Zanu-PF transferring tens of millions of US dollars out of Zimbabwe

Leading members of President Robert Mugabe's regime and their business allies are transferring tens of millions of US dollars out of Zimbabwe to safe havens to avoid the threat of tightening sanctions and the possibility of financial scrutiny by a power-sharing government.

Almost all of these transactions are illegal under Zimbabwe's foreign exchange laws and Africa Confidential has seen bank documents that the Reserve Bank of Zimbabwe (RBZ) Governor Gideon Gono has violated the monetary rules he claims to enforce.

This capital flight drives inflation now officially reckoned at 2.2 million per cent ­ and is set to overtake the previous world inflation champions Brazil, Argentina and Peru within the next three months.

Draining the coffers

Most of the politicians and businesses taking out the money use established Western banks and insurance companies to make the transfers. They take advantage of the fact that several big financial institutions quote their shares on the Stock Exchange in Harare, as well as those in Johannesburg and London. The money is drained out of Zimbabwe to either Britain or South Africa with minimal institutional scrutiny, after which it is transferred to even safer, offshore jurisdictions or to financial centres in East Asia.

Within the region the favoured destinations are Namibia and South Africa, where the ruling elite have invested heavily in property, usually registered in the names of their spouses or children. As opinion on the legitimacy of President Mugabe's regime changes in the Southern African Development Community (Botswana has called on the African Union to deny recognition), we hear that senior members of the ruling Zimbabwe African National Union-Patriotic Front now prefer to move their money to financial institutions in Malaysia and China through large trading companies or multinational banks.

It is this outflow of capital that is more than anything else destroying Zimbabwe's economy. Zimbabwe's capital exporters have intensified their operations as political and economic conditions have deteriorated, promoting a cycle of decline. James Makamba, a ZANU-PF Central Committee member, held accounts in Egypt, and former ZANU-PF Guruve North member of parliament David Butau fled to Britain after externalising money into his HSBC Bank Channel Islands account.

Chris Kuruneri, a former Finance Minister forced out by Gono, was imprisoned for nearly two years on allegations of foreign currency externalisation in South Africa. But political uncertainty has seen a proliferation in overseas accounts as ZANU-PF officials seek to secure their financial future ­ many in league with domestic companies.

Several companies have extended the government US dollar lines of credit, which the government has used to meet external debts and some current expenditure. In return, they are given shares for dual-listed companies that they can sell abroad for foreign exchange. These include Cargill Zimbabwe, a local subsidiary of the United States agriculture giant, African Banking Corporation (ABC) ­ chaired by top ZANU-PF businessman Oliver Chidawu and in which the World Bank affiliate International Finance Corporation has a 10% shareholding; Mettalon Gold, owned by South Africa's Mzi Khumalo and touted for a London listing; and Vulya Investments. All the companies were given Old Mutual shares as security, which they were allowed to sell outside Zimbabwe after the RBZ failed to pay back loans.

Approval for the disposal of Old Mutual shares by ABC was given last year for loans extended in 2006 and 2007, part of which was used to pay International Monetary Fund dues. The other three companies sold shares with RBZ permission between January and June this year. The disposal of Old Mutual shares in London and/or South Africa is usually done with the approval of Gideon Gono to raise foreign currency to redeem the loans.

Another company involved in externalisation is Remo Investment Brokers, owned by India's M.I. Mohammed. One RBZ official told AC that RIB has moved some 8 mn. Old Mutual shares to London on instruction from Gono this year alone.

Gono moves the foreign exchange into offshore accounts, using the proceeds to buy fuel. He has also purchased some of the state's farm machinery under the farm mechanisation programme through the selling of Old Mutual shares.

As Britain pushes for tougher European Union sanctions, ZANU-PF apparatchiks are setting up new routes through Malaysia. Central to this new arrangement is Mugabe business ally Enoch Kamushinda, who has been living in Malaysia since 2004. Kamushinda recently sold 60% of his shareholding in Metropolitan Bank to the wholly respectable Nairobi-based Loita Capital Partner International. This allowed Kamushinda to open his financial investment firm in Kuala Lumpur ­ where Mugabe holidayed earlier this year. He also which advises the President on his business portfolio.

There are several other companies involved. We hear, former Army Chief General Solomon Mujuru uses a British-registered company to move money through Parlovan Investments, a Harare-based money transfer agency he controls.

Some of these cash exporting businesses are led by high profile foreigners such Nicholas van Hoogstraten. In other cases, the foreigners take on a purely functional role as accountants, private bankers or lawyers. London-based barristers David Oliver QC and Benjamin Shaw ­ instructed by Reed Smith­ are working for a nominee-company representing President Mugabe's government in Britain, but they are acting entirely within the British law.

Earlier this month, a judge granted AMG Global Nominees an appeal hearing for 3 November in its long-running fight to take control of the London-listed Africa Resources Limited (ARL) and its asbestos mines, owned by Zimbabwean businessman Mutumwa Mawere (AC Vol 49 No 12).

An article on 27 June in Zimbabwe's daily state mouthpiece The Herald let slip that AMG Global Nominees 'represents Government [sic] interests'. AMG Administrator Afaras Gwaradzimba, appointed by Justice Minister Patrick Chinamasa, said in an interview that AMG had received 'US$2 million from the Reserve Bank' in a bid to force Mawere to divest control in ARL. Charles Hewetson, a partner at Reed Smith, told AC that Gwaradzimba was independently appointed and the government's relationship with AMG was as a creditor to the asbestos mines.