A development consultant has criticised Malaysian investments in Tanzania, saying that the country will never prosper in the absence of ruling elites whose "rent-seeking strategies" contribute to rather than subtract from the public good.
Brian Cooksey, an independent writer in Dar es Salaam, said that "it is one thing for politicians and bureaucrats to take a cut from a valid investment that generates significant employment, turns out useful products, and contributes to government revenue.
"But it is quite another for this group to take a corrupt cut from a project which derails a key national policy and imposes huge additional costs on end users and tax-payers," he added.
Cooksey is a trained sociologist and taught at the universities of Jos (Nigeria) and Dar es Salaam from 1978-83.
He has been involved in investigative journalism since the emergence of Tanzania's free press in 1989. In 1995, he helped found the Tanzanian chapter of Transparency International (TI).
In his chapter "The power and the vainglory": anatomy of a Malaysian IPP (independent power plant) in Tanzania" in the book Ugly Malaysians: South-South investments abused, Cooksey said the ideology of South-South cooperation that led to the establishment of the South Commission and its report "Challenges to the South" (1993) has been "cynically manipulated to justify dubious investments" like the ones coming from Malaysia.
Controversial power project
Commenting on his research on a joint venture set up by Malaysia's Mechmar Corporation and Tanzania's VIPEM, known as Independent Power Tanzania Limited (IPTL) in 1994, Cooksey added that if the controversial power project continues, Tanzania will be one significant step further down the road to underdevelopment.
Mechmar is largely owned by one of Malaysia's largest industrial conglomerates, DRB Hicom. Mechmar is a trading and marketing company and IPTL is its first big power project.
"An unholy alliance of Malaysian investors and Tanzania politicians and bureaucrats will be to blame," he said, in the book edited by Universiti Malaya's Prof Dr KS Jomo, and published by Durban's Institute for Black Research early this year.
In 1994, Tanzania was plagued with drought problems which led to power shortages as hydro catchment areas ran dry, prompting state power utility Tanesco to invite emergency solutions, and eventually settling for two turbines financed by foreign aid.
Despite having signed a memorandum of understanding (MOU) to provide electricity, IPTL in 1995 negotiated with another company, Wartsila, to build a cheaper medium-speed diesel (MSD) plant, without informing Tanesco.
Watsila's engineering procurement and construction contract (EPC) bid increased by 33 percent, from US$85.7 million to US$114.2 million, even though the scope of the project falls considerably.
Requested arbitration
Three years later, Tanesco issued a notice of default to IPTL, and failed to negotiate a lower tariff reflecting the "actual, verifiable and prudently incurred cost" to IPTL.
Tanesco then requested arbitration before the International Centre for the Settlement of Disputes after IPTL failed to justify cost structure and payments including US$6 million payments to another two companies, Omni Technical Management Establishment and Prime Consolidated Establishment.
In 1999, IPTL took Tanesco to court, claiming interim payments of US$3.6 million a month and IPTL won the case. Execution of the ruling is stayed pending Tanesco's appeal.
In 2000, two Tanzanian officials signed affidavits claiming they were offered bribes by IPTL's director James Rugemalira, and a third admitted to accepting a bribe.
Despite the controversy, IPTL is currently supplying power to the national grid for 13 US cents per unit.
And last year, Mechmar, who jointly owns IPTL, has been warned and fined RM25,000 by the Kuala Lumpur Stock Exchange for delaying its financial reports to the Exchange, putting the company's "corporate responsibility and accountability" in question.
Cooksey said that he had been advised by an official of Malaysia's TI "on the subtleties of the relationship between Malaysia and the promotion of foreign direct investments".
Direct personal interest
According to Cooksey, TI Malaysia's vice-chair Tunku Abdul Aziz, in meetings and e-mail conversations had declared that "the sight of Prime Minister Dr Mahathir Mohamad's herding a gaggle of assorted businessmen on his official overseas trips and bending over, ever so protectively, witnessing the signing of one grand MOU after another has created the impression that the PM has a direct personal interest in all these deals.
"We are dealing, very often, with people in places where corruption is so rampant that they cannot imagine that there are Malaysians who can win major overseas contracts without resorting to corruption," Aziz had remarked, said Cooksey.
Dr Johann Lambsdorff of Gottingen University, the brains behind TI's annual Corruption Perception Index, Cooksey said, had engaged him in a lively exchange on the extent to which trade patterns do or do not implicate Malaysia in international corruption.
"His (Lambsdorff) published research suggested that Malaysian exports to Africa were less than they would have been had corruption been driving trade and investment. In fact, his econometric analysis found Malaysia to be one of the cleanest major trading nations in the world," said Cooksey.
"But my more qualitative and journalistic approach led me to diametrically opposed conclusions," he added.
In 1999, TI and Gallup International briber's index gave lie to Mahathir's rhetoric that it is invariably companies from the North which bring corruption to the South. This was the argument Mahathir had used to denounce TI's corruption index in 1997, where Malaysia was reported to be one of the most corrupt countries (Index: 3.9), after China and Hong Kong, South Korea, Taiwan and Italy.
