State Capture and Cartels: The Major Impediment to Economic Growth in Zimbabwe

By Treasure Basopo



Introduction


Hellman et a l (2000:4) conceptualizes state capture as “the propensity of firms to shape the underlying rules of the game by ―purchasing decrees, legislation, and influence, or efforts of firms to shape and influence the underlying rules of the game (i.e. legislation, laws, rules, and decrees) through private payments to public officials.”

In line with this conceptualization, state capture is used in the paper to refer to the use and abuse of state institutions and resources by individuals and businesses in a manner that portrays the state as a mere object used to fulfil the interests of certain individuals (EISA, 2018).


Cartels on the other hand are conceptualized as a client-patron relationship of corruption and illicit financial flows wherein a business person captures vast economic spheres enabled by the collusion of the ruling regime and/or elite who enjoy financial incentives from this umbilical cord.


Cartels and state capture are practically inseparable socio-economic development challenges in Zimbabwe. The phenomenon of cartels and state capture can be best conceived in the auspices of Robinson and Acemoglu (2012)’s ‘extractive institutions’ that facilitate the development of underdevelopment in Zimbabwe. This article posits that cartels and state capture have been part of the ZANU PF government’s ‘infrastructure for extracting revenue’ used to boost the regime’s stay in power (Slater and Fenner, 2011). The relationship between the cartels and the ruling elite (who deliver the state to cartels for capture) is mutually benefiting.


State capture, Corruption and Socio-economic Decline


The prevalence of corruption in Zimbabwe and the unending thirst by the ruling ZANU PF elite to amass personal wealth and stay longer in power has led to the mushrooming of cartels that operate in a cross-section of the country’s sectors such as mining, agriculture and energy.[1]


The proliferation of cartels in key economic sectors of Zimbabwe has to lead to socio-economic decline. Once one of the strongest in the African region, the economy of Zimbabwe now has one of the lowest GDP per capita in the world and it is projected to have contracted by 4.1% year-on-year in the year 2020.[2]


Trading Economics (2021) cites “endemic corruption and mismanagement” as the key leading factors of economic decay in the country.


Hellman et al (2000) posit that the phenomenon of state capture was identified at the beginning of the new millennium as an abnormality in governance. As articulated by EISA (2018), state capture gives particular private concerns and individuals to have influence over the regulatory sphere that has an impact on their commercial operations.

In the Zimbabwean context, state capture is characterized by a web of patron-client relationships that involves the military elite and business kingpins and the presidium (Mungwari, 2019: 2). In this way, cartels have literally captured the state to such an extent that their corrupt activities go unchallenged since challenging them is a direct threat to ZANU PF’s source of finance and by extension, its life expectancy.


For instance, Transparency International (2014: 1) has described state capture in Zimbabwe as: One of the most pervasive forms of corruption, where companies, institutions or powerful individuals use corruption such as the buying of laws, amendments, decrees or sentences, as well as illegal contributions to political parties and candidates, to influence and shape a country‘s policy, legal environment and economy to their own interests.

It appears that laws of the land do not apply to cartels who are orchestrators of state capture as they have powerful links and networks in parliament and the government (Pesic, 2007: 1). They have created a very vital infrastructure for extraction of revenues by the ruling regime used to boost its long life expectancy in power through elections and vote-buying. In this case, the country’s legal system is rendered inconsequential as illegal interests seem to be served in legal form (Mungwari, 2019: 2). As the state is comprised of a number of institutions, it is imperative that state capture is further unpacked to ascertain the exact captured institutions.


The existence of cartels in the Zimbabwean economy due to state capture continues to stifle economic growth. The Maverick Citizen report (2021) revealed that illicit cross border financial transactions cost “Zimbabwe up to a staggering US$3 billion a year and billions in gold and diamonds smuggled out of the country.” The report further estimated the country to be likely to part ways with half the value of its annual GDP of $21.4 billion as a result of corrupt economic activity and this is attributed to cartels and “their suffocation of honest economic activity through collusion, price-fixing and monopolies.”[3] With an economy struggling with the effects of the Covid-19 pandemic, these cartels further impede economic growth and state capacity to finance its ailing health sector.


