Malawi ministers embroiled in $5m ‘ghost’ timber firm

Malawi’s current finance minister, Goodall Gondwe, helped to facilitate a 1.8-billion Malawi kwacha state loan for a timber processing factory that, three years later, has not got off the ground.

This week neither the wholly state-owned Malawi Savings Bank, which made the loan, nor the Treasury’s Export Development Fund, which guaranteed it, would explain what has happened to the money or what has been done to recover it.

Directors of the company that received the loan, Sterling Timber International, also failed to answer allegations that the factory has never materialised.

Gondwe, one of Malawi’s best-known economists and a former International Monetary Fund official, confirmed that he had lobbied for the loan, but said that he no longer had any connection with the company.

Sterling has strong political connections, one of its directors, Peter Mwanza, is a former agriculture minister and senior member of the ruling Democratic Progressive Party (DPP).

The loan was purportedly extended in terms of a state pre-finance and loan guarantee scheme that explicitly targeted exporters of “non-traditional exports” – gemstones, wheat, pigeon peas, soya and paprika. The scheme does not cover timber.

Sterling was launched on February 9 2011 to add export value to timber cut in the Mzimba District, home to a 53 500ha exotic plantation once touted as one of Africa’s biggest.

It was the brainchild of a group of 400 small sawmill owners, the Timber Millers Cooperatives Union.  Despite having no obvious track record, it quickly landed a MK1.8 billion loan from the Malawi Savings Bank.

The intention was for the union, which had a 63% stake in the company, to supply timber to a newly built plant that would add value for export to the United Arab Emirates, and South and East Africa.

However, a sawyer from the Chamatete Cooperative, said no factory had been built. In November last year the union withdrew its support for the venture, saying it had seen no benefit and had no idea what had happened to the loan.

“We do not know how Sterling is going to repay the loan because the major source of revenue for the company was supposed to be the union, through its contribution of timber,” he said.

“The idea behind it was good,” said Steve Munyenyembe, a member of the Zikomo Saw Millers Cooperative.  “However, as owners we have never seen any benefit from this deal because the company only existed on paper. There has been no transparency in the use of the money.”

The union’s leadership said: “We have repeatedly asked for financial reports but we never saw them. We suspect a great deal of financial impropriety, otherwise where is the factory?”

Sterling does not appear to have offices. The only signs of its continued existence are brand-new pick-up trucks emblazoned with its logo and, according to union members, new laptop computers and smart phones for the directors.

Sterling’s dormant Facebook page and website paint a different picture. “We are a timber manufacturing company. We export quality products around the world. We ship to South Africa, Tanzania, Kenya and United Arab Emirates,” it says.

The company’s managing director, Paul Makolosi, claimed on Lilongwe-based radio station, Zodiak, earlier this year that the company’s exports of value-added timber are generating MK3-billion (R86-million) annually.

The Nyasa Times has reported that the moment Sterling was registered, internal wrangles broke out over stock allotment, lack of financial accountability and transparency, leading the union to withdraw its backing.

The company was launched after the Malawi government raised the price of timber from state forests more than sixfold, from MK1 100 (R40) to MK10 000 (270) per cubic metre.

The hike meant that for the majority of small-scale sawyers, production was no longer viable.

Gondwe, Malawi’s current Minister of Finance and Economic Development, and former minister Mwanza then entered the scene, advising the union to acquire a loan from a commercial bank to boost their businesses.

“The union then sought a loan guarantee letter from the Malawi government and was asked to form a company so that government could back them,” the union’s vice-chairperson, Paul Nyirenda, said.

Gondwe and Mwanza, now both Sterling directors, justified their involvement in the company by saying it was to be based in their home northen region.

Reserve Bank of Malawi spokesperson Mbane Ngwira did not answer an interview question about whether the factory had been built. However, he insisted that Sterling is still operating.

“The responsibility for repaying the loan still remains the responsibility of Sterling Timber,” he said in an emailed response.

According to union minutes, Mwanza told a union meeting in Mzuzu in May 2012 that he received MK12.mllion (about R320 000) in commission for facilitating the loan.

Contacted last week, he confirmed receiving payment.

In a telephone exchange this week, Gondwe denied any involvement with Sterling.

“Jesus! I do not know these people, I don’t even know this company. They are lying,” he said.

He said he had not even known about Export Development Fund until a few days ago “when they came to introduce themselves to my office”.

Gondwe declined to explain how his name has been associated with the company saying: “I only helped them. I am not part of them.”

He referred all questions to the Sterling chief executive and board chairperson, but said he did not know their names.

“There have been changes in the company and I have been away for long time, so I do not know the current hierarchy. Besides that I cannot answer your questions because our code of conduct forbids me,” he said.

Malawi Savings Bank spokesperson Brenda Chilima acknowledged that the bank had made the loan.

Asked how much money it had recovered in repayments, and how it would recover the money if there had been a default, she did not respond.

“I would like to advise you that the bank has a confidentiality policy on information relating to all its customers … divulging any piece of information … to a third party is in breach of this commitment,” Chilima said in an emailed response.

Sterling’s spokesperson Tiwonge Mtegha, also one of the company’s directors, declined to answer questions, saying he needed time to consult.

Collins Mtika is Nyasa Times journalist with M&G Centre for Investigative Journalism.

The M&G Centre for Investigative Journalism, a non-profit initiative to develop investigative journalism in the public interest, produced this story. All views are the centre’s. See www.amabhungane.co.za for its stories, activities and funding sources.

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