What the hijacking of South Africa's Treasury means for the economy

There are claims President Jacob Zuma may push through irresponsible proposals relating to higher education funding.
Reuters

South Africa has been rocked by news that President Jacob Zuma has bulldozed the country’s National Treasury to adopt a fee free higher education proposal without following standard process and scrutiny. This is reportedly what’s behind the resignation of the Treasury’s respected head of budgeting, Michael Sachs. The Conversation Africa’s Sibonelo Radebe asked Seán Muller to weigh up the implications.

How significant is the resignation?

Reports indicate that the resignation came as a result of interference in the budgeting process. There appears to have been an attempt to push through irresponsible proposals relating to higher education funding. From a technocratic perspective this is a serious a blow to the Treasury’s credibility.

What’s unfolding can be seen as a continuation of the “state capture” inspired attack on National Treasury that began in 2015 with the firing of the then finance minister Nhlanhla Nene. The attack was temporarily halted and Zuma had to reverse the appointment of trusted ally Des van Rooyen.

The president relented by bringing back trusted finance minister Pravin Gordhan. But then he fired Gordhan early this year and replaced him with another ally Malusi Gigaba. This was followed by the departure of the department’s director general Lungisa Fuzile.

The head of the budget office is arguably one of the most important positions within the Treasury. The incumbent, Sachs, played a pivotal role in protecting the country’s public finances while also increasing transparency and engagement with civil society.

He is the son of former constitutional court judge and anti-apartheid activist Albie Sachs, and a former member of the ANC’s Economic Transformation Committee. He had unparalleled insight into both the bureaucratic and political sides of the budget process. His resignation indicates the extent to which political dysfunction has compromised responsible management of public finances.

How does the proposal for increasing higher education funding compromise the budget process?

One of the major achievements of post-1994 governments was to embed a thorough, bureaucratic and political process of developing the annual national budget and the medium-term budget. Within this process, any major changes to budget priorities are signalled in the medium-term budget. They are then gradually integrated into successive national budgets.

Any intention to dramatically change the structure of the budget – for instance, by cutting social grants in order to pay university fees – should have been contained in the medium-term budget.

In the current case, the Heher Commission, under retired Judge Jonathan Heher was established to investigate higher education funding. It handed its report to the president on the 30th of August, before the presentation of the 2017 medium-term budget policy statement. Its findings should have been released earlier and any decision reflected in the medium-term budget. That would have provided a basis for Parliament to facilitate democratic oversight of the proposals and alerted citizens and stakeholders to government’s intention.

What’s more worrying are reports that the president has ignored the Heher Commision’s recommendations. Given the extensive consultation by this commission, it would arguably be irrational and irresponsible to ignore its findings and implement an ill-conceived, “populist” removal of university fees.

Regardless of the merits of such proposals, to try and ram them through in the period between the medium term budget, in October, and the national budget in February is reckless. It will undermine the credibility of South Africa’s public finance management and carries negative implications for investment, credit ratings and economic growth.

What is your view on the call for free university education?

We should start with the widely accepted principle that no student who is suitably qualified for university education should be prevented from pursuing it. Given this principle we then need to ask the following questions:

• How many students does the basic education system adequately prepare for higher education?
• How many of those need financial support and to what extent?
• What are the total cost implications of providing all such students with the necessary support, whether in grants or loans?
• Can the country afford to do this for all such students immediately?
• Even if we can afford it, is it the most equitable use of such funds?

I have argued previously that too many students are being admitted into the higher education system. Many are ill-prepared given the poor quality in the schooling system.

Evidence on the household incomes of students in higher education indicates that – relatively – they are much better off than the majority of South African youth. Youth outside the further education system get little, if any, direct support from government. And so a large increase in funding for university students is not the best way to assist poor youth.

What are the implications beyond education?

There are two major implications.

Firstly, it increases the chances of a downgrade of the country’s debt that’s held in local currency. Even before these recent events I argued this was almost inevitable. My view then was mainly informed by the revenue shortfalls indicated in the medium term budget, poor economic growth forecasts and the government abandoning its policy of fiscal consolidation (stabilising government debt).

The resignation of the head of the Treasury’s budget office makes the situation even more dire. The interference that induced it constitutes an unprecedented subversion of the country’s national budget process and National Treasury’s mandate to ensure stability and sustainability of public finances.

