Smuggling: The New Corruption Frontier In Zimbabwe
As the Zimbabwean economy rapidly slides into hyperinflation induced recession, the levels of smuggling at the country’s border posts has reached alarming levels. Cross border traders, foreign nationals, truckers and businesses by-pass paying duty through coming up with advanced strategies of smuggling commodities in and out of Zimbabwe.
By Victor Bhoroma
The smugglers are aided by law enforcement agents, clearing agents, Minerals Marketing of Zimbabwe (MMCZ) and Zimbabwe Revenue Authority (ZIMRA) officials to form deadly syndicates costing the country billions through tax evasion each year. Minerals such a Gold, Chrome and Diamond are mainly smuggled out through highly organized syndicates fronted by foreign nationals, local buyers and government department officials while inbound commodities such as motor vehicles, automotive spares, electrical goods, hardware, textiles and groceries involve low key operatives such as cross border traders and truckers.
Smuggling is rife at Beitbridge Border Post, which is one of the busiest inland ports in Sub-Saharan Africa and links the northern and southern corridors. The border processes over 1 000 vehicles and 10 000 travelers daily, with the figures soaring to 5 000 vehicles and 50 000 travelers per day during public holidays. The border post forms the vital connection for trade worth over $6 billion annually between Zimbabwe and its southern neighbor, South Africa. Other border posts central to the smuggling rings include Chirundu, Plumtree, Forbes and Nyamapanda Border Posts.
The Changing Wealth of Nations (World Bank) Report of 2018, documents that Africa’s impoverishment is fueled by the rampant smuggling of key commodities such as minerals, oil and gas. In the report, the bank concludes that sub-Saharan Africa loses about US$100 billion worth of adjusted net savings annually through massive looting and smuggling of minerals. Earlier this year, the government admitted that only a third of Gold produced in Zimbabwe is sold through official channels with Fidelity Refiners & Printers (FRP) being the sole buyers of the precious mineral.
The bulk of the Gold worth over $1.5 billion is lost through either under-declaring of mineral exports and smuggling cartels that connect the entire value chain from small scale miners to international buyers. Under-declaration of goods is whereby importers misrepresent the quantity of goods they are importing or exporting in a bid to avoid paying the correct taxes while, on the other hand, false classification of goods involves a situation whereby importers present false goods on documentation to the tax officers for purposes of evading paying the correct taxes.
Another mineral at the mercy of smuggling is chrome, which is exported in its raw form or as ferrochrome. Zimbabwe has over 14 Chrome smelters with the majority of them being foreign owned. Reports of large scale chrome miners working with officials from the ZIMRA and MMCZ in facilitating under-declaring of ore for shipment to China and India are widespread. Zimbabwe produced close to 1 million tonnes of raw chrome in 2018 but could hardly sell the ore for more than $20 per tonne due to predatory pricing by foreign buyers who prey on the local market. China produces more than 4 million tonnes of ferrochrome annually despite not mining the mineral.
In 2018, South Africa exported 90% of its ferrochrome to China at over $210 per tonne. When Diamonds were discovered in 2006 in the Marange area of Manicaland, various reports of Diamond smuggling motivated the government to stop illegal mining. It is estimated that over $1 billion worth of diamonds were smuggled out of Zimbabwe and subsequent revenues were also externalized by organized syndicates that included foreign nationals. Sanity was restored in the Diamond mining sector when the government amalgamated all the mines and formed the Zimbabwe Consolidated Diamond Company (ZCDC) in 2015.
Zimbabwe’s industry capacity utilization has fallen below 40% in the first 4 months of 2019 largely because of foreign currency shortages, power outages and low domestic demand induced by inflation. The country’s annual inflation raced to a 10-year high of 97.85% in May from 75.86% in April, even though experts believe that the figure is now beyond 150%. The inflationary environment has created demand for foreign produced merchandise with groceries smuggled from Zambia and South Africa flooding the local market and retailing at prices 20-40% cheaper than locally produced goods. The groceries are smuggled in through truckers, routine couriers (Omalayitsha) and cross border buses by under declaring and paying ZIMRA officials.
The practice is more sophisticated on motor vehicles, automotive spares, textiles, electrical goods and hardware imported from the United Kingdom, Japan, Singapore, India, China, United Arab Emirates (UAE) and South Africa where containers are used to conceal the actual identity of the cargo inside and its value through false classification. ZIMRA officials work with clearing agents and importers to facilitate passage for the cargo while evading excise duty.
Smuggling at the country’s border posts is driven by rising levels of unemployment in Zimbabwe, with over 93% of the working population either unemployed or working in the informal sector where there is no job security or guaranteed income. The rising levels of poverty also aid in fueling corruption. A recent report by World Poverty Clock pointed out that over 72.3% of the Zimbabwean population are poor with about 5.7 million people living in extreme poverty. Individual poverty prevalence is 84.3% in rural areas compared to 46.5% in urban areas, while extreme poverty is 30.3% in rural areas compared to only 5.6% in urban areas. There are fears that poverty levels have eclipsed 80% in the last 2 years. These numbers are further exacerbated by severe droughts and declining disposable incomes for the employed.
Smuggling places a huge cost on the local industry and economy as a whole. Billions of tax revenues are diverted to private pockets while the local industry fails to develop and hire more employees. The new corruption frontier worsens the country’s corruption levels which are already worrying. Zimbabwe is currently ranked number 160 out of 175 countries in terms of corruption, according to the 2018 Corruption Perceptions Index reported by Transparency International.
The government is fully aware of smuggling syndicates that have operated at the country’s border posts, what has been lacking is quick decision making to save the economy and treasury of billions in lost revenues. Government alludes that at least $1 billion is lost every year through smuggling. It is now imperative to speed up the upgrade of the country’s border posts with the planned $241 million upgrade of Beitbridge Border Post being a priority.
Chirundu, Plumtree and Forbes will also need attention with key emphasis on new technology to counter smuggling of goods. The planned upgrades can be implemented through self-financing models where travelers and transporters are charged access fees to pass through. It is also key to capacitate ZIMRA through availing scanners, X-ray machines, surveillance cameras and sensors at all entry points. Recently ZIMRA intensified its measures to curb the rampant smuggling of petroleum by launching the Electronic Cargo Tracking System and fuel marking. These efforts will need broader government support to control the deepening frontier that threatens future revenue collections and local industrial production.
Victor Bhoroma is business and economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on email@example.com or alternatively follow him on Twitter @VictorBhoroma1.