CPLO: Understanding State Capture

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Mike Pothier, Research Co-ordinator of the Catholic Parliamentary Liaison Office (CPLO) takes a look at the state of South Africa’s State Capture. This was first published as a Briefing Paper by the CPLO

Towards the end of 2017, the term State Capture was declared to be South Africa’s ‘word of the year’. In one sense, there is an amusing irony in this – we can laugh at ourselves despite our troubles. In another sense, though, it is a tragic commentary on where we have ended up after just two decades of democratic government. Our State – the State that belongs to all of us, not to the ANC, or the liberation movement, or the government, or any private grouping or family or individual – has been significantly repurposed, diverted away from its constitutional tasks and functions, and towards the interests of a tiny, well-connected politico-commercial clique.

The more we realise what has happened, and the more that books are published about it; the more we discover about the depth of the rot, and the more we read from the commentariat; the more that cabinet ministers duck and dive, and the more that the looting continues – the greater is the temptation to throw up our hands in helplessness. And the more fervent is our hope, our naïve hope, that the recent end of Jacob Zuma’s tenure as president of the ANC, and what may be the approaching end of his time as President of the country, will bring an end to the embezzlement of our children’s inheritance.

But unless we understand state capture properly, and appreciate its context and the conditions that make it possible, the swindle will continue in a new guise, no matter who steps into Mr Zuma’s shoes; and no matter whether the Gupta brothers stay on in Saxonwold or decamp to Dubai.

2. Defining Terms

The expression ‘state capture’ is more a journalistic than a technical one. It first emerged in the aftermath of the fall of the communist dictatorships in Eastern Europe and Soviet Central Asia, when the monolithic states began to fragment, and their commercial assets were snapped up by well-connected businesspeople and former politicians and securocrats; the ‘oligarchs’, as they are now known. As a result, the term may have wider or narrower meanings, depending on the context in which it is employed.

This is clear from a selection of current definitions of state capture. Wikipedia offers: “State capture is a type of systemic political corruption in which private interests significantly influence a state’s decision-making processes to their own advantage.”

In a World Bank paper it was defined as “firms shaping and affecting formulation of the rules of the game to extract advantages through private payments to public officials and politicians.” An online dictionary has it as “the efforts of a small number of firms (or such actors as the military, ethnic groups, and kleptocratic politicians) to use the state to their advantage through illicit, nontransparent provision of private gains to public officials.”

Thus, there seem to be at least three essential factors. Firstly, state capture is initiated by private interests; secondly, its purpose is to gain an influence or control over state decision-making which will be to the advantage of those interests; thirdly, the mechanism by which this is achieved is – in effect – bribery.

the general view that state capture is about commercial advantage is perhaps a questionable one. While it may usually be the case that it involves shady businesspeople angling for contracts from state owned companies, it need not always be about money, tenders and kickbacks. Sometimes, as will be suggested in the next section, the aim may have little or nothing to do with material advantage; and there may be no bribery (“illicit, non-transparent provision of private gains to public officials”) involved. What is always present, though, is the perversion of the objective role of the state, or of one or other of its institutions or agencies, so that it serves some kind of sectional interest, rather than the common good.

And it is a practice that is as old as the state itself; indeed, it predates the modern state.

3. New in Name Only

Sir George Yonge, it is safe to say, is not one of the better-remembered governors of the Cape Colony. He had a short tenure here in the 1790s before being recalled to Britain in some disgrace due to his “conniving at a trade in licenses and monopolies and permission to sell slaves in the Colony under illegal circumstances.” Sir George took money from certain Dutch merchants and in return favoured them commercially.

A hundred years earlier, Willem Adriaan van der Stel, the second Dutch governor of the Cape, had been deprived of his office following a revolt by unhappy burghers who accused him of corruption in allocating contracts for the supply of meat and wine. He also – foreshadowing the Nkandla scandal by three centuries – diverted funds from the East India Company (the de facto State as far as the Cape Colony was concerned) for the construction of his Vergelegen estate outside present-day Somerset West.

About 100 years after Sir George Yonge had been sent home, came the heyday of perhaps the most successful state capturer of them all, Cecil John Rhodes. Rhodes simply combined in himself both economic and political power. He did not have to try to influence policies from the outside (though he did that too) since his positions in the British South Africa Company, 5 and as Prime Minister of the Cape Colony, gave him extensive control over policy matters. One simple example was the imposition of a ‘hut tax’, by means of which Africans were forced to take jobs on the mines – thus providing a huge pool of cheap labour – in order to earn the cash needed to pay the tax (no other form of payment was accepted). Deepening the degree of capture, traditional authorities such as chiefs and headmen were often roped in to collect the tax – thus turning a customary ‘state’ structure into an instrument for the advancement of the commercial interests of the mine owners (of whom Rhodes was by then the most prominent).

