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As we review the Safari Papers from Zambia, leaked to us by insider contacts, our researchers are continually amazed by the egregious examples of corruption and financial mismanagement they contain. ZCCM-IH, the parastatal company which holds the government's share of Zambia's mining industry, is the most conspicuous case showing just how mismanaged and corrupt a company — and a country — can become. The failing finances of ZCCM-IH have an impact on the national economy, "so bad that the IMF has turned down a bailout request", and on the ordinary residents of Zambia. So why is there no great fuss over this waste of what should be a lucrative national asset? The Safari Papers show that members of the Zambian government and ZCCM-IH's managers are using the company to increase their own wealth and power — and are doing so with impunity. Here's another example — the odd case of ZCCM-IH buying the Zambian bank Investrust. Investment in this bank has been a dubious proposition from the start, given its poor financial performance. ZCCM-IH first invested in the bank in 2011, when it bought a 10.6 percent shareholding. In April 2016, ZCCM-IH increased this share to 48.6 percent at a time when the bank had serious management and fiscal issues. Figures from October 2016 show that Investrust had an after-tax loss of ZMK 10.75 (about $2 million) in the first half of that year. This purchase took ZCCM-IH's stake in the bank above the government-set 35 percent limit for shareholding and the company was instructed to decrease its ownership to that limit. ZCCM-IH sold a few shares, taking them down to 45.4 percent, still way above 35 percent. So, not only did ZCCM-IH invest heavily in a bank that was in financial straits, but it also broke the financial rules regulating share purchases. In February this year (2017), ZCCM-IH decided to underwrite 100 percent of an Investrust Rights Offer to shareholders. According to documents we have, the Board Investment Committee of ZCCM-IH in May 2017 noted that the situation at Investrust was worsening and a run on the bank was possible, given its declining performance. Why then would the ZCCM-IH board approve the (unconditional) purchase of 4,458,730 shares — the 54.6 percent of Investrust not held by ZCCM-IH — from its minority shareholders for ZMK 11.44 a share? Does the ZCCM-IH board lack the basic ability to count? Even for them, buying a bank on the verge of collapse seems a step too far. Of course, such idiocy could be outweighed by the advantages of simply owning a bank — bringing all those opportunities to move money and assets around without alerting the authorities. 
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So, back to ZCCM-IH, the eternally mismanaged Zambian parastatal company, as seen through the filter of the leaked documents we call the Safari Papers. (These were given to us by contacts who have an interest in rooting corruption out of so many government-owned companies in Africa). We notice that as the finances of ZCCM-IH have decreased, the board has repeatedly approved increases to the already generous entitlements of the CEO — one Pius Kasolo. The documents passed to us show that over the past few years of the CEO's tenure, the payments have been growing nicely. Now, theoretically, there is no problem with this — our aim is not to judge incomes, just to raise an eyebrow or two at their rationale. Yet we can't avoid questioning the wisdom of endlessly hiking payments and perks to a CEO who simply isn't performing, as we have highlighted in previous posts. So let's unveil some examples we have identified from the documents that our analysts are working through. * ZCCM-IH's "diversification into real estate" oddly extended to buying the CEO a large house. In June 2015, the board agreed to allocate $800,000 for the CEO to buy a residential property in an expensive area of Lusaka. This is a tidy sum in the Zambian real estate world, allowing the company to buy 30B Kudu Road, Kabulonga, Lusaka. It's a large gated property with generous grounds and a swimming pool, in the most exclusive area of town, close to the golf course. $780,000 was earmarked to purchase the property, plus $20,000 for renovations. * No surprise, the company pays for the CEO's maid and gardener. Keeping working Zambians employed is a good thing of course, but it would be more admirable if Pius Kasolo dipped into his own deep pockets to pay them, rather than have the company pick up the tab. * But wait — there's more. Kasolo is also now eligible for additional expenses because, as of December 2015, the CEO is not only senior ZCCM-IH management, should also be on the board. In securing himself this administrative perk, Kasolo became eligible for an extended range of allowances and entitlements, including (of course) up to $600 in expenses for the arduous task of getting to board meetings in the city, Lusaka, where he is actually based. * Let us not forget future generations. To this end, the CEO negotiated coverage of education costs for four children, effective from June 2016, backdated to January. * Worn out by these hardships, the CEO was back with hand outstretched in January 2017. The board allocated additional days of leave, local travel and subsistence allowances, foreign travel and subsistence allowances, increased allowance for a personal car, from $127,000 to $180,000, and an elevated education allowance for his children. With all this busywork of endlessly updating allowances for the CEO, the ZCCM-IH board apparently has had little time for such lesser matters as improving the company's operations. As we meander through the Safari Papers we may be unsurprised to find how ZCCM-IH is operating under a management so bad it is actually wasting a great deal of its income. And so, in a familiar African pattern, the luxuries and comforts of the Zambian elite continue to blossom while ordinary Zambians suffer dire economic straits. Remember, the situation is so bad that the IMF won't even touch the country. Watch this space!
