South Africa has caught the world’s attention with an epic battle between two powerful factions within the governing ANC, which has spilt into the government. Deputy President Cyril Ramaphosa has aptly described this as a government that wages “war with itself”.
On one side is the largely rural-based faction of patronage politicians around President Jacob Zuma. The other side is less well defined but it can be safely assumed beleaguered Finance Minister Pravin Gordhan is among them. What makes this battle different from the usual political quarrels is the viciousness with which the patronage politicians are fighting to get the upper hand.
The World Bank’s Joel Hellman has defined state capture as the efforts of firms to shape the laws, policies and regulations of the state to their own advantage by providing illicit private gains to public officials.
In South Africa, obtaining government tenders should be added to the channels through which unscrupulous firms and individuals can benefit from state capture.
It is necessary to understand the system of patronage politics and the state capture that fuels it to understand why replacing Gordhan is so important to Zuma. So important, he is willing to risk the unity of his party and losing South Africa’s investment grade sovereign debt rating, which would have devastating effects on the economy and the budget.
The South African captors are reportedly the wealthy Gupta family. The money provided by the Guptas allegedly fuels the patronage machinery Zuma and his cronies use to fight for dominance in the ANC. The family have denied such allegations.
South Africa has reached a critical point. If the patronage politicians win the battle within the ANC and complete the capture, it will slip from stagnation into the abyss.
As part of their fight for dominance, patronage politicians have attacked the freedom of press, as well as the rule of law.
Hlaudi Motsoeneng, chief operating officer of the SABC, turned the public broadcaster into a propaganda machine by telling its journalists “do not focus on negative stories”. The resulting mess even triggered criticism from some in the ANC’s top leadership.
Institutions that guarantee the rule of law have suffered. The reputation of the National Prosecuting Authority, for example, has been shredded by its decision to appeal a High Court ruling to reinstate the 783 corruption charges against Zuma. The charges were dropped in suspicious circumstances in 2009, paving the way for Zuma to become president.
Similarly, the Directorate for Priority Crime (known as the Hawks) has been used to create a narrative that would allow Zuma to replace Gordhan with someone from the patronage camp. UCT legal expert Cathleen Powell argues the Hawks’s continuing attacks on Gordhan are “not only nonsensical, but are obviously nonsensical”. The Hawks, she says, are behaving in a way that “is blatantly outside their powers under law”.
This week, a new front has been opened. First, ANC deputy secretary-general Jessie Duarte questioned the independence of the Reserve Bank, saying its private ownership posed a “difficulty”. Then, Mineral Resources Minister Mosebenzi Zwane suggested to the cabinet the right to grant banking licences be moved from the Reserve Bank to the National Treasury. The treasury has been a target for capture as it controls the government purse.
From an economic perspective, the comments by Duarte and Zwane are nonsense. The Reserve Bank’s independence is enshrined in the constitution. And the bank has been lauded for its independence, for maintaining price stability and for ensuring the health of the banking sector.
To suggest the National Treasury should conduct banking supervision is contrary to international best practices and would weaken banking supervision. Through the foolishness of their suggestions, Duarte and Zwane reveal their true colours. Zwane has been linked to the Guptas since his appointment as minerals and energy minister while Duarte’s son-in-law has been linked to the family.
The economic consequences of state capture are devastating. South Africa’s dysfunctional state-owned enterprises, from SAA to national power utility Eskom, are weighing heavily on the economy.
The parlous state of state-owned enterprises was amplified this week when Futuregrowth, Africa’s biggest private fixed-income manager, announced it would no longer be lending money to any of them, including Eskom.
Losing the confidence of Futuregrowth and other institutional investors will exacerbate the country’s economic woes. South Africa will not only lose access to much-needed funding for infrastructure projects, it will also increase its chances of alienating international investors, as well as rating agencies.
This is something it can ill afford, given its large current account deficit. Without investment, and without its current sovereign rating, the currency will plummet even further, exacerbating inflationary pressures.
There is no quick fix to the crisis. The only way of getting rid of patronage politicians is through a political process.
A government needs checks and balances from a strong civil society. The ANC, it seems, has not understood the warning voters sent during the recent municipal election. Let’s hope it will understand the warning international investors are sending before the damage to the economy becomes irreversible. – The Conversation
Co-Pierre Georg is senior lecturer, African Institute for Financial Markets and Risk Management, UCT