The Greatest Hindrance to fighting Corruption in Africa
Corruption in Society and its Consequences
E G Cross
Member of Parliament Republic of Zimbabwe
18th November 2016
Corruption in any society or State can take many forms. It can be petty and
minor and it can be massive and State wide in its implications. It can be
simple and crude in nature or highly sophisticated. It finds partners very
easily and can operate at will across borders and in between Continents. It
is often linked to criminal networks and because of its very nature it is
very difficult to uncover and prosecute.
I cannot speak about corruption in any other country than my own, Zimbabwe
and do not feel that this is in any way makes my experience less relevant to
people who live in other countries which may be more or less infected by the
scourge of corruption in all its many forms.
I define corruption as any activity which enables an individual or group of
individuals to secure access to resources that have not been accrued through
market related activities by means of the integrity of enterprise and work
in a transparent manner.
Zimbabwe is today rated as one of the most corrupt States on earth by
Transparency International. I do not dispute that finding, but very few have
any understanding of either the aggregate cost or the implications for our
country. One estimate of the overall cost of corrupt activities in Zimbabwe
puts it at US$80 to US$90 billion since Independence in 1980. That is
slightly more than two billion dollars a year.
But it is when you pitch this figure against GDP and potential resources to
the State that it takes on more significance. In the 36 years since
Independence the formal sector in Zimbabwe has generated US$575 billion in
economic output and US$145 billion in total revenue to the State. If we take
the lower figure as a reliable estimate of corruption this represents 14 per
cent of gross domestic output over the period but even more significantly,
55 per cent of revenue to the State for all the functions of the State.
Total foreign aid to Zimbabwe over this period has probably been in the
order of US$35 billion 24 per cent of the budget and less than half the
total loss due to corrupt activities.
Some forms of corruption can find broad acceptance in our societies for a
variety of reasons. In countries where the Civil Service is either very
poorly paid or not paid at all, citizens might simply brush off having to
pay the police at road blocks or for service in a government office. A
colleague of mine was posted to the Congo for business reasons and hired a
post box at the post office in his town. He never got any mail and was
complaining to an associate about the poor service. He was then asked do
you pay anything? He said no and his colleague said to him you have to put
money in the box when you want your mail. He did just that and came back in
an hour to find his mailbox packed with mail going back several weeks.
Then there is the influence of our different cultures a Zimbabwean,
handling money in a firm will find it very difficult to remain honest if his
or her extended family urgently needs funds for a crisis. In Zambia at one
stage Banks were not bothering to investigate small thefts by staff they
took it as a cost of doing business in Zambia.
The attitude of many multilateral firms operating in the developing
countries must also be taken into account. The CEO of one major European
manufacturer, whose products are visible throughout Africa, said to me once
that he did not like operating in market driven economies socialist, one
Party States were the best from their point of view they simply built in
an element for local costs and paid bribes often quite small payments for
very considerable concessions. Left to their own devices such firms do not
see anything wrong with paying bribes it is an accepted cost of doing
business.
What is quite different though are the networks that spring up around large
scale corruption. In the case of the Congo and our own diamond experience,
large and very sophisticated networks were created to extract and market the
output and to dispose of the subsequent funds. Very large sums of money are
often banked with reputable international financial institutions who collude
with the perpetrators. I suspect that much or the accumulated wealth in
States with banking secrecy has been accumulated from this sort of activity
and becomes the asset of the institution when something happens to the
people controlling the funds. When Mabuto died in the Congo he was reputed
to be worth US$4,8 billion only US$350 million was ever recovered.
In many African States access to opportunities and resources are closely
linked to having influence with the ruling elite. Open tenders are unheard
of and regarded as a nuisance and deals are done behind closed doors by men
and women with contacts and influence. A Zimbabwean business tycoon, Tiny
Rowland, CEO of Lonrho a multinational based in London, was famous for his
links with the powerful in Africa. He maintained luxury apartments in London
for his friends and a phone call would result in an Executive Jet landing
at an airport in Africa to pick up a family member who needed urgent medical
treatment all costs covered without any questions.
Tiny could call any leader in southern Africa and secure an appointment at
short notice almost at any time. The deals he struck and the business empire
he created were legendary. In many ways he ran his business just like his
friends ran their countries.
