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 do’s. 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 Zimbabwe’s 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 President’s 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 today’s 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 carry’s the United States through the Trump era.
But in the end it all comes down to leadership.
