The SMM Reconstruction Debacle: Chinamasa’s Controversial Decision Versus Reports and Recommendations from Investigators and the Reserve Bank of Zimbabwe

Brian Kazungu, 13/04/2021

Back in the early 2000s, Shabani Mashava Mine (SMM) was a breath of life and a reservoir of hope to the Zimbabwean economy, the people of Zvishavane and surrounding areas as this asbestos mining giant sustained livelihoods and contributed taxes to the fiscus.

However, the rays of light from this shining corporate star began to fade as allegations of externalization were levelled against Mutumwa Mawere, the shareholder of Africa Resources Limited (ARL), a company that was domiciled outside the jurisdiction of Zimbabwe.

SMM’s shareholding was directly held by SMM Holdings Limited (SMMH), a United Kingdom registered private company rather than by Mawere himself and as such, the whole debacle was mired in the confusion over ownership and control of companies.

Even though SMM has been placed under extra-judicial administration for over 17 years, no facts have been produced to support the allegation of externalization which Chinamasa and crew used in divesting and depriving SMMH of its control over SMM.

In subjecting SMM under Reconstruction, it was being alleged that proceeds from its sales of asbestos were being diverted by Mawere in South Africa and yet, SMM the exporter, sold its products through agents of which end customers would pay SMM through those agents.

These agents were only entitled to a commission, and so far, no evidence has been produced showing payments by SMM’s customers into Mawere’s personal bank accounts.

The controversial crime of externalization which still and only exists in Zimbabwe even after the removal of Mugabe and which seemed to be only targeted at selected exporters including SMM was once described by former Education Minister, Professor Moyo as satanic and barbaric.

Chinamasa’s involvement in the ‘SMM heist’ even though being at odds with investigators and RBZ reports is alleged to be merely based on hearsay evidence from Edwin Manikai and Afaras Gwaradzimba, former service providers to the company.

Gwaradzimba and Manikai who were SMM auditor and legal advisor respectively before the Reconstruction went on to become Administrator and Legal representative respectively against their former client, a move which was described as a corporate governance irregularity.

Even though the government, through the then Minister of Justice, Patrick Chinamasa appointed Afaras Gwaradzimba as the Administrator in exchange for a notable 6% income from the gross revenue of the business as a turn-around attempt, the result thereof was negative and deplorable.

The situation in the company deteriorated and many of those who depended on it for their survival including a staggering five thousand (5000) workers were left desperate as the so-called government recovery plan in the company failed to bear meaningful results.

In parliament, the SMM issue was hotly debated especially bordering on the legality and effectiveness of processes and provisions that were being implemented with some being said to be unconstitutional political interference by Members of Parliament such Job Sikhala.

Questions that now arise on this critical matter are, if the investigators and the Reserve Bank of Zimbabwe found no wrong doing in SMM and Mawere, what then enabled the government to do a fast track grab of this company using unusual political and ‘legal’ means?

 In a 20^th July 2005 Parliamentary Debate under the motion ‘Economic Challenges Facing Zimbabwe’, Member of Parliament, Job Sikhala asked the Minister of State Enterprises, Anti-Monopolies and Anti-Corruption to shed light on the indebtedness of SMM.

The Minister of Justice, Patrick Chinamasa in response said “I have already alluded to my earlier responses, as at the 6^th September 2004, when I issued the Reconstruction Order, SMM Holdings was indebted to the State in the sum of Z$115 billion between that date and April 2005.”

However, on the contrary, in his submissions to the late President Robert Mugabe, RBZ Governor, Gideon Gono said “Based on information available, the Bank has also tested the veracity of the declaration of SMM as “an Insolvent State-Indebted Company” upon which the Reconstruction Law was created and applied….

…Your Excellency, at law the above SMM liabilities at the time the Reconstruction Order was instituted did not qualify as state loans to SMM.”

More-so, an executive summary of the final report on the findings of an investigation into the affairs of SMM and allegations of externalisation against Mawere which was done by the Investigator, Assistant Commissioner, Mr. S. Mangoma etal cleared him and SMM of wrong doing by stating the following:

“We have established that there is no connection between the acquisition of SMM and the guarantees granted to SMM.  The guarantees were used to convert expensive short-term facilities into a medium term loan. 

The facility was structured and negotiated by SMM’s financial advisors, First Merchant Bank (FMB).

The acquisition of SMM was not guaranteed by the government rather it was a leveraged buy-out in which the assets of SMM were used to acquire the shares in its holding company under an arrangement approved by the RBZ.”

