Zimbabwe News and Internet Radio

Ncube blames skewed government contracts for Zimdollar plunge

By Tawanda Karombo | IOL News |

Zimbabwean Finance Minister Mthuli Ncube says there is internal resistance to measures aimed at rooting out corruption around government contracts and exorbitant pricing practices for public sector tenders, which have seen some suppliers’ price laptops at more than US $9000 (R155 790) each and 2 kilogram chicken packs at US$30.

Yearly inflation in Zimbabwe has surged to 285 percent for the month of August, precipitating the central bank to hike interest rates to 200 percent.

The spike in inflation has been blamed on a marked decline in the exchange rate for the Zimbabwe dollar to over $1:800 in the past few weeks.

Secretary for Treasury, George Guvamatanga, last month directed that government departments, parastatals and ministries stop all payments to contractors to factor in due diligence. Ncube said yesterday that subsequent value for money audits have unearthed corrupt tender practices.

“Government started enforcing measures to enhance economic stability by suspending all inflated payments and ordering an audit exercise to revalidate all running contracts and renegotiate prices with various suppliers. As expected there has been resistance to this exercise.”

Ncube argued yesterday that speculative tender pricing was contributing to the spike in parallel market exchange rates, which have, however, now receded to the same levels with the official exchange rate at around $1:ZWL650.

Government contractors were charging multiple times the value of commodities and services, as they speculated on the street exchange rate movements by the time their payments were processed, a government source said.

When they received their cheques from the government, the contractors would “go on the streets and raise the parallel market rates to make sure they dispose of the Zimdollar they would have been paid and mop up foreign currency” from the informal sector.

Ncube said the pricing framework adopted by government suppliers has been characterized by a “behavioural tendency for forward pricing models and benchmarking prices to front loaded parallel market” exchange rates.

“These pricing models are leading to extortionist pricing of goods and services supplied to the Government. These behaviours were effectively directly driving inflation in the economy, making inflation control difficult, as market behaviour was in fact creating and sustaining adverse inflation expectations,” he said.

It has emerged that the Parliament of Zimbabwe approved a tender for laptops invoiced at nearly $10 000 each. Government critics say this is reflective of corruption across public procurement.

Ncube also emphasised that, “tenders have been awarded without due regard to price checks on the basis that prices have passed a competitive bidding” process.

“Some examples are a tender for a 2kg pack of chicken (that) was claimed to be worth USD30 when market prices is a maximum USD6 for the same, a bag of cement being priced at an equivalent of USD18 per bag on some construction projects. Such is the extent of overpricing which is rendering the Government budget inadequate,” said Ncube.

While payments for government contracts based on “speculative forward exchange rates” have been stopped, Ncube said government has continued “to pay up on those tenders and contracts) that meet the value for money criteria.

President Emerson Mnangagwa’s administration, hard pressed to turnaround the economy ahead of elections next year, is scrambling for a way to restore price and macro-economic stability.

Zimbabwean industrialists argue that the hyper-inflationary environment and aligned high interest rates are bleeding the manufacturing, mining and agricultural sectors of much needed capital, capacity and operational clout.