Corporate reputations are shredded because of ‘state capture’ by private interests
Bell Pottinger. SAP. KPMG. McKinsey. Each has become sucked into the reputational whirlpool otherwise known as Jacob Zuma’s South Africa. Each has been spat out in varying degrees of dishevelment. Bell Pottinger, the UK public relations company, went into administration after running a racially divisive campaign against “white minority capital”. SAP, the German software company, suspended four executives and launched a probe into allegations that it paid $7.5m in bribes to win government contracts.
KPMG dispensed with eight senior executives after it wrote off a client’s lavish wedding as a business expense and wrote a report, since retracted, rubbishing one of South Africa’s most respected ministers. And McKinsey has stopped working with state power utility Eskom pending the result of an internal inquiry into allegations that it worked with Trillian Capital, a financial advisory firm, to secure state contracts.
What is it about South Africa that is so toxic? And what, if anything, links these four corporate car wrecks? The answer is to be found in a single term: state capture. To South Africans, it is a frequent topic of radio phone-ins and even inspired a hip-hop song.
Yet outside South Africa, the term, first used by the World Bank in about 2000 to describe how former Soviet economies were being bent to the will of oligarchs, barely registers. Transparency International, the anti-corruption watchdog, defines state capture as “a situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests”. State capture is more systematic than plain vanilla (banknote-stuffed envelope) corruption, which seeks to exploit existing opportunities.
State capture goes one better by changing personnel, regulations and laws to work in one’s favor. As well as eastern Europe, says Transparency International, examples of state capture exist elsewhere, including the US, Singapore and South Korea. Written in 2014, the report does not mention South Africa, now state capture central.
At the fulcrum of it all are three brothers of Indian descent, the Guptas. The business family is accused of cultivating close relations with President Zuma with their own self-enrichment in mind. Both sides deny wrongdoing. The Guptas backed Mr Zuma from an early stage. In the mid-2000s, his path to the presidency seemed blocked by allegations of corruption and rape, but in 2007 against all the odds Mr Zuma unseated Thabo Mbeki, then president, and by 2009 he was the nation’s leader.
Nearly two presidential terms later, a report in 2016 by former government ombudsman Thuli Madonsela, entitled The State of Capture, detailed alleged manouvres by the Guptas to bring the state to heel. Her report, whose publication President Zuma tried to stop, alleges that the Guptas sought to influence the appointment of two ministers. Former deputy finance minister Mcebisi Jonas testifies that, with Mr Zuma’s son, Duduzane, present, Ajay Gupta offered him the post of finance minister, along with a bag containing R600,000, about $45,000, an accusation rejected by the other parties. The alleged offer was made in the Guptas’ compound in a glamorous Johannesburg suburb. The report says that mobile phone records place all three in the residence when the alleged wad was flashed.
Ms Madonsela’s 355-page report raises several other possible connections between Gupta businesses and potentially beneficial regulatory changes, for example in the mining sector where the Guptas held state supply contracts. “It appears crimes have been committed,” she concluded. It is in this web of interests that foreign groups have become entangled. In the cases involving Bell Pottinger, SAP, KPMG and McKinsey, Gupta business interests are either directly or indirectly implicated.
The web could ensnare more companies yet. Lesetja Kganyago, governor of the central bank, hints at how far state capture might have spread by alleging that cases of suspected money laundering passed on to state prosecutors have gone nowhere. The National Prosecution Authority, headed by Shaun Abrahams, a Zuma appointee, has denied suggestions that it prosecutes selectively. Mr Zuma, for one, has been a beneficiary of the office’s busy workload. So far, he has avoided prosecution on no fewer than 783 pending charges of fraud and graft. Ms Mandonsela’s State of Capture report ended with a recommendation for a full judicial inquiry. Nearly a year later, no such inquiry has begun. To understand why not, one may have to reread that definition of state capture.