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Patel: State capture could wreck radical economic transformation

Apr 24 2017 16:06
Liesl Peyper, Fin24

Cape Town – Corruption, maladministration of public institutions and state capture by narrow vested interests will profoundly undermine government’s radical economic transformation efforts, Economic Development Minister Ebrahim Patel said on Monday. 

Patel was answering a parliamentary question by Democratic Alliance MP Michael Cardo on how his department sees radical economic transformation, as mooted by President Jacob Zuma in his 2017 State of the Nation Address (SONA) delivered in February. 

“[We] need to address both the structural and corporate behaviour challenges in our economy to enable a more open, competitive and dynamic economy to develop,” Patel said in his elaborate response. He named corruption, mismanagement at state-owned entities and state capture as issues that will derail South Africa’s radical economic transformation efforts. 

One of the pillars of radical economic transformation, Patel said, is broadening the participation of black South Africans in the economy. 

“Any programme that will see the majority of citizens benefiting from economic transformation must therefore also entail fighting corruption and attempts at state capture,” Patel said.

When he delivered his SONA, Zuma said one of the ways government would enforce broader economic participation was by drafting new laws to counter economic concentration.

READ: Zuma sheds light on radical economic transformation vision 

He singled out the Department of Economic Development as one of the entities which needs to play a significant role in radical economic transformation. It could achieve this through legislation addressing the need for a more inclusive economy and deconcentrating the high levels of ownership and control in various sectors.

Patel said a programme aimed at “enriching only a small number of persons” won't address gaping inequality levels, provide social stability or be sustainable. 

He acknowledged that competition authorities have over the past few years begun to uncover “pervasive exclusionary conduct”. 

Patel said if economic transformation is to be “sustainable”, a wide social consensus needs to be in place. “The modalities that are put in place [must be] transparent, effective and not misused through fronting”. 

In addition, sectors of the economy should guard against using transformation as a smokescreen to pursue narrow agendas, including the “empowerment of a favourite few”. 

READ: Ramaphosa: 'Rot has set in' at ANC 

“If we want to ensure real transformation then the resources of the state and commitments by private capital must be applied with integrity and be free of corruption,” he said.

Ratings downgrade ‘bad news’ 

Radical economic transformation, according to Patel, also means the size and resilience of South Africa’s economy needs to grow, by among other means increasing investment, boosting entrepreneurship and promoting the beneficiation of raw materials. 

He said the recent credit rating downgrade by Standard & Poor's and Fitch is “bad news” for government’s efforts to grow the economy at a faster and more inclusive level. 

“Thus we need to take steps to ensure that we regain investment-grade status from lenders and pursue a credible, bold inclusive growth strategy in the interest of our people.” 

He emphasised that foreign investment must be encouraged, as it is an important source of innovation, new technology and market access. 

Departmental initiatives

Patel named a number of policy initiatives the Economic Development Department is driving to bring about radical economic transformation. 

He cited the capital allocation for the black industrialists programme valued at R23bn, job creation and empowerment efforts through mergers and acquisitions (such as the Coca-Cola and Anheuser-Busch InBev mergers) and settlements that have arisen from cartel cases in which the construction and metal industries agreed to sell half of their shares to black shareholders as examples. 

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