Bell Pottinger, SAP, KPMG and McKinsey; every one of these has become sucked into the reputational maelstrom known as ‘Jacob Zuma’s South Africa’. Bell Pottinger, a now infamous UK public relations company, went into administration after running a racially divisive campaign against the “white minority capital”, nothing more than a brazen attempt to deflect attention from corruption in the South African government.
SAP, the German software company, suspended four executives and launched a probe into allegations that it paid $7.5m in bribes to win government contracts. KPMG dispensed with eight senior executives after it wrote off a client’s lavish wedding as a business expense. Additionally, a report from KPMG, since retracted, rubbished one of South Africa’s most respected ministers.
McKinsey has stopped working with state power utility Eskom, pending the result of an internal inquiry into allegations it worked with Trillian Capital, a financial advisory firm, to secure state contracts.
So what is it about South Africa that is so toxic? And what links these four corporate train wrecks?
The answer is in a single term: ‘state capture’. To South Africans, it is a frequent topic of conversation. Internationally, however, the term – first used by the World Bank around 2000 to describe how former Soviet economies were being bent to the will of oligarchs – barely registers.
Transparency International, the anti-corruption watchdog, defines state capture as “a situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests”.
State capture is more systematic than the plain, vanilla (read: banknote-stuffed envelope) type graft, which seeks to exploit existing opportunities. It is a system that goes above that by changing personnel, regulations and laws to work in one’s favour.
Written in 2014, Transparency International’s report does not mention South Africa by name but has now become almost synonymous with the term. At the fulcrum of it all are three brothers, the now infamous Guptas, a business family accused of cultivating close relations with President Zuma with their own self-enrichment in mind.
The Guptas backed Zuma from an early stage. In the mid-2000s, his path to the presidency seemed blocked by allegations of corruption and rape. However, in 2007, Zuma unseated then president Thabo Mbeki against all the odds and officially took office as the nation’s leader in 2009. Transparency International’s 355-page report raised several other possible connections between Gupta businesses and potentially beneficial regulatory changes, such as the Guptas holding state supply contracts in the mining sector.
It is in this web of intrigue that foreign groups have become entangled. In the cases involving Bell Pottinger, SAP, KPMG and McKinsey, Gupta business interests are all either directly or indirectly implicated. The web could yet ensnare more companies yet as Lesetja Kganyago, governor of the central bank, hinted at how far state capture might have spread by alleging that cases of suspected money laundering passed on to state prosecutors have been left languishing.
Whilst the National Prosecution Authority, headed by Shaun Abrahams, a Zuma appointee, has denied suggestions it prosecutes selectively. So far, President Jacob Zuma himself has escaped prosecution on 783 pending charges of fraud and graft. The State of Capture report concluded with a recommendation for a full judicial inquiry. Nearly a year later, no such inquiry has begun.
The Private sector fights back
It is into this ever-widening vortex and the concomitantly diminishing international reputation of South Africa’s business environment that the country’s private sector, from large corporations down to SME’s, is stepping into the breach, banding together and fighting back to create independent transparency and good governance initiatives. The significance of this lies in the message that South African business is sending to the government: that the private sector is no longer willing to stand by while the economy is tanked through poor leadership and corruption.
As evidenced by the growing disconnect between business and government in South Africa, the recent World Economic Forum’s Global Competitiveness report is illustrative. For factors like business innovation, market development and business sophistication, South Africa ranks easily in the top quarter of countries internationally. Yet, for almost every metric dependent on Government, such as healthcare and education, South Africa plummets to the bottom of the rankings.
As Quinton Dicks, Chief Executive Officer of SA SME Fund, put it, “private sector leaders understand the importance of their role in the country. They know they need to become more involved to initiate and drive change. Addressing South Africa’s problems cannot be left up to only the government and our businesses are not achieving the paradigm shift required to create the fundamental change we need in the economy.”
The group with the best traction is the CEO Initiative, comprising 218 of South Africa’s leading companies and drawn from across all sectors of the economy. At the end of 2015, as the country faced a deep crisis of investor confidence that threatened it with a sovereign debt-downgrade, the CEO Initiative brought together representatives from business, labour and government to try put measures in place to prevent the country’s sovereign debt being relegated to ‘junk status’. Additionally, they want to transform South Africa’s economy to a more inclusive structure, whilst also doing everything possible to address the widening inequality and the anaemic growth rates that have bedevilled the country in recent years.
The CEO Initiative is built on the principals of South Africa’s Constitution and Bill of Rights, embracing the talisman of good governance and promoting a private sector that holds itself – and is held by others– to the highest standards of corporate citizenship, governance and ethics.
The symbolic significance of many of South Africa’s captains of industry protesting against state capture should not be underestimated; what distinguishes business’s approach during this period of economic turbulence is the recognition that the quality of public institutions matters. Moreover, that an active, demanding citizenry and business community is the key to holding the government to account.
Business Leadership South Africa (BLSA), an industry body made up of major South African Corporations including all the major banks, car manufacturers, and telecommunications networks, has been vocal in its condemnation of corruption and unethical governance. BLSA has taken a public stand against what it considers two of the worst offenders: the national electricity provider, Eskom, and the national rail, port and pipeline company, TransNet. BLSA has suspended both Eskom’s and TransNet’s memberships due to “numerous allegations” of corrupt behaviour and colossal failures of corporate governance and accountability.”
Announcing their “Integrity Pledge” which sets out the values of business leadership and including commitments to zero tolerance of corruption, BLSA CEO Bonang Mohale called corruption and state capture, “cancers eating away at the heart of our society.” According to BLSA, business believes it is government and not the private sector which is failing South Africa. Quinton Dicks elaborates, “That is the main message of the CEO Pledge and similar initiatives: if you are not trying to create real change, you are not solving the problem. You need to look beyond what your business is about and realise that a large part, if not the majority, of what you do is and should be about South Africa. CEOs have to do more and be better corporate citizens.”
Stung by the accusation, the government was slow to react to state capture. South Africa’s business leadership is trying hard to improve its image when business and even capitalism itself are being made scapegoats for the economy’s failure to grow. Thus, it has become essential for corporate South Africa to explain how it serves the national interest.
There is a pressing need for the country’s business leaders to step into the vacuum created by a failing state and malfeasant companies and play a more constructive role in the economic transformation of society. These leaders also need to be prepared to clash loudly and publically with the government in making a case for market-friendly reforms and becoming more proactive due to the erosion of state capacity and public finances. They need to publicly rebuke the failing state-led development and failing state-owned enterprises that are bankrupting the country and call out a government that is signally lacking in economic leadership, or a clear growth plan.
Thus, a new period of economic dynamism now hinges on the success of South Africans themselves defeating “state capture” in its entirety. Only once this has been achieved can South African business set about creating millions of jobs.
