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Big Saturday Read: Understanding systemic corruption in Zimbabwe

June 26, 2020

Systemic Corruption

 

Something is described as systemic when it is promoted and driven by the system. It is systemic when it cuts across the entire organisation or society as opposed to being an isolated incident. Another way to describe such a phenomenon is that it is institutionalised. This means it is not a random occurrence but something that follows a pattern. Usually, it is an entrenched pattern, one thing leads to the other, like a domino effect. 

 

In this way, it can be said that there is systemic racism or institutionalised discrimination against women or ethnic minorities in an organisation or society. Likewise, corruption is often systemic in an organisation or society. When police demand bribes at roadblocks, it is not an isolated problem by a small group of police officers but a systemic issue across the entire organisation. 

 

A systemic problem, therefore, exists at every level of society. It is not a rare or isolated phenomenon. Rather, it is pervasive and normalised. It is driven and encouraged by the system. It is part of the organisation’s or society’s culture. Therefore, people might say, if you want a driver’s licence in Harare, you will have to pay a bribe. This means there is systemic corruption at the licensing authority.  

 

When there is systemic corruption, there is no regard for anti-corruption laws, even if they exist. There might be anti-corruption bodies, but they exist as a facade. There is no appetite for enforcement of anti-corruption laws. Those institutions also become victims of institutionalised corruption. Those who have the power to enforce laws might even use them to extract illegal rents from suspects. They exchange their power to investigate and prosecute for bribes.   

 

In such a society, the value system is an enabler of corruption. Bribery is taken as a cost of doing business. When an individual within a systemically corrupt institution is told that he is a beneficiary of corruption, he does not believe it because as far as he is concerned, he is simply doing what the system allows him to do. It’s part of the normal course of business. 

 

Therefore, when a senior government employee gets access to scarce foreign currency at cheap rates, he sees it as normal. In this environment, an ordinary person who sees a senior government official using government property for personal business is not concerned because he would probably do the same thing if he was in the official’s position. In an environment of systemic corruption, there is no distinction between being corrupt and smart. Those who do not take unfair advantage of their vantage position are regarded as stupid.  

 

In this BSR I consider three major cases that illustrate the problem of systemic corruption and its drivers. I use concrete examples of schemes that show systemic corruption.  

 

Systemic Corruption over Mutare Stands

 

It is against this background of systemic corruption that we must assess the case of stands that were warded to senior civil servants in Mutare. One of the beneficiaries of these stands is the Permanent Secretary for Information and Publicity, Nick Mangwana. When confronted over this issue this week on social media, Secretary Mangwana did not understand why people were raising concerns of corruption after the revelation that he along with other government officials had been awarded plots of land in Mutare. 

 

Mangwana pleaded that he had applied for a stand “like any other person”. What he did not appreciate was that there are thousands of Mutare residents who have been on the waiting list for more than a decade but they are still waiting for their allocation of land. He arrived in government just two years ago and probably submitted his application afterwards but he has already gone ahead of them. He is not even a resident of Mutare. This is not how “any other person” gets treated. 

 

However, Secretary Mangwana is not alone on the list of beneficiaries. It includes a judge of the High Court, Justice Mwayera and the Minister in charge of Manicaland province, Ellen Gwaradzimba as well as her driver, who is believed to be a member of her family, Brian Gwaradzimba. Members of the spy agency, the CIO, are also beneficiaries as is a magistrate, a prosecutor and senior police and prison officers. 

 

A common thread is that they are all Politically Exposed Persons (PEPs), who are benefiting from proximity to power. They have an advantage over other applicants for land on account of their political capital as members of the regime. Mangwana claimed that he had applied like any other person to give the impression that there was nothing untoward about his award of the plot of land. The fact is that he is not “any other person”. He is a PEP and like the rest of them on that list, he is a beneficiary of an institutionally corrupt system which has normalised fast-tracking political elites at the expense of the ordinary people. 