The lifeblood of cartels has been its capture of the ruling elite and the state that has protected and made them immune from state anti-corruption safeguards. For instance, the ZANU PF party benefactor Kudakwashe Tagwirei is always making news headlines to the effect that he is given preferential treatment in foreign currency allocation meant for the importation of fuel and this has triggered the establishment of a monopoly in the fuel industry. In 2018, President Mnangagwa’s advisor Christopher Mutsvangwa acknowledged that Tagwirei and his company Sakunda Holdings were the kingpins of a fuel cartel comprising of top officials at the country’s central bank, the Reserve Bank of Zimbabwe (RBZ).[4] In his submissions, Mutsvangwa said:

He is dividing the presidium. How can a businessman have preferences in the presidium? That is trying to turn the country into a banana republic. Tagwirei‘s business gets about US$80 to US$90 million every month for fuel from the RBZ, yet many companies, some of the largest fuel dealers in the world, want to come and invest in the fuel industry in the country.

In August 2020, the US Treasury Department imposed sanctions on Tagwirei and noted that he had “utilized his relationships with high-level Zimbabwean officials (including the President Mnangagwa and Vice President Constantino Chiwenga) to gain state contracts and receive favoured access to hard currency” from the RBZ.[5] On 22 July 2021, the United Kingdom (UK) announced that it had imposed asset freezes and travel bans against five individuals involved in serious corruption cases in four countries, including Kudakwashe Tagwirei.[6]

This followed after Tagwirei involved himself and the company in illicit financial flows prejudicing the country’s economic growth. For example, the Maverick report (2021: 24) found out that further to illicitly obtaining foreign currency, Tagwirei’s Sakunda imported duty-free fuel and sold it at local market prices that included the import duty, basically appropriating the duty for itself. Sakunda was given National Project Status (NPS) for the Dema Diesel Power Plant,[7] which allowed for the importation of 25 million litres of duty-free diesel a month when the power plant only consumed 12 million litres a month.[8]


Cartels and High-level Corruption in the Extractive Sector


The extractive sector is also characterized by cartels, corruption and diversion of state revenue to personal pockets. In Zimbabwe, the mining sector accounts for 60% of the country’s export revenue and a substantial share of Foreign Direct Investment (FDI) and thus the sector is also attractive to economic rent-seekers.[9] As such, there are lots of illicit activities that take place in the sector and these are but are not limited to tax evasion, trade misinvoicing, speculative hoarding of mineral concessions and smuggling. In Marange, political and military elite enriched themselves through diamond mining ventures with investors from China, Russia, Lebanon and South Africa[10]and has led to the substantial depletion of alluvial diamonds in the area.[11]


As part of illicit activities in the natural resources, gold smuggling is rampant and owing to the secrecy under which it is done. It is challenging to establish how much gold is smuggled out. However, the Minister of Home Affairs Kazembe Kazembe stated that close to US$ 1.2 billion worth of gold is smuggled out every year.[12] In the same vein, the Minister of Finance Mthuli Ncube highlighted that between 30 and 34 tonnes of gold with a value of at around US$1.8 to 2 billion at current global gold prices are smuggled to South Africa each year.[13] This is very inhibitive of economic growth as such revenue does not get to state coffers and this delays development and alleviation of poverty in the country. The money which could have been injected into the health and education infrastructure disappears through these illicit financial flows.


The Maverick report (2021: 31) reveals that official trade data points to the significant smuggling of gold in Zimbabwe. In 2018, the country reported having exported US$611 million worth of gold to the United Arab Emirates (UAE). However, the UAE reported that US$ 821 million worth of gold was imported from Zimbabwe.[14]Therefore, US$210 million worth of gold was taken out of Zimbabwe with no official reports of the exports made to the government. The most possible explanation will be that such revenue was diverted into the pockets of the ruling elite.