Why would a financially struggling company suddenly splurge on expensive new offices when the premises they have are perfectly perfectly adequate? Good question, and one that should be put to the board of the parastatal ZCCM-IH, in which the Zambian government owns a majority.
Our experts continue to review and analyze the trove of internal ZCCM-IH documents – we are calling them the Safari Papers – that our contacts bravely leaked to us. They have already and identified a chain of board-level decisions which at best indicate poor management, and at worst corruption, in a country already struggling with government debt and widespread poverty. As noted in post one of the Safari Papers, ZCCM-IH’s management have failed to run the company effectively for a number of years now. One of the questions that post raised was whether the poor performance of the company was due to irresponsible mismanagement or corruption. Our analysis of the leaked documents indicates that in at least one instance corruption seems more likely than mismanagement. That was when the company paid nearly US$4 million more than the government approved price for real estate in Lusaka. The chain of events that enabled them to do this are outlined below, with all the information taken from the internal documents we have uploaded as supplement to this post. In March 2015 the management of ZCCM-IH proposed to the Investment Committee Board (ICB) of the company that they buy the Trinity Park real estate development – three office blocks in Lusaka – for $US9 million net of VAT. Management presented the proposed purchase as an investment and a diversification into real estate. It ignored warnings that any investment return would take at least seven years. It ignored -{advice that the company needed to invest in projects or infrastructure that would bring immediate, regular returns. So, from the outset, it seems the board, which should have been seeking investments to help the struggling company, was proposing a venture which would not yield returns for at least seven years. The ICB approved the purchase of Trinity Park. However, the government of the Republic of Zambia (GRZ) did not give its approval. The GRZ Valuation Department was of the opinion that the offer price of US$9 million (exclusive of VAT)o was excessive. They assessed the value of the park at nearly USD 4 million less than the USD 5.1 million ZCCM-IH wanted to pay. However, it seems that ZCCM-IH’s management was not happy with this, and in an apparent attempt to push the price up from US$5.1 million they brought in three firms to conduct "their own" valuations. The lowest of these was US$6.885 million whilst the highest was US$7.35 million. These valuations were more than the government recommended price, but at this point were still well below ZCCM-IH’s original proposed bid of US$9 million. ZCCM-IH reportedly returned to the seller, Micmar, and negotiated a new offer of US$7.7 million (exclusive of VAT) in November 2015. Despite all of this toing-and-froing the actual offering price had not been significantly reduced at all since the price, now including VAT, was US$9.05 million, for which the board obtained approval in December 2015. The ZCCM-IH board needs to answer not one question, but many, about this payment: "Why did you pay well over market value for offices you didn’t need at a time when the company and the country were struggling financially?" "And, by the way, exactly what happened to the extra money you managed to get approved?" |
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