In transactions with Africa, global banks no Caesar’s wife

I have been keenly following the deliberations of the State Capture Commission of South Africa for relevant lessons and insights for Kenya and East Africa on complicity of international banks in facilitating corruption.

Last week, the star attraction at the judicial commission of inquiry in Johannesburg was the former British MP, Lord Peter Hain. I found his presentation to be a compelling treatise on one of the most interesting subjects of debate today: the role of global banks in facilitating corruption, fraud and money laundering in Africa.

I enjoyed how Lord Hain managed to debunk the accepted wisdom and notion that global banks are as clean as Caesar’s wife when it comes to transactions with African governments.

DEBT

I decided to take a second look at the summary of our external debt register that was recently tabled in the National Assembly. The first thing I notice is the sheer number and preponderance of second-tier European banks that appear today on our register.

These are the types falling in the category that one might describe as the periphery of the global capital markets. Clearly, we have borrowed too much money from these types.

The second trend you notice is the rate at which these peripheral and fringe banks are supplanting our traditional multilateral institutions that used to give us concessionary credit from the external debt register.

It used to be the case that the regional bank – the Trade and Development Bank (TDB) – formerly PTA Bank’s main mandate was to facilitate regional trade among its member states.

As you examine the external debt register, what you will see of TDB is a case of mission creep: the bank would appear to have jumped into the syndicated loan bandwagon to start doing big deals and earn fat fees from lending to a key shareholder – Kenya. Indeed, TDB has been acting as lead syndicate bank in a good number of very large transactions with Kenya.

BIG MYTH

Make no mistake. I am not saying that all these commercial banks that appear on our external debt register are engaged in wrongdoing. My point is that from the revelations coming out of the State Capture Commission in South Africa, the syndicated loan bandwagon will find themselves facing increased public scrutiny.

The notion that these global European banks are paragons of virtue has been debunked and exposed as a big myth.

A case that occurred in neighbouring Tanzania several years ago immediately comes to mind. The Tanzanian government had gone to the international market to raise money, saying that it needed the funds to finance key infrastructure projects in energy, transport, water and sanitation.

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

KICKBACKS

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

But as it turned out, Standard Bank Plc and Stanbic Ltd surreptitiously increased the fee to 1.6 per cent to accommodate and factor in kickbacks and backhanders that were to be paid to well-connected and corrupt top government officials through a local company by the name Enterprise Growth Markets Advisers Ltd, which belonged, among others, to the Commissioner of the Tanzania Revenue Authority, Mr Harry Kitilya.

When the scandal broke, the so-called reputable international banks decided to leave their local Tanzanian co-conspirators in the fraud to fry.

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 themselves from court charges.

GLOBAL PLAYERS

Such are the tactics global players and banks employ to keep spreading the false narrative that the Africans are the ones who are corrupt.

As demonstrated by the Tanzania case, these global players are no less corrupt than our own government officials.

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

International bankers and transaction advisers are making a killing by taking advantage of mismanaged economies and conspiring with the political elite to saddle the future generations with expensive debts. As well articulated by Lord Peter Hain during the deliberations of the State Capture Commission in South Africa, these global brands we see around are but vultures who have rushed to the continent to suck blood and cash in on the chaos in domestic money markets.

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