FACT CHECK: Is Rainbow Towers a “government hotel?”

FACT CHECK: Is Rainbow Towers a “government hotel?”

HARARE, June 27 (The Source) – Vice-President Phelekezela Mphoko, under attack for staying at the Rainbow Towers hotel for close to two years, has justified his stay by suggesting no tax dollars are being lost because he is staying in hotel owned by the government.

“I live in a government hotel. It’s as good as staying in a government house,” Mphoko was quoted as saying on Monday.

Government does indeed own the Rainbow Towers building, but it does not own Rainbow Tourism Group (RTG), which runs the hotel. RTG is not a parastatal, even though government appears to treat it as such, most likely on the basis of its ownership of the building.

RTG history

RTG does have its roots in government. Its history can be traced to 1981, when the Zimbabwe Tourism Board was formed. In 1985, the government completed construction of a five-star hotel and conference centre in Harare, operating under a Harare Sheraton Hotel management contract. In 1991, the Zimbabwe Tourism Investment Company (ZTIC) was established to house government’s tourism interests, and the venture was soon renamed Rainbow Tourism Group.

The year 1999 was eventful for RTG. The Sheraton management contract was renegotiated and the hotel was renamed Sheraton Harare Hotel and Towers. RTG was privatised and listed. The government sold 70 percent of RTG to private and institutional investors.

In 2005, the Sheraton contract ended and management was localised. The businesses of Sheraton Harare Hotel and Towers and Harare International Conference Centre were merged.

The company was short of cash and had to go to shareholders for more money, via a rights issue. If a shareholder fails to follow their rights and raise money for the extra shares, they get “diluted” or their shareholding is reduced when the shares on offer are bought by someone else. This is what happened to what had remained of government shareholding then.

In 2011, one of the shareholders, Econet Wireless, sold its 11 percent shareholding to NSSA. RTG in 2012 held another rights issue and government shareholding was diluted even further. The shareholding of NSSA, which was the underwriter of that rights offer, went up.

Current shareholding

As of today, NSSA holds 36.21 percent of RTG. Hamilton & Hamilton Trustees, owned by investor Nicholas Van Hoogstraten, owns 32.08 percent. Stanbic Nominees owns 19.96 percent. The government, through the Ministry of Tourism, owns no more than four percent.

RTG owes NSSA some $13,6 million.

Often, NSSA is seen as a parastatal. In strict terms however, NSSA is a statutory body, and only holds investments on behalf of paying workers, both private and public. NSSA money cannot therefore be treated as government money.

It is therefore not true that government owns RTG, either through direct shareholding, or through NSSA.

While RTG was once a parastatal, government’s control of the firm ended once it sold 70 percent to private shareholders in 1999, and subsequently saw its shareholding reduced because it could not fulfil its obligations as a shareholder.

But in practise the government has never let go of RTG, almost 20 years after privatising it. As demonstrated by Mphoko, the government still treats RTG as a parastatal, and one that officials can use for their own ends as they do with most state-owned enterprises.

At the core of the poisonous relationship between government and RTG is the ownership of the Rainbow Towers and Conference Centre. Government has retained ownership of the building, and RTG leases it from the Ministry of Local Government. The government pays nothing for using the Rainbow Towers and the conference centre. The costs are offset against RTG’s leasing costs.

According to various sources, government also refuses to pay for services at the other hotels that RTG actually owns, including the Bulawayo Rainbow. Government insists on using these for free, using RTG’s lease costs. There is no detail about the agreement, although RTG’s 2014 annual report disclosed annual operating lease expenses at $1.7 million.

This arrangement has been to the detriment of all the company, and to the shareholders of RTG, who have had to take a string of losses, partly caused by the company’s failure to detach itself from government.

Mphoko’s “it’s a government hotel” justification also betrays the attitude of government officials towards state owned enterprises, and why many of them are in a deep financial hole. Government officials do not treat parastatals as the commercial enterprises that they should be, accountable to competent boards and taxpayers. Instead, they are only seen as tools for the personal convenience of those in senior positions.

Even if RTG was a parastatal, which it is not, there cannot be justification for its abuse by the government or its officials, however senior.