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(SUNDAY MAIL ZW) $1,2bn fraud cases in six months

$1,2bn fraud cases in six months
Saturday, 12 May 2012 16:34
Darlington Musarurwa
Business Editor

The three-day workshop of the Common Market for Eastern and Southern Africa (Comesa) on improving the business environment in Zimbabwe last week came under the shadow of grim negative indicators showing that fraud cases topped $1,2 billion in only six months to December last year, while patterns of household income growth remain markedly poor in the country.

The recent Africa Fraud Barometer 2011 released by KPMG and the Ernst & Young Africa Attractiveness survey 2012 all cast a negative outlook for the country, especially in a period where most of the African countries have bucked the downtrend, raising the spectre that it will become increasingly more difficult to attract Foreign Direct Investment (FDI).

However, it was not all gloom and doom as the country ranked higher than some BRICS countries (Brazil, Russia, India, China and South Africa) in the “irregular payments and bribes” category — a subcomponent of the World Economic Forum’s Global Competitiveness Index.

While there has been huge Government intervention in improving the business climate in Zimbabwe, recent statistics indicate that investors have not yet warmed up to the country as an investment destination as negative perceptions and misconceptions continue to be entrenched.

Fraud and corruption are some of the key factors that have alienated the continent from investors, market watchers say.

According to the KPMG report, the value of fraud cases in Zimbabwe in the six months to December 2011 soared to $1,2 billion, which is 32 percent of the overall value of fraud cases in Africa in the review period at $3,7 billion.

As a result, Zimbabwe was ranked second to Nigeria, which had fraud cases of over $1,6 billion.

South Africa had the highest number of reported fraud cases in the period at 35 percent from 37 percent that was recorded in the period of January to June in 2011.
Nigeria was second, with the number of cases recorded at 22 percent from 25 percent in the first half.

On the overall, 520 fraud cases worth $7,2 billion were recorded in the second half of last year.

The report further notes that the highest value of fraud committed in the second half was by management at $1,2 billion, while employees weighed in with 29 percent of the cases.

There were very few fraud cases reported for the first half of 2011. Zimbabwe had a 9% occurrence of reported cases in the first half of 2011 with a value of $2, 4 million.

“The case as reported in the second half of 2011 refers to a fraud case that occurred in 2008. This means it occurred pre-dollarisation in Zimbabwe. This means that the time span between the commission, investigation and reporting could have spanned the hyper-inflation/dollarisation phase,” said KPMG.

The US dollar equivalent of the fraud could probably be at most $2 million. It therefore seems that the statistics in the second half of 2011 gives a skewed representation of

the actual fraud perpetrated due to the unique currency situation in the country.

Crucially, KPMG notes that the Government and the public sector industry had the highest occurrences of fraud reported at 39 percent.

However, the most extensive information of the psyche of investors, especially their perception towards Africa, Zimbabwe included, is provided by the latest report by Ernst & Young, which is based on a sample of 500 investors and business leaders from across the globe.

Most importantly, it was generally observed that there is a huge perception gap between businesses already operating in Africa and those which are yet to establish operations.

Those who have since opened businesses in Africa are believed to be upbeat about the prospects of business and future growth as compared to those who are reluctant to do business with the continent.

Much of the negative perception about Africa has mainly been fanned by fears of political risk, corruption, weak security and the difficulties in the ease of doing business.

Although the report notes that some African countries are now performing relatively better in terms of political governance, corruption, fraud and competitiveness than some of the BRIC countries, Zimbabwe stood out as one of the countries where the economic indicators, particularly consumer growth trends, remain worrying.

“Ernst & Young’s analysis of consumer growth trends over a 10-year period, from 2005 to 15, reveals a market underpinned by both short- and long-term potential. In general, there is a slowdown in growth rates among the very poor, high growth for the mass market and moderate growth among the more affluent segments. Based on this analysis, there are only a handful of countries, such as Algeria, Eritrea and Zimbabwe, which show a distinctly negative pattern. By contrast, the pattern across a broad range of countries is one of a marked trend toward greater affluence,” observes the report.

Most importantly, the attractiveness survey notes that the conditions of doing business in Africa have improved markedly to such as extent that some countries are even faring better than some of the countries being touted as the fastest growing in the world.

For example, six African countries have been among the 10 fastest growing economies in the world, and 10 African countries are forecast to be among the 10 fastest-growing economies over the next five years.