After the formation of the Union of South Africa in 1910, English-speaking white capital largely maintained its political influence, even though government was led by Afrikaner figures such as Louis Botha and Jan Smuts. It was during this period that perhaps the most far-reaching peace of racially oppressive legislation was enacted – the 1913 Natives Land Act. This Act aimed to sever the ‘natives’ from the land by confining African land ownership to only 7% of the country, thereby forcing hundreds of thousands into wage labour in the mines, on farms and in the nascent manufacturing sector. This was surely also a form of state capture, albeit without bribery and under a cloak of legality, in that state power was deployed in favour of a well-connected, elite minority.

At the risk of over-simplifying matters, it was arguably the dominance of English-speaking South Africans at this time – their success in having captured the state – that provided much of the impetus for the formation of another significant state-capture scheme, the Afrikaner Broederbond (AB). The AB came into being with the aim of promoting Afrikaner interests, and it succeeded remarkably. All National Party prime ministers and presidents, from 1948 to 1994, were members of the AB, as were hundreds of senior politicians, government officials, security sector officers, academics, and civil society leaders. The organisation worked symbiotically with the apartheid state to ensure the economic upliftment of Afrikaners generally, and many of today’s major South African companies either originated, or received early support, through AB connections.

When the ANC came to power in 1994 it was faced with a civil service, police force, military, and parastatal sector the top levels of which were all dominated by people who owed their positions to the successful state capture efforts of the apartheid era. Naturally enough, this position had to be reversed in order to make it possible to build a state that would serve all South Africans equitably, while favouring those who had been most disadvantaged by pre-democratic dispensations.

The policy adopted to advance this end was ‘cadre deployment’. In the words of Deputy-President Cyril Ramaphosa, “we won the election on the basis of the mandate that our people have given us so we must deploy people who will advance that mandate.” This was not an unreasonable initial position. The change of government in SA in 1994 was not like a routine handover of power from the Conservative to the Labour party in the United Kingdom; or from one vaguely centrist coalition of parties to another in Germany or the Netherlands. The SA transition was a radical one, and it would have been half-baked if it had stopped at the 400 members of the National Assembly.

However, even if cadre deployment was a necessary step, it remains a species of state capture, albeit in the guise of ‘state rescue’. Like all other forms of state capture, it has ended up advancing sectoral interests at the expense of the wider polity. And few people would disagree that it has also helped to fuel the rampant corruption that hangs like a millstone around the neck of the nation; just as did the earlier versions of state capture described above.

4. As We Know It Now

In its latest manifestation state capture is exemplified in the degree of influence over government policy, the management of state owned enterprises, and even the appointment of ministers, that has been obtained by – among others – the Gupta family. But there is also strong evidence that other forces have captured important areas of policy, and are influencing decisions.

Perhaps the most obvious of these concerns the apparent involvement of the Russian government and its state-owned nuclear power company, Rosatom, in SA’s plans to acquire further nuclear power stations. These plans make no sense from a cost point of view, or from a need point of view. SA can produce far more electricity than it needs from existing power stations, and that is without the two massive new coal-powered stations, Medupi and Kusile, being even half-way complete. Indeed, some energy analysts have suggested that these two stations are themselves not necessary. If we take into account that our sustainable energy infrastructure – particularly solar energy – is in its infancy, and that any number of independent power producers (IPPs) are ready to generate electricity and add it to the national grid, the government’s continued determination to spend in the region of R1 trillion on nuclear energy cries out for an explanation.

So, for that matter, does President Zuma’s peculiar decision last October to replace the energy minister, Mmamoloko Kubayi, whom he had appointed only in March, with the former intelligence minister, David Mahlobo. Mr Mahlobo has no track record or experience in energy matters, but he did accompany Mr Zuma on the latter’s last visit to Russia. When he was appointed it was speculated that he had been brought in to force through a nuclear power deal. So far, Mr Mahlobo has stuck to the script about nuclear being “part of the energy mix”, but time will tell whether or not his appointment has paved the way for a far more expensive instance of state capture than anything so far achieved by the Gupta family.

As another example, at the time of writing allegations were emerging about a possible attempt by the pay-TV company, Multichoice, and its 100% shareholder, Naspers, to influence government policy on the kind of digital television that should be introduced; specifically, whether it should be encrypted or not. Commentators have linked the sudden dismissal of Yunus Carrim as communications minister in 2014, and his replacement by Faith Muthambi, to Multichoice’s payment of over R100 million to the Gupta’s ANN7 television channel, and its offer of a similar payment to the SABC. Multichoice is lobbying for an unencrypted service; Mr Carrim (and official ANC policy) favoured encryption; soon after her appointment, Ms Mutambi pronounced herself in favour of an unencrypted system, exactly what Multichoice wanted.

