Informer
JF-Expert Member
- Jul 29, 2006
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NOTE: This article was written in 2017
After more than a year in power, Tanzanian President John Magufuli had not managed to address corruption in the power sector, and corrupt pension funds, including the National Social Security Fund (NSSF) also successfully escaped his dragnet.
Pension funds: Politically exposed institutions
Since political liberalisation, Tanzania’s five pension funds have become a major hub of nepotism and political corruption, and President John Magufuli has taken steps to clean them up. Headed by presidential appointees, the five funds have trillions of shillings invested in government bonds, guaranteed loans to the police, armed forces and public universities, and major building projects in joint ventures with government bodies such as the National Housing Corporation and private contractors. A raft of non-performing loans and investments threaten to bleed the funds dry. In 2014, the government alone owed them over $700 ml.
In July 2017, a dozen top managers of the National Social Security Fund, the biggest of the five, were suspended to pave the way for investigations into suspected large-scale scandals. In February, State House announced that the Director General of the NSSF, Ramadhan Kitwana Dau, had been elevated to the diplomatic corps and in September he was appointed Tanzania’s High Commissioner to Malaysia.
After 15 years at the head of the NSSF, Dau is uniquely qualified to know why so many of NSSF’s investments have not performed. One egregious case in point involves a joint venture between NSSF and Azimio Housing Estate Limited (AHEL), a Dar-based real estate company, known as Dege Eco Village. Located 25 kilometers south of Dar es Salaam’s Kigamboni ferry, Dege is designed to house over 7,000 tenants in prefabricated five-storey blocks of flats. Priced at a staggering $627mn., the Dege project was supposed to be financed 45% by NSSF and 55% by Azimio. Azimio was to finance 35% of the project through equity, with the land value accounting for the remaining 20%. Azimio claims to own an implausible 20,000 acres (in one version, hectares), but only 300 acres have been developed under ‘Phase 1’. It is unclear why the remaining 19,700 acres were costed into the project. Construction began in January 2014.
A 2015 audit of NSSF by Ernst and Young on behalf of the Controller and Auditor General raised serious queries about Dege’s legality, declaring it ‘nugatory’ and not serving the public interest, while also querying a similar and equally implausible Ill-conceived project known as Arumeru Satellite Town, in Arusha. Like Dege, the Arumeru project is located in the middle of nowhere. The land for the two projects was valued at an implausible $666m (Audit Article 6, page 29). The auditors could not trace evidence that AHEL owed the huge tracts of land theoretically involved in these projects, or, indeed, that it claims to own in other parts of the country.
On 26 October, the new NSSF chief, Prof. Godius Kahyarara, told Parliament's Public Accounts Committee that NSSF had injected $129 mn. into the project and Azimio, despite being the majority shareholder, only $5.5 mn. Furthermore, at the equivalent of $370,000 per acre, the land for the Dege project was priced at more than 30 times its ‘real’ value. The Turkish construction firm Mutluhan Construction Industry Company Ltd. abandoned the site in February, with only the shells of the apartment blocks completed. A staggering $220m ‘consultancy fee’ had been agreed between AHEL and the contractor.
AHEL is a family business owned by three members of the well-known Iqbal family, headed by property developer Mohammed Iqbal Hajji, who is also CEO of the company. Known as ‘Baghdad’, Iqbal is a well-connected Dar es Salaam businessman and personal friend of NSSF’s Dau. Both Dau and Baghdad are involved in promoting Islamic causes and charities. Though heads are rolling in the NSSF, those of Dau and Iqbal do not appear to be at risk. On 9 November 2016, PAC Chairperson Naghenjwa 'Naggy' Kaboyoka announced that she would set up a subcommittee to look further into the project. With Dau in Malaysia and Iqbal going about business as usual, there is little chance that the masterminds behind these ‘nugatory’ projects will have their day in court.
Pension funds are vehicles for high-level corruption. Many senior and aspiring members of the elite have benefited from the NSSF honey-pot. For example, in 2005, NSSF loaned $5.5m to Kiwira Coal and Power Ltd (KCML), a company belonging to President Mkapa and his Minister of Finance Daniel Yona. According to a 2015 CAG audit, the government-guaranteed loan was never repaid, neither had the treasury honoured the guarantee by the end of the audit period. Ultimately, this becomes a ‘contingent liability’ for the treasury, adding to growing national debt.