Secondly, the way in which the president intends to unilaterally ram through his favoured approach to higher education funding signals that a similar approach could be taken with a decision to pursue nuclear power. At the time of the medium-term budget, Finance Minister Malusi Gigaba indicated that government cannot afford nuclear. But shortly afterwards the new minister of energy, David Mahlobo, and Zuma both suggested that they are preparing to push it through. If that happened, it would further compromise South Africa’s public finances and economic growth.

There was some hope that a victory in December for the anti-state capture grouping in the governing African National Congress’s elective conference might be able to stabilise governance and public finances. But it now appears that a great deal more damage could still be done by the president before then.

Seán Mfundza Muller, Senior Lecturer in Economics, University of Johannesburg

This article was originally published on The Conversation.

Why South Africans should be worried by ANC talk of a 'colour revolution'

Ukrainians mark the first anniversary of the Orange Revolution in 2005.
REUTERS/Gleb Garanich

The term “colour revolution” has recently found its way into South Africa’s political vocabulary. The evocative phrase is increasingly cropping up in government and ruling party speeches.

African National Congress (ANC) Secrecy General Gwede Mantashe has, for instance, claimed that the party is under threat from a “colour revolution”. And in a recent speech David Mahlobo, former State Security Minister and now energy minister, argued that African countries are also under threat. He claimed that these “colour revolutions” were as a result of the

nefarious activities of rogue NGOs threatening national security.

It is easy to dismiss Mantashe’s and Mahlobo’s statements as the rantings of an increasingly paranoid ruling elite. But doing so would be a mistake. The “colour revolution” is a full blown intelligence doctrine - or a principle of intelligence policy - used by authoritarian or semi-authoritarian regimes to guide responses to protest movements. It is most closely associated with regimes in the former Soviet Union countries and the Balkans.

In South Africa, “colour revolution” talk is now being translated into deeds. In his recently released book, The President’s Keeper Jacques Pauw, the South African investigative journalist, claims that:

one of the ‘colour revolutions’ that the State Security Agency identified as promoting ‘regime change’ was the Fees Must Fall student protests’, and that these protests could lead to ‘an attempted coup d'état’.

Sources also told Pauw that the police recruited spies from within the movement to infiltrate student organisations.

The government’s appropriation of this doctrine strongly suggests that South Africa has been swapping notes with countries like Russia on how to contain popular dissent. And when legitimate organisations are treated as criminally suspect, democracy itself is threatened.

The Eurasian ‘colour contagion’

The fall of the Berlin Wall in 1989 spelled the end of authoritarian communism. More than a decade later a diverse series of pro-democracy protests broke out across the region. The first was the Rose revolution in Georgia in 2003. This was followed by the Ukrainian Orange revolution in 2004 and then the Tulip revolution in Kyrgyzstan in 2005.

The name “colour revolution” came from the fact that they had all adopted particular colours, or flowers, to represent their struggles.

The protest movements mainly used non-violent strategies, focusing on regime change through democratic elections. Some were true mass protests, while others were middle-class led, with significant student and NGO involvement.

Regimes used the term “colour revolution” to explain the contagion of the protests, which they said had spread because Western countries have sponsored them to ensure pro-Western regime change.

Some movements did receive Western sponsorship, and were undoubtedly tools of Western foreign policy. But to cast all the protesters as agents of foreign imperialists was both historically incorrect and politically dangerous. Many were legitimate anti-government campaigns taken up by disaffected social groups.

While the initial wave of protests were largely successful in removing authoritarian regimes, later ones were less so. This was mainly because governments had learned from one another about how to contain the protests.

By the time the Arab Spring swept across the Middle East and North Africa from 2010 to 2012, governments had fine-tuned a range of strategies to contain popular protests, building on those developed to contain Eurasia’s “colour contagion”.

From violent to ideological state strategies

Shaken by the “colour contagion” and fearing further diffusion, Eurasian regimes such as those in Russia, Azerbaijan, Belarus, and Iran studied the protests and collaborated to develop strategies to contain them.

Repression was always an option, but it wasn’t the preferred strategy because it could be politically damaging and possibly escalate the protests.

As a result the focus was on ideological strategies to prevent and respond to protests.

Across the region, protests were delegitimised and marginalised by linking them to the West. Conspiracy theories about the protests being foreign led were circulated. They were characterised as threats to sovereignty, territorial integrity and stability.

