Draining Zambia’s Dwindling Coffers

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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