Greed, corruption 'fuel poverty among Zim's pensioners'
Thousands of pensioners’ dollars have been lost by Zimbabwe’s National Social Security Authority (NSSA) through corruption, governance failures, poor investment decisions and alleged political interference, an amaBhungane investigation has found.
With a $1-billion asset base, the NSSA is one of the biggest players in Zimbabwe’s economy, and makes huge investments in equities, the money market and property.
It has taken over from the Reserve Bank of Zimbabwe as the de facto lender of last resort following the collapse of the Zimbabwe dollar and the sidelining of the bank in 2009.
Funded by compulsory monthly deductions from the salaries of about a million workers in formal employment, the NSSA pays old-age pensions and disability grants. But its pension payouts of $60 a month – $40 until last year – have been condemned by pensioners and trade unions and described as too little to live on. (See below “ Billboard belies the reality of monthly payout”.)
Collateral damage: Pensioners have been compromised by the mismanagement the National Social Security Authority.
Investigations by Zimbabwe’s anti-corruption watchdog, the National Economic Conduct Inspectorate (Neci), and the comptroller and auditor general, Mildred Chiri, have turned a harsh spotlight on the NSSA’s financial practices.
In 2012, the inspectorate, which falls under the finance ministry, reported widespread corruption and impropriety in the NSSA’s investments, including sinking millions into nonperforming local banks, paying inflated amounts for the construction of hotels and other real estate projects and negotiating deals that benefit NSSA officials.
Japhet Moyo, the secretary general of the Zimbabwe Congress of Trade Unions (ZCTU), said the unions had repeatedly complained about the NSSA’s corruption and waste of resources.
“They have put our money into banks that close down. Everything that’s needed at NSSA is supplied by companies either owned or linked to managers there,” Moyo alleged in a phone interview.
“We have also seen them purchase buildings that become white elephants and pay unnecessarily high salaries to management.”
Thabitha Khumalo, a veteran trade unionist and MP – and an NSSA board member in 2005 – blamed the NSSA and Zimbabwean government for the culture of greed and corruption that had “spawned the impoverishment of pensioners”.
“NSSA and other quasi-government institutions are all in the same boat of corruption. There is a gross disrespect for good corporate governance because they know the people who are supposed to monitor their activities and arrest them are corrupt as well,” said Khumalo, a Movement for Democratic Change-Tsvangirai (MDC-T) deputy spokesperson.
In a discussion paper presented to the NSSA, Chiri criticised the authority for making “inappropriate” investment decisions, and warned that irregularities could be going undetected as a result of improper due diligence on the part of management and the board.
In her 2014 report, she said: “Financial loss may result from transactions that are irregular and uneconomic decisions that can be made as a result of related party influences.”
At issue was a controversial $4.3-million NSSA loan to the StarAfrica sugar company. The same man who chaired the NSSA’s investments committee also chaired StarAfrica and Capital Bank. The bank also received a $3-million loan from the authority.
Despite the reported abuses, and the appearance of NSSA managers before Parliament, neither the government nor the authority ordered a disciplinary investigation or legal crackdown.
Former labour minister Paurina Mpariwa, who ordered the Neci investigation, refused to act during her tenure from 2009 to 2013, and even feigned ignorance of the inspectorate’s findings.
Labour Minister Prisca Mupfu-mira could not be reached for comment.
Some of the NSSA’s biggest losses have stemmed from the liquidation of failed locally owned banks, in which it has invested $250-million since 2009.
The investments appear to have been driven by the government’s indigenisation policy, with the parastatals being required to support government policy.
The closure of Capital Bank last year took with it at least $50-million of NSSA contributors’ funds, and a source familiar with the NSSA’s finances said its losses to banks were as much as $100-million.
A well-placed source said the disastrous failure of Capital Bank was the reason the authority omitted to mention it in its financial statements for the 2014 financial year, published last month.
“By excluding this information, the public was misled as to the true state of NSSA’s finances and the auditor general made an adverse comment on the matter. Cumulative losses by the bank are said to be around $100-million, representing the loss of pensioners’ funds,” the source said.
Last year, the Zimbabwe Banks and Allied Workers’ Union wrote to the NSSA general manager, James Matiza, and said: “Not many years ago, NSSA justified its hostile takeover of Capital Bank and injected substantial workers’ money into this project.
“It … does not make any economic sense for an institution such as NSSA that is holding workers’ pensions in trust to … lose such an amount in such a dramatic, if not scandalous fashion.”
Other locally owned banks that have shut down since 2009 include Interfin, which received $45-million from the NSSA, Tetrad ($18-million), and Genesis ($708 000).
