Econet and Steward Bank: Corporate bullying with a huge stink

I hate bullies, be they human or corporate. Their intention is to instill the fear of God, mainly to avoid scrutiny. I had this feeling about Econet Wireless and Steward Bank this in the past few weeks after reading about their “raid” of The Source, a media house. I write this opinion with a heavy heart since I have been a shareholder of Econet since inception, and by extension, am also a shareholder of Steward Bank.

I became an Econet shareholder in August 1998 when the company listed on the ZSE, and my purchase of the shares was largely driven by my view that its promoter, Strive Masiyiwa was a victim and an underdog. I have divested from the company over the years largely on account of the company conduct which I view to be ethically problematic, borderline and objectionable. For example:

  • Econet maintained Deloitte as auditors for more than eight years, a scenario contrary to corporate governance norms.
  • Around 2003-4, I attended an AGM, presided over by then chairman, Professor Norman Nyazema, at which Strive Masiyiwa, who was by then spearheading its operations as Group CEO in South Africa spoke in through video conference and promised shareholders that they would be rewarded for funding Econet’s international expansion. This never happened, and in fact, shareholders went on to lose value via Econet’s botched joint venture with Altech.
  • While Tawanda Nyambirai was chairman of the Econet board, the board went on to appoint Mtetwa and Nyambirai as legal advisors, a law firm in which Nyambirai is a partner and whose invoices he signed off as board chairman. This did not end here, Econet went on to appoint Beatrice Mtetwa to the same board; making her a director of a company she provides legal services to.
  • While Tawanda Nyambirai was the chairman of the board, the company he was a shareholder to, and which he presided over as CEO, TN Financial Services, were financial advisors to Econet, a conflict of interest which was flagged by the local media at some point; and
  • In 2009, Econet Wireless Global, which itself was set up and funded by and on the back of Econet Wireless Zimbabwe, gave funds to the local company, and at an EGM, presided over by Tawanda Nyambirai, Econet sought to convert this to equity, which had the effect of diluting other shareholders. Minority shareholders, led by Old Mutual demanded a poll, in terms of the Companies Act.

An extremely controversial poll, which was believed to be rigged by many shareholders, presided over by Tawanda Gumbo, then CEO of Deloitte was conducted at around noon, and the results were only announced in the evening when most of the shareholders had dispersed. This led to a public spat between Econet and Old Mutual. Econet later dropped Deloitte as its auditors, and went on to hire a Deloitte partner, Roy Chimanikire as its finance director.

The foregoing questionable issues are matters for another day, in this article; I am interested in drilling at what I find to be a questionable and typical case of corporate incest arising from the Econet and Steward Bank’s search and seize operation at The Source. It’s a matter that is of deep public interest for several reasons as follows:

  • Econet is a publicly listed company, meaning that members of the general public are shareholders, so are institutional investors who invest public funds in the company.
  • Econet’s several million subscribers, that it has tended to take for granted for years, are Zimbabweans that it depends on for its very existence.
  • By virtue of its mobile wallet service Ecocash, Econet is a pseudo-bank and holds deposits for millions of Zimbabweans, some of them so rudimentary that will never understand where and who holds their deposits, especially village folks who just know that “mari yavo irimuEcocash”.
  • Steward Bank, just like any bank, is a custodian of funds owned by the public. This is why even if banks are not listed, they are required to publish audited accounts every six months. It is not enough that banks are supervised by the central bank because in the past few years, several banks superintended by the RBZ have failed, causing severe losses to businesses and the general public.

To make it more specific, the public has lost money through banks that have gone under, such as Interfin Banking Corporation, Allied Bank, Tetrad Bank, Genesis Investments Bank, AfrAsia Kingdom Bank, Trust Banking Corporation, First National Building Society, United Merchant Bank, Renaissance Merchant Bank (which later became Capital Bank). Consequences of these closures to the economies, and lives of the people have been grave and painful.

The whole Econet/Steward Bank affair to us the public is not, and must not be an issue of client confidentiality because that issue will become a peripheral matter if Steward Bank collapses on account of imprudent banking behavior and millions of customers lose their hard earned cash, including Ecocash deposits that are held at the bank. This is a matter of tremendous public interest, which is why I thank The Source for bringing it to our attention, and I have become more suspicious of Econet for trying to hush-hush transactions that in my view raise serious questions of prudence on the part of the bank.