Regimes with strong economies used financial resources to secure the loyalty of local elites and co-opt sections of the protest movement. For example in Russia, fearing the rise of a colour revolution in 2007/2008 the regime set up an alternative, youth mass movement, which engaged in large counter-protests.

In Tajikstan and Belarus, the regimes used their control over resources to ensure the loyalty of local elites. In Uzbhekisatan, the regime was able to co-opt sections of the protest movement.

A convenient doctrine

By using the “colour revolution” doctrine, the ANC and the country’s security apparatus can stretch the definition of what constitutes a national security threat. Local NGO’s and protest movements engaging in lawful advocacy can now be accused of engaging in subversion, and investigated on these grounds.

By invoking the doctrine, South Africa is in fact positioning itself as an authoritarian country, drawing lessons and emulating strategies from authoritarian countries like Russia. The doctrine provides the ruling ANC, and the state security forces, with the ideological tool to preempt and undermine any opposition to government policy. Growing opposition to a possible nuclear deal between South Africa and Russia is a case in point.

Jane Duncan, Professor in the Department of Journalism, Film and Television, University of Johannesburg

This article was originally published on The Conversation.

South Africa is still way behind the curve on transforming land ownership

Land ownership patterns in South Africa have not really changed since the advent of democracy.
Reuters/Mike Hutchings

Land is a highly charged and politicised issue all over the world. South Africa, with its history of extreme dispossession through colonialism and apartheid, is no exception.

The democratic government has tried to redistribute land to address this legacy of dispossession. But, according to government, only around 10% of commercial farmland has been redistributed or restored to black South Africans in the 23 years since formal apartheid ended. Many are angry at the failure of land reform and there are increasing calls for land to be returned to black South Africans.

But there is very little clarity as to who owns what land in the country. This is why a recent report released by Agri-SA, an organisation that represents the majority of South Africa’s white commercial farmers, has proved so controversial.

The report looks at the changing patterns of land ownership. The key question it purports to answer is the degree to which racially unequal patterns of land ownership have been altered through a combination of land reform and private land purchases by black South Africans.

Agri-SA argues that the initial government target of transferring 30% of agricultural land via land reform has almost been met. On the back of this it argues that the market is much more effective than the state as a vehicle for change.

But these claims are not borne out by Agri-SA’s own data. Even though the data in the report appears to have been rigorously collected and analysed, its interpretation by Agri-SA is flawed. We believe that many of the report’s core arguments are inaccurate and misleading.

It’s also clear that, contrary to the AgriSA report, we are nowhere near to hitting targets set by the government in 1994. Black South Africans remain in the minority among landowners.

Transformation simply has not happened.

A fallacious argument

The first major flaw in the report is that it adds two numbers together – the amount of land held by black people, and the amount of land held by the government. It does this for all land, but also for agricultural land, estimated at 93.5 million hectares, or 76% of the total of 122.5 million hectares. It argues that a total of around 25 million hectares – or 26.7% of South Africa’s agricultural land – is now owned by previously disadvantaged individuals and government.

If the rand value of the 25 million hectares is considered, it asserts that this amounts to 29.1% of the total. If the agricultural potential of this land is considered, then the share owned by black people and government is 46.5% of the total value of agricultural land.

Agri-SA’s argument, then, is that land reform targets are close to being met. This is fallacious because it doesn’t report on government and black ownership separately. And there’s no basis for arguing that government land is black-owned. State land is held on behalf of all citizens, including white farmers.

Secondly, rural land in the former Bantustan lands – those areas held in trust by government for black residents during apartheid – is still held in trust for communal area residents. Their occupation of around 13% of South Africa’s total land area is the result of centuries of dispossession. It cannot be counted, and has never been counted, as a contribution to achieving an initial land reform target of 30% of white commercial farmland.

On top of this, Agri-SA argues that only 2.2 million hectares of farmland has been purchased by government for transformation purposes, compared to 4.3 million hectares bought by black people on the open market. The latter conflates private purchase of land by black farmers with government payment for land which is then transferred to black people through land reform. These figures don’t stand up to scrutiny. In truth, we don’t know how much agricultural land has been privately purchased by black people, using their own funds or loans, since 1994.

The report’s data on transactions doesn’t lend support to the argument that the market is more effective that the state in changing the pattern of land ownership. According to AgriSA’s data, government and black South Africans together accounted for only 12.9% of the 69 million hectares purchased between 1994 and 2016. If anything, this data shows that market transactions by themselves cannot result in the kind of changes required by land reform – particularly if it is to target the poor, who cannot afford to buy land.

