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There was a time when South Africa believed so much in its exceptionalism that kleptocracy was frowned upon by the leaders of Africa’s youngest democracy, who vowed never to allow it to stunt this country’s economic and social progress like it did in many parts of the continent where ruthless rulers looted resources for personal gain.
Not anymore. SA is fast losing its post-apartheid innocence and some leaders in the ruling ANC have dubbed this phenomenon “sins of incumbency”, whereby senior politicians and high-ranking bureaucrats are engaged in using state power to accumulate vast amounts of wealth by hook or crook.
Alarm bells are ringing as fear is beginning to set in that the country is sliding towards becoming a kleptocracy, a Greek word implying a government ruled by thieves who exploit state power to loot and steal.
The latest warning came from finance minister Pravin Gordhan, who did not mince his words at a recent breakfast event held in Cape Town – a day after he delivered his Budget on 24 February – when he said the country was at risk of becoming a kleptocracy.
“There are many parts of transacting between government and business which have gone seriously wrong and if we don’t stop it, we’re going to become a kleptocracy. Government and the private sector in South Africa must change the ethical system,” Gordhan was quoted by Bloomberg News as saying.
There have been numerous media reports pointing to an alleged capture of government departments and state-owned enterprises (SOEs) by politicians and their cronies for their personal enrichment.
Cleaning up corruption
The Office of the Chief Procurement Officer (OCPO), led by National Treasury veteran Kenneth Brown, is striking back in an attempt to clean up corruption in the public tendering system, which has been severely compromised in some of the SOEs.
Since June 2015, Brown and his team at the OCPO have been probing tenders above R10m across government in their quest to ensure it gets value for money for its spending, reduces wastage, and clamps down on irregularities in procurement.
Last month, Treasury announced that the primary focus of the review was on all SOEs such as the Passenger Rail Agency of South Africa (Prasa), Eskom, Transnet, SABC and South African Airways (SAA).
The probe also covers coal contracts at electricity supplier Eskom. Eskom spends roughly R200bn a year procuring coal from mines to fire its power stations.
With an asset base of over R1tr – equivalent to about 27% of GDP – SOEs have a huge influence on the South African economy.
Yet auditor-general reports on the state of SOEs confirm large-scale corruption, as well as an element of dysfunction in more than half of the country’s municipalities.
Roelof Botha, economic adviser to PwC, says the state is becoming too large and this is holding back economic growth.
“Excessive trade union power (for example in education), cadre deployment, corruption, nepotism and old-fashioned incompetence – especially at municipal level – represent some of the key underlying factors for the low level of confidence in the economy and the sub-optimal GDP growth rate.
“I believe that the National Development Plan (NDP), if correctly prioritised, could address most of these issues, but the NDP seems to be in limbo,” says Botha.
Closing procurement loopholes
In some instances black economic empowerment (BEE) has been used as a Trojan horse to loot SOEs. In other cases, cronies are appointed to senior executive and board positions – under the guise of affirmative action – to aid in financially knocking the SOEs.
Gordhan has said people who are dipping their fingers into the coffers of state-owned institutions for personal enrichment must be stopped.
Under Thabo Mbeki’s presidency, which ended in 2008 with his unceremonious recalling by the ANC, black oligarchs were created through the transfer of shares from JSE-listed companies into the hands of a small politically connected elite.
Under the Zuma presidency, which started in 2009, following the global financial crisis, empowerment deals dried up and tenders in the public sector became a new lucrative theatre for wealth creation.
As Brown closes loopholes in public sector procurement and makes his presence felt, he is likely to come to blows with political leaders and corrupt bureaucrats.
He has already dispatched seasoned procurement professional, Mbulelo Gingcana, to tighten supply chain management processes at Prasa after public protector Thuli Madonsela released a 550-page report titled Derailed last year that provided a damning detailed account of maladministration, financial mismanagement, and tender irregularities at the rail commuter company.
One of the tenders that are under investigation at Prasa is the R3.5bn contract for 70 new locomotives, which was awarded to a Spanish contractor under the watch of the parastatal’s former chief executive Lucky Montana, who was fingered for irregularly awarding tenders and appointing service providers.
Enforcing control over SAA
Another corporate governance headache for the Treasury has been SAA, where the airline’s chairperson Dudu Myeni, a close friend of President Zuma, has been at loggerheads with the department over the acquisition of 10 new A330-3000 Airbus planes.
Myeni and the SAA board wanted SAA to purchase the A330-300 aircraft and then enter into a sale and lease-back deal with a local lessor/s.
But former finance minister Nhlanhla Nene, who was axed by Zuma last December, did not approve the proposed deal.
Instead, Nene approved a transaction in July last year that would see SAA swap the purchase of the 10 aircraft for a lease of five A330-300 aircraft from Airbus.
Gordhan, who was re-appointed to the finance portfolio four days after Nene was fired, ratified Nene’s original plan, dealing a blow to Myeni’s dodgy leasing deal and saving SAA R603m in pre-delivery payments that would have been paid to Airbus.
It has been widely speculated that Nene was given the boot as finance minister for stopping Myeni’s plan in its tracks.
This article originally appeared in the 10 March 2016 edition of finweek. Buy and download the magazine here.
