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  • Bianca Goodson

The inevitable looting of South Africa’s coffers

Updated: Jul 15


I hypothesize that state capture was always going to happen, it was just a matter of time when and how long it would take before it would end.


Over too many glasses of wine, I have had numerous conversations with people ranging from journalist, lawyers, investigators and academics to law enforcement representatives, trying to understand and dissect what is state capture and how did it happen. Some theories suggest that ‘it’ started as far back as the arms deal whilst others suggest that we will only truly understand it when we can identify “Gupta zero”.


Listening to the various views and supported by books authored by numerous investigative journalists and whistleblowers, I have come to conclude that there doesn’t have to be a single view. We all agree on this – state funds were looted for the benefit of private citizens and at the expense of the tax payer. Whilst this was happening we gave it the name of "Tenderpreneur", but did we look closer at how this behavior was enabled?


This blog is intended to offer my view on how (pragmatically), this process in fact took place. Call it a state capture recipe. Personally, if I was in an executive position of a large corporate, private or public entity, these are the signs that I would look out for. Furthermore, if corporate South Africa doesn't change so that they become more ethical in their behavior, in my opinion, the looting will not stop.


Hypothesis One: the capital budgets were a target

Capex, unlike Opex requires controls that look at ‘non-recurring’ spend that is instantaneously larger than opex. Furthermore, Capex is generally intended to mitigate against a perceived future risk. For these reasons, amongst others, the adjudication and governance processes preceding the spend differs from your day-to-day opex spend. This makes the governance somewhat out of the ordinary and this lack of consistency enables “exceptions” to the processes.


Typically, the higher the perceived risk, the larger the capex spend. In the case of Transnet, we see capex spend been triggered by the President’s SONA speech 2010 wherein a commitment of R300 billion was announced within the space of ports and rails. Likewise, capex spend was triggered for the nuclear deal at Eskom and a revision of the SAA fleet.

Seemingly, these types of transactions were painted as been ‘novel’ on account of these capex magnitudes and frequency in which they have been done before. In other words, people justified a lack of governance on the basis that there was no benchmark of these types of transactions and hence, “specialized” services were required at higher-than-average margins.


This is such B@llsh!t.


Within South Africa, we have private entities that expended this amount of CAPEX coupled with project complexity on a routine basis. There is plenty ‘know how’ within our borders to ensure that these transactions were corrupt free. The mining industry been an example. What’s more important is that government could learn from these private sector industries because they ensure shareholder profitability in their investment decisions.


Hypothesis Two: Treasury divisions had to be captured

Capex has a negative impact on liquidity in the short term in the hope that the financial returns are favorable in the long term. This usually triggers the involvement of a treasury division, either local to the organization and or nationally to mitigate risks on liquidity. Your treasury division would typically step in to ensure that specific financial targets are achieved to ensure financial health and sustainability. This could imply the use of debt and or hedging instruments; transactions that are highly lucrative to the institutions offering the relief and the middlemen that facilitate it. In short, if you can bypass treasury, financial structures can benefit many people for a very long time.


In the case of both SAA and Transnet, the respective entities had to acquire debt to enable their spend on the acquisition transactions, which we now know was priced above market rates. In the case of Transnet’s 1064 transaction, the unit price per locomotive was contracted on a fixed price to hedge against inflation and foreign exchange fluctuations. This hedge was then undone in part, and debt was raised in US Dollars (CDB Loan, US Exim etc) which was later hedged again via the Club loan and then hedged again through interest rate swaps. At each leg of the transaction, fees were paid to the middlemen (Regiments & Trillian) and to the institution offering the instrument (CDB, Nedbank etc.). In the case of Transnet and the 1064 – both the debt raising and swaps excluded Transnet Treasury’s involvement. Furthermore, Transnet and SAA Treasury’s, Phetolo Ramesobudi had a long-standing relationship with Regiments. Lastly, we see this strategy on a national level through the attempt to replace the Head of National Treasury i.e., our Finance Minister. Recall our ‘weekend special’ Minister Van Rooyen ... the attempt was made. It wasn’t successful, but attempted nonetheless.


Hypothesis Three: delegations of authority had to be altered to enable these transactions

You would see a degradation of governance associated with executive roles such that they would become more empowered at each revision which resulted an individual acting almost autonomously on behalf of the organization. Where this is not possible, you will find that the superior authority is almost entirely replaced by member of the corrupt syndicate. We have witnessed this through the numerous cabinet reshuffles which lead to entire Boards been replaced which in turn would change the executive leadership of SoEs.


In South Africa, delegations of authority should follow the changes in the respective Shareholder’s compacts- contacts between the shareholder Minister and the Board of an SoE. In the case of Transnet, over a five-year period, we see the Shareholder’s compact increasing the capital investment plan whilst governance controls were loosened. This trend was disseminated through to the delegation of authorities whereby specific executive members became more and more empowered with each annual change. This meant that individuals could act more autocratically with the State’s funds. Although I haven’t studied the delegation of authority for Eskom and SAA, I am sure (based on Anoj Singh, Brian Molefe, Phetolo Ramesobudi and Luck Montana’s evidence at the Zondo commission) that this was in fact the case.


Hypothesis Four: the syndicate includes representatives at all levels of authority

Starting with the highest level of authority (President, Chairman etc.) and permeating all the way down to the clerk level; in short, every significant authority level of the procurement process will find members which form part of the syndicate.


Hypothesis Five: enrichment is not always monetary

Lower echelons of the syndicate may not receive financial rewards – they could simply be ‘promoted’ either literally or figuratively through validation and inclusion from their superiors. From Mr Laher’s testimony at the Zondo commission he stated that he did not want to disappoint nor gone against his superior – Mr Anoj Singh. For Mr Laher, his enrichment came in the form of recognition by a senior.


Corporates should take note of the following:

  • Changes to the DoAs should not result in autonomous actions of one or a few;

  • Ideally, you should not have a culture of subservience – your employees are your first level of defense against corruption. There should always be a culture of questioning, debating and freedom of speech;

  • Lifestyle audits on your executive leadership should be mandatory;

  • And lastly, never accept that any transaction is unique … its not! It may be unique to you, but if you look hard enough, there will always be lessons learnt from another organization out there who I have found are almost always willing to help for free.



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