Big Saturday Read: Elite Privilege and Moral Hazard
Skinning it alive
When Advocate Fortune Chasi, MP was promoted to Minister of Energy and Power Development earlier this year, I employed the metaphor of a live snake to describe the nature of his new assignment. Writing on Twitter, the micro-blogging site, I suggested that Chasi had just been handed a live snake by his boss, President Mnangagwa.
A few days later, responding to a newspaper enquiry, Chasi extended the metaphor, saying of the snake that he would skin it alive.
The metaphor was, of course, a reflection of the myriad of challenges that he was bound to face his new portfolio, already a poisoned chalice. It’s fair to say Chasi’s immediate predecessor, Joram Gumbo, had suffered a torrid time steering the energy ship.
There were serious fuel shortages and prices were rising. The deadly January protests had been prompted by a steep increase in fuel prices. There were serious power outages, with the energy utility, ZESA and associated entities, failing to deliver the essential service for domestic and industrial use. With water levels at Kariba Dam fast depleting and the old thermal power plants at Hwange failing, power generation was already low and would only get worse.
Power imports were affected by chronic foreign currency shortages and traditional sources of imports such as South Africa’s Eskom and Mozambique’s Cahora Bassa were increasingly becoming reluctant suppliers because of huge unpaid debts. Unable to meet demand, ZESA’s woes caused huge public disaffection. The energy portfolio was indeed a live snake and Joram Gumbo had already been struck more than once. It was into this environment that Chasi was walking. He put up a brave face and declared that he would skin it alive.
Joram Gumbo must have felt a huge weight off his shoulders when he was shunted to a lighter role as Minister of State for Presidential Affairs in charge of Implementation and Monitoring. No longer at the frontline, he could watch from the background as his younger successor grappled with the live snake.
Chasi had been enjoying what appeared to be a comfortable ride at the Ministry of Transport and Infrastructure Development where he was an active, visible and it’s fair to say, increasingly popular deputy. His regular updates and cordial engagements with citizens on social media bought him an endearing and respectful crowd, even reaching across Zimbabwe’s notoriously deep and acrimonious political divide.
Now, though, he was thrust in the hot seat at the Ministry of Energy and Power Development, a promotion which, some suggested in jest, looked like a punishment. He took the job in good spirit and to his credit, has continued to be an engaging and visible Minister. It is a personal quality that is not given to many who occupy an exalted office.
His efforts towards a frank and open approach to public affairs have attracted criticism from traditionally vocal supporters of ZANU PF. When he challenged claims of huge infrastructure projects, vocal social media characters attacked him. It’s unusual for a ZANU PF Minister to be publicly attacked by party loyalists.
Those on the opposition benches other side have not spared him either. A premature announcement that the Eskom debt had been paid, a claim which was publicly refuted by Eskom made things a little difficult for Chasi. He had not lied. But he had spoken too soon. The matter was soon resolved.
Everyone must pay their bills
One of the issues that Chasi rightly raised early in his ministerial tenure was that everyone had to pay their debts to ZESA, the struggling national power utility. ZESA has several subsidiaries including ZETDC and ZPC but for purposes of convenience, I shall refer to all of them by the parent’s name “ZESA”.
ZESA is owed millions in US dollars by consumers ($1,2 billion in Zimbabwean currency). The major culprits are government and related entities, commercial companies, and political elites and their associated businesses. Previous disclosures of debtors showed a long list of ZANU PF politicians and their businesses as owing hundreds of thousands of dollars each. The culture of non-payment of utility bills by political elites and their associated companies is endemic and is by no means confined to ZESA. They behave with impunity because they believe they are untouchable. The system which lets they get away with it has fortified this belief.
According to annual reports of the Auditor-General, ZESA itself is technically insolvent. It’s plagued by mismanagement and gross inefficiencies. As previously analysed in the BSR, the AG has uncovered scandalous transactions including million-dollar payments for products that have never been delivered. Incredibly, nothing has been done to pursue these delinquent suppliers, probably because they are owned or controlled by political elites who enjoy elite privilege. Being a state-owned entity, ZESA charges sub-economic rates for its essential product. The subsidy makes electricity more affordable but it also affects the capacity of ZESA to deliver. However, the non-payment of bills leaves it in a parlous state.
