Shades of Brazil as anti-corruption drive in South Africa turns nasty

Julius Malema and his Economic Freedom Fighter are using President Cyril Ramaphosa’s anti-corruption campaign against him.
EPA-EFE/Kevin Sutherland

What better way to derail an anti-corruption campaign than to beat it at its own game? You might damage or derail democracy in the process, but that is the country’s problem, not yours.

Anti-corruption campaigns are normally good for democracy. But they can threaten it: this happens when the people claiming to root out corruption are themselves corrupt. One recent example is Brazil, where an elected president, Dilma Rousseff, was forced from office by politicians who are far more corrupt and were covering their own tracks. Something similar seems to be afoot in South Africa.

One recent sign that not all fights against corruption are principled is an unexpected shift in strategy by the Economic Freedom Fighters (EFF), the country’s third biggest party.

The EFF, whose founding leaders were either suspended or expelled from the governing African National Congress (ANC) at the behest of former President Jacob Zuma, won the hearts of sections of the middle class when it joined the campaign against Zuma and his faction. Its brash style, designed to win maximum media attention, struck a chord among a middle class angered by Zuma’s patronage politics.

Now it has changed sides and is using the same style of politics to go after Public Enterprises Minister Pravin Gordhan, who plays a key role in President Cyril Ramaphosa’s fight against corruption.

This is part of a wider shift in approach in which it now says in public what the Zuma faction would like to say but which ANC discipline will not allow. It has supported former head of the South African Revenue Service Tom Moyane whose dismissal was recommended by a judicial commission of inquiry after hearing evidence that he had caused the Revenue Service huge damage in the service of Zuma’s faction. It has backed VBS Bank, which was wound up after an inquiry found it had been brought down by looting.

Diverting Attention

The EFF’s reasons for switching sides are not mysterious. Its leaders are accused of benefiting from VBS and the party has received money from a company accused of benefiting from the illicit tobacco trade: one of Moyane’s goals was to close down the Revenue Service’s investigations of this trade. So, like the Zuma faction itself, it is diverting attention away from its own dealings.

This confirms what the middle-class enthusiasm for the EFF ignored. Its campaign against Zuma was not a fight against corruption but pay-back for driving them out of the ANC. Before then, the EFF’s leader, Julius Malema, had been a loud supporter of Zuma and was accused of much the same behaviour. Now that Zuma has gone, he and the EFF can return to defending the behaviour which once made them Zuma allies.

More interesting – and ominous – is how they are going about it. During the last period of Zuma’s presidency, his faction’s routine response to criticism of their links to key figures in the state capture project, the Gupta brothers, and campaigns against corruption, was that the critics were lackeys of “white monopoly capital”. The EFF has not abandoned this theme but has added one: instead of denouncing the anti-corruption campaign as a white plot, it has tried to turn it on those in the ANC who pose a threat to them by accusing Gordhan of corruption.

Their first salvo was an attempt to link him to the Guptas by suggesting that, like recently resigned Finance Minister Nhlanhla Nene, he met them and did not disclose this. Later, they claimed he and his daughter Anisha benefited financially from their links to government.

What’s behind the switch

This campaign may not be all the EFF’s own work. Its many admirers in the media like to portray it as immensely powerful despite the fact that its share of the vote has never reached 10% – they suggest that it has an army of sources feeding it information.

More likely is that ANC factions use the EFF to fight their battles by leaking it information about their opponents. The Zuma faction may also have leaked to the main opposition, the Democratic Alliance, the claim that Ramaphosa or his son received money from Bosasa, a security company which does business with the government. If, as is probable, the faction is leaking the information to the largest two opposition parties, then it has decided that instead of denouncing the anti-corruption campaign, it will use it against Ramaphosa, Gordhan and their allies.

The obvious reason for this switch is that it is far more plausible. Anger at corruption is deep and widespread and so blaming white business for the campaign against it persuades no-one outside the faction. But precisely because many people are appalled by corruption, painting politicians who say they are fighting it as corrupt wins some sympathy from media and citizens who are more than willing to believe that all politicians are on the take. This is particularly so because the baleful effect of money on politics is not restricted to Zuma and his faction and many citizens know this.

