Opinionista Jeremy Cronin 14 August 2020

‘Tenderised state’ is a tough issue that must be tackled

South Africans are understandably appalled by the corruption scourge, but ethical pleading and criminal justice interventions are not the full answer to a plague that threatens to consume our democracy. We must think more profoundly about a range of problematic institutional, legislative and strategic assumptions in our society.

Amid the Gauteng Covid-19 personal protection equipment (PPE) procurement scandal, President Cyril Ramaphosa delivered a 9 April Women’s Day message. In his address, he announced a national strategic plan that includes measures to “promote women’s economic inclusion”. “We will do this,” Ramaphosa told the nation, in the first place “by setting aside 40% of public procurement for women-owned businesses.”

On the same day that Ramaphosa was delivering his Women’s Day message, the Sunday Independent carried a front-page story on the Gauteng PPE scandal (“Ledla settles Diko’s PPE bill”). The story claims to be sourced from an affidavit supplied to Special Investigating Unit (SIU) investigators by Jonathan Maake, a director at Mediwaste. 

Without going into every detail in a tangled story, as is now well known, AmaBhaca Chief Diko’s company Royal Bhaca Projects was one of 75 original successful bidders for the Gauteng R2.2-billion PPE procurement. According to the Sunday Independent story, when the scandal broke, Diko (whose wife, of course, was Ramaphosa’s official spokesperson), used another company, Ledla Structural Development, to act as agents on his behalf, while claiming he was no longer involved in the procurement.

Ledla director Rhulani Lekongo-Mboweni (her day-job is as a senior Nedbank manager), on the basis of a Google search for likely suppliers of medical waste packaging, met Mediwaste director Maake. As the Googling implies, neither Ledla Projects nor Royal Bhaca had any experience or competence in medical waste products. In a series of twists and turns, prices were enormously inflated.

Royal Bhaca, supposedly no longer in the tender, got reimbursed by Ledla, which no doubt took a fronting commission. Then, in a second tranche of the deal, apparently acting behind the back of Royal Bhaca, Ledla arranged with Mediwaste to further inflate prices (one item is reported to have risen from 65 cents a unit to 95 cents and then to R2.95). About R1-million apparently flowed into Rhulani Lekongo-Mboweni’s account and Mediwaste received R4-million.

If the story is accurate, then here we have, writ large, an all-too-familiar tale of corruptible elements in government, price gouging and a “value chain” of rent-seeking intermediaries, procuring goods or services for which they often have no actual experience or competence.

The Gauteng PPE scandal has rightfully provoked an avalanche of public anger and, at least for many in the ANC, a deep sense of shock (some would say belatedly, others might suspect pragmatism — “they’re worried about losing the next elections”). Whatever the causes of shock, the Gauteng government has taken quick measures and the SIU appears to be dealing energetically with the matter. The accounts of Royal Bhaca, Ledla and Mediwaste have been closed and Gauteng officials are being actively investigated.

But how do we even begin to explain something like this? More importantly, how do we meaningfully address what now seems to have become endemic corruption in much of the ruling party, in government and society more broadly?

To be sure, ethical behaviour (however we define it) and getting at least some of the most egregious offenders into orange overalls would help. These are necessary measures, but are they sufficient responses? What institutional, programmatic and embedded strategic assumptions are also at play?

Most public discussion focuses on morality and on strengthening a criminal justice system badly weakened, especially, although not only, during the Zuma presidency. The need for ethical leadership and reference to the ANC publication “Through the Eye of the Needle” have been invoked endlessly since at least the early 2000s within ANC ranks.

To be sure, ethical behaviour (however we define it) and getting at least some of the most egregious offenders into orange overalls would help. These are necessary measures, but are they sufficient responses? What institutional, programmatic and embedded strategic assumptions are also at play?

I suggest that there are at least three inter-related vectors down which the pandemic of corruption is proliferating – public sector procurement; the neoliberal transformation of the public sector into a procurer, not a doer (the tenderised state); and the assumption that promotion of a supposedly “patriotic” black capitalist class is both possible in South African realities and desirable as an important pillar of building what the ANC calls a national democratic society.

Our 1996 Constitution, under section 217 (1) on public sector procurement says “when an organ of state…contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective”. Well and good.

Given the hugely distorted structural realities of our society, under 217 (2) the Constitution, understandably in my view, then adds that this “does not prevent the organs of state…from implementing a procurement policy providing for (a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons or categories of persons, disadvantaged by unfair discrimination (…)” Of course, 217 (2) is still subsumed under the broader requirements of 217 (1) to be fair, equitable, transparent, competitive and cost effective.