Of course, successful state capture is not just about getting the ‘right’ minister appointed, or paying a bribe to a government official in order to secure a tender. To achieve its ends, state capture must operate on a number of levels, and must reach beyond the state itself.

5. Six Steps to Success

5.1. Political connections and influence

The first step must always be to gain some sort of influence, and if possible a hold, over the people who make the decisions that matter to you. State capture is about establishing long-term relationships that will ensure an ongoing benefit.

In the Zuma-Gupta relationship, for example, it is striking how many people have mentioned Mr Zuma’s regular visits to the Gupta residence; and Mr Zuma himself has been happy to be photographed with the brothers, and to claim them as his friends.11 From their side, the Guptas have pointed out that their ‘friendship’ with Mr Zuma began even before he became President, as far back as 2000. That is indeed how such relationships are developed – patiently and with an eye to the long game. They must also appear to be as ‘normal’ as possible, conducted openly and unashamedly, on the basis that if nothing appears to be hidden, there is probably nothing to hide in the first place.

The more highly-placed the person is with whom you are able to establish a connection, the better. It will be recalled that the crime boss Glenn Agliotti formed a beneficial friendship with the then police commissioner Jackie Selebi in the early 2000s; but in the end, Selebi fell from grace and Agliotti had to save his own skin by turning state’s witness against him. Likewise, the Northern-Cape politician John Block, who had a corrupt relationship, involving state land, with a company called Trifecta Holdings, was also unable to sustain his criminal dealings, and ended up with a 15-year sentence, as did the head of Trifecta, Christo Scholtz.

These concerns lessen with political superiority; and, as we have seen in the Zuma-Gupta example, if the state capture relationship can be established at the very highest level there is an in-built degree of protection and sustainability. It also means, of course, that the capturers have the widest possible access to decision making, and that their influence is at its strongest. The sheer number of ministers and deputy-ministers that have either admitted visiting the Gupta residence, or meeting the family at the request of the President (not to mention those who have merely been accused of doing so), shows just how far their influence stretched, once they had cemented the key relationship – the one with Mr Zuma.

5.2. Directing the flow of funds

Although it has been argued above that state capture may sometimes occur for purposes other than direct financial gain, what we have been experiencing in SA in recent years is certainly driven by motives of wealth accumulation. There are, broadly speaking, two potential sources of income for the capturer who has succeeded in gaining the necessary political influence: government departments and parastatal companies (also known as state owned enterprises, SOEs). Some SOEs, such as Eskom and Transnet, are multi-billion rand businesses, with procurement budgets that dwarf most government departments, so it is no surprise that they have so often been the target of the capturers.

It is also the case that SOEs simply have a lot of business interactions in the ordinary course of their activities and, being as large and diversified as some of them are, it is relatively easy to manipulate contracts, tenders and the like in favour of illicit commercial interests. One of the key requirements here is that either the relevant operational staff must be persuaded to favour the company concerned (by bribery or threat, perhaps) or it must secure control at board level.

The latter is better, since boards can determine policy and instruct operational staff to carry it out; such a policy could, for example, be about agreeing to waive normal requirements in order to favour a particular supplier, as allegedly happened with the Gupta-owned Tegeta coal mine and its contract to supply Eskom.

5.3. Neutralising law enforcement

Organised criminals the world over pay a lot of attention to threats they face from law enforcement agencies – police, prosecutors, and the courts. State capturers are no different. Independent and honest investigators and prosecutors will shorten the life – and thus the profitability – of any state capture scheme. In South Africa, despite overwhelming evidence, neither the police’s crime intelligence division, nor the Hawks, nor the National Directorate of Public Prosecutions, had, at the time of writing, lifted a finger to investigate the myriad allegations against the ‘Zupta’ state capture project.

The reason is perfectly simple: President Zuma’s power to determine who heads these bodies has ensured that the necessary blind eyes are turned. And when a truly independent entity, such as the Office of the Public Protector under Adv Thuli Madonsela, comes up with a finding that implicates the capturers and prescribes remedial action, Mr Zuma and his allies have been able to delay such action by endless appeals and prevarications.