Overall, vast disparities in the distribution of land in relation to race and class mean that land reform still has a long way to go. The collection of proper data as a basis for monitoring, evaluation and planning is crucial, but is inadequate at present.

Data are lacking

Government data on land and agriculture is problematic. Statistics SA collects few reliable data on either large or small-scale agriculture, and none on land reform. Data on land reform released by the department of rural development and land reform are also thin, often inconsistent and hide as much as they reveal. For example, no figures on the average size of farms transferred or the cost per hectare have been released.

We now have contradictory reports on how much land has been transferred through land reform. The department says that land restitution has transferred 3.4 million hectares to claimants to date, and land redistribution has transferred 4.7 million hectares . That yields a total of 8.1 million hectares. But the Agri-SA report provides a total of only 6.5 million hectares of agricultural land acquired through both government and private acquisitions. Which is correct? We don’t know.

The absence of reliable data means that government policy on a key and highly politicised issue is being made without the benefit of rigorous evidence and informed debate on how to improve delivery. This leaves room for bodies like Agri-SA to inflame tensions with data and interpretations that misdirect society at large.

Ben Cousins, Professor, Poverty, Land and Agrarian Studies, University of the Western Cape and Ruth Hall, Professor, Institute for Poverty, Land and Agrarian Studies, University of the Western Cape

This article was originally published on The Conversation.

Two books that tell the unsettling tale of South Africa's descent

Mike Hutchings/Reuters

South Africa has produced two must-read thrillers in the past week. They are non-fiction, yet are as gripping and readable as any page-turner.

Veteran investigative journalist Jacques Pauw’s “The President’s Keepers” has, within a week, become a global best seller. It has had the advantage of the best available marketing push by South Africa’s State Security Agency, under the illusion that they were going to stop the book. The State Security Agency sent a cease and desist letter to a defiant Pauw and his publisher, claiming the exposé is in violation of the Intelligence Services Act.

Less well-known, but as important to those who want to understand what is happening in the country, is consultant and activist Crispian Olver’s enticingly-titled “How to Steal a City”.

Take some courage

I recommend you read them together. It will take some courage, as they are a most unsettling combination, but worth it.

Cover Jacques Pauw’s latest book.

Pauw’s book takes you on his journey to uncover the nature of Jacob Zuma’s presidency and its impact on South Africa, a trip that begins in the small Western Cape town of Riebeek-Kasteel and goes, via Moscow, to the Tshwane coffee bars where he meets his sources. Much of what emerges has been reported in bits and pieces elsewhere, but he weaves it together with great storytelling skill, and adds some important new revelations.

It is the most comprehensive picture of the rot at the heart of the Zuma presidency and the toll it has taken on important state institutions. Once he has worked through the tax collector, the South African Revenue Service, the National Prosecuting Authority, and the police, one is left gasping for air at the scale and depth of the destruction.

I don’t think it is necessary to weigh up the accuracy of his much-detailed and well-documented story, except to say that Pauw is a veteran muckraker whose credentials for getting sources to talk, putting his hands on the evidence, weaving all this into readable horror-stories, and withstanding the attacks of those who would stop him, are well established. So much so that the onus is on his detractors to disprove what he is saying. Even if half of it is true, it is chilling.

Oil for the ANC’s political machinery

Olver’s book might be even more important. It’s an insider’s view of how corruption has become the oil that keeps the ruling African National Congress’s political machinery working. Olver was sent in by ANC leaders to help clean up the metropolitan Nelson Mandela Bay region on the country’s east coast and pave the way for local politician and national football boss Danny Jordaan’s 2016 mayoral election campaign. At the same time, Olver was commissioned by then Minister of Finance Pravin Gordhan to clear out the rot in the city structure.

Cover of Crispian Olver’s book.

Olver’s story of how he identified and drove out the worst culprits in the city’s corruption, is heartening. He shows that it can be done when you have the political will, and Olver’s toughness. But he also describes how every cent raised to fund Jordaan’s campaign was exchanged for a job or a tender.

The ANC political engine runs on the fuel of transactional politics; without the offerings of jobs and tenders, the machine grinds to a halt. His tale provides rare insight into how the party funding system works as a driver of corruption.

Olver himself starts off as a knight in shining armour, but finds himself increasingly compromised as time passes, until he loses his political backing and flees the region.