As its name suggests, the national Treasury’s Preferential Procurement Policy Framework Act (2000) seeks to give legislative effect to 217 (2). In the Act, there is a small but potentially problematic introduction of a new word – “historically”. Disadvantaged by unfair discrimination becomes historically disadvantaged.

Now, of course, contrary to many white right-wingers and colour-blind liberal proponents of meritocracy, with a conveniently a-historical understanding of the supposed merits of their favoured meritocrats, the legacy of a dreadful past lives on in the present. Poverty, unemployment and much else remain strongly marked by race and gender.

But to what extent is today’s once-upon-a-time historically disadvantaged BEE multi-millionaire, for instance, still disadvantaged? Anyone who has followed these matters will know that the notion of historical disadvantage has introduced a great deal of emerged black capitalist gaming in the government tendering process.

We argued that South Africa in the mid-1990s was not a backward South Korea of the early 1960s with a GDP inferior to Ghana and under the authoritarian rule of General Park’s dictatorship. With Park’s militarised command system, and with plenty of US Cold War backing, South Korea launched a remarkable developmental surge, driven considerably by the animal spirits of an emergent, but tightly controlled, national bourgeoisie.

Which brings me to the second thread of recent history relevant to the topic of public procurement. In 1997, then deputy president Thabo Mbeki and a circle of close associates engaged an ANC-alliance summit with a discussion paper entitled “The state, property relations and social transformation”. It argues: “In a systematic way, the NDR [the national democratic revolution] has to ensure that ownership of private capital at all levels…is not defined in racial terms.” (Paradoxically, ownership of private capital then gets defined and measured in racial terms – but let’s leave that aside.) The discussion document proceeds: “Thus the new state – in its procurement policy, its programme of restructuring state assets [AKA privatisation], utilisation of instruments of empowerment, pressure and other measures – promotes the emergence of a black capitalist class.” (Notice how in this version of the state it is a procurer, privatiser and regulator – not a productive doer – more of which below.)

At the time, the South African Communist Party (SACP) raised two questions. Is it even possible, given South Africa’s relatively developed capitalist economy and long-established capitalist class (overwhelmingly white and male, of course) for a standalone black capitalist class in its own right to be forged? And secondly, relatedly, could such a hypothetical class play a patriotic role, driving technological modernisation and broad economic development?

We argued that South Africa in the mid-1990s was not a backward South Korea of the early 1960s with a GDP inferior to Ghana and under the authoritarian rule of General Park’s dictatorship. With Park’s militarised command system, and with plenty of US Cold War backing, South Korea launched a remarkable developmental surge, driven considerably by the animal spirits of an emergent, but tightly controlled, national bourgeoisie.

Nor was South Africa of the 1990s anything like China in the late 1970s when Deng Xiaoping initiated major reforms that permitted the eventual emergence of a new technologically innovative national bourgeoisie, again under strict central supervision, in this case of the Chinese Communist Party.

Nor could we in South Africa emulate “what the Afrikaners had done”. Shamefully this was an argument sometimes advocated by aspirant ANC-aligned capitalists without capital. They happily ignored the small detail that the emergence of volkskapitalisme was based on primitive surplus accumulation in an agricultural sector that relied on the hyper-exploitation of influx-controlled black labour, some of it literally convict labour.

Sadly, but predictably, many of these forces are now entrenched within branch, regional, provincial and national leadership of the ANC, and the tail does considerable wagging of a supposedly vigilant dog.

Aspirant capitalists without capital can only become capitalists through a process of primitive accumulation of one kind or another. In the South African reality, the SACP argued, new fractions of the capitalist class could only really emerge in any substantive way through taking on indebted shareholding from existing monopoly capital (with all the dangers of fronting and compradorism), or through the diversion of public resources into private pockets (parasitism).

Interestingly, back in 1997 in the discussion paper, Mbeki conceded that these were real concerns: “While these forces [an emergent black capitalist class] are direct beneficiaries of the NDR…they can easily be co-opted into the agendas of their white counterparts; and they can easily also become a source of corruption within the state.” This was a prophetic concession, but the Mbeki paper simply concludes: “ANC leadership of these forces is therefore critical.”

Sadly, but predictably, many of these forces are now entrenched within branch, regional, provincial and national leadership of the ANC, and the tail does considerable wagging of a supposedly vigilant dog.