 

Secretary Mangwana’s line of defence is not surprising. It is not uncommon, in an environment that is characterised by systemic corruption, for an individual beneficiary to feign ignorance of the fact that they are beneficiaries of a corrupt system. As we will soon see, the Mayor of Bulawayo, who is of a different political orientation to Secretary Mangwana, reacted in the same fashion to residents’ protests over the lease of a stand in the city. This point goes to demonstrate that systemic corruption knows no political boundaries. 

 

Often, beneficiaries of systemic corruption do not have to do any positive act which, on its own, would constitute corruption or abuse of power. Their acts or omissions will seem perfectly normal. All they have to do is activate the process by submitting a normal application or issuing an instruction. The corrupt system kicks into motion, creating a domino effect. The responsible committees will even approve the application or recommendation. The entire process will have a veneer of legality. A lot of corruption takes place under this veneer of legality and public officers get away with it on the basis that their conduct was procedurally lawful. 

 

All this is because the system is designed, usually by both individual and collective habit, to facilitate and encourage corruption. For example, everyone in the system would know what they have to do when dealing with a senior government official’s application. No one has to direct them to do anything. The senior official doesn’t have to make any demands or issue instructions that would incriminate him. The institution already has a culture and norms that everyone simply complies with once the process is activated. This makes it very difficult to convict those suspected of corruption even if the laws exist. 

 

It is this corruption that takes the likes of Secretary Mangwana and a minister’s driver to the front of the queue for housing stands, outpacing long-suffering residents who have waited for decades. It’s not Secretary Mangwana or the minister’s driver who ask to be taken to the front of the queue, no. You will never find evidence to that effect. They do not have to do that. It’s the system that does so because that is how it works. These people participate in it knowing fully well that this is how it works and that it is corrupt, even if they might choose to pretend it isn’t.  

 

It is also this systemic corruption which ensures that even though there is a price for the land, for these PEPs it will be so low or the terms of payment will be so generous as to be almost free. This is why the Mayor of Bulawayo is in line for a stand which attracts a ridiculously low fee of ZWL$165 per month (less than US$3). Any protest is met with the defence that everything is in terms of procedure. It is those procedures that form a layer of systemic corruption. A systemically corrupt system allows it and grants it a gloss of legality. 

 

The particular document in this case of the stands offered to senior government officials in Mutare is a report by the city’s Director of Housing. It was a report concerning the “allocation of stands to government departments”, which contradicts Secretary Mangwana’s claim that he applied for the land “like any other person”. Since the local authority is led by the country’s opposition, Mangwana insinuated that there could have been no corruption or undue influence from him as a member of the ruling party, ZANU PF. Mangwana either fails to appreciate or feigns ignorance of the role of systemic corruption, in which the system is designed to favour political elites by their proximity to power. 

 

Systemic corruption may be dominated by ZANU PF members because the party has been in power for 40 years, but it is by no means restricted to the ruling party. Earlier this month, a notice appeared in the papers showing that the Mayor of Bulawayo was getting a lease of council land for just ZWL$165 per month (less than US$3 per month). Many people protested because it reeks of corruption. If you ask the Mayor, just like Mangwana, he will argue that he followed procedures and everything is according to law. Both would have failed to appreciate that the problem is institutionalised corruption, where the system itself drives and promotes corrupt practices.  

 

Indeed, it is fair to say that over the past 20 years, local authorities have been plagued by systemic corruption, partly because of greed but also because of the excessive control that the ruling party has over the administration of councils. This is why there is also controversy over alleged corruption in Harare City Council. One of the inconvenient truths for the opposition is that while it has enjoyed electoral control of urban local authorities for 20 years, it is virtually powerless when it comes to administrative control, which remains in the hands of its nemesis through the powerful Ministry of Local Government. 

 

The problem of corruption cannot be defeated unless there is a full appreciation of its systemic nature. Indeed, because of its systemic nature, many people participate in corrupt acts without even fully appreciating their corrupt nature or by choosing to pretend they cannot see it. Even if they know that they are getting advantages over others, they find comfort in the notion that the system allows it. Since the system allows it, they see nothing wrong with their conduct. 

