State capture: Just a big BEE deal

Thursday was a momentous day in South African democracy. A Chapter 9 institution, empowered by the Constitution, reported on an investigation into the sitting state president and called for the formation of a judicial enquiry into so-called state capture. Notwithstanding the fact that people are innocent until proven guilty, the prima facie evidence is that the president enabled a single family to infiltrate the state owned enterprises and the executive, exercising undue power as they cherrypicked lucrative opportunities to enrich themselves and the president’s son in the process. But, there is more to the story than that.

Brian Molefe, the deal-maker

The centrality of Brian Molefe in the process, CEO of Eskom, is a telling indicator of the real nature of the state of capture in South Africa. While the liberal media have portrayed the story as one of thieving and looting, supporters of the president have long argued that he is merely advancing the cause of “radical transformation”. Of course the Ethics Act governing the executive has been violated, and of course the Public Finance Management Act (PFMA) has been undermined, but that’s really no different than the subtlety with which nepotism and collusion in the private sector are undertaken under the guise of the fast-tracking of talent and leveraging strategic alliances. While the capture of the state should be condemned in the strongest terms, the bigger picture must be seen, and then commented on.

SOEs, our family businesses

When the Afrikaner nationalists created the state owned enterprises almost a century ago, their purpose was to drive industrialisation, which, coupled with our university and college system, would advance the cause of Afrikaner empowerment and wealth creation. This they did. The Afrikaner armoede (Afrikaner poverty) problem of the early 19th century was addressed as thousands of white artisans, engineers, public sector administrators, teachers, nurses and eventually business people climbed the ladder of modernity and prosperity. This caused the firm Who Owns Whom (Pty) Ltd, ironically in a report obtained from the Presidency’s website, entitled Research Report on State Owned Enterprises (2010) to state “South Africa’s apartheid government’s SOE sector produced the highest proportion of gross domestic product outside the Marxist Socialist bloc”. Impressive for a little pariah state in Africa.

This same report stated at the time “…the biggest concern surrounding BEE deals involving SOEs is corruption. The state’s role gives rise to immense potential for conflict of interest and patronage. An example of this is the proposed flow of funds through Chancellor House to the ANC through an investment in Hitachi SA, which will benefit from supplying the construction of Medupi Power Station.” One man’s corruption is another man’s transformation. The fact is, under president Zuma these entities have increasingly been run like poorly governed and unprofessional family businesses, where some members of the family are more equal than others and have their hands in the till, when the purpose of the enterprise was supposed to be the benefit of all. The Gupta’s Saxonwold mansion is basically the headquarters of the new black Broederbond, only without the koeksisters.

Steal a slice or grow the cake?

South Africa has to make a decision about how best to transform the socio-economic prospects and realities of the population, and the black majority in particular. One way is to take a slice of the national cake away from one citizen and hand it over to another. This is the argument that supporters of the president advance. “The real state capture is white monopoly capital,” they say, citing the ownership patterns of JSE-listed companies and pointing to the controlling shares of contracts servicing the SOEs. This approach is a zero-sum game where old vested interests are at war with aggressive materialistic ambition. It’s an approach that believes in a shortcut to justice, that redress must take the form of the relinquishment of positions of power and privilege and that this is central to the manadate of the president and his cadres. This is an approach that pits the Black Management Forum (BMF) and Black Business Council (BBC) against Business Unity South Africa (Busa) and Business Leadership South Africa (BLSA).

In this alternate reality Brian Molefe is a champion of the cause and deserves a national order from the president, perhaps even one of each of the Orders of the Mendi, Baobab, Mapungubwe and Luthuli; for his bravery in the face of white capital’s threats, distinguished service in righting the load shedding titanic that is Eskom, for furthering the interests of the Republic by phoning the Guptas 44 times and visiting them 19 times in four months. In doing so, they would argue, he was of the Order of Luthuli, and advanced democracy, human rights, justice and peace.

The alternative approach would prefer to grow the cake and do so in a way that gives more and more South Africans a seat at the table. The irony of course is that the Gupta family were not South Africans in the first place, nor were they black per se. They were simply non-white, corruptible and clearly had a superb grasp on how to capture state power and leverage it for personal interests.

Until their embattled CEO resigned from Oakbay recently, the Gupta machine hid behind a line of argument which said that they were creating jobs and transforming the economy. Well, they were and they weren’t. They were redistributing the economy no doubt. They were slowly squeezing the existing vested interests aside to make room for a super politically connected partly-black-owned player. But as for transformation, they were certainly transforming the SOEs from well-run century-old institutions to poorly governed, shadowy piggy banks for the political elite and their friends.

So much for a developmental state

I’ve said elsewhere that South Africa has an India-style democracy, emergent, chaotic and rich in diversity, and that the government of the day is trying to impose a China-style government on it, centrally planned, economically intrusive – without the Chinese professionalism and discipline of course.

The question is, is that mix of political economy the best fit for South Africa? I think not. South Africans have had a taste of open, transparent, accountable democratic rule. We want more of that. South Africans have proven themselves to be materialistic, aspirant and readily consumeristic. This is why the retail and unsecured credit segments have done so well amid an economic slowdown, notwithstanding the ethical and sustainability quagmire which that represents.

South Africans want an open society, with equality of opportunity, and want the state to play fair. This applies equally to the private sector and public sector. Fixing bread prices is possibly worse than drinking tea with the Guptas seven days in a row before briefly becoming finance minister, as Minister Cammo-T-Shirt Veteran Van Rooyen did.

Let’s be clear, South Africa requires a transformed economy, racially, ethnically and by gender. But South Africa more desperately requires a bigger economy with many more opportunities. This can be achieved by de-consolidating some of the sectors monopolised by SOEs and attracting investment. It will involve dismantling some of the vested interests in favour of everyones interests, but it requires a foundational commitment to good governance, accountability, transparency and fairness. The conflicts of interests inherent in the ANC’s notion of a “developmental state” need to be rethought. Let’s start with a functioning state.

If you want to be in business for personal gain, by all means, resign from cabinet and parliament or local government and go and register a business. If you have expertise, ingenuity and value to offer, customers will reward you handsomely and you will become wealthy. But please stop looking to the state and the people’s enterprises for a free ticket to your next shopping spree in the luxury section of Sandton City. We, the people, see you.