Grain of corruption
The Grain Millers Association of Zimbabwe (GMAZ) has gained national prominence in recent years. This is in part, a reflection of the parlous state of the national grain stores, the falling fortunes of the national grain utility, the Grain Marketing Board (GMB) and grain shortages. A fatal combination of man-made and natural disasters has resulted in serious food shortages in recent years.
GMAZ, which represents grain millers, has stepped in to fill the gap. Its chairperson is Tafadzwa Musarara, who tried but failed to represent Zanu PF during the 2018 parliamentary elections. He fell in the preliminary rounds of the electoral process, losing in the primary elections.
This week, Musarara appeared before a parliamentary committee on agriculture which is investigating affairs regarding the importation of grain. Members of GMAZ have been beneficiaries of the government’s subsidies regarding grain imports. In a scheme marked by systematic opaqueness, the Reserve Bank of Zimbabwe (RBZ) allocated scarce foreign currency to grain millers to facilitate imports. The foreign currency was allocated at the cheap rate of 1:1 to the United States dollar. It was the same cheap facility available to fuel importers.
This opaque scheme was marred by allegations of favouritism and corruption. In any event, the favoured ones made a killing. This is because they got foreign currency at the ridiculously cheap rate of 1:1 between Zimbabwe’s surrogate currency and the US dollar, but they could sell their products at a higher rate. Political elites and politically exposed persons (PEPs) joined in the fray. They did not even have to import any goods. The cheap US dollars were diverted to the black market where traders made good profits for their bosses.
Where is the difference?
This week, the parliamentary committee heard that the RBZ gave a total of US$27 million to GMAZ between 2017 and 2019 to facilitate wheat imports. Musarara admitted that his organisation had received money from the RBZ, but he had a different figure. He claimed they had received US$26,1 million. Two different figures over the same situation suggest that one of them is not telling the truth. If the testimonies of both the RBZ and GMAZ are correct, it means
US$900 000 is unaccounted for.
There are at least three possibilities: the money may have been misappropriated at source, in transit or at the destination. There is a need to follow the money and to reconcile the figures. This is a clear penalty to take for the Zimbabwe Anti-Corruption Commission (Zacc), the anti-corruption watchdog if it is serious about its mandate. All it must do is follow the money and demand a reconciliation of the figures.
Was there a loan to the GMB?
Musarara admitted that the GMAZ received US$26,1 million from the RBZ. So there is no doubt that this large amount of money was transferred from the central bank. Musarara told the parliamentary committee that his organisation had granted a loan of US$9 million to the GMB, the grain utility, to refurbish its silos in preparation for the harvest. In return, the GMAZ members would be entitled to buy grain from the GMB at a subsidised price of US$240 per tonne, instead of the market price of US$270 per tonne.
However, officials from the GMB appearing before the parliamentary committee disputed this account. They told the parliamentary committee that the GMB had never received this alleged loan from the GMAZ. Clemence Guta, the GMB operations manager, told the committee that they had financed the refurbishment of the silos from normal sales of grain. Musarara’s account was also disputed by the smaller millers who appeared before the parliamentary committee.
They were not aware of the subsidised price which the GMAZ chairperson claimed was available to all members in return for the alleged loan. This means if the facility was available, it was exclusive to a small group of millers, probably the larger ones. This would give credence to allegations of a cartel in the sector.
But more significantly, there is a huge question mark over the alleged US$9 million loan which Musarara alleged was given to the GMB and yet the GMB officials say the parastatal never received such a loan. This represents yet another penalty to take for the Zacc if it is serious about its mandate to combat corruption. There surely must be some paperwork that backs up the so-called loan agreement. It now falls upon the Zacc to demand this paper trail. It will establish whether or not a loan was extended and paid to the GMB by the GMAZ.
There is a separate issue of concern regarding this alleged loan which, if true, raises questions over President Emmerson Mnangagwa’s probity. Musarara claims the loan to the GMB was given in response to an oral request by Mnangagwa in 2017, at a time when he was a vice-president. Why would the GMB, a public entity, get a loan from a private organisation based on a verbal request from a third party when there are clear rules of public procurement? Why would a vice-president act as a middleman on behalf of a parastatal which has a board of directors?
Zacc must probe this alleged transaction to establish the veracity of Musarara’s claim regarding the role of the President. President Mnangagwa would have to corroborate Musarara’s version of events. If Musarara is not telling the truth, he should not be allowed to falsely invoke the name of the President.
The President’s failure to clear his name in this dodgy transaction implicates him in an act of impropriety and most probably corruption since the fate of US$9 million is unknown and at the centre of two contradictory claims: Musarara says it was given to the GMB, but the GMB says the organisation never received it. One of them is lying and it is important to establish the truth. Again, if Zacc is serious about its mandate, it must follow the money trail.
