A monopoly on corruption

If you look anywhere in the developing world, corruption will be found. Whether it’s in Russia, Malaysia, Brazil or South Korea, emerging economies face this challenge.

However, it is a particular kind of corruption that has come to be given the name ‘state capture’ here in South Africa. Speaking at the launch of a new booklet that details how South Africa’s largest state-owned enterprise, Eskom, has become central to state capture, Professor Haroon Bhorat of the State Capacity Research Project said that we are still coming to an understanding of the economics of it.

“One model that we have is that the market for corruption has become monopolistic,” he said. “If you have a large number of people that have small gains in the system, its a stable form of corruption. But if one player dominates the market for corruption, perhaps it becomes unstable.”

What has allegedly taken place at Eskom supports this idea.

Re-purposing the state

The State Capacity Research Project is a collective of academics that have analysed how structured and methodical the system of corruption has become in South Africa. Earlier this year it produced the report entitled Betrayal of the Promise that analysed how it all works.

“I think the value of that report is that it showed conclusively that we are not dealing with random acts of corruption, but a systematic political project to re-purpose the state to facilitate the concentration of rent seeking and corruption,” said Professor Anton Eberhard of the University of Cape Town’s Graduate School of Business.

Eberhard and Catrina Godinho have now produced a follow up to the Betrayal of the Promise study that looks specifically at Eskom. It pulls together all the information that has emerged on what has taken place at the energy utility to create an overall picture of how its governance has allegedly been systematically destabilised since Jacob Zuma became president, and how this allowed for corruption to take hold.

It began with the sacking of Barbara Hogan as Minister of Public Enterprises in November 2010, which Eberhard argues was due to her refusal to allow Zuma to interfere in board appointments. She was replaced by Malusi Gigaba, who overhauled the board the following year and effectively set in motion the series of events that culminated in the appointment of Brian Molefe and Anoj Singh as CEO and CFO respectively in 2015.

While Eskom had already signed questionable coal contracts with the Gupta-owned Brakfontein mine prior to this, Eberhard says it was only after the two former Transet executives came on board that the takeover of Optimum Coal Holdings became possible, giving the Guptas what they were truly after.

“With the governance of Eskom thus captured and re-purposed, the next period witnessed the scaling up of grand corruption, with the Guptas now managing the complex enterprise of brokering, money laundering and concentrating rent seeking,” said Eberhard. “And the chutzpah of the Guptas since has been astounding. When they came into a new enterprise, they effectively wanted everything.”

Professional failure

Former Minister of Finance, Pravin Gordhan, also spoke at the launch of the booklet and noted that it’s important to consider who has been facilitating this process.

“The booklet is a very important piece of work to start unmasking, to start unfolding, to start exposing the actual mechanics of state capture and what is essentially a grand scheme of corruption that is undertaken by professionals in many of these institutions,” said Gordhan. “These are people who have passed all their exams at university, registered with professional bodies, carry one or other letter or letters after their names, like CA. They are people who are supposed to be ethical in the way in which they conduct themselves, but whose professions have been caught flat footed in terms of how to deal with the collaborators in corruption and state capture.”

This of course does not just refer to the implicated people within Eskom and other state-owned enterprises, but the auditors and other service providers who have allegedly been complicit, if not by aiding what was going on at least by over-looking it. How is it, Eberhard asked, that Eskom only received a qualified audit for the first time in 2017 when there have been issues going back to at least 2011?

Gordhan argued that nobody should be allowed to pretend neutrality in this.

“There is no middle ground left any more,” Gordhan argued. “We can’t sit on the fence and watch this show go by because there are serious consequences. Either one is going to passively approve of state capture and corruption and the consequences that flow from it, or increasingly we need to get more and more of us directly or indirectly involved in fighting state capture, understanding state capture and mobilising communities, as we have done many times throughout our history, in order to oppose it.”

Brought to you by Moneyweb