adminChris Ndlovu
ONE of the troubling questions in the Zimbabwean economy is about externalisation of funds. One wonders why some people, after generating profits in Zimbabwe take away those funds and hand them over to other countries.
Why are they not banking and investing those funds at home to create internal financial liquidity, create employment and have our industries come back into action?
The Reserve Bank of Zimbabwe has alluded to more than $2 billion that was externalised last year.
President Mugabe has also spoken about an estimated $15 billion that has not been accounted for from the diamond industry.
One wonders how can the Government can create jobs when people are externalising funds like that.
I will not bother about definitions but outline generic ways how individuals and companies externalise the hard earned foreign currency in developing countries, Zimbabwe not being an exception.
There is a lot of indirect externalisation of funds in the mining sector. This is easily done through inflating mining equipment costs as well as mining and geological surveys fees.
This is usually a common custom where mining companies easily connive with equipment suppliers to inflate mining equipment prices, hence raising the cost of mineral extraction, hampering on the profits of a lot of mining companies.
The same direct or indirect directors, follow up the additional funds that are transferred through shelf companies and finally benefitting the same individuals, hence depriving the country billions of dollars in undeclared incomes and loss of revenue as a result of the inflated cost of production.
The mining companies will post huge losses to the Government and declare minimal taxable profits, hence few individuals benefiting from the country’s resources.
The same companies are the first to cry foul about the Government failing to deliver services, infrastructure development etc.
In most developing countries, there is usually no clear definition on how to monitor and follow-up what might be classified as capital goods and how the said capital goods have benefited the country or contributed to the GDP with feasible returns on investment.
In fact such funds are developing European countries that hold such illicit bank accounts with funds from inflated goods and services of resident countries. Without proper monitoring systems, it becomes difficult for the Government to track and trace such transactions in the international monetary system.
Agricultural exports have next to no controls in monitoring the actual value of export invoices, hence becoming very difficult for authorities to ascertain the actual landed price of exports in the receiving country.
This has been achieved by a lot of exporters that have undervalued exports and do the same by creating shelf companies that invoice the receiving company consultancy services on the difference of the undervalued value. It then becomes difficult for the government or customs to ascertain the actual values of exported goods.
The owners will then follow up and access those funds through the shelf companies. Such incidents have been going on for generations, depriving African governments billions of export earnings.
Hundreds of companies never submit back export documents for the central bank to reconcile external funds that are due from the exporting companies.
This to date translates to billions of dollars externalised from the affected governments.
In the Zimbabwean scenario, for example, the implementation of the land reform and the inflation that followed had a crippling effect on the economy.
So many agricultural proceeds were exported and such were funds banked in countries like South Africa. The perpetrators are hiding behind blaming the Government for “economic mismanagement.”
The purchase of capital goods from abroad has drained most governments in the Third World, where individuals will claim to be paying millions of dollars in the pretext of importing capital goods.
Firstly prices for such capital goods or machinery will be inflated. When the funds are transferred to the supposed suppliers, the equipment is never brought back into the country or substandard equipment imported.
The very same individuals will create shelf companies that will raise consultancy fee invoices to indirectly claim the funds, which will be shared amongst the directors.
Such exercises have bled a lot of money from the Third World. Such individuals are the first to cry foul when government has challenges in meeting its budgetary requirements and subsequently such individuals are the first to sing the regime change music.
Yet forensically the regime change suspects are the same individuals that are externalising funds to foreign bank accounts. If you love your country and if you are patriotic, why banking your treasure outside the country and evading paying taxes by stealing from your own people.
This is the same common practice where individuals claim to be servicing external loans with exorbitant interest rates. It becomes difficult for the Government to forensically follow each transaction to ascertain the authenticity of such transactions, only to aggregate a total figure that runs into billions of dollars externalised by companies and individuals.
A number of organizations and individuals have the tendency of employing very expensive external consultancy services as if there are no well-trained consultants in the country of origin to conduct such consultancy services.
Governments are losing hundreds of millions of dollars in such consultancy services that have left individual countries bleeding.
One tends to wonder how that mismanagement comes into being, since the consultancy services were conducted by consultants from the so-called First World countries.
There has been a lot of externalisation of proceeds from the sale of domestic immovable assets like houses, plots, farms, factory shells and office buildings.
In most cases it becomes difficult for the Government to follow up such transactions as most of these assets are disposed for speculative purposes and in the meantime depriving revenue collection services millions of dollars.
Individuals engaged in such activities directly externalise their funds, hence depriving the country of its own resources.
The negative results are demonstrated by the negative economic growth in the financial sector, in the manufacturing sector and other related line services and industries. The grand question again is why such individuals are externalising local generated funds.
Electronic funds transfer is one of the most abused facilities that economic terrorists have used in externalising funds, when the government has created a conducive financial freedom to purchase goods and services abroad.
Instead of people congratulating the government for such generosity, they instead are bearers of negativity discrediting the government of the day.
Firstly they must correctly declare all their taxes, return the externalised funds and support the sitting government. These are equally guilty. There is also a common practice by many fraudsters that befriend politicians in order to gain favor in covert practices of getting certain authorisations from their (political) offices.
Once they gain that political confidence they bulldoze their way in externalising funds and avoiding paying taxes, because of their so-called political connections. This nonsense must stop with immediate effect if we are to see real meaningful development in our African countries.
The Zimbabwean government should implement water tight integrated security systems on gold and diamond mines to audit and trail all major mineral extractions.
The exploration data and aggregated ariel electromagnetic surveys should be reconciled with the extracted minerals. Before mineral extraction geological data justifies the quantities and quality of minerals in the ground hence justifying the extraction of the minerals.
The government should be able to monitor and audit the extracted minerals versus the sales of such minerals or the relocation of the processed minerals. Usually, the Government is not privy to the actual value of minerals versus the submitted reports by the miners.
Without such forensic audits it becomes difficult for the Government to ascertain the value of diamonds, for instance, extracted from the mining area. With such basic integrated mining security system it will be easy for the government to audit all precious minerals mined in every assigned square metre in the country.
Our borders can be also monitored and secured by the usage of ICT-based on metadata on already collected information of suspected dealers and their accomplices. Such data forms a data mining web for investigators to act on predicted investigations, in order to link all suspects to the smuggled or stolen diamonds in the country with external illegal buyers.
Chris Ndlovu is a specialist in integrated government ICT monitoring systems & critical public infrastructure protection. He is managing director of Duodecimar Technologies PL, a Bulawayo based ICT firm.
derick.khumalo