If this strategy gains momentum, it could threaten democracy. Anti-corruption campaigns are essential to democracy – when they seek to replace corrupt people and practices in government with alternatives. When they signal that all office holders are corrupt, they breed cynicism which weakens or ends democracy. Why bother who wins and loses if all politicians are corrupt? Why fight for clean government when no-one will make it happen? But that does not deter those who smear their opponents – democracy is probably an obstacle for them anyway.

Fortunately for democrats, the new campaign is likely to fail. The evidence so far suggests that Gordhan has no case to answer and most voters will probably see this. Ramaphosa does have some explaining to do but voters are likely to see a President who did not know about an untoward payment and then rectified it as a better bet than one who tries to wreck government to hide those payments.

The EFF is a long way from challenging for control of a single province, let alone the country and so the only plausible winner is the ANC’s Zuma faction which is discredited among voters: if it took over the governing party, it would probably lose the next election in 2019.

But, unless public debate distinguishes clearly between politicians who serve themselves and those who serve citizens, and continues to insist that corruption can be controlled, those who peddle cynicism to protect themselves will continue to threaten democracy.

Steven Friedman, Professor of Political Studies, University of Johannesburg

This article is republished from The Conversation under a Creative Commons license.

Book on Steinhoff's demise shows danger of 'big men' business leaders

Steinhoff CEO Markus Jooste was an excessively dominant, forceful and feared boss.
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The collapse of Steinhoff International, the multi-billion dollar global business group, has been rightly described as the biggest corporate scandal in South African history.

The company’s history, and its subsequent evolution and demise, are skillfully told in a new book Steinhoff: Inside SA’s Biggest Corporate Crash, by former journalist James-Brent Styan. It is the story of a bold vision and ambition, entrepreneurial grit and guile, continuous innovation, relentless risk-taking, corporate hubris, and friendship betrayals.

The extraordinary way in which Steinhoff grew from being a modest firm with a footprint only in Germany and South Africa to becoming a multinational behemoth straddling sectors such as furniture manufacturing, retail, logistics, consumer finance, building material, wood and vehicles with a global presence, is impressive.

In its pursuit of growth, Steinhoff employed a two-pronged strategy. The first focused on creating a low-cost manufacturing base. This enabled the business to supply products at cheap prices to its target market of lower-to-middle income groups.

The second pillar consisted of an aggressive acquisition of companies. A great deal of the acquisitions took place in European countries such as Germany, Poland and France but also extended to Australia, New Zealand, Britain and the US.

The acquisitions were costly and the conglomerate paid above the market value for the shares. The rapid spate of takeovers saw the group expand to 12 000 stores across the world, employing 130 000 people. Ultimately, Steinhoff became a fully vertically integrated enterprise – it was involved in all the value chain links from sourcing raw materials, to manufacturing and finally to distribution and sale of products.

Shaky foundations

At the pinnacle of its success, the international business giant became the darling of investors, asset managers, analysts and financial journalists. They all feted its expansion into new ventures and countries. But, as it later turned out, its success was built on shaky foundations epitomised by unfettered greed as well as dodgy and unethical practices, including alleged accounting irregularities, tax evasion and lax corporate standards.

The day before the Steinhoff group’s precipitous crash, the corporation was worth R193bn. On the following day, its market value was decimated by a staggering R117bn. Among the victims of the financial carnage were financial South African services giants Coronation Fund, Foord Asset Management, Sanlam, Investec, Liberty, Old Mutual, Allan Gray, Discovery and the Nedgroup.

The biggest losers were key investor and Pepkor chairman Christo Wiese (R37bn) and the Public Investment Corporation (R14bn), which manages the Government Employees Pension Fund. Overnight, millions of South Africans had lost billions of rands in pension funds.

The book encompasses a diverse range of themes and proffers a number important business lessons. Some bear mentioning.