I am not suggesting that BEE beneficiaries, for instance, are individually and inherently amoral persons, any more than their white capitalist colleagues. However, there are systemic limitations to what is possible. There are inherent accumulative tendencies within South Africa’s political economy. It was a point that Saki Macozoma, one of the early BEE beneficiaries, once made in response to criticisms from within ANC circles that he was not doing enough for his black brothers and sisters. “How do you expect me to behave any differently from other capitalists? If I did, I would soon be out of business.”

What kind of state do we need? What kind of state do we have?

Insofar as we live in a capitalist society there is no justifiable reason why the capitalist class should be overwhelmingly white and male. The Freedom Charter quite correctly calls for the removal of all discriminatory barriers on, for instance, the right to trade.

We should certainly use the state to foster and enforce “patriotism” among capitalists (white or black), encouraging national re-industrialisation, job creation, fixed investment, localisation, and beneficiation. We should certainly actively curb capital flight and unethical base erosion using off-shore tax havens and illegal transfer pricing (something many BEE beneficiaries are reputedly as adept at facilitating as their white counterparts). We should certainly support government’s Black Industrialist Programme where the idea is to provide state support to black entrepreneurs with actual productive and job-creating capacity. And we should certainly not conflate a critique of BEE procurement policies with a whole wide range of absolutely necessary affirmative action and other state interventions that seek to transform racialised, gendered (and class) inequities whether through employment equity measures, or NSFAS bursaries, or professional development through the recognition of prior on-the-job learning, or land reform, and much else besides.

Which brings me to the third interrelated factor when we attempt to address key structural vectors for the corruption epidemic. What kind of state do we need? What kind of state do we have?

South Africa’s democratic breakthrough occurred in an unpropitious global moment, at the very height of neoliberal triumphalism. A key pillar of neoliberalism was the re-purposing of the state to roll back the public provision of welfare, to privatise publicly owned utilities, and to generally act as an aggressive hand-maiden to the interests of the globalised financial sector.

“The state should steer not row” was a maxim enthusiastically embraced by some in the new government. We have since discovered that if you don’t have some of your own public-interest oars in the water, steering is near impossible.

nder the aegis of the neo-liberal new public management approach, the post-apartheid state, including its public utilities, now framed as state-owned enterprises, was increasingly hollowed out into a procuring, not a doing state.

“It’s not the job of government to create jobs,” Trevor Manuel insisted, as if the hundreds of thousands of Covid-19 frontline public sector nurses, community health workers, municipal sanitation workers (those whose jobs have not yet been outsourced), policemen and women are not currently performing absolutely essential work. Public sector investment in the real economy was said to be “crowding out” private (for profit) investment – a theme repeated recently by the Treasury in opposition to the expansion of public purchasing of government bonds.

Under the aegis of the neo-liberal new public management approach, the post-apartheid state, including its public utilities, now framed as state-owned enterprises, was increasingly hollowed out into a procuring, not a doing state. My own experience as a deputy minister in two national departments underlined this challenge. In these departments, there were many excellent engineers, architects, quantity surveyors, urban planners and other professionals, many of them young black graduates, but they typically spent very little time actively practising their professions. At best they were brought in to assist with preparing and adjudicating tenders.

It is seldom recognised how this problematic tenderising of the state, opening the door to corruption is facilitated (perhaps unintentionally) by legislation such as the Public Finance Management Act (PFMA), bolstered by multiple Treasury regulations, instructions and practice notes, and monitored by the auditor-general’s office.

A little-noticed judgment in the Western Cape Division of the High Court in June this year is instructive in this regard. Acting Judge Wesley Vos set aside the auditor-general’s qualified audit reports on Western Cape’s Department of Agriculture for two financial years. The department had set up a dedicated public agency staffed appropriately with relevant professionals to assist it with one of its mandated public functions. The department transferred budget to the agency annually. The auditor- general ruled that in terms of the PFMA these were not inter-governmental transfers but the procurement of goods and services and should, therefore, have gone out to open tender. 

If President Ramaphosa has his way, in fact, at least 40% would have to be tendered out to women-owned private businesses, with all of the attendant moral hazard and further hollowing out of public-interest state capacity. Fortunately, Judge Vos has ruled that these were, indeed, legitimate inter-governmental transfers. But a block-headed Treasury, I understand, is seeking to appeal the decision.

I am quite sure that President Ramaphosa is deeply concerned about the corruption scourge and wishes to do everything in his power to deal with it. I am equally sure that an often all too arrogant Treasury is also appalled by the corruption. However, unless we think more profoundly about the systemic features of our society and a range of problematic institutional, legislative, programmatic and strategic assumptions, beyond ethical pleading and criminal justice interventions, then we are not going to roll back the plague of corruption that threatens to consume our democracy. DM

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