Opinionista Ivo Vegter 13 October 2015

Corruption is now official policy in South Africa

President Jacob Zuma made some choice remarks before and during last weekend’s African National Congress (ANC) national general council meeting. Most glaringly, besides giving overt support to the political objectives of the South African Communist Party – that is, communism – was his warning that businesses which do not donate to the ANC are in danger.

Ivo Vegter

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

According to a recent report in the Mail & Guardian, President Jacob Zuma was not very subtle at the ANC’s Progressive Business Forum gala dinner last week, in advance of the party’s national general council.

I always say to business people that if you invest in the ANC, you are wise. If you don’t invest in the ANC, your business is in danger.”

The implication is that the ANC deserves financial support because it “creates business opportunities for companies,” according to the paper. “This organisation does not make profit, but we create a conducive environment to those who make profit. Once you make profit, you know what to do.”

If the point was not clear enough, the Mail &Guardian quoted him some more: “The TG [ANC treasurer-general] is a nice and a handsome young man. When he knocks, open the doors. If he says we need something he will ask one thing only. If he says support the ANC, just write a blank cheque with the instruction that it should be six digits.”

Just write a blank cheque.

The gall of the man never ceases to amaze. But let’s get a few things clear before analysing why these statements are so alarming.

On paper, the ANC this past weekend “reaffirm[ed] its resolve to root out corruption”. It wants to improve the standing, capacity and powers of the Integrity Commission, a rather toothless body peopled by dodgy characters appointed by the party’s national executive council. Well, hurray for nice things to put in press releases, but we’ll soon see why this is mere window-dressing.

All political parties depend on funding to function. The state does provide limited funding to political parties, but the balance needed to fight election campaigns, conduct policy research and manage the organisation comes from individuals, foundations and companies. The Democratic Alliance is no different. It certainly has wealthy corporate donors it calls upon to give generously to the cause.

There are two reasons why Zuma’s statements are worrying. If you give him the benefit of the doubt, he was just saying that an under-funded ruling party would make it less effective, which would harm the economy of South Africa, and that would be bad for business.

But if, for “creating business opportunities” you read “award government tenders”, the meaning becomes ominous. Many companies will hear in Zuma’s words a veiled threat: if you aren’t on the ANC donor list – with donations of six figures or more – then you will not be treated favourably when public sector contracts are awarded.

There is a dangerous blurring of the lines between political party and state, when the state constitutes half the economy. The ruling party, because it holds power, has the ability to significantly influence and direct very large amounts of business.

(In the case of opposition parties, the danger is less acute, except in areas where they hold power. This doesn’t let them off the hook, though, since they by definition seek the very power that money can corrupt.)

A recent settlement, worth $19-million, which Hitachi paid to the US Securities and Exchange Commission on behalf of its South African subsidiary, exemplifies the problem. The US regulator had accused the company of making improper payments of millions of dollars to Chancellor House, which acts as a front company for the ANC.

Veteran corruption-busters Sam Sole and Stefaans Brümmer, writing for the Mail & Guardian back in 2007, first broke the story that Chancellor House owned a 25% stake in Hitachi Power Africa, which had won much of a R20-billion contract to supply boilers to Eskom’s new power plant, Medupi. Kgalema Motlanthe, the ANC’s secretary-general at the time, admitted that the sole purpose of Chancellor House was to fund the party.

At the time I wrote a blog post, entitled Corruption House, in which I lamented the blatant cronyism and state corporatism Chancellor House represents. The award of a major contract by a state-owned enterprise, funded by taxpayer money, would directly benefit the coffers of the ruling political party, via a company which the ANC admitted was a front.

Notably, the preferred bidder until the last moment, Alstom, was turned down in favour of Hitachi. An investigation at the time did find a conflict of interest, in the person of Mohammed Valli Moosa, a senior ANC member who was chairman of the board of Eskom at the time, but said this did not influence the deal.

Still, one wonders what Hitachi and Alstom executives make of Zuma’s statement about “creating business opportunities”, and “if you don’t invest in the ANC, your business is in danger”.

I know what I’d be thinking if I were in business: better find out whether donations to the ANC are tax-exempt.