This form of corruption is both legitimate and reasonable in the
circumstances that prevailed in Africa at the time. But today corrupt
practices taken on many other forms which are both damaging and exploitive
and which can seriously affect economic growth and fosters the growth of
absolute poverty in many countries.
In Zimbabwe all you have to do is to visit the country for a short time and
to drive a car on our roads. You will be stopped by a Police Road block and
questioned as to the State of your vehicle or what you were just doing on
the road. For any one of a 100 misdemeanors you will face demands for a
spot fine. Often accompanied by a threat to impound your vehicle or
accompany you to a Police Station.
The reason for this activity is that the Government has given the Police the
right to keep the revenue from these fines for their own needs. So the
Police are all well dressed in uniforms made in a factory controlled by
senior Police Officers, they drive new motor vehicles and Police Stations,
unlike other government buildings, like schools and clinics, are all well
maintained and equipped.
But our Police are not well paid and they use this opportunity to moonlight
for themselves evidence of this is everywhere, large homes, vehicles and
cell phones and fancy hair dos. The net effect is a massive surcharge on
all road transport activity and this increases the cost of living generally
and the cost of doing business. A side effect which is just as damaging is
the impact on tourism and transit traffic through Zimbabwe.
In the same vein when you visit Zimbabwe you must drive through one of our
border posts. On arrival you will greeted and treated like much missed
distant relative by a small army of touts who will offer to get you through
the border for a fee. Turn them down and you will soon discover why this may
not have been a good move as you approach the border post in 40 degree heat,
to find that the queue into the building winds down the road and will
clearly take you some time to clear, in the sun.
Once in the border post itself you will subjected to carefully orchestrated
chaos that will encourage you next time to use a tout. The touts clearly
share the fees charged with the Officials on duty. Ignorance of procedure is
rewarded with high charges for duty and taxes and even road access fees
and insurance. For those in the know, small but significant payments can
buy you anything duty free access to Zimbabwe for 30 tonnes of whisky or
bags of groceries. They will also buy you quick and easy transit through the
border, even if you do not have any legitimate documents.
The consequence, total revenue from all charges at the border including
Duties and taxes last year was just 5 per cent on imports amounting to an
official figure of US$385 million on imports of US$6 billion. Duties on
vehicle imports alone in 2015 should have been US$600 million and the
Commissioner of Taxes has just been suspended for a scam involving imports
of luxury vehicles. No post is more sought after in Zimbabwe than that of a
Customs Officer at a major border post. Zimbabwe lies at the very heart of
southern Africa and this corruption impacts on every State that uses our
borders and transit routes.
Another focus of State facilitated corruption has been through a network of
State controlled agencies in the liquid fuels industry. This system has been
used to not only hold down the market price for fuel in the past, but to
defraud bulk suppliers and to take substantial margins both within and
outside Zimbabwe. During the Government of National Unity from 2009 to 2013,
this sorry mess was sorted out by a very capable MDC Minister and the entire
industry put onto an open, transparent market related basis.
Within weeks of the total assumption of power by the Zanu PF Party in July
2013, the rats were at it again and today a commercial group led by a major
British Company has a monopoly over the pipeline supplying Zimbabwe and has
imposed a premium on all fuel imports of between 25 and 35 cents a litre.
Every cent is worth US$1,2 million a month and the total value of funds
being siphoned off under this scheme I estimate to be about US$450 million a
year.
For some reason all fuel payments by Zimbabwe to offshore suppliers go
through Singapore which, in 2015 supplied 22 per cent of our total imports
that is US$1,3 billion a year or over US$100 million a month. You can do the
maths our imports were about 140 million litres a month in 2015 so the
average price paid was 78 cents a litre in a world market where refined
fuels were selling for half that price. Ask yourself who visits Singapore on
a regular basis for medical treatment and just join the dots. But the impact
on the streets in Zimbabwe is clear pump prices for fuel average US$1.16 a
litre compared to a regional average of about 80 cents.
