How Brazil, SA compare

Brazil and South Africa lend themselves to comparison: both are resource-rich, struggling with inequalities and have a long history of corruption.

There are also some key differences.

Brazil jailed corrupt politicians and officials, while no high-level officials in South Africa face jail time for corruption, notwithstanding last week’s arrests of four government officials after an investigation into the R255 million asbestos audit project.

Former Brazilian president Dilma Rousseff was impeached in 2016 after investigations into state-owned petroleum company Petrobas, of which she had been chair, revealed bid rigging to inflate contract prices.

A portion of profits had been funnelled back to politicians and state officials.

In 2018, another former Brazilian president, Lula da Silva, was jailed for 12 years for corruption and money laundering. Both Lula and Rousseff denied the charges against them and claimed irregularities in the way their cases were handled.

This look a rather like Jacob Zuma’s new-found contempt for the Commission of Inquiry into State Capture, which he appointed.

He now wants Deputy Chief Justice Raymond Zondo to recuse himself for supposed bias after ordering him to appear before the commission.

Brazil’s swift, decisive action

Alistair MacDonald, institutional portfolio manager at Franklin Templeton Emerging Markets Equity, told the
Morningstar Investment Conference last week that Brazil dealt decisively with corruption, punished those involved and embarked on reforms.

It relaxed labour laws, reformed the pension fund system, equalised private and public pensions, imposed rigorous standards for state-owned company appointments, and introduced changes in its mining code.

It also introduced a spending cap bill to limit government spending growth.

SA’s reaction …

Contrast this with SA, where budget deficits are exploding and negotiations to reduce the public sector wage are unresolved. The state wants to save R233 billion over the next two fiscal years, but this seems unrealistic.

Once Brazil had put its high-profile corruption cases to bed and introduced reforms, its economy took off like a rocket (after slumping in 2015).

Big fish likely to walk free

As political analyst Justice Malala told the Morningstar conference, smaller fish are likely to cop the blame for corruption while the bigger ones walk free.

MacDonald said there are signs of prudence in the board appointments at state-owned entities (SOEs), but still little improvement at larger SOEs such as Transnet, Eskom and SAA.

While Brazil decreased the local content requirement for equipment purchases for oil and gas exploration, SA has introduced no such reforms.

SA’s mining regulations still do not address investor concerns over domestic procurement and ownership. Labour laws are seen as inflexible and anticompetitive, and the ANC has little appetite to face down the trade unions.

Perhaps the most frightening chart presented at the conference is of SA’s debt servicing costs as a percentage of gross tax revenue.

Interest is now absorbing twice the tax revenue of 2010 in percentage terms.

This article first appeared on Moneyweb and was republished with permission.

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