Who bought the grain?
The final question pertains to the use of the money and the parties involved in the transaction. The chairperson of the parliamentary committee, Justice Mayor Wadyajena, stated that that the tax collector, Zimbabwe Revenue Authority (Zimra), had disclosed that it had no record of GMAZ having imported wheat or any other grains. In response, Musarara told the committee that the wheat was brought by a company called Holbud Limited. He added that the wheat was brought through a company called Drotsky (Private) Limited. Upon further probing, Musarara disclosed that Drotsky Private Limited is his company.
This raises several issues. First, this exposes an incestuous relationship between the corporate entities involved. The company involved in the transaction, Drotsky, is owned and controlled by the chairperson of GMAZ.
There is, on the face of it, a situation that gives rise to a conflict of interest. It gives rise to the impression that the chairperson of the organisation placed his personal interests ahead of the organisation and other members to derive private gain from the transaction. In any event, the arrangement sounds inappropriate and improper, especially where subsidies and therefore public funds are involved. It gives rise to the possibility of abuse of a public facility.
All in all, it is a very murky situation, but one that is consistent with the abuse of cheap government facilities that are established ostensibly in the public interest but are converted into channels for private gain and accumulation by political and business elites.
It is a familiar pattern: government provides a subsidy meant for a large group; political and business elites are first in the queue to get the subsidised goods in bulk; these elites divert the subsidised goods for personal gain or to the black market where they fetch huge profits. The game is fixed in favour of the elites. They win every time, while using the public as a front.
To extend the football analogy, there are a lot of sitters in this case and it is up to Zacc and whether it has the will to score. But Zacc has perfected a habit of missing. Where it is easier to score and harder to miss, Zacc will usually take the latter option. It will not be surprising if it misses the many sitters in this case.
Bacossi by other names
The pattern that I have just described is set to continue under a new scheme announced this week to benefit members of the military and civil servants. The Finance minister, Mthuli Ncube, announced a scheme where soldiers and other members of the security services will have access to subsidised goods at so-called garrison shops, situated within cantonments. Other civil servants will also have access to subsidised goods through Silo shops. There is selective treatment of members of the military and civil servants to the exclusion of the rest of the population. The selective treatment means the rest of the taxpayers are subsidising members of the two sectors.
This special subsidy for the military and civil servants is a grim indicator that we have come full circle. Two weeks ago, in an article entitled Haven’t we been here before?, I explained how history was repeating itself. During his first term as RBZ governor, Gideon Gono introduced several subsidised programmes as part of his package of quasi-fiscal interventions.
One of them was the introduction of Basic Commodities Supply Side Intervention (Bacossi), which included the establishment of special shops designed to sell basic commodities at subsidised rates. It was popular because there was a serious shortage of basic commodities. It was also plagued by corruption, arbitrage and rent-seeking. Elites who had easy access to the subsidised goods simply diverted them to the black market. In any event, it was expensive and therefore unsustainable.
When I wrote about Bacossi two weeks ago, it was about the government’s proposed scheme to issue roller-meal coupons to enable citizens to get subsidised maize meal, which is in short supply. I explained how this would be a boon for corrupt elites who would simply hoard the coupons and sell them for profit. It is unclear whether the government still intends to carry on with that scheme.
Now, however, the garrison and Silo shops are meant to extend the subsidy beyond maize meal. There is no way to sugar-coat it. Garrison and Silo shops are Bacossi shops in all but name. As I said two weeks ago, the retired governor must be watching this scene with some satisfaction. As a banker, Ncube was one of Gono’s critics; now as Finance minister, he is resorting to Gono’s strategies, albeit with the façade of new names.
Fuelling black market
As most observers have noted, the garrison and Silo shops are yet another facility that will fuel corruption, arbitrage and rent-seeking. This will happen at two levels, the elite and petty levels. At the elite level, political and military elites will, as they have always done with previous schemes, get easy access to cheap goods ahead of ordinary soldiers and civil servants. They will divert these cheap goods to the black market for private gain. This is corruption on a grand scale because the elites generally get the goods in bulk.
The petty level will involve ordinary soldiers and civil servants acquiring cheap goods at the garrison and Silo shops and selling them on to desperate members of the public. Profits at this petty level will be modest in comparison to profits made at the elite level, but that is because their access to the goods will be more limited. Faced with this scenario, formal shops will also divert commodities to the black market, where they will fetch higher prices. This policy will, therefore, have unintended (but foreseeable) consequences for the Finance minister.
There is, of course, the broader political question as to why the regime is taking this step at this juncture. The move is arguably designed to pacify members of the military who are getting more uncomfortable as the economic deterioration bites. The current regime is a product of a military coup, but ordinary members of the military have not received their dividends. Instead, they have witnessed their fortunes dwindle since November 2017, while the personal estates of their elite bosses have grown.