The authority is now planning to launch a building society. Mupfumira announced in June that it will invest more than $50-million in what will be known as the Social Security Building Society.
The NSSA already owns 35% of FBC Holdings, the parent company of the FBC Bank and FBC Building Society.
Matiza denied any political interference in the authority.
“There is no political pressure to place funds with indigenous banks. [Investment decisions] are arrived at after a thorough fundamental analysis of each bank, with results of analysis being input into a … model that will automatically calculate the trading limit,” he said in an email.
He said the bank had to match the interest rates required by the NSSA and provide “adequate and acceptable collateral to secure the borrowed funds. The bank also had to have a good track record with regard [to] delivery of security, deal notes and settlement on maturity.”
The NSSA had been unable to trade with established banks because of “their culture of charging NSSA for accepting deposits without paying interest on the deposits … This has left NSSA with no option but to place all funds with the willing indigenous banks,” said Matiza.
Chiri’s audit reports from 2012 to 2014 and the Neci report allege widespread governance failings and unlawful behaviour by NSSA management.
According to her, all NSSA investments between January and October last year were made without the labour minister’s approval, as required by law. Approval was obtained retrospectively.
She said it posed a risk of “financial loss as a result of investments that may not achieve the desired returns”.
She quoted the NSSA as replying that, “despite frequent follow-ups to our parent ministry [labour] and also the ministry of finance, no approval was received until October 2014 … The asset allocation proposed in the budget set for approval is always linked to actuarial advice”.
Other shortcomings highlighted by the reports include:
- The NSSA engaged the estate agency Dawn Properties to manage 14 of its properties from July 2014 without a contract. There was still no contract by year end.
- NSSA managers failed to pay tax on fringe benefits, including rent-free housing and subsidised vehicles, in 2014.
- The authority ignored advice from its own management investments committee about sinking $11-million into shares in a private unlisted company, Dubury, which reportedly owns Joina City, an upmarket shopping mall in Harare.
The sources said 3?621 Dubury shares were bought, amounting to more than $3?000 a share.
“There was no logic in the decision to spend so much on private unlisted shares, unless it was for the benefit of some crooked senior officials,” one insider said.
Defending the transaction, Matiza said the board investments committee could have rejected the transaction but “saw value in [it] and decided to proceed with it”.
“Through acquisition of 36.21% of Dubury, NSSA acquired 20.75% of Joina City. The returns are, besides dividend, rentals. The building appreciates in value, adding value to the NSSA portfolio,” said Matiza.
But Chiri, in her report for the year 2013, said the NSSA invested in Dubury without undertaking due diligence, so that it “assumed and paid for a long-term loan of $5?977?120, which Dubury owed to shareholders”.
She quoted the NSSA as admitting that there was “an oversight on our part for failing to recognise the loan component”.
The NSSA also lost millions in funding the construction of the Beitbridge Hotel, now leased by the Rainbow Tourism Group (RTG). The authority sank more than $50-million into the project, which the government hoped would bring spin-offs to Zimbabwe when South Africa hosted the Fifa 2010 World Cup. However, the hotel opened its doors only in January last year, four years after the event.
In her 2014 report, Chiri quoted the NSSA as conceding “challenges in managing construction projects, and this has resulted in the authority losing money and delayed completion of projects”.
The main contractor, Costain, eventually finished the hotel for $34-million, almost double the initially quoted price of $17.5-million.
The Neci predicted this would happen in 2011, saying it could have been avoided had the NSSA and the State Procurement Board (SPB) conducted due diligence regarding Costain. “The SPB seems to only have looked at who is cheap and thus awarded the tender to Costain,” said the Neci.
At the current monthly rental of $145?000 paid by RTG for the hotel, it will take the NSSA 29 years to recoup its investment.
Chiri also said RTG, in which the state has a 30% stake, had been allowed to get away with a repeated failure to service NSSA loans.
The authority advanced the hotel group a $10-million loan in November 2012 to enable it to re-capitalise its operations on the understanding that the principal amount would be repaid within a year and 10% interest would be paid monthly.
But Chiri’s 2014 report found that RTG’s outstanding interest still amounted to $1.3-million.
“The company [RTG] last paid interest in August 2014. The … contract clearly stipulates that, in cases of default, the disbursed amounts plus interest and any charges shall become immediately … payable by RTG,” Chiri wrote.
She said the NSSA did not act against RTG, even after RTG failed to meet a grace period for repayment extended to June this year.
In fact, the NSSA advanced RTG a further $4.4-million for the re-capitalisation of the Beitbridge Hotel in 2013, a loan that was not secured, “despite indications that RTG was experiencing difficulties in servicing an earlier loan that was rescheduled”.
