Do you trust your government

LAST week, this column focused on Robert Mugabe, the man, principally because I think it is important that we elevate the conversation about Zimbabwe’s options beyond the fate of one man.
I had no illusions when I took the risky option in trying to argue that Mugabe may after all not be a corrupt man. The reaction I got was not only expected but it underscored the need for us to create a space to debate honestly and frankly about the man who has monopolized the Zimbabwean political space for the last twenty six years.
There are many who believe that history has already spoken about Mugabe and there is no point in debating whether the man is corrupt or not, especially when the political and economic consequences of his reign are there to see. Others maintain that the monopolisation and centralisation of power in one party and one individual necessarily institutionalises corruption to the extent that it would be naïve to absolve the leader from culpability and liability.
I have often debated how I would have reacted if I was Mugabe in the face of a dysfunctional state and an economic system condemned to the intensive care unit with no life support system. Would clinging on to power be in the interests of Zimbabwe? Can Mugabe do anything to restore the public confidence in their government? Does Mugabe realise his real cost to the Zimbabwean economy? Is Mugabe part of the problem or is he trying his best under an environment that is hostile to any ideologically conscious Pan African head of state? Is Mugabe aware of the corruption that now pervades all state institutions? Is it fair to call Mugabe an Imperial Presidency when his underlings can easily pool wool over his face? How does Mugabe’s age play into the Zimbabwean dilemma? Is there hope for change in Zimbabwe?
Any change agenda necessarily requires a change conversation and yet Zimbabweans display an institutionalised and generalised inability to take ownership of the process and define a road map to salvation. The government of Zimbabwe has invested heavily in undermining the formal economy and succeeded in creating an efficient informal infrastructure that may be too costly to transform for any post-Mugabe dispensation.
In the face of a well organised system to undermine the institutions that any progressive society would expect from a government, it is important that we expand the space of discourse using real life case studies of why Zimbabweans have a right to distrust their government. I sincerely believe that Mugabe is convinced that all his subordinates are still genuinely committed to the Zimbabwean project as defined during the liberation struggle.
I have written extensively about how the Reserve Bank has become a theatre of corruption and yet rightly or wrongly many see my writings as unfair on Gideon Gono who is perceived to be doing his best under an impossible situation. If we accept that the economic meltdown was not created by Gono who in any event was only appointed in 2003, then is it fair that the country targets him rather than the head of the fish. Could Gono be a loose canon or is he taking instructions from the big man?
I am not persuaded that Mugabe is fully aware of the corruption axis that now underpins the RBZ and I believe that it is in Zimbabwe’s interest that we document the real corrupt practices and use such examples to challenge Mugabe on governance issues rather than work on a simplistic basis that he is aware of everything that is happening.
It is for this reason that I have decided to use a case of a bank that urgently required liquidity support from the RBZ and instead of the RBZ looking at the request on its own merits, Dr. Gono decided to ask for security from the shareholders, to highlight why property rights owners must be concerned about the integrity of the government and the ulterior motives that now inform the actions of civil servants. It is important that investors and the public at large should take note that the days in which they could take for granted that the RBZ and government in general was a repository of trust are gone. The concept of the public trust relates to the origins of democratic government, and its seminal idea that, within the public, lies the power and future of society, therefore, whatever the trust the public place on its officials must be respected.
This case involves Trust Holdings Limited (THL). THL is the registered owner of 630 million First Mutual Life (FML) shares and 8 million PG Industries (Zimbabwe) Limited shares that were expropriated using extra-judicial measures by the RBZ.
According to THL, these shares were tendered in 2003 to the RBZ to secure liquidity support provided to Trust Bank Corporation Limited (TBCL). TBCL has since been incorporated into ZABG using a decree promulgated by President Mugabe and later enacted into law. On 15 March 2006, THL wrote a letter to the share transfer secretaries, First Transfer Secretaries (Private) Limited (FTS) requesting that they cancel the share certificates held by the RBZ by way of security because despite numerous requests by the bank and their lawyers, the RBZ had refused to release the share certificates.
