Zimbabwe: Corporate Corruption, Illicit Outflows Bleeding Zim

Photo: The Herald
Ministry of Environment Tourism and Hospitality Industry Priscah Mupfumira (file photo).

Corporate corruption as manifested through IFFs stands as one of the biggest challenges to overcome in order to addressing the twin evils of growing inequality and unemployment and ZACC working together with the government and monetary authorities must come with an anti-corruption strategy to curb IFFs.

President Mnangagwa has made the anti-corruption crusade one of his key reckoning points in the Second Republic to attract foreign investments and extricate the country from the economic quagmire.

The new administration has set targets to transform the country into a middle-income economy by 2030, with corruption being singled out as the biggest impediment. Recently the President appointed a new Zimbabwe Anti-Corruption Commission (ZACC) board which is also empowered with arresting powers. One can only hope that this scourge will now be exterminated.

The scourge of corruption is not limited to the public sector alone. While a lot has been said about corruption in the public sphere by politicians, Government officials, little is being said about corporate corruption -- and even less about corporate, illicit practices, such as tax evasion and avoidance, transfer pricing and trade misinvoicing which haveresulted in the country losing billions in illicit financial flows (IFFs).

Corporate corruption as manifested through IFFs stands as one of the biggest challenges to overcome in order to addressing the twin evils of growing inequality and unemployment and ZACC working together with the government and monetary authorities must come with an anti-corruption strategy to curb IFFs.

IFFs are defined by The Global Financial Integrity (GFI) as illegal movements of money or capital from one country to another. GFI classifies movement of funds an illicit financial flow when the funds are illegally earned, transferred and/or utilised.

IFFs involve the transfer of funds earned through ills such as tax evasion, kickbacks, corruption, criminal activities and transactions involving smuggling. All these activities can be classified as corruption. Although the funds maybe earned through legal means but are transferred in violation of laws of the land such as exchange control regulations are also regarded as IFFs.

One can also argue that IFFs are a mere symptom of a much bigger structural problem of unjust economic and power relations between Africa and the developed world that has historically impoverished Africa and enriched the West through unfair trade agreement, tax evasion, use of tax havens by multinational corporations.

The challenge of IFFs is prevalent in most developing countries and according to African Union's High Level Panel on Illicit Financial Flows; Africa loses upwards of US$50 billion to IFFs each year. The cost of this financial bleeding is enormous as it leaves Africa with little to invest and governments with little sustainable revenue for essential services. The high-level panel was chaired by former South African pesident Thabo Mbeki.

Zimbabwe is not immune to this challenge of IFFs. According to GFI estimates, Zimbabwe could have lost an annual average loss of US$276 million during the period ranging from 2004 to 2011, which is a huge loss if one is to juxtapose these figures with the budget or revenue collection of the country.

In the 2016 monetary policy statement, the Reserve Bank of Zimbabwe (RBZ) estimated that US$684 million was remitted outside Zimbabwe or externalised by individuals under the auspices of free funds for various dubious and unwarranted purposes that include remittance of donations to oneself, offshore investments, externalisation of export sales proceeds by corporates through individual accounts leading to pervasive tax evasion and externalisation -- IFFs depriving the Government of the much needed revenue.

IFFs have serious social, economic and political ramifications hence the reason why this subject cannot be divorced from the populace and the newly appointed ZACC should not turn a blind eye and focus mainly on corruption in the public sector.

The primary implication of such resource leakage is a budget deficit and subsequently the inability to adequately fund education, health, agriculture, water and sanitation.

Money lost to IFFs each year would, if kept in the country, increase the tax base, thereby allowing for greater investment in essential services such as healthcare, education, housing and public transport.

These, and similar investments using the money siphoned offshore for private benefit, would spur on much needed job creation. This can dramatically improve the lives of many Zimbabweans.

This has resulted in the emergence of a strong movement in Africa and across the globe working to expose offenders especially corporates and demand an end to the IFFs that continue to impoverish the country and the continent in general. This has seen a number of initiatives being done on the continent such as the "Stop the Bleeding" Campaign, which is being spearheaded by non-governmental organisations whose goal is to combat IFFs and the ZACC and other authorities play a crucial role in stopping the bleeding.

The "Stop the Bleeding" campaign is also important as by curbing IFFs, there will be improved domestic resource mobilisation thereby minimising budget deficits thus lowering fiscal borrowing to finance the deficits and at the same time increasing the fiscal space and thereby minimising Government crowding out of private sector borrowing and the ballooning of both domestic and external debt.

The fight to combat IFFs and to stop the bleeding of developing nations includes transparency. Multinational corporations, mining companies and other corporates must be pressured to open their books and disclose their revenue sources and publish their tax contributions.

Thus IFFs represent critical revenue leakages from the African continent in general and Zimbabwe in particular, undermining public service delivery, and the attainment of social and economic rights by the citizens. In line with Vision 2030 and the anti-corruption crusade embarked by the Government, Zimbabwe therefore needs a national anti-corruption strategy to co-ordinate various governance reforms aimed at curbing corruption and IFFS.

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