Transaction with president’s ally led to pressure on the currency
AFP Joseph Cotterill in Harare YESTERDAYPrint this page
The IMF has privately warned Zimbabwe that state payouts to a company linked to global commodities trader Trafigura were pushing the shortages-plagued economy to the brink, reviving fears of corruption at the highest level of government.
Payouts to Sakunda Holdings, a fuel company owned by an ally of President Emmerson Mnangagwa, were in effect met by the central bank’s printing money. The transactions severely undermined the country’s currency — the Zimbabwe dollar — only months after it was introduced, the Washington-based institution told Harare this month, according to two people with knowledge of the discussions.
The payments have shed light on the financial links between the state and Sakunda’s chief executive, Kudakwashe Tagwirei, a businessman close to the ruling Zanu-PF party. Sakunda also owns a stake in Trafigura Zimbabwe, a joint venture with Trafigura, one of the world’s largest oil traders. Sakunda received $366m in government bonds as payments for supplying “Command Agriculture”, a state farm subsidy scheme that Mr Mnangagwa has championed. However, when Sakunda redeemed some of the bonds, the payouts were made in Zimbabwe dollars at an exchange rate that translated into massive money printing.
The redemptions led to a 80 per cent surge in Zimbabwe’s monetary base — money in circulation including bank reserves. The IMF’s programme with Harare has set a target of 8 to 10 per cent for this year. Mnangagwa has welcomed the account freeze, saying it would stop people from trying to undermine the currency.
Following the IMF warning, Zimbabwe’s regulators last week froze the bank accounts of Sakunda and other companies. The move temporarily halted a sharp decline in the Zimbabwe dollar, also known as the RTGS dollar.
However, the consequences of the payments to Sakunda have added to disquiet in Zimbabwe over allegations of “state capture” — the exploitation of public institutions and funds for private interests. Opposition politicians have accused Mr Tagwirei of using his connections to the ruling party and the central bank to build his business.
Tendai Biti, a former finance minister and lawmaker with the opposition, said: “If ever there was state capture, it is Sakunda.”
Since replacing the late dictator Robert Mugabe following a 2017 coup, Mr Mnangagwa has vowed to make Zimbabwe “open for business”.
In February, he reintroduced the Zimbabwe dollar, a decade after its abolition in the aftermath of hyperinflation. But the currency has since fallen more than 60 per cent against the US dollar, fuelling triple-digit inflation and dire shortages.
The $366m bonds were issued in US dollars in January — the latest of hundreds of millions of US dollars in government bonds issued to Sakunda in recent years. When the new currency was created a month later, Zimbabwean contracts in US dollars were generally converted one-to-one into the new currency. Recommended David Pilling Zimbabwe’s economic crisis has reached a breaking point.
But in July, Sakunda was paid by the central bank on the basis of eight to nine RTGS dollars per dollar of original face value, people with knowledge of the financial transactions said. Mr Mnangagwa has welcomed the account freeze, saying it would stop people from trying to undermine the currency.
The government has denied any wrongdoing. Zimbabwe’s finance ministry, the country’s central bank and Mr Tagwirei and Sakunda did not respond to many requests for comment.
Trafigura also declined to comment on the allegations against Mr Tagwirei. A spokesperson for Trafigura said: “Trafigura Zimbabwe is only involved with petroleum distribution and has no involvement with the activities of Sakunda Holdings in Zimbabwe.”
The IMF has been monitoring economic reforms in Zimbabwe since May, part of a cautious testing of the waters by western nations on future financial support for Mr Mnangagwa’s government. Abuses by Mr Mnangagwa’s security forces have made international investors and leaders warier of Mugabe’s successor.
In a statement about the performance of the programme on Thursday, the IMF said that “weakening confidence, policy uncertainty, a continuation of FX market distortions, and a recent expansionary monetary stance” had increased pressure on the currency. “There is also a need to strengthen FX market operations and improve transparency on monetary statistics,” the fund added.
Additional reporting by James Politi in Washington [Financial Times]