Like South Africa we have established a major diesel based generating
capacity for electrical energy. It is allowed to import duty free fuel for
this purpose but even so the cost to the consumer is more than double the
cost of imported energy and ten times the cost of hydroelectric energy from
Kariba Dam and Mozambique. Surprise, surprise, a Zanu PF aligned company
with links to the corruption in the fuel industry has control of this
facility. There is no economic justification for this operation.
But nothing demonstrates the significance of State controlled corruption on
a massive scale better than the story of the Marange diamond fields.
Discovered by de Beers, they abandoned the find in 2006 only to have the
discovery taken over by a London based company, African Consolidated
Resources Limited. ACR pegged 3 800 hectares of the discovery and almost
immediately found gem quality diamonds. As a public company they were
obliged to make public disclosure as it might affect the share price in
London. They did so and the notice was seen in Zimbabwe.
Within weeks the mining rights of ACR were illegally cancelled and the
Government allowed some 40 000 small miners to occupy the site. After two
years the State, for the first time appreciating the size of the discovery,
moved to take over all mining on site through a number of companies linked
to various key players the Minister of Mines, the President and his
family, the Army and the security services. The small scale miners were
simply driven off the site using live ammunition, dogs and physical
violence.
In the next 5 years some US$17 billion in raw diamonds were extracted from
the alluvial deposits on an 80 000 hectare site. Less than US$650 million or
3,8 per cent of these revenues was paid to the State. The rest vanished.
Evidence of new unexplained wealth abounds luxury homes for army officers,
the former Minister of Mines, now a multimillionaire. Real estate in Sandton
and an Nkandla style home for the Zimbabwean President on millionaires row
north of Durban. At the site an international airport with ground defense
equipment and thousands of hectares of sand dumps which can be clearly seen
on Google Earth.
None of the companies used for this plunder are capable of mining the hard
rock resources that are left containing perhaps 9 billion carats of diamonds
and what is left of the alluvial field is being consolidated into a single
company controlled by proxies of the First Family. In the process we flooded
the world market, depressed prices, forced Botswana and South Africa to
reduce sales to world markets and created a number of very wealthy
intermediaries in the near and Far East, at least one of whom is in a
Chinese jail.
In a similar operation Zimbabwean elements in the Government and the armed
forces were involved in the blatant exploitation of the natural resources of
the Congo during and after the Kabila overthrow of Mabuto. The scale of
these operations is stunning in one case involving logging of exotic
hardwoods over 33 million hectares of land. Many billions of dollars of
cobalt and diamonds were extracted from the Congo and sold internationally
with little to show for all this activity on the ground except conflict.
Zimbabwean influence in the Congo is much diminished but the Congolese
remain the victims of genocide and forced labour and exploitation there
are hardly any functional roads or railways in the Congo; few schools and
even fewer establishments for higher learning. Everyone behaves like a
vulture in the Congo, denying its inherent wealth and potential and leaving
little except skeletons behind when they are finished.
When Zimbabwe became an independent State in 1980, we had perhaps the best
educated Executive in the world we had 17 PhD graduates in our Cabinet,
many from world class Universities. But they had never managed anything
except perhaps a cash box in a bush camp. They had little or no experience
of Government.
They took over complete, a small competent Civil Service (67 000 Civil
Servants), a diversified and fairly competitive economy which supplied 95
per cent of local needs and exported a wide range of goods to the region and
abroad and a Reserve Bank which had a great record of monetary discipline.
National debt was just US$700 million less than 10 per cent of GDP.
They pretty soon discovered that the Reserve Bank was a marvelous
institution with a printing press in the basement. Faced with huge
expectations and despite receiving foreign aid, the regime began spending
more than it was receiving in taxes. Over 20 years the fiscal deficit
averaged 9 per cent an impossible figure which was bound to lead to
problems. They borrowed money to cover the deficit and when this became more
and more difficult they began printing money. Ian Smith had been a
nationalist and a socialist in public affairs. He had instituted many
controls of market forces including exchange control. The new Government
simply maintained these and soon found that these controls created
opportunities for creative State accounting.
Since then the Reserve Bank in Zimbabwe has become a major institution for
the looting of public and private funds. Acting as the banker to Government
the Bank has huge reach and capabilities and in the current legislative
framework is very much simply an agent of the Executive. The State President
is able, with a simple note to the Governor, to draw millions of dollars in
hard cash almost at will. None of this is ever returned or accounted for.
