Business News 23.3.2018 07:41 am

The huge task of ‘recapturing the state’

The huge task of ‘recapturing the state’

It’s about much more than rooting out corruption.

Just 12 months ago, headlines were emerging that then finance minister Pravin Gordhan faced imminent arrest. Cyril Ramaphosa had hardly begun any kind of campaign for the ANC presidency and it seemed inevitable that Nkosazana Dlamini-Zuma would ascend to that position.

“It also looked like Jacob Zuma was immune to any sanction at all,” said political analyst Daniel Silke, speaking at the University of Cape Town’s Graduate School of Business this week. “The Guptas were virtually running the show.”

Considering how different things look now, Silke said, one has to acknowledge that there has been “substantial change” in South Africa.

“We’ve done remarkably well to begin to confront some of the very big demons we faced,” Silke said. “Just the reintroduction of charges against former president Jacob Zuma and the suspension of Tom Moyane at Sars are quite remarkable.”

Read: Ramaphosa suspends Sars head Moyane

Independent consultant and analyst, Raenette Taljaard, who served as a DA member of parliament between 1999 and 2005 agreed that the reinstatement of charges relating to the arms deal against Zuma are an indication of how the environment has shifted under President Cyril Ramaphosa.

“When I served on the Standing Committee on Public Accounts (Scopa), a lot of us laboured for probably two years on the arms deal never to see a real outcome,” said Taljaard. “Questions in parliament to the former president are 16 years in the past. It’s early days in a mammoth task, but we do see a very clear effort at a clean up operation.”

Lost years

Professor Haroon Bhorat from the School of Economics at the University of Cape Town agreed that “recapturing the state” is a huge undertaking. He pointed out that it was as long ago as 2010 that Barbara Hogan was fired as Minister of Public Enterprises, which could be seen as one of the first significant moments in state capture.

“Appreciating the period that we have lived under state capture and the raiding of state coffers is really important,” said Bhorat. “If it went on for eight years, that must mean that it’s not going to be a quick fix.”

He added that the damage to the country over this period was far greater than just the sum of money lost to corruption.

“Those were eight lost years in terms of building a more constructive, nuanced economic policy framework for the country,” Bhorat said. “Now we can think a bit more about economic policy, about how do to development more creatively.”

Read: We survived the budget, now for the really big questions

This is critical to guard against something similar to the Zuma era reoccurring.

“It can manifest itself again if we continue with the nature and structure of growth we have had,” said Bhorat. “That is capital-intensive growth that does not absorb labour, with rising inequality levels, and modest changes in poverty.

“It’s a classic middle income country growth trap,” Bhorat added. “If you combine that with a toxic political environment, that is what allows for what we’ve seen in terms of state capture, as the growth benefits are not there for society that is essentially fragmented along racial lines. What the current Ramaphosa regime offers is a window of opportunity to do growth differently.”

First steps

This is, however, far from a simple task. Ramaphosa has to bring competing interests together to find common ground, even within his own party.

“He has to show distinct change to keep the business community and ratings agencies on board,” said Silke. “But how does he balance that to retain unity within the ANC and to appease populist sentiment?”

The president has at least begun with a focus on reforming state-owned enterprises (SOEs) that over the past few years appear to have been primary targets of looting and have come to represent serious risk to the fiscus.

Read: SA to reform state firms after graft scandals – minister

“It’s almost true to say that, outside of Eskom, you can fire everyone on all SOE boards and you won’t lose anything,” said Bhorat. “And once you reengineer the boards you are on your way because the boards can then appoint new CEOs and CFOs and so on.”

Taljaard agreed.

“A huge amount of work is needed on the balance sheets of SOEs and finding structures that are workable and sustainable,” she said. “For instance, Eskom should have been split a long time ago. These issues are now front and centre not only for the reformers but also the ratings agencies.”

Another big issue is the public sector wage bill, which has become nearly 35% of government’s budget.

Read: SA’s whale-sized public sector wage bill approaches a cliff

“In the Jacob Zuma years we saw a ballooning of the public sector wage bill,” said Silke. “Ratings agencies will want to see action on government expenditure, and at least freezing or curtailing of some of the excess in the public service.”

Silke added that while the damage that has been done is severe, there is reason to believe it can be remedied.

“I actually believe that the social compact theory that Ramaphosa puts forward is the critical issue for us all,” he said “The question is can he get everybody on board. I think if there is anybody who can get business, labour, the state, civil society and special interest groups together as a collective it’s probably him. That’s where my hope is – in getting a collective solution.”

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