Lessons

The case of Markus Jooste, then Steinhoff CEO, shows that the cult of personality and “Big Man” syndrome is as ubiquitous in the corporate world as it is in politics. He comes across as an excessively dominant, forceful and feared boss. He brooks no dissent and only those subordinates who obsequiously defer to him benefit from his extensive patronage. To the detriment of the business, his leadership style fostered an institutional culture of uncritical subservience and self-censorship.

A recurring question in the book is: Despite occasional red flags how could the analysts, investors, asset managers, directors and the Johannesburg Securities Exchange have been oblivious to the wrongdoing at Steinhoff?

Part of the problem was the dominant view that the company could never go wrong. As long as the share price kept rising, and the good news kept flowing, there was nothing to worry about. There were, of course, some skeptical and dissenting voices, but they were too few to upend the prevailing consensus.

The crucial lesson here is that the share price is not the only indicator of corporate performance; fundamental governance issues are equally, if not more, important.

As Steinhoff’s global expansion accelerated, its business model and structure became more complicated. Some market analysts have argued that the firm’s increasingly complex structure, coupled with the group’s continual acquisitions, made it nearly impossible to analyse its books and to do year-on-year comparisons.

Even so, there was a belief that as long as strong, charismatic and venerated business personalities such as Jooste and Wiese, Steinhoff’s chairman at the time, were at the helm the business was in safe hands. This trust in Jooste and Wiese, as well as in management and directors, proved to be misplaced. As Warren Buffett has wisely counselled, never invest in something you don’t trust.

The Steinhoff board of directors, long viewed as one of the strongest and most dependable, has come under fierce criticism for failing to exercise its fiduciary duty. Describing the board, one fund manager stated that it was
“ineffective, not independent and was overwhelmed by Jooste’s strong personality”.

Criticism has also been directed at Deloitte, the firm that audited the company’s statements for 20 years, for disregarding the irregularities and the danger signs preceding the crash. It is this milieu that prompted an analyst to describe what happened at Steinhoff in the book as follows:

It’s a buddy-buddy system, a bunch of people who know each other and have worked together for years. It strips them of their capacity to question things that don’t make sense.

Up there with the worst

Styan must be commended for producing a cogently written and thoroughly researched book. In terms of its drama and catastrophic impact, the Steinhoff scandal is up there with the likes of Enron, Worldcom, Tyco, Freddie Mac, Bernie Madoff and other world infamous episodes of business malfeasance. As such, the book provides valuable insights and lessons that are universally applicable and comparable. It must be made compulsory reading in corporate boardrooms and business schools.

Mills Soko, Associate Professor, Graduate School of Business, University of Cape Town

This article is republished from The Conversation under a Creative Commons license.

Why giving South Africans title deeds isn't the panacea for land reform

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The land reform debate in South Africa has become increasingly polarised since Parliament resolved to consider amending the country’s Constitution to allow for the expropriation of land without compensation.

But the slow pace of land reform – a process that aims to address the dispossession of the previously oppressed black majority – will not be solved by amending the Constitution. That’s because the main problems with the country’s land reform programme have nothing to do with it.

The main problem lies with the government’s thinking behind land reform. It’s rooted in a Western, colonial mindset that’s totally out of step with how many would-be beneficiaries understand land.

The problem stems from the fact that indigenous systems of land ownership are not the same as the absolute ownership approach preferred by the West. Nor are they what early colonialists assumed when they adopted a communal paradigm, assuming that land was collectively owned by indigenous communities. This was not the case. Some land was for communal use (particularly grazing and some agricultural land), but families and individuals held exclusive use rights over other areas such as homesteads.

The legacy of this is devastating. Adherence to a communal paradigm strips people of the ability to hold land rights individually. This is unconstitutional. Yet the paradigm persists: we can see it in, for example, the communal land rights Act, and the communal land tenure policy.

South Africa needs to move away from the communal paradigm that entrenches colonial and apartheid-era thinking, and move towards an approach that’s better aligned to living norms and traditions.