Therefore, when Chasi spoke strongly against habitual non-payers and called on everyone to pay their debts, most people saw it as an important and overdue call. Many ordinary users are now on pre-paid schemes. They are actually owed electricity as they pay in advance. The problem is not that they don’t pay bills; it is that ZESA does not deliver the product they would have paid for already. Most of these people welcomed Chasi’s call because they believed it was the big political elites who notoriously play truant when it comes to paying bills.
However, it still didn’t make sense that the call remained political when there were legal avenues to ensure that the debtors paid their dues. Why wasn’t ZESA suing or switching off supplies to these debtors? There were some reported cases of legal action, but the pattern suggested it was mostly targeting ex-Ministers or those that had fallen out of favour with the regime. Those who still enjoyed the comforts of office appeared to have some form of immunity.
Reversing management action
This week the Zimbabwe Independent newspaper reported that Minister Chasi had ordered ZESA to restore electricity supplies to businesses owned by two prominent political elites, the Mugabe and Mutsvangwa families. ZESA had taken the unusually drastic measure against political elites and switched them off for non-payment of bills. It was a brave move by the ZESA management, one that was in sync with their political authority’s calls to ensure that debtors met their obligations.
Minister Chasi has not denied that this happened. Instead, he has justified his intervention saying it was necessary to restore electricity supplies to the farms to avoid disturbing operations at a critical time. Zimbabwe is facing serious grain shortages and the farms are producing wheat, hence it was necessary to restore power supplies.
The decision to restore power supplies in these two cases must be judged on the circumstances but it is impossible to ignore the general implications. Looked at in isolation, it was probably the reasonable decision to make in the circumstances. What ZESA wants is repayment of its debts. The prospect of being paid is enhanced if the debtor has sufficient funds. If there is a crop from which resources to pay the debt can be derived then it makes sense to negotiate to make this happen.
In this regard, ZESA is no different from a creditor that has lent money to a debtor. If the debtor runs into trouble and approaches the creditor for a moratorium, the creditor must assess whether it makes sense to keep pressing or to allow the debtor some breathing space so that they are in a better position to repay the debt. It’s all very well if the debtor approaches the creditor.
The problem, of course, is that in this case, the debtors did not approach the creditor. They used the political route, appealing to the political authority to intervene in an operational matter, ahead of and above the management. And this is where the heart of the problem lies.
After starting so well with ground-breaking measures towards the professional recruitment of ZESA’s board of directors, the Minister appears to have less attention to the limits of political power in the governance of parastatals. That separation between political authority and management’s role in operational affairs is critical if there is to be a true revolution in how parastatals are governed.
The ZESA episode demonstrates the governance challenges that affect parastatals. Every student of corporate governance learns that the biggest challenge for parastatals is political interference. This interference is when the political authority intervened in the operational areas of the parastatals, making decisions that contradict or override management decisions.
In this case, ZESA decided to withdraw the service from long-standing debtors presumably because they have shown no desire to pay their bills. Since they enjoyed political protection, the management has previously been reluctant to take drastic measures. This inability to enforce rules has in turn given political elites freedom to continue drawing on the service without paying bills, thereby exacerbating the problem. When Chasi came in and gave ZESA management encouragement to pursue debtors, they did so. Now, however, the Minister has intervened to reverse that decision.
Lack of respect for management
The Minister might have made what he believed to be the reasonable decision but it was not his decision to make as it undermines management. The decision was for ZESA management to make. The story says Mrs Mugabe approached Minister Chasi, a fact that he confirms to plead for a moratorium. Minister Chasi then gave an order to ZESA to restore supplies.