The one layer of the law enforcement pyramid that Mr Zuma has been unable to subvert is the judiciary, and consequently he has suffered one legal defeat after another. However, the courts can only deal with matters that are brought before them by prosecutors; unlike in some European jurisdictions, for example, they have no investigative powers of their own. Moreover, the three tiers of our superior court system mean that an initial High Court finding can be appealed to the Supreme Court of Appeal, and thereafter to the Constitutional Court (and all at the taxpayer’s expense). Generally speaking, a year or more passes between each of these stages, which allows the capturers plenty of time to continue their efforts, or to move on to new schemes which then have to be investigated afresh.

5.4. Compliant service providers

One way in which state capture – as we are experiencing it in South Africa – differs from other forms of organised crime such as the drug trade or human trafficking, for example, is that it is carried on for the most part openly and under the guise of legitimate business. The activities of Oakbay Resources, the Gupta family’s main holding company, can be publicly scrutinised; its books are audited, it is listed on the stock exchange, and it purportedly complies with the day-to-day requirements of corporate law.

Anyone can get away with a ‘smash and grab’ approach to state resources, securing a procurement tender by bribery, supplying the goods quickly and getting paid out all in the space of less than a year. By the time an audit or financial report is required, or tax has to be paid, the entity involved has ceased to exist and the profits have been hidden away or moved offshore. However, true state capture involves longer-term thinking, and for this it is necessary to maintain the appearance of legitimacy and legality.

Enter KPMG. And Sasfin. And ABSA bank. All of these companies were involved in assisting Oakbay with its original listing on the Johannesburg Stock Exchange, a listing which has since been suspended amid allegations of fraud. KPMG’s involvement with the Guptas was perhaps the most extensive; among other things, the firm advised Linkway Trading (a Gupta-owned company) that the R30 million the family spent on a lavish wedding at Sun City could be deemed a ‘business expense’ and therefore claimed as a tax deduction.

This is not the place to try to unravel the roles played by various supposedly reputable companies in facilitating state capture. The simple point is that auditing firms, banks, business consultancies and the like are all used to provide a cloak of legitimacy and lawfulness for the activities of the capturers. Sometimes, as Sasfin and ABSA, for example, have claimed, this happens unwittingly; sometimes, as with KPMG, it is impossible to sustain such an excuse.

5.5. Treasury, SARS and financial regulatory institutions

South Africa is highly regarded internationally for the quality of its financial regulatory regime. Compared to many other countries, this is not an easy place to carry out large-scale money laundering, or to move around huge amounts of cash. The law places a stringent responsibility on banks and financial houses to report suspicious transactions (which is one of the reasons why all the big banks have dropped Gupta-linked companies as clients).

The National Treasury and the SA Revenue Service also built up enviable reputations for efficiency, probity and the quality of their oversight under the leadership of people like Trevor Manuel and Pravin Gordhan. Treasury must give approval to a wide range of contractual agreements and business activities involving state owned enterprises and government departments; SARS, on the other hand, is charged with making sure that earnings, including company profits, are properly taxed. Since successful state capture invariably means doing business with SOEs and government departments, weakening – or even capturing – Treasury is a vital part of the strategy. Likewise, if you have crookedly earned a few hundred million Rands, you are unlikely to want to give a large chunk back by way of tax; subverting SARS therefore also becomes part of your strategy. And the same goes in general for the various other statutory bodies that regulate our public finances.

President Zuma’s consistent, and largely successful, attempts to weaken Treasury and curtail its oversight role are well-known: he first tried to place an unknown backbencher, Des van Rooyen, as finance minister in the March 2017 reshuffle. When that failed, he re-appointed Pravin Gordhan, but did not have to wait long before the latter became the target of a ham-fisted attempted prosecution by the NDPP. Gordhan was then finally removed in the October reshuffle, since when a number of senior officials at Treasury have resigned. At SARS, almost all of the top-level officials that built its solid reputation in the 1990s and early 2000s, when Gordhan was SARS Commissioner, have left, their departure aided and abetted by a spurious report (by KPMG, no less) into a non-existent ‘rogue unit’. Commissioner Tom Moyane now leads an eviscerated institution which, unsurprisingly, has failed – like the Hawks and the prosecution service – to investigate anything to do with the Guptas.

5.6. Media and civil society

In a country without a free press, and with a weak or non-existent civil society, a state capture project might be considered complete once the steps outlined above have been carried out. Such is the case in Russia, for example, and in a number of African countries.

Things are far more difficult here for would-be state capturers. South Africa has both a free press, with a rich tradition of investigative journalism, and an active and determined civil society sector. It is thanks to these that we know as much as we do about state capture, President Zuma’s links with the Guptas, why so many clearly incompetent or compromised people have been appointed to important government and SOE posts, etc.