In contrast to the above, Chinamasa adamantly blamed SMM’s debacle on Mawere who he regarded as financially imprudent, and said if only the owners had not externalised US18.5 million dollars and a lot of foreign currency in Rands and Canadian dollars, there wouldn’t have been any state intervention.

“If that had not happened, the company could have been very viable and we would not have had any reason to interfere at all in its operations……If he (Mawere) had run the operations in a prudent manner, he would have been able to come out of debt, but he did not.

There were huge interests where he (Mawere) would go into SMMH, dip into the till to go and buy other things like Schweppes instead of ploughing back into the company what would have been made from the sales of the proceeds of the company.

That was not being done. Instead, the money was being used to buy other companies and he lost control completely to the creditors and we happened as a State to be one of the creditors.” Chinamasa reiterated.

However, Gono refuted Chinamasa’s perception of corporate dynamics in the SMM matter by clarifying that state institutions which transacted with SMM had autonomy in those dealings and thus their credit to the asbestos maker could not be ‘blanketed’ as State credit

“The RBZ’s Productive Sector Facility (PSF) loans, MMCZ’s loan, ZESA bills, NSSA bills and ZIMRA bills, whilst they could be linked to the State indirectly by extrapolation, were nevertheless still debts between SMM as a legal entity and each one of these institutions in their own right as creatures of statutes, and not directly the State.

….A further complication that I see weakening the State’s moral, constitutional and legal standing is that the loans provided to SMM were never triggered by any formal contract between the State and SMM. The State has to this date failed to produce any such direct contract.” Gono explained.

The former Reserve Bank Governor further decried the possible negative impact of the continued placement of Mawere and SMM under specification and reconstruction respectively citing that it was likely to stain the country’s image and affect investment.

As things went, and as things stand, the State is, therefore, exposed to the risk that the investor community may conclude that the letter and spirit of property rights, human rights and company law is not being followed in so far as the rights of shareholders, debtors, creditors, employees and any other relevant parties are concerned. This is not good for Government’s and the country’s image, Your Excellency. The RBZ Governor pleaded with President Mugabe.

However, contrary to investigators’ findings and the RBZ’s recommendations, Chinamasa took the whole issue the other way round claiming that his actions were in the interest of the State and the people of Zvishavane.

“The whole Zvishavane community rotates around SMMH. So the government had to intervene in the national interest in order to rescue the company in order to order to ensure that the company continues to be a leading foreign exchange earner in our economy”. Chinamasa said.

Interestingly, even though he is a lawyer and was the Minister of Justice, his actions including the appointment of Gwaradzimba as the SMM Administrator were challenged in Parliament and reported as unlawful in reports by investigators and the by the Reserve Bank of Zimbabwe.

The Act and process of Reconstruction in the SMM matter was controversial from the onset with fears that it was designed to mischievously take over companies from their legal owners while in some instances Chinamasa seemed to be contradicting himself in its interpretation.

In the parliamentary report (Vol 32, No 16), he was quoted as defending the constitutionality of the Reconstruction route by inferring that it was a judicial instrument since it is done subject to confirmation by the High Court.

“The Reconstruction Order is done through the judiciary as the Reconstruction Order issued by the Minister of Justice is subject to confirmation by the High Court.” He said

However, in an affidavit, he said that “At the time I issued the Reconstruction order, there was no provision in the Reconstruction Regulations which required me to seek confirmation of a Reconstruction Order by a Judge or Court.”

Gwaradzimba’s appointment as the SMM Administrator has also always been mired in controversy.

Even though he was appointed as the Administrator on his personal capacity, he controversially used his company AMG Global as a Government nominee in SMMH’s share transfers of which SMMH has recently raised a red flag on a possible fraudulent share transfer in the matter.

Investigators in the SMM saga found Gwaradzimba’s appointment to be a conflict of interest since he was a former SMM auditor. “….it is the considered opinion of the Investigators that the appointment of Gwaradzimba and Manikai was ill considered and, therefore, inappropriate…” The investigators said.

In the same vein, the RBZ also regarded his remuneration in the SMM deal to be ‘unscrupulous’.

“…..the fact still remains that Mr Gwaradzimba, the Administrator is getting payments set at 6% of gross proceeds, of all SMM companies which is even more lucrative than shareholders themselves, let alone revenues to Government.” Gono raised an alarm.

It is therefore disturbing to note that regardless of overwhelming evidence against the Act and the process of Reconstruction in the SMM matter, it was allowed to continue at the expense of various stakeholders including shareholders, the community and the country at large.