During the Kikwete presidency, the Public Accounts Committee (PAC) regularly used CAG audit findings to dig deeper into the misappropriation of funds in government, to sometimes dramatic effect. PAC Chairman Zitto Kabwe made his parliamentary reputation by virtue of his relentless pursuit of errant state bodies, in which cause he regularly engaged the CAG. The IPTL/Escrow scam made Zitto a household name. So why did he fail to investigate blatant pension fund excesses which the CAG was already flagging? The basic weaknesses of the Dege project -- its enormous cost and outlandish location -- were not raised as critical issues when Zitto and fellow PAC members visited the Village in January 2014, as building began.
Zitto is on record as encouraging pension funds to invest in Tanzania’s industrialisation efforts, including power generation. His support for the development of his Kigoma constituency includes brokering loans from NSSF to small-scale credit and loan cooperatives known as ‘SACCOS’. More to the point, Zitto recently published his declaration of assets to the Ethics Commission, including an outstanding loan from NSSF of TShs 191m (US$88,000). It is normal for NSSF to lend money to senior politicians and to finance constituency development projects. It is not known how many of these loans are ever repaid.
Zitto’s failure to blow the whistle on NSSF scams when he headed the PAC was recently flagged by CCM spokesperson Christopher Ole Sendeka, citing the Dege story related above as clear evidence of cronyism between Zitto and his ‘friends’ in the fund. Ole Sendeka vowed to expose Zitto as part of President Magufuli’s on-going clean-up of the pension funds. Had he consulted his superiors he would not have broached the subject with such zeal: the following week President Magufuli appointed him Regional Commissioner to Njombe. A key hub for politically-sanctioned rent-seeking, the PFs are too well protected for JPM to dare take them on.
The losses on Dege EcoVillage are likely to far exceed the $129 mn that NSSF says it has spent to date, making this one of Tanzania’s biggest ever and most wasteful scams. The failure of the PAC to look more closely at NSSF’s investment portfolio, and the lack of follow-up on the CAG’s recommendations, make it most likely that Dege and other ‘nugatory’ NSSF projects will go unpunished. It remains to be seen how many Deges Magufuli’s bulldozer will raze to the ground.
After more than a year in power, Tanzanian President John Magufuli had not managed to address corruption in the power sector, and corrupt pension funds, including the National Social Security Fund (NSSF) also successfully escaped his dragnet.
Pension funds: Politically exposed institutions
Since political liberalisation, Tanzania’s five pension funds have become a major hub of nepotism and political corruption, and President John Magufuli has taken steps to clean them up. Headed by presidential appointees, the five funds have trillions of shillings invested in government bonds, guaranteed loans to the police, armed forces and public universities, and major building projects in joint ventures with government bodies such as the National Housing Corporation and private contractors. A raft of non-performing loans and investments threaten to bleed the funds dry. In 2014, the government alone owed them over $700 ml.
In July 2017, a dozen top managers of the National Social Security Fund, the biggest of the five, were suspended to pave the way for investigations into suspected large-scale scandals. In February, State House announced that the Director General of the NSSF, Ramadhan Kitwana Dau, had been elevated to the diplomatic corps and in September he was appointed Tanzania’s High Commissioner to Malaysia.
After 15 years at the head of the NSSF, Dau is uniquely qualified to know why so many of NSSF’s investments have not performed. One egregious case in point involves a joint venture between NSSF and Azimio Housing Estate Limited (AHEL), a Dar-based real estate company, known as Dege Eco Village. Located 25 kilometers south of Dar es Salaam’s Kigamboni ferry, Dege is designed to house over 7,000 tenants in prefabricated five-storey blocks of flats. Priced at a staggering $627mn., the Dege project was supposed to be financed 45% by NSSF and 55% by Azimio. Azimio was to finance 35% of the project through equity, with the land value accounting for the remaining 20%. Azimio claims to own an implausible 20,000 acres (in one version, hectares), but only 300 acres have been developed under ‘Phase 1’. It is unclear why the remaining 19,700 acres were costed into the project. Construction began in January 2014.