 

But this is also how, for example, racists or tribalists behave. When society is institutionally racist or tribalist, those who enjoy privilege do not appreciate the wrongfulness of their racist or ethnically discriminatory conduct. Likewise, when an organisation is institutionally biased against women, some men struggle to appreciate why their conduct is objectionable. 

 

In an institutionally corrupt system, the corrupt or beneficiaries of corruption never appreciate the wrongful nature of their actions. This is why Secretary Mangwana does not understand why the allocation of stands to him and other PEPs on the list is problematic. This is also why the Bulawayo Mayor might not appreciate why there is disquiet over the proposed lease of city property at such low rates. These are just examples. Since the problem is systemic, they are by no means alone. 

 

The fight against corruption is massive and it will take far more than replacing one political party with another. And it will take far more than legal reforms and legal institutions to tackle systemic corruption, which is also a cultural issue. When something is systemic, it is now part of the organisation’s or society’s culture. 

 

I now move to the second case.

 

The ZAMCO-CBZ-RBZ axis - who are the beneficiaries?

 

This is a good time to bring back the issue of ZAMCO, which was discussed in these pages earlier this year. “ZAMCO” is short for Zimbabwe Asset Management Company, which was set up by the Reserve Bank of Zimbabwe (RBZ) to buy non-performing loans (NPLs) from banks. An NPL is a loan which the borrower is failing to repay. In very simple terms, it’s a loan that has gone bad because the borrower is struggling to pay it back. 

 

Traditionally, banks make a large amount of their income from interest charged on the money they lend to borrowers. When a depositor deposits their money in a bank account, the bank can lend it (and more) to borrowers. The bank pays interest on the deposit but charges higher interest on the money that it lends. The difference is the profit that the bank makes. This is why loans are regarded as bank assets. However, when a borrower fails to repay the loan plus interest, it becomes a non-performing asset. This is what is called an NPL. 

 

Official figures show that NPLs in the banking sector grew steadily during the period of the Inclusive Government from a national average of 4.24% of all loans in 2010 to 15.93% in 2014 when ZAMCO was established. The amount of NPLs was higher for some banks, which reached up to 20% of all their loans in 2015. This means the rate of defaults on loans was growing, resulting in high numbers of NPLs. The high number of NPLs was a burden on the banks. It was considered unsustainable. As we shall soon see, CBZ was one of the banks which was carrying an inordinately high amount of NPLs. CBZ is favoured by political elites and state entities. The central bank, therefore, moved to create ZAMCO to buy the NPLs from the banks. 

 

It is more than a coincidence that ZAMCO was created in 2014, the same year that the current Governor of the Reserve Bank of Zimbabwe, Dr John Mangundya took office. ZAMCO may rightly be regarded as his baby. He was previously the CEO of CBZ Bank. As already pointed out, CBZ was one of the banks with the biggest share of NPLs in the banking sector. Official statistics show that at 15.71% of all its loans in 2018, CBZ had the highest number of NPLs in the banking sector, followed by BancABC. This was in comparison to the industry average of 6.68%. This was also 4 years after the creation of ZAMCO, and CBZ had already sold some of its NPLs to it.  

 

Official statistics show that by 30 September 2018, ZAMCO had bought US$698,886,409.07 worth of NPLs from CBZ alone. This constituted 61.64% of all the NPLs bought from the banking sector. By comparison, Standard Chartered Bank had sold only US$1,915,938.52 (0.17% of NPLs in the banking sector) and Stanbic had sold US$3,327,632.33 (0.29% of NPLs in the industry). The second biggest seller of NPLs to ZAMCO after CBZ was BancABC but its share was just 7.07% of all NPLs in the banking sector. Overall, CBZ sold six times more NPLs to ZAMCO than all the other 18 banks combined.  