The circumstances generate conditions for mutiny. The garrison shops are an indication of the regime’s fear of unrest in the military sparked by the economic challenges. It is a sweetener for the boys in uniform; to keep them quiet for a while and prevent mutiny. Twice the regime has called upon the military to defend it against civilian protests and both times, the military has responded with excessive force, killing protestors.
Cost of coercion
The move is also an indication of how the Mnangagwa regime is over-reliant on coercion ahead of consent to enforce its rule. Between the two – consent and coercion – the latter is more expensive as it requires lots of investment in the agents of coercion to keep them onside. These agents of coercion need incentives to protect the regime and enforce their commands. The Garrison shops facility is part of these incentives for the military, the chief agents of coercion.
In this way, the Garrison and Silo shops are part of the regime’s divide and rule strategy as it seeks to widen the wedge between members of the military and civil service on the one hand and members of the public on the other hand. With members of the military and civil service getting a special subsidy, they might feel special and favoured and derive from this circumstance a false sense of comfort compared to their fellow citizens. In situations of want and desperation, people are very selfish. Soldiers and civil servants who are getting special benefits from the regime, no matter how small might feel better and therefore compelled to defend the regime.
The incentives are also designed to prevent agents of coercion from revolting. This is because since they use force to keep the ruler in power, the agents of coercion know they can also use the same force to remove the ruler from power. The ruler knows this too and is therefore vulnerable. Therefore, the Mnangagwa regime which took power through the military, and is dependent on it to maintain its power is also highly vulnerable to the military.
However, the Garrison shops facility is merely the equivalent of a painkiller where a proper cure is desperately needed. It may numb the pain for a moment but ultimately it does nothing to remove the cause of the pain. The reason is that the government is unlikely to afford to keep the subsidy running for the long term. In any event, the inevitable corruption and rent-seeking by political and military elites as they exploit the Garrison shops facility will only serve to further alienate and enrage members of the military.
The GEMS’ puzzle
This week, the government also announced a plan to establish a mutual savings society for government employees, which bears the inviting acronym, GEMS. Under this scheme, each civil servant would contribute 2.5% of their wage to a mutual savings fund. The government will invest $ZWL100 million seed capital to “kickstart” the fund. Members would be eligible to borrow concessional loans from the mutual fund. Upon retirement, they would be entitled to the total contributions including accrued interest.
After initially presenting it as if it were compulsory, the government soon qualified its announcement by explaining that participation would be voluntary. Another initial error was presenting the mutual fund together with the Garrison shops’ scheme which gave the impression that the two were linked. This gave rise to concerns that the government was forcing civil servants to fund a subsidy which is exclusive to members of the military. A subsequent intervention clarified that the two schemes were separate and that the mutual fund was a voluntary scheme.
Nevertheless, despite the voluntary nature, the mutual fund still attracts some important questions. As a rational actor, the civil servant must do a cost-benefit analysis regarding whether to participate in the mutual fund. The civil servant must ask: is 2.5% of my wage a reasonable price to pay for the promised benefits of the mutual fund? In my assessment, while the idea of savings in an inflationary environment makes no sense, there might be a good reason why the average civil servant might consider on a balance of factors to take the gamble.
First, the fact that the government is putting public funds (ZWL$100 million seed capital) into the mutual fund and civil servants are entitled to borrow from it at concessional rates transforms it into an additional pot of money to supplement wages. The civil servant will be paying 2.5% of his wage in return for a lump sum disguised as a concessional loan. This means civil servants who decide to opt-out would lose access to what is essentially short-term government largesse. Since the government is not providing an alternative way for the civil servant who opts out of the scheme to get a share of those public funds, they are forced to join to get their share.
Second, the cost-benefit analysis must consider the fact that the default rate on government-run loan facilities is very high but the recovery rate by the government is very low to non-existent. The Auditor-General’s reports over the years are replete with government schemes where funds or materials have been advanced to recipients, but repayments rates have been poor and the government did nothing about it. They have been treated as bad debts that the government has written off. The average civil servant will, therefore, take his chances on the concessional loan from the mutual fund and hope there will be no recourse in the event of default.
Third, the average civil servant might consider that a 2.5% contribution is a price worth paying if a lump-sum from a concessional loan can enable them to buy an asset. It would be a rational choice for three reasons:
First, being a lump-sum, the concessional loan presents an opportunity for the civil servant to buy an asset that they would otherwise not afford to buy on their low wage.
Second, the asset would be a worthy investment because it is a better store of value than local currency which is fast losing value. The Zimbabwe Dollar has already lost at least 90% of its value to the US dollar since its introduction last year. They might exchange 2.5% of their monthly wage in return for a lump-sum to buy an asset.
