Cartel Power Dynamics in Zimbabwe

Background

Key Facts and Figures about Zimbabwe

• Population: 15 million (69% rural)
• Prevalence of poverty: 67% of citizens (2018)
• Number of citizens living in extreme poverty: 2 million (2019)
• Proportion of food insecure rural citizens: 27% (2020)
• Inflation: 838% (July 2020)

Corruption and poorly implemented economic reforms since 2018 have triggered another cycle of hyperinflation, eroding the capacity of the already fragile public health, education and social protection systems on which the majority of the population depends.

According to the IMF, Zimbabwe has the largest informal economy on earth, as only a small proportion of Zimbabweans hold jobs in the formal sector. Those in informal employment derive their livelihoods from agriculture, artisanal and small-scale mining (ASM), and cross-border trade, among other informal activities.

A significant proportion of the country’s population has migrated to neighbouring countries such as South Africa, Botswana and Namibia, and overseas to the UK, Australia, Canada and the U.S, among others. This diaspora is an important source of remittances which amount to 10 per cent of the country’s foreign currency receipts. Remittances from Zimbabwe’s large diaspora are likely to decline substantially as the diaspora’s earnings fall.

Cartels

Cartel is used widely across Zimbabwean society to describe corrupt business practices with the collusion of political leaders. Zimbabwe’s legal framework does not mention the word cartel. They are formed to transfer wealth from consumers and public funds to participants in the cartels (i.e., rent-seeking). The undeserved or unearned profit that rent-seekers gain is defined by economists as an economic rent.

Man-made economic rents arise from:

1. illicit activities by private market players which include tax evasion and trade mis-invoicing.
2. illicit activities such as bribery and corruption
3. policy decisions that give rise to, for example;
   

• monopoly positions for some market actors,
  
• provision of publicly-funded subsidies which artificially reduce costs of production for some market actors and cheap foreign currency.
  

The report findings showed that a complex mix of political, economic and social factors create an enabling environment for cartel based corruption There are two key motivations for cartels;

1. Rent seeking
2. Political Financing

There is a close symbiotic relationship between actors that seek self-enrichment through rent seeking and the ZANU-PF party, which seeks funding that can be illicitly channeled from the government through the private sector.

There are six major areas of concern – risk areas - out of a possible 21 were identified as being relevant to Zimbabwe:

• Drug trafficking;
• Illegal trade and smuggling of precious minerals, metals and stones;
• Parallel market activities involving foreign currency and commodities by individuals and companies;
• Corruption, and in particular, in practices in the fuel industry involving both private and public institutions;
• Misrepresentation of quality, nature and value of exports; and
• Armed robbery and theft of motor vehicles and stolen vehicle re-registration.

Three Types of Cartels

Category 1: Collusion between private sector competitors

This is collusion between competitors to eliminate competition. By dominating their industry by restricting supply; fixing prices and terms of trade; syndication; and assigning members, customers or geographic locations to monopolise. These are the usual economic and legally defined cartels worldwide.

There is clear evidence of trade mis-invoicing in the exports of chrome, platinum and tobacco.

Category 2: Abuse of Office by PEPs without collusion with Private Sector

This abuse typically occurs as self-dealing. For example, when a public official approves the contracting of a service-providing company in which they have an ownership stake. Or the disposal of a public asset to themselves at a heavily discounted value.

Category 3: Collusion between PEPs and the private sector

This collusion takes many forms, which include:

• Manipulation of policies to create monopoly or dominant market positions for a private sector entity. PEPs may either receive a bribe or shares in the company.
• Sale of state assets to a private sector actor at a discounted price. PEPs may either receive a bribe or a share of the profits made from the sale of state assets.
• PEP facilitating preferential access for a private sector entity to subsidies, public contracts, state subsidies or tax incentives.
• PEP protecting a private sector entity from being held accountable for illicit activity

Case Studies

1 The Zimbabwe National Road Authority (ZINARA) patron-client network

ZINARA manages the largest amount of public money outside of the National Budget. It does so with very limited transparency or oversight from Parliament. This makes it a target for corruption. Under both Mugabe and Mnangagwa, the Presidency has been deeply enmeshed in the corruption that takes place at ZINARA, the majority of which involves inflated state contracts.

2 The Fuel Cartels

The State-Owned Entities (SOE) that regulate the sector (Zimbabwe Energy Regulatory Agency, ZERA) and manages state-owned assets (National Oil Infrastructure Company of Zimbabwe (Pvt) Ltd, NOIC and PetroZim Line (Pvt) Ltd); and;

• Fuel-retailing businesses that sell fuel to consumers. These range from large companies with many fuel outlets such as Puma, Total, Zuva and Engen to small-scale retailers with one fuel station.
• Fuel-importing businesses that sell fuel to retailers. These range from global commodity traders such as Trafgura and Glencore to small domestic trading companies.

3 The Agriculture Cartels

4 The Cigarette Cartels

The cigarette industry is liable for sin taxes in Zimbabwe and South Africa, which account for a substantial proportion of the cigarettes’ prices.

5 The Mining Cartels

Accounting for 60 per cent of export revenue and a substantial share of foreign direct investment (FDI), the mining sector has long been attractive to economic rent seekers.

