eBusiness Weekly
Tapiwanashe Mangwiro
Zimbabwe’s economy is being hindered by illicit financial flows, which also encourage corruption and benefit members of the elite at the expense of the general populace, a legal think tank said.
In its latest publication, Economic Governance Watch, Veritas, said illegal money transfers coming from Zimbabwe are being done for political and economic motives.
“Zimbabwe’s public institutions are poorly governed and opaque, despite the Freedom of Information Act. Both these features, poor governance and opacity and encourage misappropriation and illicit financial flows.
“Patronage politics, whereby powerful politicians use State resources to reward individuals and groups for their support, is widespread in Zimbabwe and the boundaries between government and ruling party are blurred; again, both these features encourage illicit financial flows.
“Frequent cabinet reshuffles and demotions have promoted factionalism within the ruling party, leading party members to seek outside resources to fund their political activities, resulting in further illicit financial flows,” said Veritas.
In 28 of the last 57 years, Veritas said there have been sanctions against Zimbabwe in some capacity.
“The need to avoid sanctions has driven businesses and individuals to find informal means of accessing finance and to become adept in moving funds through informal networks rather than financial institutions which might enforce sanctions,” it said.
“Furthermore, the government’s monetary policies and tight control over foreign exchange, as well as perennially high rates of inflation, have encouraged businesses and individuals to keep foreign currency earnings outside the country and to avoid domestic lending or ownership.”
Unfavourable surrender rules have also reduced the amount of foreign money available in banks. The inflow of remittances through unofficial routes and the allocation process increase the imbalance between the supply and demand of foreign currency.
These factors work together to support the operation of the alternative foreign exchange market, which uses a different exchange rate.
“Shortage of foreign currency within the country has encouraged a flourishing black market where foreign currencies can be bought at premium rates,” Veritas said.
“Differences between the black-market rates of exchange and the official rates have encouraged arbitrage, whereby well-connected members of the élite buy foreign currency from the Reserve Bank at the official rate, sell it for local currency on the black market, and use the resulting profit to buy more foreign currency from the Reserve Bank—resulting in an endless cycle of illicit financial flows.”
Veritas added: “The flows can be curbed, but it may be doubted if the government has the courage and political will to do so, its efforts to date have not had much success.”
Resource leakages manifest in different dimensions such as ‘tenderpreneurship’, economies of affection, tax avoidance and invasion as well as Illicit Financial Flows (IFFS) perpetuated by dismantled fiscal mining regimes.
The abuse of public resources has also been rampant in the public sector with the Office of the Auditor General (OAG) flagging and unearthing corruption, embezzlement of funds and over expenditures, which disregard value for money and the rudimentary principles of public finance management.
Therefore, this stands to reason that as long as the budget implementation context has not been addressed, every budget that comes will keep encountering the same challenges. To redress this, there is a need to ensure that detects of prudent public finance management outlined in Public Finance Management Act [Chapter 22:19] are followed religiously.
The South African Mail and Guardian quoted from an African Development Bank report, which estimated that Zimbabwe has lost a cumulative US$12 billion in the last three decades through IFFs, ranging from opaque financial deals to tax avoidance and illegal commercial activities.
The issue of corruption needs to be dealt with but at some point President Emmerson Mnangagwa was not happy with the Zimbabwe Anti-Corruption Commission’s (ZACC) performance in combating corruption, and deemed it a toothless bulldog.
The low conviction rates and how cases crumble when they investigate high profile individuals. There is a suspicion that some of them receive bribes to gag some cases. This led to the President disbanding the outfit and recruiting again.
It is alleged that not only is ZACC incompetent and impotent, but its members are also mired in corruption.
Remember cases of corruption involving some ZACC members themselves have found their way to the public domain. In 2013 one official was accused of having been paid by ZIFA for work that he was doing for the anti-graft body against ZIFA officials.
In the same year, ZACC chief executive was arrested on an allegation of defrauding the commission US$435 000. He was accused of making secret profits from a transaction involving a ZACC property.
It is in the light of ZACC’s enablement to investigate and arrest that the argument ZACC should be more vigilant and deal with people who are trying to derail the gains of this economy.