 

Looking at these figures, It is clear that CBZ was the largest beneficiary of ZAMCO. One would be forgiven for thinking that ZAMCO was created specifically as a rescue scheme for CBZ, which was saddled with a high number of NPLs. Since ZAMCO is a government-owned entity, the burden of CBZ’s bad loans was effectively shifted to the shoulders of taxpayers. This is why this question is relevant: is it a coincidence that the man under whose watch ZAMCO was established upon taking office at the RBZ was the CEO of CBZ when these NPLs were accumulated? 

 

This is why it is important to identify the borrowers whose loans were sold to ZAMCO by CBZ and other banks. These borrowers, like CBZ, are some of the biggest beneficiaries of the ZAMCO scheme. The terms of repayment were rescheduled and relaxed, relieving them of the pressure of the old loans. The banks got a payment of money from the government that it would have struggled to get from the borrowers who were failing to repay the loans. Official statistics show that by 30 September 2018, ZAMCO had bought 1160 NPLs worth US$1.1 billion from the banking sector. 

 

So who really paid from these NPLs? They were paid for by the RBZ using Treasury Bills on behalf of ZAMCO. According to the Public Accounts Committee of Parliament, the Treasury bills issued to buy the NPLs amounted to US$1 billion and since they are levied on the public purse, it is the taxpayers who shoulder the costs. However, these large payments were not provided for in the national budget, which means they were not approved by Parliament. The Public Accounts Committee quite rightly found that this was unlawful bypassing of Parliament. The country’s domestic debt grew exponentially during this period, amounting to US$9 billion by the end of 2018, thanks in large part to the reckless use of Treasury Bills. 

 

What all this means is that the taxpayers rescued both the banks like CBZ that were saddled with NPLs and borrowers who were relieved of the pressure from their banks. The transfer of loans to ZAMCO bought the borrowers some breathing space. So have the borrowers repaid any of the NPLs to ZAMCO? The Public Accounts Committee found that only 260 of the NPLs bought by ZAMCO had been repaid by the end of 2018. This meant 882, by far the majority, were still outstanding. The RBZ explained that the NPLs were secured by borrowers’ assets. However, this did not make sense: if there were viable assets, the commercial banks would have moved to liquidate that security to recover their money instead of selling the NPL to ZAMCO. 

 

What is clear from this is that ZAMCO represents an indirect assumption of commercial banking debts by the state. When ZAMCO went out to buy NPLs from banks, it was the state and ultimately the taxpayer who was carrying the cost. And as we have seen, the biggest beneficiary of all in this has been CBZ, which was managed by the RBZ Governor. This leads us to the golden question: Who were the beneficiaries of the ZAMCO scheme? In other words, apart from the banks like CBZ, who were the borrowers whose loans were acquired by ZAMCO? This is critical because it takes us to that issue of systemic corruption and its drivers. 

 

The authorities have so far refused to disclose the names of the beneficiaries of this scheme. The Public Accounts Committee asked the RBZ to provide the list of beneficiaries of the ZAMCO scheme and other information relating to the NLPs. This request was supported by a legal opinion provided by the Counsel to Parliament. However, the RBZ refused to comply. The Public Accounts Committee also requested ZAMCO to provide the list of beneficiaries. Both the RBZ and ZAMCO argued that they could not disclose the information on grounds of banker/customer confidentiality. But surely, this is qualified where there are a public intervention and use of public funds - the NPLs are now public assets. 

 

As the Public Accounts Committee found during its inquiry, the problem is that the purchase of these public assets is not governed by a legal instrument. There is no Act of Parliament which governs the acquisition of NPLs. This has led to opacity and vagueness in the handling of these NPLs. The RBZ has too much power which it uses to evade responsibilities for transparency and accountability. ZAMCO should have been established by an Act of Parliament, with clear powers, obligations and accountability mechanisms. As it is, it is a private scheme that makes use of public funds while evading public responsibilities and scrutiny. 