The involvement of Tawanda Nyambirai in my mind makes the affair stink to high heavens. Key questions that come into my mind are:

  • Why did the bank advance a loan which did not have adequate collateral security, as alleged, to Mr Chiyangwa?
  • Why did Econet pay Tawanda Nyambirai and his firm $39.9 million for “consultancy” for its licensing and debt collection?
  • Why was Nyambirai introduced at the controversial press conference as Steward Bank’s Head of Legal Services?

Tawanda Nyambirai presided over a struggling TN Bank, which we now know as Steward Bank. During his leadership of TN Bank, he was also the Chairman of Econet Wireless Holdings. There is no doubt that as chief steward of the TN group, he destroyed shareholder value and presided over the collapse of that company, and today, I do not see any of the TN furniture shops around town, even though there are competing furniture brands such as TV Sales & Home, Station Furnishers and so forth.

Nyambiral as CEO of the TN Group made a number of questionable and imprudent decisions, some of them downright silly. He opened several businesses that drained the business of cash, opening multiple leakage points in the business, bleeding the operation. There was TN Bank, TN Furnitures, TN Mart (supermarket), TN Grill, TN Bakeries, TN Health, TN Financial Services among others.

One wonders what else he was going to open had he had more access to cash, and it boggles my mind why TN shareholders let him go on and on doing that. He even toyed around crazy ideas like opening a cattle bank, with villagers depositing and withdrawing mombes out of the bank – an idea that is not just crazy, but carries far more risk than the risk the Americans carried by collateralizing unsecured mortgages and selling them off causing a global financial crisis. Imagine Nyambirai’s cattle bank being hit by foot and mouth and the disaster that follows.

Nyambirai’s judgment as CEO of the TN Group, which now barely exists was extremely questionable. For example, its mind-blowing that he agreed to a lease where TN paid close to $90 000 a month for the former Woolworths complex along First Street in Harare, replacing Kingdom Bank, that moved out on account of high rentals. At one point, he wanted to takeover and lease council beerhalls run by Rufaro Marketing. He wanted to create storage spaces for vendors to store their wares and vegetables for a fee, he said.

He also intimated on entering the transport sector, running commuter omnibuses. In 2011, he spent $2.5 million buying about 35 percent of Pelhams shares at a premium – add to that the additional costs of court fights he had with Oliver Chidhawu over the same shares. Needless to mention that Pelhams was a declining business. He also bought an obscure water bottling business which later went under, called Matonjeni. If his business group did not have a bank, it would not be as scary, but one must wonder where all the money to do these ventures was coming from, if not from that bank, now Steward Bank.

Putting Mr Nyambirai’s investment gambles aside, what was worrying is his judgment as CEO in a group that includes a bank which handles depositor’s funds. It was his problem and that of his shareholders, if he gambled with business funds, but a whole new nasty game when this involves a bank’s funds. I say so because one of the transactions, which Econet and Steward Bank sought to have The Source to remove from their website, is about a loan advanced to Phillip Chiyangwa whose collateral security did not cover the loan. I am aware that Chiyangwa and Nyambirai were at the material time very close friends. What is clear about that loan is prudential tenets of risk management were not followed.

This makes this issue a matter of public interest because funds in Steward Bank belong to depositors, and not the bank’s owners. And in a case like this, public interest trumps client confidentiality, because many depositors have eventually suffered when banks fail.  It’s also a matter of public interest because banks are presently saddled with non-performing loans. The RBZ recently set up Zimbabwe Asset Management Corporation to buy up this toxic debt off the books of banking institutions, at a cost to the economy.

In June 2013, Steward Bank, then known as TN Bank, reported massive US$10.4 million loss for the 14 month period ending February 28 2013. According to the bank’s financials, it took a US$10.3 million write down on loans and advances. Note that Nyambirai had left the bank in December 2012, and this write down mainly relates to the period when he was TN’s CEO.

So why is it that after presiding over this kind of performance, Nyambirai was introduced as the bank’s head of legal services at a press conference, which introduction assumes he is working at the bank, again? Shouldn’t the bank take the public and depositors more seriously than this? Should he be seen anywhere close to Steward Bank, which now handles millions of deposits including Ecocash deposits which belong to low-income ordinary hardworking Zimbabweans out there?

As a shareholder, I am troubled that Econet could have paid Nyambirai or his firm could have earned close to $40 million for consultancy services to the company. For goodness sake, why does Econet want a consultant to negotiate a licence with POTRAZ, and for debt settlement, yet the company has a team of executives who go to work every day between 8 am and 5pm. Strive Masiyiwa is on record saying he had to fight Econet Wireless Nigeria (later to become VNetworks, and now part of Airtel) after the firm wanted to pay consultancy fees for a round of financing. He deemed this to be corruption.