Third, for the same reason, even if the civil servant is honest and sticks to the terms of the loan, by the time they complete repaying it the debt would be minuscule due to the depreciation of the Zimbabwe Dollar.
Furthermore, history has shown that inconsistent currency policies can often work in the interests of borrowers. A recent Supreme Court ruling in which a US dollar debt was converted to the Zimbabwe dollar at the rate of 1:1 because of a statutory instrument may have been a disaster to lenders/creditors but it worked as a massive windfall to those who had borrowed money in US dollars before February 2019. Suddenly they found themselves owing just a fraction of the US dollar debt they had taken.
For these reasons, the 2.5% monthly contribution to the mutual fund might be a price worth paying in return for the short-term rewards of membership such as getting a lump-sum through a concessional loan. For the reasons stated above, the mutual fund works as a short-term benefit to civil servants, with cash benefits being disguised as “concessional loans”. This means those who opt-out would miss out on this “bonus”. Those at the top might be happier with more opt-outs because that would mean the ZWL$100 million seed capital is shared by a smaller pool of participants. Therefore, the average civil servant might decide to take his/her chances and participate in the mutual fund.
Nevertheless, the above reasoning assumes that there will be equal access to concessional loans by all members of the mutual fund. This might not happen because of the sheer corruption and mismanagement of the fund. In a country with an Orwellian system where some animals are treated as “more equal than others”, some contributors might find themselves facing unfair discrimination and either not getting the loans or being awarded too little compared to others.
However, the greatest risk is that the mutual fund creates more rent-seeking opportunities for corrupt elites. The elites will not only get access to bigger loans compared to ordinary civil servants, but the fund will simply create another layer of elites to extract wealth from civil servants. Like all mutual funds, the GEMS fund will have to be administered and those administrators will demand and get lavish perks. For a sign of what is likely to happen at the GEMS fund, one only has to take a peek at NSSA, the social security institution.
All workers compulsorily pay monthly contributions in return for pensions and retirement benefits at the end of their working lives. Established in the mid-1990s, NSSA was a noble idea but one that has suffered a torrent of abuse in its life. Political and business elites of a corrupt breed have found much to plunder in this cash-cow. The Auditor-General has documented several cases of abuse of NSSA funds over the years. The greatest beneficiaries of NSSA have not been the contributors but its senior executives and political and business elites through generous compensation packages and cheap loans and other facilities which are not repaid.
Despite well-documented cases of corruption, none of the corrupt elites or executives has faced justice. NSSA’s torrid experience is a grim indicator of the fate that the GEMS fund is likely to meet. Without tight systems and controls, it’s a ready-made meal for the vultures among political elites and their associates.
“Everyone has a plan until they have been hit in the mouth,” said boxing legend, Mike Tyson. He was talking about the uncertainties and hazards of life inside the ring. You get in with a game-plan, but it lasts until a punch lands on the mouth. You see stars and the plan becomes yesterday’s dream. Concerning Zimbabwean politics, as Mthuli Ncube has discovered, it might be said everyone has a plan until they join ZANU PF. You literally lose your head and start hallucinating.
Before he joined the ZANU PF government in September 2018, Mthuli Ncube carried a reputation of some pedigree. If his time at his owner-managed bank, Barbican, in the early 2000s was a dark patch, most had either forgotten or were prepared to give him the benefit of the doubt. He had risen from the ashes of Barbican and redeemed his reputation in stellar circles. He spoke well and seemed genuine; a son of the soil who had was returning home to help his beleaguered country. He seemed sensible enough and had a clear grasp of the challenges and what needed to be done. He even suggested, to much acclaim, that Zimbabwe needed to rid itself of the pernicious bond note. When he began his tenure, he asked to be judged after six months. But by the time the expiry of the six months arrived, the man was already flailing.
By the end of the year, even his most ardent backers had either withdrawn into the woodwork or if they could not keep quiet, they had assumed Comical Ali mode. Who would have known that the learned professor would be dusting up a retired Governor’s old recipe book, opening Garrison and Silo shops where BACOSSI shops once stood? At least BACOSSI shops were open to everyone. Ncube’s subsidised shops are restricted to a few favourites – members of the military and civil servants. He offers no rationale or justification for excluding millions of other citizens who are facing similar economic challenges. He seems oblivious to the basic wisdom that his scheme will simply create and fuel a black market in these commodities.
It’s a long way away from the days of pontificating good economic policies in lecture rooms and proffering advice to governments from lofty offices of international financial institutions. Tyson was right that everyone has a plan until they get punched in the mouth. In our case, as Ncube has discovered, everyone has a plan, until they get punched in the face by the Zimbabwean economy.
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