Conclusion


This paper reveals that the patronage network formed between the ruling party, the cartels and the running of the state has made sustainable socio-economic development a very difficult milestone to achieve. The cartels have been jealously guarded and protected by the ruling elite because it serves as its very important infrastructure for extracting revenue used to finance its party programmes and the regime’s staying power. The cartels and corrupt deals done in cahoots with the state have been made very difficult to challenge as doing so threatens avenues of rents and illicit financial flows streaming to the ruling elite.

ENDS//

[1] This is further explained by the Organised Crime and Corruption Reporting Project (OCCRP). [Online]. Available at: https://www.occrp.org/en/daily/13842-report-zimbabwe-captured-by-economic-cartels [2] For more details, see Trading Economics Zimbabwe GDP Annual Growth Rate. Available: https://tradingeconomics.com/zimbabwe/gdp-growth-annual [3]This is further highlighted in the Maverick Citizen report (2021). Zimbabwe: Explosive cartel report uncovers the anatomy of a captured state Available at: https://www.dailymaverick.co.za/article/2021-02-09-zimbabwe-explosive-cartel-report-uncovers-the-anatomy-of-a-captured-state/ [4] For more details see The Standard Newspaper of October 28 to November 3, 2018. Available at: https://www.thestandard.co.zw/2018/10/28/mnangagwa-ally-spills-beans/ [5]This is further documented in the U.S. Department of the Treasury. 2020. “Treasury Sanctions Corrupt Zimbabwean Businessman.” U.S. Department of the Treasury, August 5. [6]This is further explained here: New UK sanctions against individuals involved in corruption around the world. 2021. Availableat: https://www.gov.uk/government/news/new-uk-sanctions-against-individuals-involved-in-corruption-around-the-world [7] For more details see. Makichi, T., and T. Mangudhla. 2019. “Govt to Buy Dormant Dema Power Plant.” Available at: https://businesstimes.co.zw/govt-to-buy-dormant-dema-power-plant/#:~:text=The%20Zimbabwe%20Electricity%20Transmission%20and,US%240.1345%20per%20kilowatt%2Fhour. [8] This is highlighted further by Zhou, T. 2016. “Dema Diesel Power project in 25 million litre fuel import storm.” Available at: https://bulawayo24.com/index-id-business-sc-companies-byo-99542.html [9]For more details, see the Maverick report. 2021. Cartel Power Dynamics in Zimbabwe. Available at: https://www.pindula.co.zw/images/c/ce/Cartel-Power-Dynamics-02-FEB-2021-Optimized.pdf [10] This is more detailed in Human Rights Watch. 2009. Diamonds in the Rough: Human RightsAbuses in the Marange Diamond Fields of Zimbabwe. Human Rights Watch; Partnership Africa Canada. 2012. Reap What You Sow: Greed and Corruption in Zimbabwe’s Marange Diamond Field. Partnership Africa Canada; Towriss, David. 2013. “Buying Loyalty: Zimbabwe’s Marange Diamonds.” Journal of Southern African Studies 39 (1): 99-117. [11]For more details, see Mhlanga, F. 2015. Diamond output hits rock bottom. Available at: https://www.theindependent.co.zw/2015/10/23/diamond-output-hits-rock-bottom/ [12]Further explanation done byNetsianda, M. 2020. US$100 million gold smuggled out of Zimbabwe. Available at: https://www.chronicle.co.zw/us100-million-gold-smuggled-out-of-zimbabwe/ [13]This is documented by Marufu, Livingstone. 2019. Smuggling Costs Zim Gold Stash. Available at: https://businesstimes.co.zw/smuggling-costs-zim-gold-stash/ [14] For more details, read the UN Comtrade database. Available at: https://comtrade.un.org/data/


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