THL informed FTS that the decision to hold on to the shares by the RBZ was unlawful and the RBZ had already been advised of the decision by THL to proceed to cancel the certificates and issue new ones. On the following day, FTS responded to THL saying that: “Please be advised that your request has been noted, however given the institution and the number of shares involved we have informed the RBZ of it and they have indicated that an answer will be forwarded to us shortly next week…Ideally what should have happened is that, the RBZ should have written to us requesting that the certificates be blocked/locked, citing their interest, or the fact that the shares are held as security. Since this was never done, there appears not to be any legal obligation from our part to deny your request, hence our contact with the RBZ is purely out of professional courtesy, arising from the fact that we are now aware of the issue surrounding the certificates.”
FTS then wrote a letter on 21 March 2006 to the RBZ advising the bank of the request by THL. They brought to the attention of the RBZ that as transfer secretaries of FML and PG, they were never informed in writing of the RBZ’s interest in the shares in which case they would have locked the shares in their database as is the norm regarding shares tendered as security. On 23 March, THL wrote again to FTS informing them of their intent to proceed with the cancellation without any further delay.
On 27 March, Fortune Chasi, responded on behalf of the RBZ confirming that in return for advancing certain funds to TBCL and as part of the security for the debt, THL had freely and voluntarily surrendered the share certificates on the understanding that in the event of failure to discharge its obligations, the RBZ would dispose of the shares to recover the funds advanced. Needless to say that Chasi is a qualified lawyer. He confirmed that the debt was still outstanding. It is important to underscore that both parties agree that there was no loan agreement between the two parties.
Chasi then accuses THL of acting in a devious manner and in bad faith given that the loan had not been paid. He then advises THL that the debtor TBC was under curatorship and as such all the affairs were under the control of the curator. He then advises THL to await the outcome of the deliberation of an Independent Appeals Panel appointed by the RBZ to review the manner in which TBCL was adsorbed into the ZABG. He then said that the replacement of the shares should be put on hold.
In conclusion, he stated: “In light of the foregoing our contention is that the basis for the replacement of the certificates sought by THL is mala fide and lacks merit. Replacing the share certificates in question will result in TBCL and THL being unjustily enriched and the RBZ substantially prejudiced. We believe that it is not your desire to perpetuate the improper conduct of THL and subsequent injustice by replacing the share certificates.”
The letter was copied to the Governor and other senior staff members at the RBZ. What is strange in this case is that two other major shareholders of TBCL i.e. FML and NRZ Contributory Pension Fund who also tendered several title deeds to their properties to the RBZ had their security released by the RBZ.
What lessons do we draw from this case study? Why did the RBZ not adhere to the normal procedures expected from financial institutions in respect of security arrangements? Is it okay for THL to be deprived of its assets without due process for a period of more than three years? Is the RBZ above the law? How can THL be assured that the shares are still in the custody of the RBZ? What would stop any RBZ officer from using the same shares as security for their own private deals? To the extent that TBC has now been nationalized by the RBZ, should the RBZ have continued to hold on to security from only one shareholder without allowing the curator to perform his duties by identifying and recovering the assets of TBCL first?
I believe that any progressive nation should be informed by literate and progressive minds. Given the facts presented in the documents referred to above, there is a dispute of fact regarding whether in truth and fact the RBZ’s security interest in the subject shares was created by agreement giving the RBZ certain preferential rights in relation to the property. Ordinarily, the main rights and purpose a security interest is to allow the holder to seize, and usually sell, the property to discharge the debt the security interest secures. Although I am not privy to the facts on this matter, I can only speculate that TBCL like many banks in Zimbabwe required liquidity support from the RBZ and the bank must have approached the RBZ in good faith thinking that the request will be considered on its own merits only to be surprised when shareholders were now asked for security.