A 2015 audit of NSSF by Ernst and Young on behalf of the Controller and Auditor General raised serious queries about Dege’s legality, declaring it ‘nugatory’ and not serving the public interest, while also querying a similar and equally implausible Ill-conceived project known as Arumeru Satellite Town, in Arusha. Like Dege, the Arumeru project is located in the middle of nowhere. The land for the two projects was valued at an implausible $666m (Audit Article 6, page 29). The auditors could not trace evidence that AHEL owed the huge tracts of land theoretically involved in these projects, or, indeed, that it claims to own in other parts of the country.
On 26 October, the new NSSF chief, Prof. Godius Kahyarara, told Parliament's Public Accounts Committee that NSSF had injected $129 mn. into the project and Azimio, despite being the majority shareholder, only $5.5 mn. Furthermore, at the equivalent of $370,000 per acre, the land for the Dege project was priced at more than 30 times its ‘real’ value. The Turkish construction firm Mutluhan Construction Industry Company Ltd. abandoned the site in February, with only the shells of the apartment blocks completed. A staggering $220m ‘consultancy fee’ had been agreed between AHEL and the contractor.
AHEL is a family business owned by three members of the well-known Iqbal family, headed by property developer Mohammed Iqbal Hajji, who is also CEO of the company. Known as ‘Baghdad’, Iqbal is a well-connected Dar es Salaam businessman and personal friend of NSSF’s Dau. Both Dau and Baghdad are involved in promoting Islamic causes and charities. Though heads are rolling in the NSSF, those of Dau and Iqbal do not appear to be at risk. On 9 November 2016, PAC Chairperson Naghenjwa 'Naggy' Kaboyoka announced that she would set up a subcommittee to look further into the project. With Dau in Malaysia and Iqbal going about business as usual, there is little chance that the masterminds behind these ‘nugatory’ projects will have their day in court.
Pension funds are vehicles for high-level corruption. Many senior and aspiring members of the elite have benefited from the NSSF honey-pot. For example, in 2005, NSSF loaned $5.5m to Kiwira Coal and Power Ltd (KCML), a company belonging to President Mkapa and his Minister of Finance Daniel Yona. According to a 2015 CAG audit, the government-guaranteed loan was never repaid, neither had the treasury honoured the guarantee by the end of the audit period. Ultimately, this becomes a ‘contingent liability’ for the treasury, adding to growing national debt.
During the Kikwete presidency, the Public Accounts Committee (PAC) regularly used CAG audit findings to dig deeper into the misappropriation of funds in government, to sometimes dramatic effect. PAC Chairman Zitto Kabwe made his parliamentary reputation by virtue of his relentless pursuit of errant state bodies, in which cause he regularly engaged the CAG. The IPTL/Escrow scam made Zitto a household name. So why did he fail to investigate blatant pension fund excesses which the CAG was already flagging? The basic weaknesses of the Dege project -- its enormous cost and outlandish location -- were not raised as critical issues when Zitto and fellow PAC members visited the Village in January 2014, as building began.
Zitto is on record as encouraging pension funds to invest in Tanzania’s industrialisation efforts, including power generation. His support for the development of his Kigoma constituency includes brokering loans from NSSF to small-scale credit and loan cooperatives known as ‘SACCOS’. More to the point, Zitto recently published his declaration of assets to the Ethics Commission, including an outstanding loan from NSSF of TShs 191m (US$88,000). It is normal for NSSF to lend money to senior politicians and to finance constituency development projects. It is not known how many of these loans are ever repaid.
Zitto’s failure to blow the whistle on NSSF scams when he headed the PAC was recently flagged by CCM spokesperson Christopher Ole Sendeka, citing the Dege story related above as clear evidence of cronyism between Zitto and his ‘friends’ in the fund. Ole Sendeka vowed to expose Zitto as part of President Magufuli’s on-going clean-up of the pension funds. Had he consulted his superiors he would not have broached the subject with such zeal: the following week President Magufuli appointed him Regional Commissioner to Njombe. A key hub for politically-sanctioned rent-seeking, the PFs are too well protected for JPM to dare take them on.
The losses on Dege EcoVillage are likely to far exceed the $129 mn that NSSF says it has spent to date, making this one of Tanzania’s biggest ever and most wasteful scams. The failure of the PAC to look more closely at NSSF’s investment portfolio, and the lack of follow-up on the CAG’s recommendations, make it most likely that Dege and other ‘nugatory’ NSSF projects will go unpunished. It remains to be seen how many Deges Magufuli’s bulldozer will raze to the ground.