Rejecting the communal paradigm, I prefer to refer to customary land tenure to describe how indigenous communities manage their land. Customary tenure systems are regulated by traditional norms and practices, within which land rights are socially embedded. They are dynamic, multi-layered and responsive to the needs of the community. As a result, and contrary to common perception, they can offer secure tenure.

What is required is legislation to recognise and protect them, and for such legislation to be properly implemented. This, unfortunately, is not the government’s approach.

Flawed thinking

The government sees customary tenure as insecure and an impediment to economic development. In terms of the Green Paper on Land Reform, land in South Africa may only be owned by a “small elite”. The State Land Lease and Disposal Policy (which does not provide for ownership, but allows beneficiaries of land redistribution to lease land from the State), has been criticised as showing the government’s lack of faith in poor black farmers. And the Communal Land Tenure Policy seeks to transfer ownership of customary land to tribal authorities.
This deprives land rights-holders of their land rights, rendering them subjects of the chief instead of citizens of the country. Such an approach is unequivocally unconstitutional.

Globally, individual title to land (ownership) is seen as the ultimate goal because it allows people to access the capital value of their land and promotes investment. This view is supported by both the African National Congress and the main opposition party, the Democratic Alliance.

Titling is seen as a sure way to lift people out of poverty. But the link between giving people title deeds to their land and poverty alleviation in sub-Saharan Africa is contested.

Ownership

Titling, or the formalisation approach is supported by some people, while others argue against it. Those who oppose it warn that it could bring about greater insecurity of land tenure, especially for women and other vulnerable groups.

From interviews I conducted with customary land rights-holders in the Eastern Cape, the biggest fears around formalisation were:

• Having title to land is expensive because you are immediately liable for rates and taxes, and banks may seize your property should you default on loan repayments.
• For the poor and vulnerable, especially, this may lead to a decrease in tenure security and push them further into poverty.
• Titling also leads to a loss of tribal identity because individuals may choose to sell their lands to outsiders who do not identify with the traditions and customs of the area.

Government views formalisation through registration and title as a quick fix “silver bullet” solution, but it’s beset with “intractable problems and conflicts”.

In some cases, beneficiaries of land titling programmes revert to customary practices. This is partly because they don’t identify with government’s imposed system of ownership.

Customary tenure systems

A conservative approach is to recognise customary tenure systems that are socially embedded and that may offer more security than ownership through titling. Such recognition represents a shift away from the supremacy of ownership that views individual title as the be all and end all.

In South Africa, both the Interim Protection of Informal Land Rights Act and the former Land Rights Bill of 1999 adopted a conservative approach. Both documents recognised existing land rights and sought to protect and further strengthen them. But Interim Protection of Informal Land Rights Act is often overlooked, and the Bill was scrapped.

Current policies seek to undermine customary land rights-holders, allowing them only to lease land from the state or to have secondary use rights as subjects of traditional authorities. South Africa needs a new approach, one that challenges the supremacy of titling and casts off the shackles of the communal paradigm.

Simon Hull, Senior lecturer, Division of Geomatics, University of Cape Town

This article is republished from The Conversation under a Creative Commons license.

Apartheid, guns and money: book lifts the lid on Cold War secrets

A London bus displays anti-apartheid message at the height of South Africa’s isolation.
Flickr/rahuldlucca

It’s not very often that a book really reshapes our perception of an issue, but Hennie van Vuuren’s “Apartheid, Guns and Money: a tale of profit” is one. It is a massive work: over 600 pages and the result of a decade of meticulous, painstaking work.

From a modest office in a rundown suburb of Cape Town, Van Vuuren has been beavering away to probe into the stories that could never be told during the apartheid years. Formerly director at the Institute for Security Studies, he now runs Open Secrets, which peers into economic and human rights violations. This volume, first published in South African in 2017, is the result.

The extraordinary tale that Van Vuuren tells is how – as the South African state gradually became an international pariah and as the truth about apartheid became internationally known – it moved from a normal member of the world community to a covert operator. It began working in shady ways, through even more shady operators.

