Situation Report – Malawi’s Maizegate

With a USD250 million corruption scandal still simmering, new bribery allegations relating to maize imports are increasing political risk in Malawi.

A suspicious deal to import maize from Zambia has prompted the dismissal of a senior minister and the deployment of Malawi’s army at its borders, as the government tries to prevent smuggling due to food shortages. On 27 March police seized 21 trucks loaded with maize (corn) bound for Tanzania, but tobacco and other goods are also being targeted as President Peter Mutharika and his government try to assuage voter concerns over corruption and its impact on their lives.

Maizegate

In November 2016, Malawian newspaper the Daily Times published leaked documents suggesting irregularities in a contract worth about USD34.5 million to import 100,000 tonnes of maize, managed by Malawi’s Agricultural Development and Marketing Corporation (Admarc) – a parastatal company responsible for estimating available food stocks in-country and setting national prices for agricultural products – from Zambia Cooperative Federation (ZCF), a Zambian industry body for co-operatives. The report indicated that Malawi’s minister of agriculture, irrigation and water development, George Chaponda, had used his position to speed up the importation process. Specifically, it accused Chaponda of flouting import procedures, and involving a private company run by a crony of his.

On 22 February, President Mutharika sacked Chaponda following pressure from several civil-society organisations (CSOs). Less than one month later, during a raid on Chaponda’s home in the upscale Area 10 of the capital Lilongwe, investigators of the Anti-Corruption Bureau (ACB) seized and froze several of his assets, which included mobile phones and properties in Malawi, as well as in France, South Africa, and the United Kingdom. They also found bundles of unaccounted-for cash in U.S. dollars and other foreign denominations, worth about USD228,000.

What we know about the maize imports

Details about maizegate are unclear and contradictory at times, in the absence of a comprehensive investigation. Preliminary investigations in Malawi have suggested that Chaponda overstepped his powers to influence Zambian authorities by issuing an export licence to Transglobe Produce Export. Chaponda continues to deny he has done anything wrong. Transglobe is the agricultural export arm of Tayub Corporation, an Indian multi-sector firm with operations in Malawi that is run by Chaponda’s long-time friend, Rashid Tayub. Chaponda had allegedly encouraged Tayub to approach ZCF to unlock stocks of maize that Transglobe kept in the Zambian town of Chipata, on the Malawian border. It appears that the minister did this to speed up maize imports.

The problem with this is that Admarc appeared to have led the government to believe there was a risk of an imminent food crisis as a result of droughts in recent years. But in reality, many small-holder farmers in Malawi still had significant stocks of maize. While it is unclear why Admarc failed to account for this surplus, it appears to have obtained a loan from the Preferential Trade Area (PTA) Bank, the financial arm of the Common Market for East and Southern Africa (or Comesa) regional trade organisation, to secure the imports. The key issue appears to be contractual, as Chaponda had involved third-party actors in the process that was supposed to be between the two governments. Another point is that the prices agreed by Admarc were ostensibly above the market rate. Whereas Admarc sold bags of 50kg of maize for MWK12,500, they were selling for as little as MWK9,000 by small-scale traders. This means that Malawi could have paid up to USD13m more than it should have.

Cashgate

The recent events have given a bitter sense of déjà vu from Malawi’s largest financial scandal – commonly referred to as ‘cashgate’ –that erupted in September 2013. About USD250 million were siphoned from state coffers to offshore bank accounts over more than ten years, dating back to the time when the president’s brother, Bingu wa Mutharika, was leading the country. The scandal broke after the then-budget director of the government, Paul Mphwiyo, was shot in the head three times but amazingly survived. Mphwiyo appears to have been on the verge of revealing the massive corruption scheme which reached the highest level of government. Days before the shooting, law enforcement found bundles of cash worth about MWK122m (USD168,115) in the car of former state accounts assistant Victor Sithole, and several other senior officials.

A forensic audit of the defrauded monies by British accountancy group RSM, formerly known as Baker Tilly, suggested that hackers had found a loophole in the procedures for budget allocation which allowed them to siphon state funds into offshore accounts. The fraud intensified over the last year and around USD32m – or around 1 per cent of Malawi’s GDP in 2013 – were stolen in just six months.

The maizegate scandal leaves President Mutharika increasingly isolated

This prompted international donors, including the African Development Bank, the European Union (E.U.), Germany and Norway to suspend their budget support to the government in December 2013. The United Kingdom’s Department for International Development (DFID) went a step further and suspended sector-budget support, which typically goes directly into sector-specific accounts of the government, such as education and health; DFID suspended a total of GBP11m (USD13.7m) in development aid. International aid accounted for about 40 per cent of Malawi’s national budget back then.

The scandal is still being probed, but investigations have been slow due to budget constraints and a lack of local capabilities. Several donors, including the E.U., have resumed their development programmes in Malawi after the current administration has shown signs of improvements in terms of transparency and accountability since taking office in 2014. Another major scandal over corruption or mismanagement of public funds is unlikely to please them, and could result in further aid cuts. Given that President Donald J. Trump has proposed considerable cuts to U.S. overseas development assistance (ODA), this presents critical political risks to aid-dependent Malawi.

ASSESSMENT

As several local news reports have highlighted, Chaponda does not appear to have broken any laws in having kept hundreds of thousands of U.S. dollars in cash in his home; Malawi does not limit the amount of cash one is allowed to carry. However, he will need to demonstrate that the cash has been obtained in a legitimate way. He is also likely to have to clarify his role, as well as the role of Transglobe, in the maize import scheme.

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