Money laundering rife in the economy

Terence Zimwara

Zimbabwe could be a victim of money laundering by criminal syndicates seeking to ‘cleanse’ their dirty money and to evade government authorities in the region.

Organized criminal syndicates are thought to be bringing in fast moving consumer goods (FMCG) as way of converting proceeds from their activities into the American greenback.

Zimbabwe predominantly uses the US dollar since it dollarized its economy about five years and in addition it has lax foreign exchange controls which make it easy for anyone to move huge amounts of cash without problems.

This makes the country a prime target for anyone seeking to acquire cash dollars to do so without the fear being traced.

The country main’s main industry body, the Confederation of Zimbabwe Industries (CZI) made this allegation when it appeared before the Finance and Budget Committee of the parliament.

President of the Mashonaland chapter of the CZI Mr Sifelani Jabangwe told the committee that they were still uncovering this and a full detailed report is yet to be made.

 “There is a belief  that some of the foreign products on the local market particularly, FMCGs are being sold at uneconomic prices by people seeking to access US dollars from Zimbabwe,” Mr Jabangwe.

He added that at his organisation’s various deliberation forums they concluded that it was impossible for some imported goods to sell below the cost of production of locally produced ones.

Mr Jabangwe told the committee that smuggling and money laundering could be the main reasons why imported products were seemingly outcompeting locals.

 The CZI, however acknowledges that the 40 percent deprecation of the rand against US dollar over the last 18 months could be another significant factor leading to Zimbabwean producers suddenly becoming uncompetitive.

Investigations by The Parade into some of the pricing of imported products seem to support allegations made by CZI that there could be money laundering at play.

We identified two similar products that seem to suggest that there are other forces at play. Unilever produces a 500g of margarine (Stork Margarine) which is widely available in most retail outlets.

However of late there has been an influx of similar imported products like the 500g of Blue Band margarine which is now competing with established brands like the one mentioned above.

In one retail store we were shocked to learn that the Blue Band margarine sells for just one dollar while the locally produced ones were selling between $2.30 and $2.50, a staggering 150 percent price differential.

It is very difficult to understand how much of the price differences can be attributed to over pricing by local producers or smuggling by importing merchants.

Another example is that of boxed fruit juices. Schweppes Zimbabwe produces a two litre fruit juice soft drink which sells around $2 in most retail outlets. Interestingly there is now an imported version, Pure Joy made in South Africa which street vendors are selling for $1 while established retail outlets sell it at $1.50 or lower.

Again the pricing differentials seem to defy economic fundamentals in the case of the imported products.

An importer has to pay freight charges which are quite significant, he has to pay duties in addition to other costs that arise as a result of bringing the products into the country.

 Local products on the other hand, face no such extra costs in their production chain yet it is the imported products that are competing very well especially on the prices.

This where the charges of money laundering and smuggling are made and how this has devastated local producers.

During the question and answer session of the Budget and Finance committee, Bulawayo legislator Eddie Cross asked why Zimbabwean producers were uncompetitive.

Current CZI president, Charles Msipa responded by laying down a list problems that he said industry has faced not only since dollarisation but even before the multiple currency regime.

Chief among the problems include high cost of credit, infrastructure deficit, cost of labour that is unrelated to productivity and declining disposable incomes.

What is not clear from CZI is how much of this results in the price differences observed above. However the CZI boss did acknowledge something that has affected producers yet no one was in position to change it- was the depreciation of the rand.

“The rand has depreciated by almost 40 percent over the last 18 months and that means Zimbabwean companies have suddenly become uncompetitive by that much,” said Mr Msipa.

South African made products have become cheaper by virtue of the decline of their currency and this has made their products which are sometimes superior more appealing to consumers.

Zimbabwe cannot impose tariffs to counter this because the assumption is that market forces were responsible for the rand decline and the commitment the country has made with various regional trade blocs means nothing will be done.