In addition, in the World Bank’s Ease of Doing Business 2012 rankings, 14 African countries ranked ahead of Russia, 16 ahead of Brazil and 17 ahead of India.

Also in Transparency International’s recent Corruption Perceptions Index, 14 African countries ranked higher than India, while 35 were higher than Russia, putting paid to the notion that Africa is inherently corrupt.

In fact, in the World Economic Forum’s Global Competitive Index 2011 to 2012’s subcomponent on bribes and irregular payments, Zimbabwe ranks higher than India.

Added the report: “Similarly, some of the subcomponents of the World Economic Forum’s Global Competitiveness Index 2011-12 make for interesting comparisons. For example, based on a 2011-12 weighted average score on “Irregular payments and bribes”, Botswana, Cape Verde and Rwanda all rank ahead of the USA. These three countries, as well as Gambia, Mauritius, Namibia and South Africa, rank ahead of Brazil and China.

Sixteen African countries — including Ethiopia, Mozambique and Zimbabwe — rank ahead of India, and a total of 19 are ahead of Russia.’’

Similarly, political governance is believed to have improved significantly over the past decade and on the Economist Intelligence Unit’s Democracy Index 2011 African countries such as Cape Verde, Mauritius and South Africa rank ahead of developed European countries such as France and Italy.

They are also well ahead of the BRICS and the large majority of significant emerging markets such as Argentina, Colombia, Indonesia, Malaysia, Poland, Thailand and Turkey.

Only Eritrea and Swaziland are regarded as “autocracies”.
“A new African narrative is emerging. Political, economic and regulatory reform — processes that began in the 1990s — continue to reshape the continent. Armed conflict is significantly reduced, providing the relative stability required for economic growth and development.

Inflation is being brought under control, foreign debt and budget deficits reduced, state-owned enterprises privatised, regulatory and legal systems strengthened and many African economies have opened up to international trade.

“These structural changes have helped invigorate markets and commerce, creating an environment that is increasingly conducive to business and investment.

“Furthermore, widespread reform, together with steady improvements in political governance, the commodities boom, substantially increased levels of disposable income, urbanisation and a rapidly developing services sector, have contributed to a continued and, what we believe to be, a sustainable growth path for Africa,” explains Ernst & Young.

Africa’s economy as a continent is forecast to grow by 5,5 percent this year, which is a higher growth rate compared to economic growth projections for the world’s biggest economy, the United States of America, of 2,1 percent.

Zimbabwe’s economy is expected to grow 9,3 percent — though growth is from a low base.

In 2011, 78 percent of governments in the sub-Saharan region changed their regulatory environment to make it easier to do business, while Zimbabwe introduced One Stop Investment shop a year earlier in order to simply processes in the registration of investment projects.

The processes are still being fine-tuned as the country determinedly tries to lure investors.

But, worryingly, Africa only attracted 5,5 percent in FDI, the highest proportion that the continent has ever attracted, from 4,5 percent a year earlier.
However, the entire continent attracted fewer FDI than India.

Ernst & Young argues that for the continent to unlock its full potential, there is need to bridge the perception gap between those who have experiences on the continent and those who have not; to accelerate regional integration and eliminate the infrastructure deficit.

There is a belief that African countries are not telling their stories loud enough than their counterparts in Asia in order to break down the negative perceptions that presently exist.

Also, the experts note that much work still has to be done in order to harmonise procedures of the 54 countries of the continent that make it difficult for foreign investors to engage.

Although the vision, aspiration and determination for Africa to create a single economic bloc were espoused in the 1991 Abuja Treaty, much work is still outstanding.

Under the treaty, a continent-wide economic and monetary union and a Pan-African Parliament were expected to be completed in 2028.

But there has been significant progress, especially in 2008, when heads of state and government of 26 African countries established a free trade area, which is now referred to as the Tripartite Free Trade Area (T-FTA), in order to facilitate intra-African trade, promote collaboration between regional economic communities and facilitate resource mobilisation and project implementation.

The tripartite is mainly made up of SADC, Comesa and EAC (East African Community) regional blocs.

Much remains to be done in establishing the infrastructure needed to ease trade and commerce.

Power shortages, rail and road transport infrastructure, including communication challenges, remain huge obstacles in making the continent competitive relative to its peers.

Labels: COMESA

posted by MrK @ 4:45 PM