 

Information from interviews with members of the Public Accounts Committee shows that the list of beneficiaries was eventually presented to the Speaker of Parliament. However, the Speaker of Parliament is apparently withholding the information on the basis that it contains sensitive and confidential information. This is disingenuous and problematic, suggesting the system has something to hide. If the government has nothing to hide, it should make the list of beneficiaries of the ZAMCO scheme public. It would be useful to know whose loans constitute the US$698 million NPLs which ZAMCO bought from CBZ. It wouldn’t be surprising if many of them are PEPs and their associates. 

 

In short, ZAMCO could represent one of the biggest schemes of systemic corruption. It all looks legitimate, but in fact, it is a scheme, built upon good intentions but heavily abused by PEPs and their associates. The problem is that the purchase of NPLs by ZAMCO creates a moral hazard. Those who defaulted will return to CBZ and other banks to borrow again, if not directly, they will do so through corporate vehicles. They will not pay back because they know the government will one day create a structure like ZAMCO, which will buy out their bad loans. This is a big driver of systemic corruption. Political elites borrow and default on payments with impunity. 

 

Let us consider another scheme that has driven systemic corruption in similar ways. 

 

John Deere Tractors Scheme - the same old beneficiaries?

 

This week, the government has been cooing about the delivery of tractors and other heavy agricultural machinery from the American giant, John Deere. Agricultural equipment is useful for an agro-based economy which has been struggling from under-production. However, here again, as in the two cases already discussed, we are likely to see a recurrence of the same old problems of corruption and cover-ups. To understand the concerns, let us go back 12 years to a time when the central bank had a similar agricultural equipment scheme.

 

In 2007-08, the RBZ operating under the Farm Mechanisation Scheme bought tractors and other heavy machinery ostensibly to support agricultural projects across the country. However, the equipment was distributed to political elites, mostly with ZANU PF. They were supposed to repay on very generous terms. The recipients did not repay these loan facilities. They simply took the tractors and other equipment and used them. The result was that the RBZ was left with the debt.

 

In 2015, the government assumed the debt incurred by the RBZ under the RBZ (Debt Assumption) Act. Before the Bill was passed into law, there were public demands for a list of the beneficiaries of that scheme. These demands were rebuffed by the RBZ. Leading lawyer, Beatrice Mtetwa wrote to the RBZ under the Access to Information and Protection of Privacy Act (AIPPA) requesting a list of beneficiaries and particulars of the loans. 

 

However, RBZ Governor Mangundya wrote back refusing to release the information, with the astonishing justification that doing so would not be in the public interest. How could the idea of members of the public knowing the identity of persons whose debts they were paying not be in the public interest? Mangundya also relied on the technicality that the loans had been advanced by FISCORP Pvt Ltd which he said was at law a different legal entity from the RBZ. This was even though FISCORP was a wholly-owned entity of the RBZ. 

 

Indeed, the reasoning of the Governor beggars belief because the RBZ (Debt Assumption) Act was enacted to ensure the state took over debts including those incurred under the Farm Mechanisation Scheme. The Governor wanted FISCORP’s debts to be treated as public for purposes of debt assumption but on the other hand, for FISCORP to be treated as a private matter when it came to transparency and accountability. 

 

What is evident in both the ZAMCO and Farm Mechanisation Scheme 12 years ago is that the RBZ runs an opaque and unaccountable system. In both cases, the RBZ has consistently baulked at demands for the release of information concerning beneficiaries of state-funded schemes. This opacity generates incentives for systemic corruption. This is why, each time there is a new government scheme of freebies, the same political elites and their associates are at the front of the queue. 

 

I have not even included the chronic corruption concerning Command Agriculture, where there has been gross abuse and billions have been lost under an opaque and unaccountable system. These beneficiaries of these schemes see nothing wrong with their conduct. To them, the fact that they and their associates get this equipment ahead of others is normal. They do not see it as corruption because it has been normalised over the years. This explains why Secretary Mangwana did not see anything wrong with the fact that he and fellow PEPs are beneficiaries of a chronically corrupt system. 