To ensure that it had access to arms and oil, Pretoria moved from legitimate to illegitimate trade; from overt to covert deals and from legal to illegal transactions. This was supported (or at least connived at) by many western powers. That the US, Britain and France did this has been known, or at least suspected, for many years. Van Vuuren fills in the blanks and gives us plenty of new information on this. Although shocking this is less than astonishing.

What is really novel is that he uncovers a completely new set of actors: the Chinese and the Soviet Union. In the past it has been assumed that, for the most part, they were completely wedded to the liberation movements. The support from Moscow and Beijing for the African National Congress and – to a lesser extent – the Pan Africanist Congress, was so widely reported that few suspected there might be less than total solidarity between the communist powers and the liberation movements.

Yes, there were the odd stories about the South African diamond giant – De Beers – being spotted at the ballet in Moscow doing deals with Russian diamond companies, but this was seen as a small aberration. After all, both countries wanted to keep up the prices of diamonds on international markets, so some kind of arrangement was perhaps inevitable.

But – if Van Vuuren is right – these relationships went far, far beyond the odd contact.

Mind-boggling complexity

Take one example: the voyage of the Pia Vesta, now a rusting hulk, lying off the coast of Venezuela. This vessel was, says Van Vuuren

once at the centre of one of the greatest arms heists of the 1980s involving socialist East Germany, South Africa, Peru, Panama, probably the CIA and a crafty French arms dealer by the name of Georges Starckmann.

The tale begins with a top secret minute of a meeting between the head of the South African Defence Force, Jannie Geldenhuys, and his senior officials in connection with operation “Daisy”. This was an attempt to recover $20 million that Starckmann had allegedly swindled out of the South Africans.

The story is of mind-boggling complexity, but involves Starckmann doing a deal with an East German firm called IMES, run by the East German deputy foreign minister with Stasi employees – members of the East German secret service. The result was an arrangement which involved 60 shipments of weapons to South Africa via a Danish shipping company. The shipments were to be trailed half way around the world to disguise their final destination.

These shipments were for vital military equipment, including 1,400 anti-tank missiles. The weapons, which had Peruvian end-user certificates, ended up off the coast of Panama where the ruler, General Noriega, had apparently given the green light for the operation. In the end the dictator reneged on the deal. When the Pia Vesta arrived in Panama on 14 June 1986 its crew was arrested and the vessel impounded. In 1989 General Noriega was ousted by the Americans.

How the ship ended up sunk off Venezuela is a bit of a mystery, but then, as Van Vuuren points out, so is much of this story. He concludes that South Africa’s state arms dealer, Armscor, was involved:

But for all the smoke and mirrors, one thing is as clear as day. There is more than sufficient evidence that Armscor bought arms from IMES, a Stasi-run East German company operating behind the Iron Curtain. During the Cold War, much was not as it seemed.

Nor was this an isolated incident. Van Vuuren says he has evidence that Armscor had a team of military experts working inside the Soviet Union with an office in Leningrad. So close was the relationship that when the Chernobyl nuclear reactor disaster took place in 1986, the Russians turned to South Africa for medical support.

The relationship with China

The relationship that the book portrays between South Africa and the Chinese is just as complex. It involves purchases of Chinese military equipment – everything from machine guns to missiles and rocket launchers – using Congolese companies as a front. Sometimes the shipments were destined for South Africa’s Angolan allies, UNITA, sometimes not.

Overall the book is a compelling and convincing narrative: our understanding of apartheid’s global supporters has been transformed.

“Apartheid, Guns and Money: a tale of profit” will be published by Hurst, 1 November 2018, Hardback: £25. pp. 620

Martin Plaut, Senior Research Fellow, Horn of Africa and Southern Africa, Institute of Commonwealth Studies, School of Advanced Study

This article is republished from The Conversation under a Creative Commons license.

Can the centre hold, or will South Africa get its own Bolsonaro?

South Africa’s President Cyril Ramaphosa faces the daunting task of fighting corruption and winning votes for his party.
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Present indications are that South African voters are not gearing up to “do a Brazil” in the face of a mounting economic crisis and high levels of corruption within the ruling party. Polls indicate that they are unlikely to
totally abandon the African National Congress (ANC), which has governed the country since the end of apartheid in 1994, for existing political alternatives.