The same has applied to gold reserves for which the Bank has exclusive
responsibility.
During the hyper inflationary era in Zimbabwe from 2000 to 2008, the Reserve
Bank took 35 per cent of all export proceeds and paid for them in local
currency at official exchange rates. Effectively this meant that the bank
was commandeering about US$1,5 billion a year and replacing it with printed
paper at a small fraction of its value. At one point it was calculated that
someone with connections to the Bank and allocations of foreign exchange,
could buy a Mercedes Benz for the price of a pack of cigarettes.
Allocations of even small amounts of foreign exchange were enough to make
millions and many did just that. The business sector, desperate for funds to
import essentials readily complied and this marked a massive transfer of
funds from the private sector to an elite with State connections none of
it illegal in terms of local legislation. Is this corruption or just State
managed pillage and plunder? But the consequence has been the near total
destruction of the economy taken over from the Smith era.
As if we had seen everything, the past three years has given us a lesson in
criminal fiscal management that is actually quite scary. After the four
years of renewed fiscal discipline imposed during the life of the Government
of National Unity from 2009 to 2013, the new Government immediately reversed
to its old ways and a budget surplus planned for 2013 of US$100 million was
turned into a budget deficit of US$500 million by expanding the Civil
Service and raising salaries.
The State has continued to live beyond its means and in 2014 to 2016,
incurred a fiscal deficit of over US$3 billion. In a tiny economy like
Zimbabwes these sums are enormous over 20 per cent of the budget.
Isolated and unable to access funds from outside the country, the State
simply issued Treasury Bills. This effectively converted half of all bank
deposits into paper whose value as an asset was dependent on a broke
Government to repay the borrowings at a small interest rate. Today financial
institutions and companies carry US$4,2 billion in Treasury Bills that are
essentially worthless.
With total Bank deposits of US$6 billion this has exhausted this avenue and
in response to the need for still more borrowings, the Reserve Bank did
something that is totally illegal. They borrowed money from Commercial Banks
Nostro accounts with the RBZ and lent them to the Government as an unsecured
overdraft at no interest. This now stands at US$1,1 billion.
As if this was not enough the State then imposed exchange control and began
taking not 35 per cent, but 70 per cent of all export proceeds for its own
use. They are replacing these funds (US$2,4 billion a year) with an
electronic transfer which they call US dollars but which in fact have no
value outside the banking system in Zimbabwe.
This description makes no effort to even estimate what it costs us a very
year in manipulated tenders and the theft of public resources. These run to
many hundreds of millions of dollars a year. Despite this, few are ever
exposed and even fewer find their way to the Court system. Recently the
Chief Executive of the National Road Authority in Zimbabwe (handling about
US$200 million a year) was arrested for corruption involving US$1,4 million.
He and an associate were being held in Police Cells in Harare when the Vice
President Mpoko who was Acting President of the Republic arrived late on a
Saturday and demanded that his friends be released. When the Officer in
Charge protested he was beaten by the Vice Presidents security details and
the suspects were released. There is no evidence that they have been
rearrested or prosecuted.
In a nutshell it is this last incident that reveals the main problem with
corruption in Africa. It is the failure by leadership to recognise and
respect the rule of law. Until this is addressed, African States are
unlikely to make any progress towards creating stable democracies and
progressive policies that allow growth and development.
However what is not understood are the wider implications of corruption in
society. It is generally accepted in economics that if you invest a dollar
in an average economy, the velocity of money will mean that that dollar will
multiply by four or five times as it circulates. The reverse must also be
true, take a dollar out of your average economy and the impact will be
magnified many times. If it is true that US$80 to US$90 billion has been
taken out of circulation in Zimbabwe over the past four decades then the
actual economic impact could be four times the face value of the theft. This
is US$320 billion or 55 per cent of actual GDP over the period.
Had these funds been reinvested in the economy actual growth rates would
have been over 12 per cent per annum and final GDP today would have been
many times the actual GDP. Zimbabwe would be a middle income State instead
of occupying a slot at the very bottom of all global indicators. Instead of
having over 70 per cent of our population living in absolute poverty, this
number would have been cut by two thirds.
