By Eric Knecht and Maha El Dahan

CAIRO/ABU DHABI (Reuters) – A parliamentary fact-finding commission’s report into corruption in Egypt’s wheat industry finds that the government played a key role in “wasting public funds” in its costly food subsidy programme.

Reuters reviewed a copy of the report that will be presented in parliament on Monday. It states that government entities neglected their own storage facilities in favour of less regulated private sites, made contracts with “fake entities,” and oversaw flawed reforms that caused subsidy spending to increase rather than decrease as publicly stated.

From silo contracts to budgetary analysis to testimony from industry officials, the more than 500-page fact-finding report into wheat corruption points to government involvement in mismanaging, and at times facilitating graft in, subsidies intended to encourage agriculture and feed tens of millions.

“There are obvious flaws that rise to the level of complicity in the supply ministry and all of its bodies supervising the wheat procurement system,” the report said.

The supply ministry spokesman said he had resigned from his post and could no longer comment on the issue when contacted by Reuters.

Egypt, the world’s largest importer of wheat, has been mired in controversy in recent months over whether much of the roughly 5 million tonnes of grain the government said it procured in this harvest exists only on paper, the result of local suppliers falsifying receipts to boost government payments.

Industry officials have estimated that upward of 2 million tonnes could be missing from silos, a deficit that could force Egypt to import large quantities of additional grains to meet local demand even as it faces an acute hard currency shortage.

A Reuters special report earlier this year detailed how the government’s wheat supply chain was riddled with corruption – from fraudulent wheat purchases by local suppliers to hacked smart cards that allowed bakers to steal flour – that has cost the country hundreds of millions of dollars per year.

LAX OVERSIGHT

The parliamentary report provides new insight into how government bodies may have played a direct role in many of the corrupt practices, particularly by awarding contracts to private suppliers who had lax oversight of their storage facilities, while leaving government sites unused.

The supply ministry’s Holding Company for Silos housed over 1 million tonnes of wheat in less-regulated private sector storage this season while leaving 700,000 tonnes of its own storage capacity unutilised – a violation of regulations that require government spaces to take priority, the report found.

The holding company used just 29.7 percent of the silo capacity it had available, it said.

“Despite that (unused storage), the company contracted with private sector companies to rent 16 silos and 35 shounas (open air sites) to store a total of 1,147,319 tonnes of wheat.”

“Not using the full storage capacity owned by the (government) company caused it to bear huge losses…and made it take on the cost of paying to rent from the private sector.”

The report also called into question the legality of many of the contracts made with the private sector sites.

Government firms contracted with “storage sites that had legal actions taken against them previously but which had since changed their commercial names”, and with those that “did not have a commercial registration or a tax identification.”

“This means that contracting was done with fake entities,” the report stated.

Last week Supplies Minister Khaled Hanafi resigned amid growing criticism of his management of the subsidies. His exit was the biggest fallout from the wheat scandal to date.

Hanafi repeatedly said that bread system reforms introduced under his watch in 2014 have saved Egypt in terms of both money and strategic commodities, an assertion the report undermines.

He was not immediately available for comment about the parliamentary report when contacted by Reuters.

Government spending on bread subsidies rose by 3.91 billion Egyptian pounds ($440.32 million), or 15.9 percent, in the 2014-15 financial year, and by an additional 1.89 billion ($212.84 million), or 6.6 percent, in 2015-16, the report states, citing Finance Ministry documents.

“Subsidies increased, and did not decrease as a result of the bread system as the supply ministry continuously claims.”

($1 = 8.8799 Egyptian pounds)

(Editing by Mark Heinrich)

Read more

By Mfuneko Toyana

PRETORIA (Reuters) – South African President Jacob Zuma said on Thursday he backs Finance Minister Pravin Gordhan but cannot intervene in a police investigation over a suspected spy unit at the tax service, signalling a prolonged tussle that could rock markets further.

Gordhan said on Wednesday he had done nothing wrong and had no legal obligation to obey a police summons linked to an investigation into whether he used the South African Revenue Service to spy on politicians including Zuma.

The rand, which had tumbled 5 percent since Tuesday in response to the investigation, picked up on Thursday and gained further ground after Zuma’s statement, while government bonds also firmed, even though analysts said the president had offered only qualified support.

News of Gordhan’s summons this week compounded investors’ worries about a power struggle between Zuma and Gordhan as Africa’s most industrialised economy teeters near recession and credit rating agencies consider downgrading it to “junk”.

The main opposition party called on Thursday for a parliamentary debate into what it called a “witch-hunt” against Gordhan, who was in charge of the tax service when the unit under investigation was set up.

Investors and rating agencies back Gordhan’s plans to rein in government spending in an economy that has been forecast by the central bank to register no growth this year.

In his first public comments on the matter since it surfaced late on Tuesday, Zuma said he had noted the concerns by individuals and various organisations over the investigation.

“President Jacob Zuma wishes to express his full support and confidence in the Minister of Finance and emphasises the fact that the minister has not been found guilty of any wrong doing,” the presidency said in a statement.

“The Presidency wishes to also emphasise that President Zuma does not have powers to stop any investigations into any individual/s,” it said, adding that Zuma could not bring a halt to the probe even if it was negatively affecting the economy.

TENSIONS WITH TREASURY

A Zuma-backed plan to build a series of nuclear power plants, at a cost of as much as $60 billion, has caused tension with the Treasury for months and is likely adding to pressure on Gordhan’s position, analysts say. The presidency said in May that Zuma was not warring with Gordhan.

On Thursday, the presidency defended plans by cabinet to give Zuma supervision over state-owned firms after Gordhan’s allies said this would limit the finance minister’s control.

Zuma’s team and the Treasury under Gordhan have disagreed about government spending, including at loss-making state companies like South African Airways, analysts say. [nL8N1B6328]

Analysts also questioned the extent of Zuma’s stated support for his finance minister.

“It was an ambiguous vote of confidence in Pravin Gordhan which would suggest that the agencies supposedly investigating in Pravin Gordhan will be given relatively free rein to continue these investigations,” said Daniel Silke, a director at Political Futures Consultancy.

NKC African Economics analyst Gary van Staden concurred.

“Anybody who watches English football can tell you when the owner says he has confidence in the manager, the manager is out of there in a week,” he said.

Political activists protested outside the offices of the Hawks, the elite police unit that is investigating Gordhan, in solidarity with the minister, where two former officials of the tax service presented themselves to the police.

Hawks spokesman Hangwani Mulaudzi declined to comment.

A former finance minister, Trevor Manuel, said on Wednesday the economy would be “destroyed” if Zuma fired Gordhan, after he changed finance ministers twice in one week in December.

(Additional reporting by Joe Brock, James Macharia and Tanisha Heiberg; Writing by James Macharia; editing by Dominic Evans)

Read more