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Big Saturday Read: Haven't we been here before?

Zimbabwe has been operating in a crisis mode for the best part of two decades. There was only a brief hiatus between 2009 and 2013, when a coalition between ZANU PF and the MDC parties took charge of the government, to the nation’s relief. No-one fancies a return to the dark days of 2008. Yet as each day passes, signposts suggest to many that the country is trudging through a familiar path.

The Southern African country is a long way from the delirious days of November 2017, when the long-standing ruler Robert Mugabe was toppled in a military coup. That coup gave a brief and misplaced sense of hope among a significant number of people. The falsity was soon proved when, within a few months, the sheer incompetence, rampant corruption and utter callousness of the new rulers became all too glaring.

It soon dawned on most that the authors of the coup had not usurped power unlawfully to advance the general interest, no. It was a project for a small group of political and military elites. The rest had been roped in merely to provide a veneer of general consent and approval. In the ten months after the coup, between December 2017 to September 2018, the new regime borrowed US$1.1 billion from the central bank. There was nothing to show for that money. If they were going to go, they would do so with a chunk of the spoils. As it happened, they stayed in office, having successfully manipulated the electoral process.

The hiring of a distinguished academic economist and former international civil servant, Professor Mthuli Ncube, to manage the nation’s parlous financesoffered a glimmer of light but it soon became a façade which could not hide the ineptitude and corruption, two of the defining features of the regime. Far from bringing new ideas to the table, Mthuli Ncube and Reserve Bank Governor, Dr John Mangundya are simply rolling out ghosts from a hideous past. Former Reserve Bank of Zimbabwe Governor, Dr Gideon Gono must be watching the scene with a smirk seeing how his successor and the Minister picking and deploying his precedents. He might even feel vindicated.

Casino Economy

It’s just over a decade ago when Zimbabwe was in the grip of record hyperinflation. The then Governor, Dr Gono introduced a number of measures to stem the tide but to no avail. Gono wrote a book entitled Zimbabwe's Casino Economy. Extraordinary Measures for Extraordinary Challenges in which he gave a first-hand account of his experiences during that tumultuous period. He was trying to explain why he had done what he did. As the title says, for him, they were extraordinary measures that were needed for extraordinary circumstances. The announcement that the current government will be introducing a coupon system for the allocation of roller meal represents a déjà vu moment for Zimbabweans. They have seen the coupon system before. Corrupt elites are once again presented with a great opportunity to loot.

The government says coupons will be issued to targeted households to enable them to buy roller meal at subsidised rates. This is because there is a severe maize shortage, the result of a combination of drought and poor agricultural policies which have depreciated the country’s food production capacity over the past two decades. A country which used to have surplus has become the region’s beggar. This is a second attempt to provide wider public access to staple food. The initial policy intervention announced in the budget last November was to pay the subsidy to grain millers and to set the price at $ZWL50 for a 10kg pack of roller meal.

However, it soon became clear that this system was a boon for rent-seekers. They simply diverted the subsidised roller meal to the black market where it was sold at higher prices. The cartel of grain millers also complained that the command price was not competitive. State media lists “ordinary people willing to stand in queues all day” and “unscrupulous retailers” as the culprits. This crude classification conceals the involvement of politically exposed persons (PEPs) in this great grain scam. PEPs include business elites who are close to the ruling establishment. They have access to the largesse that the state provides and take advantage of it for personal gain. These are the elites who run cartels that control the supply of basic commodities such as fuel, medical drugs, fertiliser and roller meal, among other commodities. They also have first access to licences from the state and contracts with the state and associated public entities.

Fanon’s foresight

For years, cartels run by PEPs had easy access to cheap foreign currency from the RBZ. The foreign currency allocation system was designed to give scarce foreign currency to importers of critical commodities such as fuel, medical drugs and grains. These beneficiaries made huge profits from selling the imported commodities at market prices whereas they would have got foreign currency at cheap controlled rates. The foreign currency allocation system was opaque, which allowed PEPs to gain access under the false guise that they were supplying critical commodities.

Some of them, like Sakunda, enjoyed an additional facility to import fuel duty-free, under the auspices of running the Dema Diesel Power Plant, which had been corruptly awarded to it. One can only imagine how much fuel was brought in and sold on the market under that facility. Command Agriculture was another grand scam, as revealed by the Auditor General and the Parliamentary Public Accounts Committee. Agricultural inputs, such as seed and fertiliser were allocated to farmers on the cheap. Again the system was opaque, opening the way for PEPs who got these commodities in bulk and sold them on earning enormous profits in the process.

