<strong>Farai J Musamba corporate governance expert
The situation in Zimbabwe today is characterised by a very difficult operating environment as far as corporate governance is concerned. In an environment where the country’s economy is on rapid decline, business is under pressure to engage in unorthodox means for survival, which in most cases, lack transparency and the integrity normally expected of good governance. A declining economy characterised by shortages of essential commodities like fuel and high operating costs make the upholding of good corporate governance standards a difficult task.
Such are the challenges that a number of normal business activities are now performed in an opaque manner. The country is suffering from shortages of vital fuel supplies and electricity which are the lifeblood of industry and commerce. The local currency has become a scarce commodity for industry, commerce and households alike. The current efforts to re-dollarise have not been that clear as they have been implemented in an inconsistent and opaque manner making it difficult for the ordinary business person and the public in general to clearly understand them and operate efficiently.
The shortages of the local currency and fuel have turned many people and businesses into law breakers, one way or the other. It is a familiar scenario: with fuel in short supply, a vibrant parallel or black market becomes the main source for many people. It is not only individuals but businesses as well who are finding themselves in the same situation, not only in terms of getting hold of basic items like maize meal for their canteens and even some cordials for their meetings, but also when it comes to getting hold of essential business supplies such as fuel. Such items are usually obtained through a less than transparent network of partners.
Until very recently, it was totally illegal for business players to sell their products in US dollars. They were all expected to sell in the Zimbabwe dollar which depreciates every day. It is clear that many businesses were selling goods and services in US dollars or literary overcharging so that they would be able to buy the US dollar on the parallel market. Given its unavailability on the official market, it means they were only able to get this on the parallel market at a very high and fluctuating cost. Failure to do so would mean that the company would not be able to survive or even to replenish the goods traded.
All this, in turn, has had a knock-on effect on corporate governance. The conditions Zimbabwe is facing mean it is now more difficult for companies to do what
is legal than it is to break the law. Many of the basic day-to-day activities that are vital for normal business have become shrouded in lack of transparency or are morally ambiguous and even outright illegal. Such are the challenges for corporate governance in Zimbabwe today.
One of the pillars of corporate governance is the issue of sustainability. Directors are expected, in their fiduciary duty of looking after the interests of the investor and other stakeholders to ensure that the company is sustainable in the long term.
Another pillar is that of ensuring that the company operates legally by adhering to all the legal requirements in a country.
They are not expected to sanction or ignore the breaking of any laws or set procedures.
Many company directors are therefore faced with a dilemma: how do they make sure that the company survives when the playing field is not only uneven but rough for the normal game to be played? How do they continue to operate profitably without breaking the rules?
Majority of companies in Zimbabwe cannot access foreign currency on the interbank rate for a variety of reasons which range from them not being regarded as an essential industry for currency allocation purposes or outright shortage of the funds on the market. This means that they only have one place to turn to, and this is the black or parallel market (if you want to sanitise it). This does not accord with good corporate governance principles at all. As a result of sourcing currency on the black market, one has to charge a price that allows one to make a return which results in inflation as high prices are charged and are derided daily by consumers. The other option is to charge in foreign currency which again was illegal not so long ago.
The same scenario applied in getting the vital fuel supplies. You needed to acquire the fuel and it is only in US dollars. So what do you do? Do you not buy the fuel and fail to do the business you are in business for or you make a plan. That means you may be forced to buy the US dollar fuel. To do so you must access the dollar. You can only do this by going to the black market. The authorities have called it the use of free funds. The important thing here is that it is illegal and you can be arrested for dealing on the black market. Unfortunately for your business to survive you have to engage in such activities.
In some cases you deal with products which are in short supply like maize meal for now. The distribution channel is tilted towards certain players in the industry. For you to access this product you are expected to play to a certain tune which is certainly not in line with good corporate governance. That again means corporate governance only becomes a victim.
The above are just a few examples of the difficulties in the market. Perhaps to cap it all, if a business is operating in such an environment where everything goes, how is it able to account for the transactions without material misrepresentations and creative accounting? In all these gymnastics, how will ZIMRA get its fair share of the opaque proceedings?
It is clear that the prevailing system is costly in terms of good corporate governance. It is a cost to the shareholders, customers, society as a whole and government. This cost is a result of a muddied playing field that companies and business operators have to play in. The authorities need to come up with policies that promote corporate governance and fight corruption.
It is not sufficient to sing anti-corruption songs every day. You can do so 24/7 but if the system is tilted in a way that enables murky deals to be entered into, arbitrage opportunities and many other vices become commonplace and the country’s economy will continue to suffer.
Dr Musamba is a corporate governance practitioner and former CEO of the Institute of Chartered Secretaries and Administrators in Zimbabwe. These weekly New
Perspective articles are co-ordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society. – firstname.lastname@example.org or mobile +263 772 382 852.