It therefore becomes necessary for the state capturers to provide an alternative narrative, one that even if it cannot ultimately refute the accusations and allegations, can at least sow doubt and confusion about their veracity. This has been the task, for example, of the New Age newspaper and the ANN7 television channel, both of which were launched by the Gupta family. While they claim merely to be providing a different perspective, their provenance is clear. The New Age does not publish circulation figures, yet it carries large amounts of government advertising, and is bought in bulk by various parastatal organisations. It also notoriously held a series of ‘business breakfasts’ supported to the tune of million Rands by Eskom, Telkom and other SOEs.

In the civil society field, the ‘movement’ Black First Land First (BLF) has emerged as a client organisation of the Guptas. According to its own website, the BLF “shall continue to defend and protect anyone who comes under attack from whites. This commitment includes protecting the Gupta family amongst other targets of white monopoly capital and its defenders.” ‘White monopoly capital’, we now know, was a key phrase in the pro-Gupta propaganda campaign devised the discredited British public relations firm Bell Pottinger.

These steps describe in general terms the ‘mature’ state capture project that has been pursued with remarkable success by the Gupta family over the last 18 years or so. But there is no doubt that numerous other private sector players are busy with similar schemes, even if none of them are of such scope and audacity. As the Zuma era comes to an end, it would be naïve to think that the threat posed by state capture will disappear.

6. Remedies

If our politicians, government officials and SOE executives were all people of firm integrity, attempted state capture schemes would flounder. But this personal, or ‘personnel’, approach to the problem is sadly a non-starter. We need a more structural and institutional set of solutions.

Perhaps the key consideration here is independence. As noted earlier, one of the relatively few institutions that has not been subverted – and has thus not colluded in state capture – is the judiciary. This is so for two basic reasons. Firstly, judges are chosen in an open, transparent and (somewhat) competitive process overseen by the Judicial Service Commission (only the formal appointment is carried out by the President). Although there have been quibbles over the years about the composition of the JSC, and about one or two of its decisions, it is widely regarded as being a sufficiently balanced and independent body to ensure the constitutionally desired outcome – a bench of judges who carry out their tasks honestly and without fear or favour.

Secondly, once a judge assumes office, he or she is not subject to instruction from anyone when it comes to their key tasks – the application of the law and the adjudication of disputes. The administrative and managerial powers of the Chief Justice and of the Judges President of the various divisions of the High Court end at the doors of the court room.

This contrasts sharply with the position relating to, for example, the National Director of Public Prosecutions, or the Commissioner of Police, both of whom are appointed directly by the President. These individuals sit at the top of a hierarchy, and are empowered to direct, instruct and overrule their subordinates. Thus, for example, a detective who may wish to investigate an allegation of state capture, or a prosecutor who may want to take such a matter to trial, can easily be instructed to desist.

When it comes to SOEs the situation is no better. They all have boards of one kind or another, which ought to exercise proper corporate governance, but ultimately they have one shareholder – the government, usually in the person of a minister. If the minister appoints a weak board, or worse, appoints directors who have been nominated by state capturers, the SOE is ripe for the picking. This is what has happened with Eskom, Transnet and other SOEs. The policy of cadre deployment has in some cases facilitated, in others merely entrenched, the problem, since it tends to diminish the pool of available talent, and places party loyalty above other, more objective, qualifications. Little wonder that we have seen a ‘revolving door’ situation, with many of the same executives and directors of SOEs popping up in one after another, despite serious suspicions attaching to them.

It has been said more than once that the Constitution, which lacks provisions to tackle some of these issues, was written with a Madiba presidency in mind, rather than a Zuma one. If so, it was a serious oversight, and it must surely be time for Parliament to give attention to the possibility of amending those provisions that place too much power over key appointments in the hands of the President and the Cabinet.

7. Conclusion

As we have seen, even if the term ‘state capture’ came into vogue in SA during the Zuma presidency, and even if he flagrantly facilitated it, the phenomenon did not begin with him, and it will not disappear when he leaves office. A successor of greater integrity will be able to do much to combat the scourge, especially by prioritising competence and honesty when it comes to the appointment of cabinet ministers and senior officials, but as long as the structural weaknesses discussed above remain unaddressed, our economy and our politics will continue to suffer the consequences of this particular form of parasitic disease.

In the end, as with all political problems, the ultimate solution to the problem of state capture is not in the hands of whoever may be in government, but in ours; in the electoral choices we make and in the degree of accountability we insist upon.

This Briefing Paper was first published by the Catholic Parliamentary Liaison Office. 

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* The opinions expressed here by Spotlight.Africa contributors and editors are their own and not official statements of the Society of Jesus in South Africa or of the Catholic Church unless explicitly stated.

 

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CPLO: Understanding State Capture