EXPOSED: Inside Info on how Zim Cartels keep getting richer

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The publication by Maverick Citizen of the Report on Cartel Power Dynamics in Zimbabwe has raised some important questions about the presence and impact of cartels in Zimbabwe in particular and Southern Africa in general.

The report finds that there is consensus across political parties, academics, and wider society that cartels “go against the public interest” and are characterised by collusion between the private sector and influential politicians to attain monopolistic positions, fix prices and stifle competition.

In Zimbabwe, as the report finds, “institutions for regulating property rights, law and finance have been ensnared, and are actively abused to facilitate rent-seeking by cartels”.

It finds two key motivations for cartels – rent-seeking and political financing – and finds a close symbiotic relationship between actors that seek self-enrichment through rent-seeking and the ZANU-PF party , which seeks funding that can be illicitly channelled from government to the private sector.

Anecdotal coverage of these cartels and corruption in press reports point to a high incidence of abuse of power by officeholders as a means to generate ill-gotten profits for themselves and their cronies. This comes at a cost to ordinary citizens who are faced with high inflation, eroded incomes, food insecurity, shortages of fuel and water, and an outbreak of Covid-19.

The cartels impact Zimbabweans in multiple ways – entrenching their patrons’ hold on power, retarding democratisation, destroying service delivery for citizens and creating an uncompetitive business climate. All this leaves Zimbabweans poorer and increasingly under-served by their government and disempowered to hold the state to account.

The word “cartel” is used widely across Zimbabwean society to describe corrupt business practices with the collusion of political leaders.

Media, academia and civil society have used “cartel” to describe “crookedness by selfish individuals, social classes, and/or groups and institutions to fleece an already sorry population without caring too far about it”; state capture (a concept many South Africans are familiar with) and “the complicity of the state elite and the business community for the purpose of self-enrichment”.

One journalist interviewed for the report put it more bluntly: “Cartels and the ruling elite are one and the same thing ”.

Rent seeking

Cartels are formed to transfer wealth from consumers and public funds to participants in the cartels (this is what we call “rent seeking”). The undeserved or unearned profit that rent-seekers gain is defined by economists as an “economic rent”.

Economic rents in Zimbabwe fall into two categories – natural rents and man-made rents.

Natural rents arise from the differences in naturally occurring factors such as the quality of agricultural land, climatic conditions and concentration of mineralisation on mineral claims. These allow some market players to be more profitable than others without the use of more capital, labour or entrepreneurial prowess.

In contrast, man-made rents arise from:

Policy decisions that give rise to, for example, monopoly positions for some market actors, provision of publicly funded subsidies (which artificially reduce costs of production for some market actors), and cheap foreign currency;

Illicit activities by private market players which include tax evasion and trade misinvoicing; and
Illicit activities such as bribery and corruption.

A man-made economic rent, therefore, is the unnecessary portion of a payment that is made for goods or services, simply because the producer has the market power to charge it.

This rent is also a social welfare loss, as Zimbabwean society could have gained the same goods and/or services without paying as much.

The report shows that a complex mix of political, economic and social factors create an enabling environment for cartel-based corruption and that some of these factors have been part of the fabric of Zimbabwe for over a century.

For example, Zimbabwe’s political structures enable cartels because of the country’s non-inclusive “winner-takes-all approach” to elections, accompanied by violent transitions that involve the military and, as the US Department of Treasury recently put it, the repeated use of “violence to silence political dissent and peaceful protests”.

In addition, the country’s top political leadership has patron-client relationships with the security sector, judiciary, senior bureaucrats, traditional leaders, party officials, and rural households.

Zimbabwe also has extractive institutions that “remove the majority of the population from participation in political or economic affairs”.

Economic structures that enable cartels include a notoriously unstable macro-economic framework, dependence on finite resources such as land and minerals, and the size of Zimbabwe’s predominantly informal economy.

The situation is compounded by the state’s significantly large role in the economy (in which one out of every two dollars spent comes from the state) and Zimbabwe’s position as a key node in the region’s infrastructural network, which makes the country vulnerable to cross-border illicit financial flows.

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