Both these writers showed great courage. Pauw left the peace and quiet of running a country restaurant in Riebeek-Kasteel, knowing that this book would bring him the kinds of threats and harassment he experienced in the 1980s when he exposed the dark heart of apartheid’s police hit squads. Olver had to have a bodyguard at his side, so tough was the fight to regain control of the party and city.

Pauw’s book is a triumph of investigative reporting, but also contains a worrying critique of some of its practitioners. Pauw details at least three instances when his fellow reporters have allowed themselves to become part of the partisan mudslinging aimed at driving the good people out of state institutions, and protecting the venal. It is striking that some of the same names come up in all three instances, and all are centred around the local Sunday Times.

While South Africans can celebrate the important role investigative reporters have played in exposing state capture, they should be reminded that some have facilitated it, wittingly or unwittingly.

Anton Harber, Caxton Professor of Journalism, University of the Witwatersrand

This article was originally published on The Conversation.

South Africa shows why collaboration is key to tackling global crime networks

South African President Jacob Zuma. Mounting allegations of corruption at home are having international repercussions.
Reuters/Mark Schiefelbein

Lord Peter Hain tabled a series of allegations in the UK’s House of Lords relating to the possible role of British banks in alleged money laundering and illicit financial transactions centred around South Africa’s President Jacob Zuma and the Gupta family. The Conversation Africa’s Charles Leonard asked him to explain why he took the step. Hain, who was a vocal anti-apartheid activist, was born in South Africa but grew up in the UK. He is a visiting adjunct professor at the University of the Witwatersrand’s Business School.

In the House of Lords you said the illicit transactions were “part of a flagrant robbery of South African taxpayers”. What do you mean by this?

As I explained in my speech, the Guptas, a family from India that relocated to South African have, with the connivance of the South African Presidency, been getting government contracts and allegedly thereby robbing taxpayers of billions.

On regular visits to South Africa – most recently last month – I have been stunned by the systemic transnational financial network facilitated by the Guptas and the presidential family, the Zumas. If there had been more proactive and genuine cooperation between the multi-jurisdictional law enforcement agencies – and within and between the banks, which have been moving money for the alleged Gupta/Zuma laundering network – the devastation wrought on South Africa could have been significantly reduced. And perhaps, the financial institutions involved would have been better able to mitigate their exposure.

So does it point to South Africans benefiting from the illicit transactions?

I had delivered by hand to Philip Hammond, the Chancellor of the Exchequer, printouts of transactions, and named a British bank concerned. I asked that he again refers these to the UK’s Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation.

This information allegedly shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. Many of the transactions are legitimate. But many certainly are not.

The illicit transactions were flagged internally in the bank concerned as suspicious. But I am reliably informed that the bank was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust ministers would never countenance. It is also an incitement to money laundering. This has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery of South African taxpayers. They have lost millions of pounds and many billions of their local currency, the rand.

Was there a specific event that triggered your request to the Chancellor?

I was asked by senior African National Congress figures and stalwarts to do this. My relationships with them go back more than half a century when we stood shoulder to shoulder fighting apartheid.

As before, my latest information has been supplied by South African whistle-blowers deep inside the system who are disgusted by the corruption at the heart of the state.

What do you hope to achieve?

There are disturbing questions around the complicity – witting or unwitting – of UK global financial institutions in the Gupta/Zuma transnational network. There are also disturbing questions about these institutions’ wilful blindness to the reality that the laundering process often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to coordinate and influence action between the law enforcement and banking sectors we cannot win this battle. This coordination needs to happen domestically here in the UK as well as globally.

Unless we use the opportunity to crack down meaningfully, those who want to break the law will always be one step ahead. We must therefore get the international authorities to close down any money laundering networks.

As someone who fought against apartheid, how do you feel about having to take up a campaign against the country’s democratically elected government?

Having been active along with my brave parents in the anti-apartheid struggle it’s painful for me to witness corruption within a monopoly capital elite around Zuma’s family and their close associates the Gupta brothers.

But we should look closer to home, here in the UK. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make government ministers and parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.

Winning the war against financial crime will require coordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. The success of criminal networks also relies on the action or inaction – and cooperation or non-cooperation – of the relevant law enforcement authorities.

Peter Hain, Visiting Adjunct Professor at Wits Business School, University of the Witwatersrand

This article was originally published on The Conversation.