In all these cases, the moral hazard is the same: when the state offers goods at a subsidised rate, there is a cabal of corrupt PEPs who take advantage of it to make huge profits. They do so by acquiring the goods on the cheap and selling them on at black market prices. They use an army of agents to supply the market. It is these “runners” who are seen on the streets buying and selling foreign currency and scarce local currency. It is also these “runners” who are selling maize meal on the same black market. It is arguable that for every five traders on the black market, at least three of them would be working for a PEP-controlled cartel.

The problem of what we now refer to as PEPs was identified fifty years ago at the dawn of independence for most African states by the great and far-sighted critic Frantz Fanon, who was highly critical of the new middle class. “The national bourgeoisie of underdeveloped countries is not engaged in production, nor in invention, nor building, nor labour”, he wrote in The Pitfalls of National Consciousness, a chapter in one of his most celebrated works, The Wretched of the Earth. “It is completely canalized into activities of the intermediary type. Its innermost vocation seems to be to keep in the running and to be part of the racket. The psychology of the national bourgeoisie is that of the businessman, not that of a captain of industry …” says Fanon adding, “In underdeveloped countries, we have seen that no true bourgeoisie exists; there is only a sort of little greedy caste, avid and voracious, with the mind of a huckster, only too glad to accept the dividends that the former colonial power hands out to it. This get-rich-quick middle class shows itself incapable of great ideas or of inventiveness.”

There couldn’t be a more apt description of the political elites who are running a racket of cartels with the blessing and protection of the regime – grain, fuel, agricultural inputs, medical drugs and much more. However, in the case of Zimbabwe, the dividends of this “greedy little caste” are not handed over from the former colonial power; they are, instead, siphoned directly from the ordinary citizens, as examples in this article demonstrate.

Finance Minister Mthuli Ncube thinks he can stem the tide of rent-seeking in the distribution of subsidised roller meal by introducing a system of roller meal coupons. The idea is neither new nor smart. The most obvious outcome in an egregiously corrupt environment is that these coupons will fall into the hands of PEPs, the same way they acquired the subsidised roller meal. In fact, coupons are great for rent-seekers because they will reduce the costs of their corrupt business model. This is because they no longer have to transport or store the roller meal. In the past, they needed a warehouse, guards, labour and transport, all of which cost money. All they need are the coupons, which can be carried in a briefcase. They will simply sell the coupons for cash and it’s up to the coupon holder to collect and store the commodity.

For this reason, coupons are set to become a new tradable currency. Without a name or mark identifying a specific holder, roller meal coupons will be like bearer cheques or shares. All you need with a bearer instrument is possession. Whoever possesses it is entitled to what the bearer instrument represents, be it shares or money and in this case, roller meal. In short, a roller meal coupon is a form of money backed by the promise to pay roller meal, rather like where a piece of paper money backed by gold. Given the scarcity of roller meal, the maize meal coupon is set to become one of the most coveted currencies – far more valuable than the Zimbabwe dollar introduced last year. This means the government has to devise a way to prevent the negotiability of roller meal coupons. If it’s open-ended, the corrupt elites will have a field day with it.

A path called BACOSSI

The fact of the matter is that Mthuli Ncube and John Mangundya are not doing anything new. Instead, they are following a well-beaten path, with hazardous consequences. Back in 2008, the Mugabe government responded to the severe food crisis and soaring prices by providing low-cost food hampers to households. Led by the then Governor, Gideon Gono, the RBZ initiated the Basic Commodities Supply Side Intervention (better known as BACOSSI) to supply households with subsidised food hampers. These food hampers contained products like rice, maize meal, sugar cooking oil and soap. Beneficiaries paid $ZW100 billion (which was $ZW10 re-denominated currency after several zeroes were removed). Then, as now, the government said it was cushioning ordinary people against greedy retailers. The central bank was basically doing grocery shopping for the nation.

A similar version of Bacossi had also been established a year earlier to support local industries, with millions of dollars distributed to companies. Bacossi was later extended to designated strategic institutions such as the Zimbabwe Defence Forces where members of the security services were facing severe challenges. The government could not risk a mutiny so the soldiers, police officers and prison officers each got food hampers. Similar interventions were introduced to schools and hospitals for the supply of food and medical drugs. Agricultural machinery and equipment were also handed out under the RBZ Farm Mechanisation Scheme in 2007-08. Although heavily criticised for getting the RBZ involved in quasi-fiscal activities, Governor Gono believed he was doing a herculean national service and that global events had eventually proven that he was right to intervene quasi-fiscally as he had done.