The Neci report makes the very serious allegation that the NSSA bought $15-million of shares in the sugar industry “at home … from Nhau’s friends” for 12.5c each instead of the average 10c from the Zimbabwe Stock Exchange.
Albert Nhau” is the former NSSA board chairperson.
He told amaBhungane: “This issue is three years old and long dead. I don’t know why you want to revive it.”
The Neci said the “NSSA lost $2.5-million from the scam”, and that those involved “fraudulently used a broker to conceal the evidence”.
Matiza denied any corruption regarding these transactions, and insisted that “supporting companies with potential economic and social returns on investment in the future is key for the economic development of Zimbabwe”.
“RTG is a significant player and employer in the tourism sector, which was suffering from [a] high-interest burden that was eroding shareholder value and competitiveness.
“StarAfrica was crippled by similar circumstances and required retooling to gain competitiveness. Turning this corner, StarAfrica will be a strategic sugar processing company for the local food and beverage sector. Like any other significant investor, the authority protects its investments through board representation.”
He said the NSSA “follows all laid-down procedures as guided by the investment policy, NSSA Act and International Social Security Association guidelines”.
One of the NSSA’s controversial projects was a $12-million shopping mall in Chipinge, Manicaland, Matiza’s home district. The authority allegedly ignored advice to locate the project in a more viable centre, such as Chinhoyi, in Mashonaland West, or Marondera, in Mashonaland East.
But Matiza said the Chipinge project was part of a 10-year NSSA development plan adopted in about 2000, long before his tenure.
“NSSA, and not the general manager, plans to construct a shopping mall in Chipinge,” he said, adding that the town “naturally followed Gwanda, Bindura and Beitbridge in the authority’s 10-year shopping mall development plan”.
The Neci also found that four of the NSSA’s six senior managers were recruited from Manicaland, particularly from the south of the province where Matiza is from. Their selection raised eyebrows because there was a widespread response from throughout Zimbabwe to the advertisements.
But Matiza insisted that the recruitment was “fair and transparent, with sufficient in-built internal controls to avoid bias”.
He said the positions were advertised in the national press, giving all Zimbabweans the opportunity to reply, and the process was handled by the board.
Apart from the government’s perceived influence on investment decisions, unionists complain that appointments to the NSSA board are politically driven.
The ZCTU’s Moyo said the labour movement was supposed to have a representative on the board, but President Robert Mugabe appointed all its members and it reported to him.
“We have made a lot of noise on the policy decisions at NSSA but all board appointments are made by the president. Even when we submit nominees, they’re overruled,” said Moyo.
“In fact, when Mugabe appointed a new board a month ago, he failed to include a workers’ representative. We submitted three names of senior ZCTU officials; all were rejected, despite having the requisite educational qualifications … We were told they had failed a vetting exercise by the intelligence services. We don’t know what this exercise was about.”
Mugabe has stated that positions in the parastatals and state entities should be reserved for men and women “with the correct political ideology”.
The ZCTU is aligned with the opposition MDC-T and one of its nominees for the NSSA board, Gideon Shoko, is an MDC-T executive member.
Billboard belies the reality of monthly payout
A National Social Security Authority billboard in downtown Harare features a smiling pensioner proudly proclaiming a blissful life in retirement, with accessible monthly pensions that arrive on time.
Enias Mlambo (39) discovered the reality is rather different. Mlambo decided to help his widowed mother get a survivor’s pension after his father died in 2012. It turned out to be a two-year process that took time, patience and money. “We had to travel more than once to Harare, 500km away, to sort out the $60 monthly payout which is nowhere near enough to cover living expenses,” Mlambo said.
According to the Zimbabwe Statistics Agency, the poverty datum line is $511. Only in 2014 did Mlambo and his mother finally find their way through the bureaucratic maze. They made progress when they decided to bypass the NSSA’s provincial office in Gweru and go to the head office in Harare.
“The Gweru office would shuttle us to and fro, making us fill in loads of paperwork about when my father last worked, when he last got paid and so on. “We had to pay to photocopy documents and travel from our rural home in Mberengwa, which is over 200km from Gweru. In Harare, relatives had to put us up while the papers were being processed. It took another six months before the money started coming,” Mlambo said.
NSSA spokesperson James Matiza could not reached for comment this week. But in past he has said that the authority is doing its best to pay pensioners decent amounts, and that the payouts can only be increased by raising the contributions made by workers and companies. Workers are required by law to contribute to NSSA 7% of monthly earnings.
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