Now, $39.9 million is a hefty amount of money to pay for consulting services for a license renewal that is supposed to be straight-forward. These fees are 5% of Econet’s $714 million annual turnover in 2014, and 20% of its declared profit after tax of $194 million in the same period. It is clear from Econet’s 2014 financials, especially note 14 of its financials which provides details of its intangible assets that this consultancy fee is not capitalized in the $137.5 million licence fee that Douglas Mboweni announced as the licence renewal fee on May 30 in 2013.

It is also a well-known secret that  when Econet took over the ownership and management of TN Bank, and pushed out Tawanda Nyambirai  from the bank’s leadership, it had not conducted a proper due diligence. This due diligence, led by Tracy Mpofu, was done after the acquisition. This post due-diligence revealed that Nyambirai and his failing businesses owed several millions of dollars he was refusing to pay up on account of the fact that the loan agreements to related parties were not properly documented.

Could this be the incentive for Econet to pay Nyambirai shocking amounts of money as consultancy fees with a view to normalizing these non-performing loans? Did Econet follow its own procurement procedures in awarding Mr Nyambirai such an expensive “consulting gig”? Was the “consulting” service necessary? And why were some of these payments done through TN Harlequin, a non-consulting company?

Zimbabwean consumers have for years complained of overcharging, paying a 23 cents per minute to make local calls. Econet, and other networks have justified this by arguing and tendering an argument based on costs. No doubt after paying out a large amount of $40 million to one individual and his companies, Econet was recouping those costs from us the consumers.

Thank God POTRAZ was assertive in forcing the mobile operators to lower tariffs. But I feel hard done and very aggrieved if Econet was ripping off consumers and then making this kind of outrageous payments to Nyambirai and his businesses. In fact, without any shame at all, Nyambirai, representing Econet, mounted an ill-fated court challenge late last year in which he wanted the courts to order Potraz to reverse its directive to networks to lower tariffs. This court bid was dismissed by the High Court in March this year. Is it not shameful for this company to rip off consumers, including poor people in far flung areas like Binga, Mahenye and Dotito, so that it can pay $40 million to Nyambirai in Harare?

There is no company too big to collapse in Zimbabwe. I never thought Kingdom Bank, even after an investment by international investor AfrAsia, would collapse and be interred in the corporate graveyard. I never thought Interfin would suffer the same fate with suave bankers like Rwodzi running it by proxy. Neither did I think Renaissance Merchant Bank would also die a painful and shameful death. But when these banks collapsed, all the shenanigans they were involved in started creeping out of the cupboard. Some of these banks like Renaissance were conducting transactions with senior RBZ officials who were supposed to be providing oversight. Each of those banks has external auditors in the name of these reputable firms, passing an unqualified opinion year after year. But in the end, whatever they were hiding under the guise of client confidentiality came to the fore.

Millions of depositors have lost their lifetime earnings and savings through sleek and slippery bankers. A bank is an entity of extreme public interest, because it banks public funds. Steward Bank must be subjected to even more public scrutiny because it handles trust funds for Econet’s Ecocash product. Some of these funds held in trust belong to poor people who have for a long time avoided banks. The Ecocash mobile wallet is used by vendors, cross-border traders, farmers, SMEs and poor households.

If you pay one service provider $40 million dollars, and advance partially secured loans to pals, it’s a serious matter of public interest and no amount of crying client confidentiality will override that. If there is any doubt, go and ask a depositor whose money is stuck in AfrAsia Kingdom Bank, Allied Bank, Royal Bank, Interfin Bank and Capital Bank.

The whole Steward Bank and Econet issue surrounding exposures made by The Source stinks to high heavens, not just for Steward Bank depositors, but also for Econet shareholders who have not been paid a dividend, and no amount of cover up will contain that stink.- The Source


By Eliphas Taonezvi- Taonezvi is a former banker and a current equity investor in small start-up companies in Zimbabwe, Botswana, Zambia and South Africa. He first acquired shares in Econet Wireless in its IPO when it listed on the ZSE in 1998. He attended the majority of AGMs and EGMs at Econet for many years until 2009. He regularly moves between South Africa and Zimbabwe. Taonezvi holds a business postgraduate qualification from an Ivy League university in the USA, where he carried out research on code driven versus regulated corporate governance issues in the late 90s.

See also: No regrets-My brief encounter with Zimbabwe's richest man



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