dominated. Sardanis, later left INDECO for Lonrho before setting up Sardanis Associates Ltd, a conglomerate he established in association with the British merchant banker Fraser Ansbacher, a Zambian friend, and some associates with whom he had worked in the Industrial Development Corporation (INDECO) in the 1960s. Sardanis would use his lessons from INDECO to establish good businessed for himself though INDECO itself failed. He also worked later in his life with prominent people who had worked with in his INDECO days. For example, having left politics, Lewis Changufu – who was Zambia’s first independence Minister of Finance – went into private business and joining Andrew Sardanis Chibote Group of Companies as vice-chairman. He also held shares and owned Kingstons (Zambia) Ltd which ran a stationery shop.
CONCLUSION FOR THE DAY
The IDC was tasked with the duty to professionalise and commercialise their operations. But to date, IDC has not shown any signs of deliverying on its duties. IDC does not seem to be in charge of these parastatals. It seems to have no teeth. It is just but a paper Tiger. And a sick elephant. It had been pushed to work.
IDC seems to have no control over the boards and the managements of the companies under it. This is worse with those powerful and strategic parastals like ZESCO, Indeni and ZAMTEL. Further, key decisions for IDC and the parastatals seem to be made elsewhere. IDC has no coherent corporate strategy to ensure that the parastatals under it are run to make profits or following commercial logic of a viable entity worth sustaining. Operations of parastatals under IDC seem to be full of turmoil and incompetence. The balance sheets of these companies under its watch are scandalous.
The vision of having IDC included having the treasury benefiting from dividend payments by the parastatals. President Sata also guided that 75% of the dividends from the IDC itself and its subsidiaries would be paid into a Sovereign Fund.
However, IDC ended up being a drain on the coffers. It needed investment. It ended up being a creator of employees and not of employers. The parastatals under it ended up being the ones asking for bailouts from the treasury to pay workers’ salaries and other commitments. One of the reason is these companies having poor management and the existence of poor fiscal policies.
Tragically, IDC has not enforced standard accounting procedures or ensured that audited reports are produced consistently. Additionally, not only has IDC failed to insulate itself from political interference, but IDC has not minimised political interference to ensure parastatals are not treated like cash cows. And, like I mentioned in our of my last postings, most, if not all IDC firms, have not produced audited accounts in the last five years.
Their corporate performances cannot be judge properly as they are not subjected to standard baselines and standard corporate reporting guidelines and benchmarks at least close to LuSE standards.
IDC has failed to arrest poor performance, nepotism and cronyism but leaders of these parastatals or the infighting at the expense of progress that goes on.
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