Indeed, he felt vindicated when central banks in Western capitals began a massive programme of bailing out banks that were facing collapse when the Global Financial Crisis struck in 2008. “It comes as no consolation to many, myself included,” he wrote in 2008, “that leading the pack of distressed economies today are some of those countries who yesterday were shouting the loudest condemning this Government and the RBZ Governor’s interventionist policies in the face of extraordinary circumstances twice the size and magnitude of what is confronting them today. Indeed, it comes as no consolation to this Governor that, to the letter and word, fellow Central Bankers the world over now realise what it means to print money in order to save their essential industries and sectors of the economy”

It is true that the Western governments had resorted to the printing machine, which they called “quantitative easing” to save the ailing banks. Those interventions subsidised a caste of greedy bankers whose reckless pursuit of profits had landed their banks and the entire financial system into jeopardy. Critics also argued that the bailout created a moral hazard, with bankers unlikely to stop their reckless behaviour in the future knowing that if anything went wrong they would be bailed out by the taxpayer. However, while those interventions stemmed the tide, the interventions in Zimbabwe did not have the same effect. Instead, Zimbabwe went on to notch record hyperinflation and the Zimbabwe dollar became moribund. The industries continued to falter. The interventions were quick-fix measures to keep the ZANU PF boat afloat, but ultimately they were not sustainable.

If banking elites benefited from Western governments bailouts, it was the political elites and PEPs that largely benefited from the quasi-fiscal interventions by the RBZ. For example, none of the beneficiaries of the RBZ Farm Mechanisation Scheme repaid their subsidised loans. These loans were later taken over by the government. The taxpayer bought the farm equipment and machinery for the political elites. The RBZ has up to now refused to disclose the list of beneficiaries under that subsidised scheme. When the RBZ opened the so-called People’s Shops under BACOSSI, hundreds of RBZ officials went to the provinces to distribute the food hampers – it was a popular rent-seeking opportunity for the officials who were promised a large amount of allowances. It also gave a lot of power to traditional leaders, including chiefs and headmen, and administrators who were involved in the distribution of the food hampers.

The roller meal coupons system presents yet another rent-seeking opportunity for PEPs and all those involved in the distribution chain. As with all cheap facilities that are fronted by the government, it is PEPs and associated parties who stand to benefit the most because of systemic corruption. Additionally, in a politically polarised society in which government freebies tend to be distributed along party political lines, the roller meal coupons represent a source of generating political patronage. These quick-fixes did not work just a decade ago and there is no reason to believe that they will work now. If anything, the rise in corruption and the growth of cartels that are even acknowledged by the country’s top prosecutor means the system will be even more susceptible to looting.

So what’s to be done?

Zimbabwe’s problem is not merely a question of scarcity of essential commodities such as maize meal. It is a governance deficit evidenced by the high levels of corruption which is encouraged and incentivised by a kleptocratic and inept regime. The country would not be in these dire straits if it had a sound government. Zimbabwe’s mess is a tragic failure of leadership, as Nelson Mandela once said when back in 2007 he was asked for an opinion on the challenges across the Limpopo.

Zimbabwe is hardly the first country to face shortages which have required state intervention to reduce the plight of the ordinary people. The story of rationing is as old as the history of the nation-state. The problem of elites who take advantage of this rationing system is also an old story. It’s classic rent-seeking behaviour. But rent-seeking behaviour can be significantly reduced if the leadership has a sound policy and attitude against corruption.

Corruption is like bacteria which thrives and grows in particular environments. It grows where the environment permits it; where there are incentives for growth. A most critical incentive is when the leadership permits it. PEPs are encouraged in their corrupt tendencies when there is no fear of punishment. The absence of penalties means they can do as they please. A system of subsidies without penalties for abuse is a recipe for corruption. All these conditions are present in the Zimbabwean environment, which makes it a classic habitat for bacteria.