In most countries, central banks do not perform the normal lending functions of banks and ordinarily you would not expect to have a credit committee in the central bank whose function is to consider loans and security thereof from its clients. However, in the unusual circumstance in which Zimbabwe finds itself, the current Governor who was previously a CEO of a commercial bank finds himself tempted to convert the wholesale bank into a retail bank, not caring about the necessary institutional checks and balances that would be required to prevent abuse.
In normal banking, the holder of a security interest is entitled to take possession of such property in satisfaction of the underlying obligation, or, more common, the holder can sell such property (either by means of public auction or private transfer) and apply the proceeds of such sale to the underlying obligation. To the extent that the proceeds of the sale exceed the amount of the underlying obligation, the debtor is entitled to the excess; and, to the extent that the proceeds of the sale do not exceed the amount of the underlying obligation, the holder of the security interest is entitled to a deficiency judgment pursuant to which the holder can institute additional legal proceedings aimed at recovering the full amount of the underlying obligation from the debtor. The power of sale in normally vested in the mortgagor. A security interest is typically granted by a contract called a "security agreement" and the fact of this is that there exists no formal agreement.
Although the RBZ claims that the security was voluntarily and willingly provided, I am not sure that THL is of the same opinion. It is important to underscore the power relationship that must have existed between the RBZ and TBC at the time the liquidity support was provided. The real question is whether TBCL and THL had any choice but to surrender whatever security the RBZ required.
If a security agreement existed, upon execution of such contract by the debtor, the security interest would have existed with respect to the shares. There is no dispute that there was an exchange of value between the parties but what is in dispute after three years are the terms and conditions of the loan. Detractors of the RBZ have argued that it has used its immense powers in an unconstitutional and illegal manner to destroy banks that appeared to be in financial difficulty but whose proprietors were on Gono’s target list notwithstanding the fact that the subject banks might still have had prospects to recover and become profitable by repossessing key assets and forcing these institutions into artificial bankruptcy.
The general principle of most insolvency regimes is that creditors should be treated equally and allowing the RBZ with often disputed security interests a preference to certain assets has permanently upset the conceptual basis of an insolvency is so far as financial institutions are concerned. These detractors go further to argue that the fate of THL was written the day the bank negotiated for a liquidity support as this gave the opportunity for the RBZ to seize and expropriate without compensation key assets of not only the bank but of the key shareholders thereby disabling the same shareholders from defending their institution against a politically induced insolvency.
The role of the RBZ as a super creditor against a background of a decaying socio-economic order must be interrogated. What is scary is that what happened to THL can happen to anyone with impunity. The real issue is whether the big man is aware that the RBZ has now been transformed into an extortion and expropriation platform for officials who can take a lien on your assets with absolutely no documentation. The response of Chasi just goes on to show how contemptuous public officials have now become to citizens who believe they have a right to challenge corrupt and abusive actions. It is now easy for the government to expropriate assets under the guise of enforcing pseudo security arrangements that would not withstand any legal challenge.
When public expectations are betrayed by they very officials you expect to uphold high moral and corporate governance standards you have reason to be worried. What would Dr. Gono say if the behavior of the RBZ in this transaction where funds are advanced with no adherence to any corporate governance standards and three years later it emerges that the bank had been keeping a client’s assets outside the scope of the law?
The importance of the rule of law cannot be overstated. I am sure that if citizens were generally aware of the state of their government and found a mechanism to communicate intelligently with President Mugabe he would see that the governance and corruption concerns are not driven by imperialist maneuvers but by citizens who are increasingly fearful of dealing with their own government for fear of being victimized or stripped of their assets.
When any country reaches the level that Zimbabwe appears to have sunk, any sitting head of state has reason to reflect on his relevance if indeed he believes in democracy. I have no doubt that if President Mugabe were to be presented with concrete case studies of corruption he would have no choice but to respond in a manner that may shock even his worst adversaries.
It is my conviction that any President who claims to be a servant of the people will be duty bound to respond when compelling evidence is presented before the nation that will even lead him to question the wisdom of remaining in office if it is established that he has constructively created an environment where the rights of citizens can no longer be protected by his administration. So far the target has been on the man and not on the government that he leads.