Global financial institutions involved in deals with State are not beyond reproach

Wednesday January 20 2016

Former Tanzania Revenue Authority Commissioner Mr Harry Kitilya. He owned the local company called Enterprise Growth Markets Advisers Ltd. PHOTO | FILE | NATION MEDIA GROUP

Former Tanzania Revenue Authority Commissioner Harry Kitilya. He owned the local company called Enterprise Growth Markets Advisers Ltd. FILE PHOTO | NATION MEDIA GROUP 

More by this Author

Sometime back, the government of Tanzania decided to raise money from the international market to fund key infrastructure projects in energy, transport, water and sanitation.

Consequently, it contracted Standard Bank Plc of the United Kingdom — a reputable and highly-regulated international bank — and its subsidiary in Tanzania, Stanbic Ltd, to raise some $ 600 million from international debt markets through a facility known as a sovereign note private placement.

Initially, the arrangement was that Standard Bank plc and Stanbic Ltd would be paid a fee of 1.4 per cent of the money raised from the loan.

But as it turned turn out, Standard Bank Plc and Stanbic Ltd surreptitiously increased the fee to 1.6 per cent to accommodate kickbacks and backhanders to be paid to well-connected public officials.

The local company, an entity called Enterprise Growth Markets Advisers Ltd, belonged to, among others, the Commissioner of the Tanzania Revenue Authority, Mr Harry Kitilya.

What I found most hypocritical in this Tanzanian case is the manner in which so-called reputable international banks behaved the moment they smelt danger.


Standard Bank Plc, now known as ICBC Standard Bank Plc, and touted as a bank operating on high standards of integrity and transparency, quickly dashed to the Serious Fraud Office in London where they not only snitched on their Tanzanian partners in crime, but also hurriedly negotiated a deferred prosecution deal, insulating them from court charges.

The Tanzanians were left to fry. Such tactics are what these international players employ to the false narrative that the Africans are the ones who are corrupt.

If there is a lesson to be learnt from the Tanzania case, it is that when dealing with international bankers and transaction advisers on these debt deals, you must remember that they are no less corrupt than our own government officials.

The notion that some of these international institutions are beyond reproach when it comes to corrupt practices is a big myth.

As a matter of fact, some of the international banks that were involved in our debut Eurobond transaction — and ones that we hold as paragons of virtue — have only recently had to pay huge fines for engaging in malpractices.


For instance, in January 2014, the US Department of Justice entered into a deferred prosecution agreement with JP Morgan Chase Bank where the institution was charged with "failure to maintain an effective anti-money laundering programme in violation of US law".

As result, JP Morgan agreed to pay a whopping $1.7 billion in fines. Clearly, our people are no more corrupt than these international players.

The bandwagon of commercial loans and sovereign bond issues we are witnessing in Africa will leave behind many casualties.

Indeed, international bankers and transaction advisers are making a killing from the way we have mismanaged our economies.

These are vultures who have rushed to the continent to cash in on the chaos in domestic interest rates. And, they are gradually integrating the economies of the continent into the unpredictable and volatile international financial markets.


Several years ago, during the global financial crises, the economies of the continent survived without many problems because many had few links with international debt markets.

Things have changed. Until 2006, only South Africa had issued a Eurobond in the whole of Sub-Saharan Africa.

In October 2007, Ghana took the lead when it issued a $750 million Eurobond at an 8.5 per cent coupon rate.

The debut bond, which was four times oversubscribed, started a bandwagon that saw Gabon, the Democratic Republic of Congo, Ivory Coast, Senegal, Angola, Nigeria, Namibia, Zambia Tanzania, Kenya and Rwanda-follow suit.

Nobel laureate Joe Stiglitz says that the question we should be asking is the following: ‘‘Are short-sighted financial markets working with short-sighted governments to lay the groundwork for the world’s next debt crisis?”