Impacts of Cartels

The citizens of Zimbabwe are under-served, and three-fifths of the population do not have access to electricity, one-fifth have no access to improved sources of drinking water, and one-third do not have access to a toilet.

In addition, citizens have limited voice, and struggle to hold those in power to account

Impacts;

• Entrenchment of the autocratic state
• Deterioration of the macro-economic environment
• Poor service delivery
• Uncompetitive business climate

Discussion & Analysis

• Power shifts barely affect cartels
• Power has decentralised under the Mnangagwa Administration
• Patrons actively use state power to enforce loyalty
• Factional fights are exposing long-hidden cartels
• Tagwirei’s shift to export sectors has the potential to alter policymaking
• Reform of the Indigenisation laws has undercut the power of local actors

Conclusions & Recommendations

• Gathering evidence

CSOs and the media have a key role to play in gathering evidence on cartels Visualising the findings The data provided in this study would benefit from visualisation.

• Litigation or prosecution

It is recommended that litigation or prosecution be pursued to address cases where cartels have clearly contravened national laws and/or the Constitution

• Applying external pressure

Where internal pressure on cartels involving international investors or international trade is weak, actors are encouraged to seek out ways of applying external, international pressure.

• Leveraging Parliament’s oversight role

ZANU-PF holds a majority in Zimbabwe’s Parliament, and can be expected to effectively serve as a rubber stamp for the Mnangagwa administration on key policy issues until 2023. However, the various Parliamentary Portfolio Committees have become key arenas in ZANU-PF’s factional fights, with cartels being exposed by bipartisan efforts from the opposition and ZANU-PF factions that are not benefiting from a cartel

• Safeguarding the resilience of “champions” in the state

There are several state actors who have either the political will or incentives to actively expose cartels and thereby end their activities

• Engaging key institutions

Some institutions key to stopping cartels, such as ZACC and the CTC, have been shown to lack the independence, resources and the capacity they require to stop cartels.

• Reforming mineral licencing

The acquisition of mining licences is a key economic rent that cartels seek.

Annexures

Annexure 1: Semi-Structured Interview Guide

Annexure 2: Enablers Of Cartels

• Political Structures

In Zimbabwe, political power is acquired and maintained through coercion and manipulation of elections. It was argued that President Mugabe engaged in patron-client relationships with military and other security chiefs, allowing them access to economic rents and to keep their positions beyond the limitations of their term in return for their loyalty and active elimination of threats to the presidency, while also playing them against each other in a “divide-and-conquer” practice that kept him as the “one-centre-of-power”. This form of political organisation is commonly referred to as patrimonialism. Many noted that President Mnangagwa does not control the security chiefs to the extent that Mugabe did, and that multiple centres of power have emerged since the 2017 coup. The presidency has engaged in clientelism with not just the military, but also other actors that are key to sustaining power, including the judiciary, senior bureaucrats, traditional leaders, party officials and rural households (food and agriculture input hand-outs).

• Economic Structures

The World Economic Forum (WEF) ranks Zimbabwe 127th out of 141 countries in terms of economic competitiveness. In its recent assessment of Zimbabwe, the IMF expressed that “macroeconomic stability is a challenge”

The agricultural and mining sectors are key portions of the economy. The poor condition of the infrastructure is epitomised by the fact that only 20 percent of the country’s roads are paved; most of the railway is in poor condition such that trains are required to abide by speed restrictions on 10 per cent of the rail network; and only three of the country’s ten airports can be used for international flights

This unstable macro-economic environment makes it very difficult for businesses to operate sustainably in the country, leaving economic space for informal activity. Significant sub-sectors of the informal economy such as artisanal and small-scale mining (ASM), small-scale farming and vending, are tightly controlled by ZANU-PF and participation in them is a key cog in the patronage machine.

The state plays a significantly large role in the economy. Half of Zimbabwe’s GDP is accounted for by public expenditure.

This creates a situation in which the private sector is highly incentivised to:

1. Target public expenditure (public tenders) as its source of income by colluding with public officials;
2. Out-compete the informal sector’s prices by avoiding taxes and statutory fees; and
3. Seek ways to avoid the impact of macroeconomic instability on its revenues and savings by, for example, externalising foreign currency or colluding with public officials to guarantee access to scarce foreign currency from the RBZ. The economic structures, therefore, create conditions conducive to cartels’ success.

• Social Structures

The co-option of traditional leaders and largely neutral stance of churches on politics has weakened Zimbabwean society’s response to the excesses of the power of the state.

Rural societies fall under the administration of traditional leadership comprising almost 300 chiefs, only six of whom are women. Chiefs are key recipients of the state’s largesse, receiving vehicles, farming inputs and salaries, for declaring their loyalty to ZANU-PF.

Christianity is the dominant religion with 84 per cent of Zimbabweans identifying as Christians. As with traditional leadership, few church leaders have been openly critical of the state and most churches have responded to the state’s violations of human rights and corruption with calls for submission of church members to the governing authorities

Institutional factors that enable cartels

• Property rights
• Rule of law
• Monetary policy