A Mafia state in the making #4DaysinDecember

2016-12-04 06:54
Finance Minister Nhlanhla Nene. (GCIS)

Finance Minister Nhlanhla Nene. (GCIS) ((GCIS))

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Johannesburg - It rained “rent-seekers” in 2016 – the term used to describe businesses that win riches and benefits by exploiting political connections and processes, including policymaking and regulatory power.

Former public protector Thuli Madonsela’s State of Capture report reveals rent-seeking at ostentatious levels: in it she states that the Gupta brothers and their various networks exploited political connections to do everything from influencing Cabinet appointments to being granted mining licences and seeking to change banking law and practice – the latter through their patronage of Mineral Resources Minister Mosebenzi Zwane.

If the year rained rent-seekers, it poured state capture – the ubiquitous term used to describe the activities of the Gupta family and to define a heightened form of corruption that had taken hold.

“For a start, we prefer to use the term ‘corporate capture’ rather than state capture,” says Jeremy Cronin, the SA Communist Party’s deputy general secretary. His party first used the term in relation to the Guptas’ activities this year.

But the process started long before the Guptas got here, adds Cronin. He pinpoints its arrival in post-democratic South Africa to 1996 and the implementation of Growth, Employment and Redistribution, the market-friendly economic policy shepherded by then president Thabo Mbeki and then finance minister Trevor Manuel.

“There was a constitutional change, but economic policy was favourable to capital in general,” says Cronin, adding that black economic empowerment accelerated state capture because it did not change the economic structure, but instead provided highly leveraged shareholding for connected individuals.

Since then, many of the battles in the ANC are fought around which business grouping gets into power to enable greater rent extraction. Its effects on the economy are dire.

Paul Collier, a professor of economics and public policy at the Blavatnik School of Government, and director of the Centre for the Study of African Economies, both at Oxford University, has this to say: “Rent-seeking is the activity of generating and allocating transfers between economic actors. It results in waste and inequality.

“The damage is most evident in the US, where rent-seeking has faced fewer policy impediments than in Europe ... Median living standards have been stagnant for three decades, despite the growth of per capita gross domestic product.”

Some of the revelations in 2016 have been breathtaking. They came at a furious pace to suggest that the state was captured, as in Russia, Nigeria or the former Soviet states.

In those countries, the edifice serves its public in miniscule ways, with real state power exercised for dons, or oligarchs in Russia and oga – big men – in Nigeria.

For me, two instances of patronage made me think we are headed into a Mafia state. The first was Zwane’s decision to accompany the Gupta brothers to Switzerland to negotiate their purchase of Optimum Coal Mine from Glencore. It was totally unprecedented. The second was that nothing became of Deputy Finance Minister Mcebisi Jonas’ meticulous recounting of his offer of the top job by the Guptas, set out in Madonsela’s report.

A renowned arms dealer, Fana Hlongwane, and the president’s son, Duduzane Zuma, arranged to meet Jonas at the Hyatt hotel in Rosebank in Johannesburg, and then drove with him to the Gupta mansion in Saxonwold. There, Ajay Gupta offered him the job of finance minister – not for a bag of silver, but a cash payment of a mind-blowing R600 million to follow on delivery of key targets.

Gupta and Hlongwane have denied the meeting, but Madonsela writes that evidence backs up Jonas’ story. This story of ultimate capture and the power of the dons has resulted in no consequences – the president has not investigated that his power to choose his own Cabinet was usurped; neither has he explained the role of his son or his friends.

In his seminal book on organised crime, called McMafia, Misha Glenny describes what he found in the Balkans. “During the Yugoslav wars, organised criminal syndicates throughout the Balkans effectively hijacked most state institutions and subordinated them to their interests.”

At many points in 2016, as I watched our crime-fighting institutions – including the Hawks and the National Prosecuting Authority – turn tail-gunners for capture, I felt that we were well on our way to becoming a Mafia state.

The year we countered capture

Well, that’s one view. Here’s another. Let’s consider for a moment all the efforts of the shadow state that were effectively thwarted in 2016. It’s quite a list:

 - Finance Minister Pravin Gordhan may have seemed like a dead man walking, but he ends the year in a stronger position than he started it.

- The nuclear deal has been kicked into touch and postponed until it is needed for the national power grid. This is significant as the race for an expansive and potentially bankrupting nuclear deal has been key to many of this year’s political crises.

- National Director of Public Prosecutions Shaun Abrahams dropped fraud charges against Gordhan. He faces a motion – put forward in writing to the General Council of the Bar – to disbar him as an advocate. The complaint was laid by Mathews Phosa, an ANC luminary. Civil society has repeatedly used the courts to uphold the line of institutional strength and the rule of law.

- The judgment on the power and effect of recommendations made by the Public Protector in relation to overspending at Nkandla was resounding on how far President Jacob Zuma had breached his oath and the Constitution. It set a high standard for public office, against which future leaders will be judged. Presidential impunity was dealt a death blow and Zuma paid back the money.

- Big business awoke from its slumber and took an active stand against the attacks on Treasury and the SA Revenue Service.

- The media brought it all to light through excellent investigative reporting, aided by brave whistle-blowers.

. Many institutions crumbled in the face of capture, but many showed their mettle. The Financial Intelligence Centre, the SA Reserve Bank and Treasury held the line and used all systems and laws to prevent rent-seekers taking root.

- A civil society movement, called #SaveSA, is a mass-based structure similar to the United Democratic Front, the major anti-apartheid coalition which enjoyed mass support in the 1980s. #SaveSA is geared at flexing the popular muscle against corruption.

- The DA and the Economic Freedom Fighters took numerous strategic anti-corruption fights to the floor of Parliament and to court, showing the importance of a thriving multiparty system.

South Africans fought back hard against capture in many places of influence in 2016. As I think back over the year, it feels like we end it in the balance: The nation is set against capture and corruption, but its forces are emboldened and empowered by the fortunes they have accumulated and will leverage those to get more.

While the nation is bent on fighting corruption, the crony networks are still very powerful. These extend far beyond the Gupta family alone. Auditor-General Kimi Makwetu this week revealed that our water supply is threatened by similar forms of capture in the department of water affairs and sanitation. He warned that delays in contracts and awards to companies based on considerations other than technical know-how could harm water security.

Our financial security is also essential for political stability, raising concerns about what is happening at the SA Revenue Service. There, the second in command, Jonas Makwakwa, has been suspended for stuffing untraceable cash into his private bank account via an ATM.

The work of an anti-corruption movement has just started, and a lot of it is defensive – rather than being on the offensive, which would be about strengthening the anti-corruption arsenal.

The Hawks, as a powerful anti-graft force, are largely gone. And the way in which fraud charges against Gordhan were dropped revealed how fragile the National Prosecuting Authority is as an institution.

The defence against corruption in 2016 has largely – but not solely – taken place from forces outside the state. The only long-term solution to ensuring that the state is not hollowed out by capture is to fix institutions set up by democratic practice.

That is a long-term job, requiring a new broom.

The seductive power of making a quick fortune in a single generation (or less) has created Mafias well beyond Saxonwold.

In 2017, South Africa will determine whether it will travel further into capture’s claws or it will continue along the important corruption-busting trajectory fashioned this year.

Will it be Aloota Continua? Or Aluta Continua?

Haffajee is researching state capture with the assistance of the Public Affairs Research Institute

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