Steal Crown Jewels

How to steal the Crown Jewels.

Many people who watch Africa cannot understand how poor countries can sustain leaders who rapidly become some of the richest people on earth. How do they do it?

Take Mobutu in the Congo, he was estimated to have accumulated a personal fortune of over US$4 000 000 000.00. This huge sum could have almost paid off the international debts of the country at the time. Then one of the last Military leaders in Nigeria accumulated a fortune at the astonishing rate of over a billion US dollars a year during his tenure. That is US$2,7 million dollars a day!

The new leader of Mozambique, one of the poorest countries on earth, is not only a long time Marxist but is now the richest man in the country. Even in chaotic and impoverished Angola, the leadership lives in a lavish manner and has enormous sums of money stashed in secret overseas accounts. Just how is this sudden wealth achieved?

First of all they do it very secretly - using their power at home to withhold the information from the watching eyes of the media. Secondly they do it with the connivance of overseas banks and financial agencies that specialize in looking after such wealth and in keeping it out of sight.

It helps if you have oil. It is now a known fact that a third of Angola's oil revenues (about US$3,5 billion a year) finds it way into the personal accounts of the powerful elite that runs the country. But what is less well known is that these same people take a cut on just about everything that the country buys. These funds are paid with the full knowledge of the authorities in the paying countries and go into a network of accounts with foreign banks so complicated that they would make Bill Gates proud.

But the main mechanism used is that wonderful invention of the Breton Woods agreements and the West - the Reserve Bank and the Ministry of Finance. No tribal Chief ever invented such a simple mechanism for milking the people and enriching the powerful.

In Zimbabwe, the Zanu PF regime has been using these institutions for years to line their pockets and entrench their power. Just take a few examples. Foreign exchange inflows from official sources run at about US$33,5 million a week. The real value of this flow of resources is about Z$340 billion. In fact the State only pays out via the Reserve Bank Z$200 billion leaving a hidden surplus value of Z$140 billion a week or Z$7,3 trillion a year. That is Z$650 000 a year for every Zimbabwean in the form of a hidden tax.

Then take another favorite collecting point - gold sales. Zimbabwe is about the 6th largest gold producer in the world. Not much after South Africa and Russia or Australia, but still significant at about 35 tonnes a year. The law in Zimbabwe, as in all African States, says that producers must sell this to the Reserve Bank at a price fixed in local currency. So about 1 million Zimbabweans slave away digging gold out of the harsh soil and then sell this (about two thirds are sold to the Reserve Bank - the rest is smuggled out) for a set sum in Zimbabwe dollars printed by the Reserve Bank. This payment in recent years has been well below its real value as determined by the market for gold and the local market for the Zimbabwe dollar.

Cheap gold not only implies another tax - valued last year at about Z$1,7 trillion but also an internationally convertible source of hard currency. It can be sold in international markets or hidden in overseas bank vaults. Whatever the Reserve Bank does with its gold purchases the effect is to convert real value into paper money with a rapidly declining value.

These two simple mechanisms are used to steal money from ordinary people. They are part of the reason why inflation is so high and the value of our currency falls by the day. In one sense they constitute a hidden tax, in another they are a major source of corruption and patronage. This explains how people closely connected to the ruling Party are able to accumulate wealth very rapidly. It also explains the need for secrecy in Reserve Bank dealings and in foreign exchange matters.

In Zimbabwe it also explains why the new Reserve Bank Governor has used his very considerable influence and power to criminalize the parallel market for foreign exchange. For this reason many business persons, whose business could not have survived in recent years without certain open market activities, have found themselves under investigation and many have paid huge bribes to escape further punishment. Others have been imprisoned and many of Zimbabwe's brightest and best have fled the country, leaving behind considerable corporate holdings and assets. There is much evidence that the Governor himself - in his capacity as the State Presidents personal banker and the CEO of a major commercial Bank has undertaken open market activities, which are today regarded as criminal acts. The selective use of investigation and punishment is again typical of such regimes in Africa.

But the ripple effects of activities of this nature spread very wide. In South Africa there is clearly a deliberate policy to over value the Rand. This then enables the newly powerful to use the Rand - which can be printed for a fraction of its face value, to buy assets cheaply. This is the underlying mechanism being used to transfer assets to the new elite. At the same time a strong Rand counters the inflationary pressures created by the rather loose monetary policies that this requires. But the impact of the strong Rand on all exporters and on manufacturing is serious and damaging. It is hindering job growth and undermining the traditional pillars of the South African economy.

In Zimbabwe the same policies - pursued with reckless abandon by this regime, has called the death knell for major exporters such as the mining industry and agriculture. It cost over Z$60 million to grow a hectare of tobacco this year - the farmers will be paid about US$2 per kilogram and this will translate at present exchange rates into Z$36 million dollars. A quick way to go bust, even if you got your land and all the assets on it for nothing from a criminal regime.

Eddie Cross
Bulawayo, 22 February 2005.