"The scale of bribe-paying by international corporations in the developing countries of the world is massive. Actions by the majority of governments of the leading industrial countries to curb international corruption are modest," said TI chairperson Peter Eigen.
Simple conclusions
Cooksey said his own conclusions led him to a number of simple conclusions on the pattern of Malaysian investments in Africa.
"First the speed with which MOUs and contracts are signed suggests that Malaysian investors circumvent the lengthy procedures that foreign direct investment into poor countries normally involves," he said.
"It is rare for a Malaysian company to lose a competitive tender. This suggests second, high level political support for the proposed investments, and, third, the likelihood that systematic bribery is involved," he added.
Sectors targetted by Malaysian companies are often those undergoing privatisation with pressure and funding from the Bretton Woods institutions (the World Bank and its sister organisation, the International Monetary Fund) and the donor community, including power, telecommunications and banking.
Another similarity is the mobilisation of targetted political and diplomatic support for the proposed investments.
"Mahathir actively supports Malaysian investments in Africa and elsewhere, appealing to South-South solidarity as means of delinking from the hegemony of Northern multinationals in the global economy," said Cooksey.
"Mahathir actively lobbies for Malaysian backed projects when he meets with African heads of state as various international gatherings it is no secret that Malaysia contributed to the African National Congress' election campaign in 1994," he added.
Cooksey further explained that finding well-placed local middlemen to champion the cause is also a common characteristic.
The best choice, he said, is a senior politician or retired government official with good access to the political leadership.
Controversial power project
This comprador (crony) often advises on the best lobbying strategy, makes the key introduction, facilitates setting up joint ventures to manage the investment, fends of opposition that may arise from potential competitors or nosey donor agencies and buys positive press coverage, he added.
IPTL has been fraught with problems and was the subject of lengthy and costly arbitration, said Cooksey.
"This leads me to one final characteristic of the Malaysian investment strategy in Africa: It does not necessarily work. There is no argument that investing in Africa can be a high risk venture, and that, therefore, the potential profits have to be very large," he said.
"But the regularity with which Malaysian-backed projects turn sour suggests that the investors have overestimated the capacity of their local partners to deliver," he added
This is the third part of a four-part series based on the book Ugly Malaysians? South-South investment abused (Institute for Black Research, Durban, 2002) which highlights the growing resentment abroad to various foreign direct investments by Malaysian firms.
-- Brian Cooksey, an independent writer in Dar es Salaam, said that "it is one thing for politicians and bureaucrats to take a cut from a valid investment that generates significant employment, turns out useful products, and contributes to government revenue.
"But it is quite another for this group to take a corrupt cut from a project which derails a key national policy and imposes huge additional costs on end users and tax-payers," he added.
Cooksey is a trained sociologist and taught at the universities of Jos (Nigeria) and Dar es Salaam from 1978-83.
He has been involved in investigative journalism since the emergence of Tanzania's free press in 1989. In 1995, he helped found the Tanzanian chapter of Transparency International (TI).
In his chapter "The power and the vainglory": anatomy of a Malaysian IPP (independent power plant) in Tanzania" in the book Ugly Malaysians: South-South investments abused, Cooksey said the ideology of South-South cooperation that led to the establishment of the South Commission and its report "Challenges to the South" (1993) has been "cynically manipulated to justify dubious investments" like the ones coming from Malaysia.
Controversial power project
Commenting on his research on a joint venture set up by Malaysia's Mechmar Corporation and Tanzania's VIPEM, known as Independent Power Tanzania Limited (IPTL) in 1994, Cooksey added that if the controversial power project continues, Tanzania will be one significant step further down the road to underdevelopment.
Mechmar is largely owned by one of Malaysia's largest industrial conglomerates, DRB Hicom. Mechmar is a trading and marketing company and IPTL is its first big power project.
"An unholy alliance of Malaysian investors and Tanzania politicians and bureaucrats will be to blame," he said, in the book edited by Universiti Malaya's Prof Dr KS Jomo, and published by Durban's Institute for Black Research early this year.
In 1994, Tanzania was plagued with drought problems which led to power shortages as hydro catchment areas ran dry, prompting state power utility Tanesco to invite emergency solutions, and eventually settling for two turbines financed by foreign aid.
Despite having signed a memorandum of understanding (MOU) to provide electricity, IPTL in 1995 negotiated with another company, Wartsila, to build a cheaper medium-speed diesel (MSD) plant, without informing Tanesco.
Watsila's engineering procurement and construction contract (EPC) bid increased by 33 percent, from US$85.7 million to US$114.2 million, even though the scope of the project falls considerably.
Requested arbitration
Three years later, Tanesco issued a notice of default to IPTL, and failed to negotiate a lower tariff reflecting the "actual, verifiable and prudently incurred cost" to IPTL.