When the watchdog wails instead of biting

The systemic weaknesses were exposed this week by the country’s Prosecutor General, Kumbirai Hodzi who told a meeting that parts of the country’s critical law enforcement institutions were captured by corrupt cartels. “What we have in Zimbabwe is the problem of cartels [which] cuts across every sector of the society,” he said. “ They have control of the media, both the private and public media. The most important public institutions, sections of those public institutions are in the hands of cartels. We have sections of the NPA (National Prosecuting Authority), prosecutors who are under the control of the cartels; we have got sections of the judiciary, criminals have got direct access; we have sections of the Zimbabwe Republic Police under the control of cartels, we have sections of ZACC under the control of cartels and it’s across the political divide ….”.

This was a damning indictment of the anti-corruption machinery by the country’s most senior prosecutor. If the police, the anti-corruption watchdog, the prosecuting authorities and judges are all corrupted, there is little chance of defeating corruption. It is particularly worse that the politicians who are supposed to provide leadership are also corrupted. A few weeks ago, Vice President Constantino Chiwenga disclosed in court documents that Kuda Tagwirei, a well-known PEP linked to various government contracts and schemes had bought a vehicle for his kids. It has been said that Tagwirei also bought cars for senior ZANU PF politicians based at the party’s headquarters. The net effect is that there is virtually no leadership against corruption.

This is a far cry the promises made when the regime took power in November 2017. An appointee of the President, the Prosecutor General has always been seen as his blue-eyed boy, especially after a controversial appointment process. This makes his public and loud cry even more significant not only because it embarrasses the leadership but because it also suggests that even Mnangagwa’s appointees are getting frustrated by the glaring lack of leadership. When Mnangagwa came to power, he made anti-corruption one of his flagship policies, alongside international re-engagement and economic resuscitation. But it has been all talk and no action. He has failed on all fronts.

Yet fighting corruption was the one thing that was totally within his control and his failure is self-made. He is simply not interested in dealing with this vice because so many of the culprits are PEPs within his circle and he is the godfather of the cartel. Zimbabweans mock his regime for its “catch and release” approach, whereby a high-profile arrest is accompanied by much drama which quickly fizzles out when the arrested person is freed on bail. Nothing of significance is heard after these initial theatrics.

A boon for corrupt elites

It is within this current and historical context that the regime is introducing the new roller meal coupon system. The naïve will celebrate the intentions, presented as cushioning the vulnerable. It sounds good but the experienced eye is not easily deceived. It knows this is not new. It also knows that the roller meal coupon system presents yet another opportunity for rent-seekers among political elites and their associates to make easy money.

Many said it when the bond notes were introduced in 2016 and for years, the government insisted on an unrealistic 1:1 command conversion rate to the US dollar. They were warned that PEPs would simply get foreign currency from the RBZ at the cheap 1:1 rate and sell it on the black market at inflated rates. They duly did so, and as the black market blossomed, their wealth also flourished. They were using the foreign currency allocated under the auspices of importing fuel, grain and medical drugs. They will do the same with the roller meal coupons and other cheap facilities that will be introduced, mimicking the 2008 BACOSSI facility. We have been on this road before and it’s a road to perdition.

Apart from BACOSSI, Gono introduced several other quasi-fiscal interventions such as PLARP (Parastatals and Local Authorities Reorientation Program), ASPEF (Agricultural Sector Productivity Enhancement Facility) where large amounts of cheap money were allocated to beneficiaries. Mugabe defended these quasi-fiscal activities chiding his ministers who were resisting for being rigid and “bookish” in their approach to economics. In the end, however, someone had to carry the cost. In 2015, the burden was placed on the shoulders of the taxpayer when Parliament passed the RBZ Debt Assumption Act. By that piece of legislation, the taxpayer took the RBZ debt worth US$1,3 billion.

Fix the politics

Ultimately, as Mangundya’s immediate predecessor at the RBZ learnt in 2008, the short-term interventions were unsustainable. They only made the macroeconomic situation worse. What made Gono’s last term in office more bearable was the arrival of political stability brought in by the coalition government. Economic management under Tendai Biti’s stewardship was also sounder, disciplined and frugal.

Unfortunately, thanks to ZANU PF’s impatience that was a short breather. By the time Mangundya took the reins at the RBZ in 2014, the process of decay had already commenced. Now into his second term, Mangundya’s legacy is defined by the ill-conceived bond note policy and what is predictably a failed attempt to resuscitate the Zimbabwe dollar. As for Mthuli Ncube, life outside the hallowed corridors of the academy and ornate offices of international finance has so far proved to be a complete nightmare. But ZANU PF has been known to erode, not enhance reputations.

WaMagaisa

wamagaisa@me.com

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