ZACC swoops on tobacco cartel

…Blitz nets 67 illegal buyers



The Zimbabwe Anti-Corruption Commission (ZACC) has swooped on a tobacco cartel on suspicion that members are fleecing off golden leaf farmers by manipulating prices at the floors, Business Times can report.

The cartel comprises tobacco merchants, illegal buyers and middlemen.

The blitz has netted 67 illegal buyers at the auction floors.

According to investigations carried out by Business Times, some of the illegal buyers are “small fish” working for the influential tobacco merchants who control the country’s tobacco marketing system.

Efforts to get a comment from ZACC spokesperson, John Makamure, were futile.

However, a ZACC official who spoke on condition of anonymity, confirmed the arrests saying serious groundwork has been laid to deal with the tobacco merchants, who have been ravaging the sector.

“Since mid-April, we have been carrying out investigations at the auction sales floors to establish illicit dealings there and we found out that there are various illegal buyers and middlemen that are wreaking havoc but they have strong figures behind them. Plans are already underway to punish the front runners to unearth their source of power,” the ZACC official said.

Zimbabwe Commercial Farmers Union president Shadreck Makombe also confirmed the crackdown on the cartel.

“… ZACC officials are on the ground carrying out some investigations into the illicit dealings at tobacco sales floors and they (promised) to leave no stone unturned as they move to eliminate underhand trade in the marketing of the golden leaf,” Makombe said.

“The anti-corruption crack unit together with some security services have managed to incarcerate 67 illegal buyers but the deeper investigations are to find out who those middlemen work for to uproot the corrupt activities in the tobacco industry.”

He said tobacco contractors and merchants’ antics were impoverishing the tobacco growers as some had their cattle and assets seized for failing to repay loans.

Tobacco Industry and Marketing (TIMB) CEO Meanwell Gudu said the tobacco industry regulator has created its own crack unit and has roped in the police to bring sanity to the sector.

“In March this year, we set up an inspectorate department to curb illegal dealings at the floors and if someone is found guilty we will deregister him or her for a period of over five years. We are engaging the relevant authorities to come up with stiffer penalties for being involved in illicit dealings,” Gudu said.

He said TIMB was also advocating the removal of the ZWL$500 fine.

Instead, TIMB wants the perpetrators to be jailed for at least six months.

The tobacco merchants have been accused of manipulating the tobacco pricing system including the violation of the Tobacco Marketing Act which states that contract prices should be at par or higher than auction floor prices at all times.

This has not been the case this marketing  season.

The swoop on the cartel terrorising the sector comes at a time merchants are embroiled in a transfer pricing storm following allegations that they have been colluding on the purchase price locally but ending up amassing huge profits after exporting the golden leaf to countries in Asia.

This publication is informed that this cartel involves one of the biggest tobacco players in the country (name withheld) who has been buying tobacco locally at subdued prices and then selling the tobacco to sister companies either in South Africa or Asia at a low price.

The tobacco after reaching their related companies is then sold again at massive profits much to the prejudice of Zimbabwe.

It is understood that some merchants are buying tobacco at around US$2 per kilogramme and then sell to their related companies especially in South Africa at $3 per kg but there are indications that the tobacco is then sold from the related companies to China at around US$10 per kg meaning that the country is being dribbled more than double by the merchants.

A well-placed source said this has been happening for some time and the government is losing millions from this scam which is involving household tobacco players and a section of some Chinese firms.

“This cartel is mainly involving household tobacco players and some Asian players who have been using their related companies in their host countries to buy their tobacco and then the same tobacco is then sold at astronomic prices. Government has been losing out despite continued threats by responsible authorities to deal with the mess around tobacco marketing,” the source said.

But Gudu told Business Times that the industry regulatory body has always ensured that the country gets a fair profit on the exportation of the golden leaf by merchants.

“When merchants apply for export permits, they declare the price then we cross check using our models to come up with a minimum export price,” Gudu said.

“Let us take for example an average price of US$4 per kg, the board will   add up some costs where the purchase price plus added cost at a minimum total value will give around US$6 per kg.

We don’t put money that is below US$6/kg when exporting. We do surveillance of exports to ensure that the country does not lose out on revenue.”

He said surveillance after export and the final price by the tobacco merchants are done by the Reserve Bank of Zimbabwe.

“What we might not do is to follow up and check the final price of the golden leaf, as long as we get our minimum required price, we are not so fussy about tobacco merchants’ profits. After the country gets the minimum required value for its tobacco, the rest of the processes are monitored by the Reserve Bank of Zimbabwe when exporters submit their CD1 forms,” he said.

Tobacco is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.

But the sector has been ravaged by the contractors and merchants, who have the financial capacity to extend lines of credit to farmers. And would deduct their dues at the floors, a situation which has seen some tobacco farmers taking home negative balances as some debts are carried forward.

Farmers’ output, they claim, have not been creating sufficient returns to repay the loans in full and at least take home something significant.

Most farmers who have been over relying on borrowing said they can no longer carry the debts, which are spiralling out of control.

This implies that the pressures on tobacco farmers are significant.

The dire situation has threatened farmers’ viability, a situation that has left most tobacco farmers living on the margins.

Farmers claim that the debt levels are now unsustainable with some having ballooned to critical levels.

The debts some farmers have been building up in the past few years.

About 90% of growers are now 100% US$ borrowed from their contractor, implying no new US$ comes into the country until US$ loans are repaid.

Gudu recently told Business Times that TIMB was mobilising resources to fund the golden leaf using local currency. TIMB, Gudu said, was also looking at cheaper funding offshore to reduce reliance on contractors.

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