Ranjeni Munusamy, in her review of the implications of the Hitachi settlement over its financial arrangements with Chancellor House, is pessimistic that anything can be done to curb this kind of corruption. While it is easy to condemn in principle, it is difficult to prove in practice. How do you distinguish this sort of arrangement from any other business that wins government contracts, and also makes voluntary donations to the ANC?

And if you could prove corruption, prosecution authorities may not have the political will to pursue such cases, having learnt that going up against the ANC can only lead to shortened tenures for top prosecutors and police officers. The ANC is also well versed in facing down demands from opposition parties in Parliament, as well as by the Office of the Public Protector.

It looks likely that this scandal will fade and become part of the vortex of unanswered questions and lack of political accountability in our country … unless there is transparency in political party funding, the potential for corruption and illicit dealings is great,” Munusamy writes.

This raises a thorny issue. Political donations made by individuals are secret for the same reason your vote is cast in secret: to prevent intimidation and retribution. Making donations public knowledge would be a serious step with serious consequences.

Some countries make large political donations publicly declarable. Others ban corporate donations. Some ban all donations and fund political parties out of the public purse. Judith February, a governance specialist based at the Institute for Security Studies, covered the options in some detail in two recent editorials. A campaign group of which she is the coordinator, My Vote Counts, recently brought an action in the Constitutional Court to require political parties to disclose their funding. It lost on technical grounds, not on the merits of its argument.

In principle, transparent political party funding sounds like a good idea. But in return for sacrificing the privacy of exercising the right to support political parties, what would we get? The ANC already openly admits that Chancellor House exists to fund the party. It openly tells business: donate to us, or things will go badly for your company. What would we gain by knowing just how many millions the ruling party gets out of its special-purpose funding vehicles, or how many boards of directors buckled and coughed up protection money?

For that matter, what would we gain by knowing that Bob the Builder donated to a ruling party, which is its democratic right and is in no way unusual, and subsequently won a government tender? Would it be fair to disqualify a donor to a political party from future government contracts, given that this would exclude them from half the country’s economy?

In fact, might publicising political party donations not worsen the problem, because tender adjudicators will now know exactly who donated how much to their party, and could quietly take this knowledge into account? They say this didn’t happen when Hitachi edged out the favourite, Alstom, but how would we know if it did?

You could prohibit corporate donations to political parties altogether. This would require a substantial increase in the tax-funded portion of political party funding, however. Also, since individuals can still donate in their personal capacities, you can bet your bottom dollar that corporate influence peddlers will find their way around such a restriction.

Prohibiting all private donations, including from individuals, could be interpreted as curtailing the constitutional right to form a political party and participate in its activities. All parties need money to operate, and all parties by necessity start with private funding. The US argument, that limiting the individual right to donate to political parties amounts to a restriction on free political speech, is also not without its merits.

None of these solutions seem satisfactory. Shall we then agree with Munusamy that “South Africa has to contend with the stench that something fishy happened. Even worse, we will have to learn to live with it”?

Frankly, yes we will. And the reason is this: as long as the state controls half the economy through government contracts and state-owned enterprises, there will be crony-capitalist corruption. There is no way to prevent this.

Back in 2007, Motlanthe reportedly told Carol Paton of the Financial Mail: “The ANC can have an investment vehicle – but it must do business out[side] of government procurement, even outside of South Africa, so there’s no conflict of interest.”

You could do this in the case of Chancellor House, and I would strongly recommend that the ANC does so, if it takes its declared commitment to integrity seriously. You can act against the more obvious cases of conflicts of interest, such as when a single person is pivotal on both sides of a contract, or a political donation can be proven to be a bribe.

But unless you exclude all political donors from government procurement, there will be conflict of interest. Unless, of course, you make the government as small as possible, so that there isn’t so much power to corrupt and companies won’t be so dependent on government business. But if Zuma dreams little dreams of communism, I don’t see small-government policies in the immediate future.

When the government “creates business opportunities”, corruption pays. You can have all the integrity commissions you like, and issue all the declarations you want about rooting out corruption, it won’t help if corruption is inherent in the relationship between companies, the ruling party, and the government.

To quote some guy who knows all about it: “If you invest in the ANC, you are wise. If you don’t invest in the ANC, your business is in danger.”

That does not root out corruption. That makes it public policy. DM



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