The reasons are familiar. Although the ANC has lost prestige, ground and voter loyalty, many South Africans continue to cleave to their memories of its past virtues and hope for it to return to better ways. Furthermore, President Cyril Ramaphosa will make copious and not unconvincing promises of tackling corruption.

Meanwhile, although almost a decade of misrule by former President Jacob Zuma should have rebounded to the major advantage of the Democratic Alliance (DA), the leading opposition party has failed to convince. And, the long running fight with it mayor for Cape Town Patricia De Lille has made it look divided, poorly-led and tainted by racism. It’s unlikely to go much forward, even if it is unlikely that it will actually go backwards.

So, that effectively leaves the radical but smaller Economic Freedom Fighters (EFF). But, the red berets continue to look more like a party of protest than a party seriously preparing to govern. And, while its leader Julius Malema’s populist charisma may appeal to a minority, especially the black youth, he continues to frighten the many. End of term report: continues to improve but should be doing better.

Ramaphosa’s daunting task

It wasn’t so long ago that predictions were being made that the 2019 election will result in the formation of a coalition. That continues to be a possibility, although the ANC’s experience at running an electoral campaign will more probably edge it above 50%. But if that is so, it only delays dealing with its problems, and South Africans are left to speculate about future possibilities.

One option is that, following an election victory, Ramaphosa will dispense with the Zuma hacks who continue to populate his cabinet and appoint an honest and capable team to lead the country, tackle corruption and put the economy back on track. It’s a scenario which the overwhelming mass of the population will support, and if he were to meet anything resembling a success, the ANC will reap the benefit.

However, the obstacles in the way of this path are formidable. Ramaphosa is already battling concerted fight-back by the Zuma crowd, and this is only the beginning. The looters, from the heights of the parastatals Eskom, the power utility, and Transnet, the transport utility, to the depths of the most miserable municipality in the country, will fight as hard and as dirty as they can to hang on to newly acquired wealth. And, there are enough crooked lawyers around to help them do it (all in the name of Black Economic Empowerment course).

In any case, increasingly the ANC has come to function as an extended patronage, jobs and cash machine. Hopefully, Ramaphosa and his team will prove capable of cleansing the upper reaches of the state. But, carrying the fight downwards, into the provinces and local government, will simultaneously mean reforming the ANC. That may well prove beyond the bounds of practical politics, especially given that Ramaphosa himself will need to maintain his support base for an attempt at a second term as president.

A more likely second option, therefore, is that even if Ramaphosa does a reasonably decent job, the economy will at best enjoy only slow rates of growth and improvement. Overall, it will do little more than limp along if not actually decline. Even with the best will and efforts in the world, turning the economy around so that it makes a serious dent in inequality, unemployment and poverty is going to prove a massive job. And it’s probably beyond a political party which, for all the appalling legacy of apartheid, itself bears heavy responsibility for the mess the country is in.

Future prospects

So, in coming years, the probability is high that South Africa will experience even higher levels of popular protest and class tensions than is happening at the moment.

How politicians respond to these, and how they are handled, matters hugely. On the one hand, they will offer opportunities for genuine renewal, for doing things in a more progressive and democratic way. On the other, they will offer opportunities for cynical exploitation of popular frustrations by tellers of untruths and sellers of snake-oil, wrapped up in radical language, probably with some charismatic prophet at their head.

Whether latter-type calls come from within or from outside the ANC South Africans will have to see. But they will probably be made by appealing to the dispossessed, impoverished masses in rhetoric which obscures the greedy interests of a frustrated, kleptocratic, Zuma-style bourgeoisie.

It is then that South Africans will have to face down the risk of a local Jair Bolsonaro. Brazil’s new president is threatening a lurch to political authoritarianism of the most brutal kind. This after a campaign in which he rode to power on an extreme right programme in which he questioned the most basic of democratic values.

Roger Southall, Professor of Sociology, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license.