The case shows that the debtors have no respect for ZESA’s management because they have access to the political authority and the political authority has also undermined its management by using its power to override its decision. It embarrasses professions managers who must now consider the status of the individual before enforcing rules. Far better would be a policy directive which applies generally to all debtors, rather than a selective approach which is dependant upon one’s political connections.
We are not the problem, the politicians are the problem
For their part, ZESA’s management has played a master-stroke. They have endured accusations of failing to collect debts and showing preferential treatment to political elites. The Minister has given the impression of bringing in a new tougher culture. Now, however, when they have taken drastic action, it is the Minister who has used his power to reverse their decision. In one stroke, the management has demonstrated to all and sundry that they are not the problem. The problem lies with the political authority. They cannot be blamed for not being tough enough on political elites because whatever they do, their decision is subject to political review and reversal.
Eroding the Minister’s moral authority
The situation also creates a problem for the Minister. His moral authority over the management of the parastatals under his charge has been undermined, not strengthened by his intervention. If a principal tells his subordinates not to do something they will respect him as long as he does not do the same thing. The moment he does what he preaches against, they will cease to respect his authority.
The political interference, in this case, fits squarely into what parastatal managers always cite as a problem: political interference. After what appeared to be a new culture, they will now bend again and continue as in the past because they realise it is business as usual. They have shown the Minister that it is politics that is the problem, not them.
It will also be very difficult for the Minister to pronounce his call for bill payments with the same authority of old when he has made a u-turn on some of the biggest debtors, however credible his justification might be. The public will find it hard to take the call seriously.
The case also goes to show that far from being a problem associated with individual ministers, this is a systematic challenge. The identity of the Minister is irrelevant. It could be Fortune Chasi, Jorum Gumbo or any of their predecessors. The Minister is compelled to interfere in the operational affairs of the parastatal and to reverse management decisions because the system demands that they do so in favour of other political elites.
That is the institutional culture, where if a political elite is aggrieved by the decisions of a parastatal, they simply approach the political authority for a reprieve, not the courts of law like every other mortal. However important their reasons for wanting restoration of electricity, the debtors’ case should have been made to the management and a plan should have been agreed at that level.
It gets worse because parastatal managers feel compelled to give preferential treatment or extend favours to political elites, even if they have not been asked to do so. They do so because it’s part of the institutional culture to go easy on political elites because as we observe here if they go hard, their decisions will be reversed anyway.
Is it any wonder that former Vice President Phelekezela Mphoko might not understand why he is being charged for allegedly facilitating the release of suspects from police custody? Or that former Minister Prisca Mupfumira who is currently in remand prison might not get why she is being charged with abusing her powers for allegedly interfering in the affairs of NSSA? As far as they are concerned, they were simply using their powers as others have done and continue to do within the governmental system. That is how the system works.
The problem is systematic. The system conditions you to believe that the abnormal is normal. You can take a good man into the system and he will end up conforming to the demands of an uncouth system. If you tell him that what he is doing is wrong, he won’t believe it. Indeed, he will find grounds to justify his position.
The case also illustrates what may conveniently be called “elite privilege”. These are the set of privileges that persons enjoy by their status as elites in a hierarchical society. The system simply grants them benefits that are not available to everybody else. These benefits are so natural to them that they don’t understand it when someone tells them that they enjoy elite privilege. Since the decision-makers are elites, when fellow elites approach them, they get favourable decisions without dropping a sweat.
Therefore, when political elites who do not pay their ZESA bills approach a Minister, they get a sympathetic hearing. Political elites are far more likely to be understanding of the challenges of fellow elites compared to ordinary individuals. An ordinary ZESA customer would never enjoy the same sympathetic hearing. For starters, non-political elites do not even have access to the Minister. They must either plead with officer switching off electricity at their home or business or go to a court of law where the matters are dealt with based on rights, not privileges.
This is why, having held high hopes, social media users have expressed their disappointment with the Minister’s decision. It might be the right decision for the specific customers but to the extent that it is selective, it is unfair on other customers whose only weakness is that they do not have political access to seek a moratorium. It is elite privilege when those that have access by virtue of status get protection that is not otherwise available to the rest of the population.
