How a Zim tycoon's large windfall may have triggered a currency crash

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Zimbabwe’s central bank issued $3.4 billion worth of Treasury bills without following normal budget procedures and gave some of the securities to a tycoon, who used them to fund the acquisition of state-owned mines, according to a report issued by The Sentry

The exposé by the nonprofit organization that investigates alleged corruption reveals for the first time the extent to which the debt apparently benefited Kudakwashe Tagwirei, an adviser to President Emmerson Mnangagwa. It may also partly explain why the Zimbabwean dollar crashed after its 2019 reintroduction and inflation surged to more than 800%.

The bills were issued under instruction from the Treasury between November 2015 and August 2018, The Sentry said in its report, which was published on Wednesday. The process effectively amounted to printing cash and the debt was never reflected in the government’s official records, it said. 

About a third of the notes were issued to Tagwirei, while some was used to fund military equipment shortly before President Robert Mugabe’s 2017 ouster, according to The Sentry. Its report was accompanied by copies of the Treasury bill requests from ministers, a government list of about 60 authorized transactions and other supporting documents. 

Cash crunch

The report casts light on how the government seems to have responded to a cash crunch during the tail end of Mugabe’s 37-year rule and the beginnings of his successor Mnangagwa’s tenure  - to the economy’s detriment. A marked increase in the money supply as a result of printing the notes would have eroded the currency’s value and spurred inflation. 

The Sentry, whose backers include actor George Clooney, has published a series of previous reports on alleged corruption in African countries, including the Democratic Republic of Congo and the Central African Republic. In July last year, it issued a report entitled ‘Shadows and Shell Games’ on Tagwirei’s opaque mining and other business holdings in Zimbabwe, which he allegedly secured by exploiting his political connections. 

Tagwirei didn’t respond to emailed questions and declined to comment by phone. Reserve Bank of Zimbabwe Governor John Mangudya, Finance Secretary George Guvamatanga, Finance Minister Mthuli Ncube didn’t respond to repeated requests for comment. Clive Mphambela, spokesman for the finance ministry, referred queries to Andrew Bvumbe, head of debt management at the ministry, but calls to his phone didn’t connect and he didn’t respond to text messages. 

“In essence, the publicly owned Reserve Bank was printing money and sending it to private entities that then used those funds to buy publicly owned assets,” The Sentry said. “In an economy where the memory of similar activities leading to hyperinflation was still fresh, doing so eroded confidence in the new currency.”

Inflation in Zimbabwe surged to more than 500 billion percent in 2008, according to the IMF. The nation’s worthless currency was then scrapped and it began using the US dollar and other currencies as legal tender. While the Zimbabwe dollar was reintroduced at parity with the greenback in early 2019, it now trades at about 138 to the dollar and considerably higher on the black market.

Tagwirei was the biggest beneficiary of the questionable debt, according to The Sentry. The documents it obtained show the central bank allocated $1.28 billion to his companies, Sakunda and Landela Investments, mostly in the form of Treasury bills - ostensibly to refund them for $1 billion they said they had spent on a state-farming program known as Command Agriculture. That left Tagwirei with a $280 million surplus, according to the report. 

Emails to an address on Sakunda’s letterhead didn’t go through and calls to its office weren’t responded to. Contact details for Landela could not be found.

Some of the bill proceeds were used to fund the acquisition of gold mines from the state-owned Zimbabwe Mining Development Corp and a stake in military-linked firm, Pen East, held in Great Dyke Investments, which holds one of the world’s biggest platinum deposits, The Sentry said. Great Dyke and the ZMDC didn’t respond to requests for comment.

“Tagwirei’s companies were using Treasury bills intended as security for Command Agriculture for other purposes, including buying mining companies held by the government and military-owned companies,” The Sentry said. 

The mines were held for a while by Tagwirei-linked Sotic International Ltd., before being transferred to state-controlled Kuvimba Mining House Ltd. The government hasn’t explained how it came to own them or who is behind a 35% private investment in the company. 

Kuvimba, which has previously referred queries about its ownership to the government, didn’t respond to an email. Simba Chinyemba, its chief executive officer, declined to comment. 

Tagwirei was sanctioned by the U.S. in August 2020 and the U.K. in July last year for allegedly paying bribes to win government business. He never commented on the two governments’ actions. 

The Sentry said the Treasury bills were also used to:

  • Fund a $7.5 million purchase of trucks for 226 traditional chiefs in October 2017.
  • Pay for soldiers’ provisions, ammunition, aircraft spares and armored vehicles costing a total of $12 million in November 2017, just eight days before the military forced Mugabe from office.
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