The same sort of factors would have come into play with regard to the total
revenues available to the State. Had the Zimbabwean economy grown at the
average rate that has been experienced by the Chinese economy over the same
period, Zimbabwean GDP today would exceed US$420 billion. At this level
Zimbabweans would be the wealthiest people in Africa with an income per
capita of $28 000 instead our average income per capita is US$1200 ten
per cent of that of Botswana.
What this says is that you cannot take out of an economy 14 per cent of GDP
every year for an extended period and expect to see economic growth and
development. If you do you behave like that you will impoverish your people,
no matter how industrious and well educated they are.
When we talk about losing US$2 billion a year to corruption most people
simply cannot comprehend what that means. It means that you have lost enough
money to make 2000 individuals US dollar millionaires. It is enough money to
double the salaries of every Civil Servant or to double the budget for
education and health with money left over. It is enough money to build 200
000 homes for low income families each year.
It means that if you simply replaced a corrupt regime with an honest one,
the new government could meet the full needs of every family in the country
within 5 years and to deliver a good quality of life and income to all
citizens within one lifetime. This would not require borrowings on any
scale; would not need foreign aid and would reduce poverty levels very
rapidly.
So what is the issue, why do we find corruption so difficult to deal with in
Africa? I do not think this is only an African issue it is one of the
truly global problems of our time and must be addressed as a priority by all
with influence and power. The Chinese have a simple solution they treat
all corruption as a very serious crime and if it involves either large sums
of money or very senior officials, it is treated as a capital crime. Visions
of the third most important official in the Chinese Government being
arrested in a Politburo meeting and executed shortly thereafter, has a
salutatory effect on everyone.
We must stop treating principles such as;
* The supremacy of the Constitution;
* The Rule of Law and equality before the law;
* The separation of powers between the Executive, the Judiciary and the
Legislature;
* The use of open, democratic principles to guide elections which are free
and fair and which allow regular changes to national leadership;
* The use of market forces to determine the level of prices and the cost of
projects;
* A free press and free competitive electronic media as well as open access
to IT services and the internet;
* The need for independent, professional police and prosecuting authorities;
* Strict application of the law and the penalties that are associated with
corrupt practices and activities;
* Protection for whistle blowers; and
* The adoption and strict adherence to sound macroeconomic policies and
practices to protect fundamental economic interests.
Not just as just optional extras: they are the very foundations of a modern,
democratic State with checks and balances against the abuse of power. What
sets Africa apart is the blatant use of political power and privilege to
protect the corrupt and to take advantage of these elements in the pursuit
of personal gain.
I was involved with the Presidents Office in a recent workshop in Zimbabwe
and was astounded at the knowledge and information available to these very
senior officials. They know what is going on and who is doing what and to
what extent. There are no secrets at that level, therefore why is the
knowledge not used to clean up the situation and punish the perpetrators?
The reasons are obvious people at the highest level in our society are
benefitting from these activities or are allowing them to happen just in
case the information may be useful at some time in the future.
The use of such information is clearly being applied in Zimbabwe in todays
conflicts in the Party in power. Attempts by one faction who control the
Ministry of Justice, to apprehend and prosecute senior Government Ministers
in another faction are now common cause. The allegations are true, the facts
available in great detail, but the President is stopping the exercise for
his own ends. The reality is that the great majority of the present Cabinet
in Zimbabwe has been involved in corrupt activities, some for many years. To
some extent this explains the desperate attempts to protect their control of
the State and all its key institutions.
In this environment the rule of law is more abused than recognised, is more
often used to suppress legitimate political activity or to eliminate
competition. In this environment the independence of the Judiciary is a
mockery. Strong independent institutions are an essential feature of sound
governance in any country. It will be what carrys the United States through
the Trump era.
But in the end it all comes down to leadership.
EM
On the 49th Parallel
Thé Mulindwas Communication Group
"With Yoweri Museveni, Ssabassajja and Dr. Kiiza Besigye, Uganda is in
anarchy"
Kuungana Mulindwa Mawasiliano Kikundi
"Pamoja na Yoweri Museveni, Ssabassajja na Dk. Kiiza Besigye, Uganda ni
katika machafuko"
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