The situation also creates and exacerbates what is known as moral hazard. Moral hazard occurs where economic actors make decisions to increase their profit simply because they know they can avoid costs associated with their actions. If a reckless person knows they are likely to be saved by others paying their debts, they will become more reckless. They know they don’t have to carry the costs of their reckless conduct so they have no incentive to stop.
In the present case, political elites who receive preferential treatment in the repayment of ZESA debts because they have access to political authority are more likely to continue their practice of non-payment because they know they will be saved and others will carry the costs.
Indeed, it is this problem of moral hazard that has meant political elites have accumulated huge arrears to ZESA and other parastatals over the years. They will always present good reasons to avoid being switched off, as the two have done in the present matter.
Moral hazard is also prevalent in Command Agriculture and other schemes where the government provides loans that are never repaid and there is no paper trail. When one Mr Muchemwa, a senior official in the Ministry of Finance appeared before the Parliamentary Public Accounts Committee this week and was asked why payments of up to $US68 million did not have supporting documentation, his nonchalant response was “I have no answer, Chairman”. It was an episode that typified the arrogance that is prevalent in a system that is driven by impunity.
The political elites who get such loans don’t bother to pay because they know the state will take over. This means their debts are carried by ordinary taxpayers. What stops them from taking more loans, knowing they don’t have to pay and if asked they can always lean on the political authority to get a moratorium? If a forensic audit is performed on who has benefited from such loans and donations over the years, the same political elites have likely benefited repeatedly.
What should happen?
There is much to criticise about the handling of this matter but I’m practical enough to appreciate that it’s a matter that requires a solution. I do not think the solution can be ad-hoc or dependent on the political status and influence of the debtor. That would be a piecemeal and selective approach causes more harm than any benefits it seeks to achieve.
The Minister says he is working on a proposal to include the provision of electricity to farmers as part of the benefits of the Command Agriculture Programme. But that is akin to pouring fuel to a raging fire. Command Agriculture has turned out to be an enormous fraud what with billions of dollars allegedly unaccounted for. We have observed the moral hazard associated with Command Agriculture. The last thing you want is to include ZESA into that racket of elite privilege. It will simply mean current debts will be absorbed into the Command Agriculture sponge and the elites will get away without paying their bills once again. No, Command Agriculture would simply exacerbate the problem for ZESA, rather than not solving it. It’s a bad idea.
The starting point is that those that owe ZESA must pay their bills. Since ZESA is a creditor and these farmers are debtors, the overdue bills may be characterised as “loans” advanced to the farmers. In that case, ZESA is no different from a bank that gave the farmers money in the form of a loan for their agricultural business. There is no government intervention when the bank demands repayment of the loan plus interest. I suspect these businesses do pay their loans and if they don’t they are sued unless the bank is also politically directed.
ZESA can form a special purpose vehicle (SPV) to which all “loans” are transferred. The purpose of this SPV would be to pursue all existing debts and this will include making special repayment arrangements or even securitisation of the loans. Meanwhile, ZESA gets its fees which it can use to go towards payment of its arrears to creditors like Eskom.
The reason given for extending a moratorium to these political elites is that Zimbabwe needs food security. But missing in this narrative is that these political elites are running their businesses for profit, not charity. As such special moratorium agreements must ensure that as a creditor, ZESA must get priority in the distribution of revenues from the proceeds of the current crop.
Finally, to prevent the selective application of rules, the moratorium has to be of general application. It should not be for the political elites only, and certainly not the Mugabes and Mutsvangwas alone. Restricting it to those who have political access to the Minister would be a replication of the Orwellian Animal Farm scenario where some animals are regarded as more equal than others.
The Minister started well when he made robust calls for payment of ZESA bills. The latest move, which is ad hoc rather than principled undermines that call. The public which might have begun to take his call seriously will lose confidence. If political elites are given a moratorium for their big debts, members of the public will also demand a moratorium for their smaller debts. A grain of sand might be insignificant to an elephant but to an ant, it is a huge mountain.