 

Defeating systemic corruption is no mean task. It requires critical approaches that go beyond formal institutions. Zimbabwe has all the laws and institutions required to fight corruption. One of the reasons why they don’t enforce the law effectively is because they are afflicted by the bug they are supposed to be fighting - systemic corruption. President Mnangagwa expressed exasperation at the slow pace of corruption cases and the fact that prosecutors pursue weak lines of prosecution. The Prosecutor General has complained that the justice system is corrupt. The Commander of the Defence Forces has recently condemned corruption which flourished after independence. 

 

What the gentlemen seem to forget is that they are part of the chronically corrupt system which refused to disclose names of beneficiaries of the Farm Mechanisation Scheme in 2008. They have the names by they will not disclose them. It is the same chronically corrupt system which is refusing to give up names of the beneficiaries of the ZAMCO scheme. It is the same institutionally corrupt system which has never disclosed names of beneficiaries of Command Agriculture and other agricultural inputs schemes. They don't want to disclose beneficiaries of these schemes because they are are the beneficiaries and they constantly want to benefit again, ahead of the rest of the citizens. This is how systemic corruption works.    

 

Lessons from Malawi

 

Although this BSR is about systemic corruption and how deep-rooted the problem is in our society, I should end with a few comments on the just-ended elections in Malawi. I had an opportunity to sit in the terraces of a public meeting at which Malawian experts discussed the outcome of the elections and I found it very useful. 

 

The major point I got from the Malawian elections is that strong and independent political referees matter. In other words, strong institutions are fundamental in a democracy. Two institutions stood out: the judiciary and the military. They demonstrated professionalism and independence in the face of an executive which was trying to manipulate them. 

 

Even the sacking of the military commander, General Vincent Nundwe and his deputy and major reorganization of the command element did not dilute the institutional independence of the military. Furthermore, desperate attempts to change and influence the judiciary hit a brick wall. A late attempt to send Chief Justice Andrew Nyirenda into forced retirement failed as this was blocked by the courts. 

 

These late changes in the wake of the government’s loss of the presidential petition at the Constitutional Court were clear attempts to manipulate the key political referees. However, the political referees stood firm and defended the Constitution and upheld the will of the people. The historic decision of the Constitutional Court which was upheld on appeal was also a clear indication of the institutional strength of the judiciary.

 

In Why Nations Fail, Acemoglu and Robinson argue the case for strong institutions in democratic societies. Countries need strong institutions to support democracy and promote stability and the rule of law, all of which are important for economic development. Malawi has a weak economy but its progress on the democratic front is promising. The strength shown by its political referees in mediating the political dispute is a useful indicator. 

 

The second point is that the people of Malawi stood up to defend their vote. From the beginning, they challenged the dubious outcome of the elections. They refused to accept it and took to the streets to register their displeasure. Malawi’s strong and independent institutions which showed respect for people’s rights ensured that the people could raise their objections in ways that are not possible in more authoritarian environments. Malawian civil society and professional bodies also played their part. When the outgoing President sent the Chief Justice on forced leave pending retirement, lawyers and other human rights defenders took to the streets to defend the judiciary. 

 

The final point is that the opposition politicians found common purpose and formed a coalition to defeat the incumbent. The first election which was nullified had demonstrated that they were splitting their votes which gave the ruling party an advantage. Since the court had ruled that the winner had to acquire an absolute majority (50 per cent plus one vote) none of the candidates had shown that they could get over 50 per cent of the vote on their own. It therefore made sense to join forces, which is what they did and managed to defeat the ruling party and also surpass the minimum threshold. This is a good lesson to opposition parties elsewhere, a reaffirmation of how another electoral coalition of the opposition had also defeated the incumbent in the Gambia three years ago. 

 

Malawi has shown a good example of democracy. The only qualification is that the election was held during a pandemic. It’s too early to judge whether this was the right thing to do given the risk of spreading the COVID-19 virus in crowded environments during the campaign season. The hope is that Malawi is spared. If it works out well, it could give confidence to other countries that they too can hold elections if they take the necessary precautionary measures. 

 

WaMagaisa

 

Wamagaisa@yahoo.co.uk 

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