Tanesco then requested arbitration before the International Centre for the Settlement of Disputes after IPTL failed to justify cost structure and payments including US$6 million payments to another two companies, Omni Technical Management Establishment and Prime Consolidated Establishment.
In 1999, IPTL took Tanesco to court, claiming interim payments of US$3.6 million a month and IPTL won the case. Execution of the ruling is stayed pending Tanesco's appeal.
In 2000, two Tanzanian officials signed affidavits claiming they were offered bribes by IPTL's director James Rugemalira, and a third admitted to accepting a bribe.
Despite the controversy, IPTL is currently supplying power to the national grid for 13 US cents per unit.
And last year, Mechmar, who jointly owns IPTL, has been warned and fined RM25,000 by the Kuala Lumpur Stock Exchange for delaying its financial reports to the Exchange, putting the company's "corporate responsibility and accountability" in question.
Cooksey said that he had been advised by an official of Malaysia's TI "on the subtleties of the relationship between Malaysia and the promotion of foreign direct investments".
Direct personal interest
According to Cooksey, TI Malaysia's vice-chair Tunku Abdul Aziz, in meetings and e-mail conversations had declared that "the sight of Prime Minister Dr Mahathir Mohamad's herding a gaggle of assorted businessmen on his official overseas trips and bending over, ever so protectively, witnessing the signing of one grand MOU after another has created the impression that the PM has a direct personal interest in all these deals.
"We are dealing, very often, with people in places where corruption is so rampant that they cannot imagine that there are Malaysians who can win major overseas contracts without resorting to corruption," Aziz had remarked, said Cooksey.
Dr Johann Lambsdorff of Gottingen University, the brains behind TI's annual Corruption Perception Index, Cooksey said, had engaged him in a lively exchange on the extent to which trade patterns do or do not implicate Malaysia in international corruption.
"His (Lambsdorff) published research suggested that Malaysian exports to Africa were less than they would have been had corruption been driving trade and investment. In fact, his econometric analysis found Malaysia to be one of the cleanest major trading nations in the world," said Cooksey.
"But my more qualitative and journalistic approach led me to diametrically opposed conclusions," he added.
In 1999, TI and Gallup International briber's index gave lie to Mahathir's rhetoric that it is invariably companies from the North which bring corruption to the South. This was the argument Mahathir had used to denounce TI's corruption index in 1997, where Malaysia was reported to be one of the most corrupt countries (Index: 3.9), after China and Hong Kong, South Korea, Taiwan and Italy.
"The scale of bribe-paying by international corporations in the developing countries of the world is massive. Actions by the majority of governments of the leading industrial countries to curb international corruption are modest," said TI chairperson Peter Eigen.
Simple conclusions
Cooksey said his own conclusions led him to a number of simple conclusions on the pattern of Malaysian investments in Africa.
"First the speed with which MOUs and contracts are signed suggests that Malaysian investors circumvent the lengthy procedures that foreign direct investment into poor countries normally involves," he said.
"It is rare for a Malaysian company to lose a competitive tender. This suggests second, high level political support for the proposed investments, and, third, the likelihood that systematic bribery is involved," he added.
Sectors targetted by Malaysian companies are often those undergoing privatisation with pressure and funding from the Bretton Woods institutions (the World Bank and its sister organisation, the International Monetary Fund) and the donor community, including power, telecommunications and banking.
Another similarity is the mobilisation of targetted political and diplomatic support for the proposed investments.
"Mahathir actively supports Malaysian investments in Africa and elsewhere, appealing to South-South solidarity as means of delinking from the hegemony of Northern multinationals in the global economy," said Cooksey.
"Mahathir actively lobbies for Malaysian backed projects when he meets with African heads of state as various international gatherings it is no secret that Malaysia contributed to the African National Congress' election campaign in 1994," he added.
Cooksey further explained that finding well-placed local middlemen to champion the cause is also a common characteristic.
The best choice, he said, is a senior politician or retired government official with good access to the political leadership.
Controversial power project
This comprador (crony) often advises on the best lobbying strategy, makes the key introduction, facilitates setting up joint ventures to manage the investment, fends of opposition that may arise from potential competitors or nosey donor agencies and buys positive press coverage, he added.
IPTL has been fraught with problems and was the subject of lengthy and costly arbitration, said Cooksey.
"This leads me to one final characteristic of the Malaysian investment strategy in Africa: It does not necessarily work. There is no argument that investing in Africa can be a high risk venture, and that, therefore, the potential profits have to be very large," he said.
"But the regularity with which Malaysian-backed projects turn sour suggests that the investors have overestimated the capacity of their local partners to deliver," he added
This is the third part of a four-part series based on the book Ugly Malaysians? South-South investment abused (Institute for Black Research, Durban, 2002) which highlights the growing resentment abroad to various foreign direct investments by Malaysian firms.
- Malaysiakini.com: Tanzania will never prosper with corrupt Msian investments: consultant
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IPTL_final_version.pdf (352.2 KB, 0 views)- Assessment of corruption risk 2008.pdf (240.8 KB, 0 views)
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