Bloomberg News

Malawi’s Banda Grapples With ‘Cash-Gate’ to Save Government (1)

October 15, 2013

Malawian President Joyce Banda is struggling to assuage donor and public demands for a crackdown on corruption that may tarnish members of her People’s Party and undermine her chances in May elections.

The European Union has threatened to withhold the release of a 29 million-euro ($39 million) aid payment in December unless the government deals with corruption allegations, dubbed “cash-gate” by Malawi’s media. While Banda, 63, has set up a special unit of police and government officials to audit state finances, she hasn’t agreed to calls by donors, which fund about 40 percent of the budget, to enlist foreign investigators.

“She may have to capitulate on foreign auditors to placate donors, and that may weaken her chances if party members are implicated,” Simiso Velempini, a southern African analyst at Control Risks Ltd., said yesterday in an interview from London.

Banda, Africa’s second female president after Liberia’s Ellen Johnson Sirleaf, dissolved her cabinet Oct. 10 to deal with the controversy. The previous month, her budget director, Paul Mphwiyo, was shot and wounded in an apparent attempt to stop him from investigating graft, she said.

“It is obvious that huge amounts of public funds have been lost through corruption and theft within the public service, and regrettably this still continuing,” Banda said in a speech announcing the cabinet dismissal.

Banda appointed a new 32-member cabinet today, naming Maxwell Mkwezalamba as Finance Minister, Sosten Gwengwe as Ministry of Industry and Trade and Fahad Assani as Minister of Justice.

Tobacco Producer

Malawi is Africa’s top exporter of burley tobacco, a low-grade variety of the crop, and Limbe Leaf Tobacco Co., a unit of U.S.-based Universal Corp., Alliance One International Inc. (AOI:US) and Japan Tobacco Inc. (2914) are among buyers in the country. About half of the population of 15 million live on less than $1 a day, according to the International Monetary Fund.

Banda, the former vice president, became Malawi’s leader last year following the death of President Bingu wa Mutharika. She devalued the kwacha and raised fuel prices a month after taking office, unlocking aid from donors such as the U.K. and the IMF and sparking nationwide protests over rising prices.

In May, Banda and her party will contest presidential, parliamentary and local government elections against Peter Mutharika’s main opposition Democratic Progressive Party, the United Democratic Front and the Malawi Congress Party.

John Kapito, executive director of the Consumers Association of Malawi, called on her to resign over the corruption scandal.

Officials Arrested

As many as 10 government officials have been arrested on charges on money laundering, abuse of public office and corruption, while nine senior police officers were jailed last month for their role in a $164,000 fraud.

The deputy head of the state Anti-Corruption Bureau, Victor Banda, said the body has failed to make much progress in graft investigations “because most of those arrested on corruption charges have opted to remain silent.”

The EU ambassador to Malawi, Alexander Baum, has said foreign auditors are needed to investigate pilfering of state funds.

“All this massive looting was happening under the nose of the Auditor General’s office and the malpractice was not detected or dissolved,” he told reporters on Oct. 11. “The integrity of the institution is already under question and if the government wants results of the forensic audit to be wholly accepted by the donors and Malawians, then external auditors need to be taken on board.”

“Cash-gate” may define Banda’s presidency, said Velempini of Control Risks.

“If she doesn’t act against corruption swiftly, she risks being seen as a weak leader,” Velempini said. “Banda’s future depends on how she handles this scandal.”

To contact the reporters on this story: Frank Jomo in Blantyre at fjomo@bloomberg.net; Brian Latham in Harare at blatham@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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