On the Brink. Claire Bisseker
crisis.
Though it was clear that South Africa still had a long way to fall before it reached rock bottom, it was equally clear that Zuma’s juggernaut had to be halted before it did any more damage. The country had to find a way to stop the rot and discredit the idea that adhering to orthodox economic policies was a ploy to maintain the hegemony of white monopoly capital, or it was going to make a mistake of historic proportions.
3 All the president’s friends: An analysis of state capture
By Rob Rose, Financial Mail editor
‘Corruption … has its hand at the throat of government service delivery. And it is getting tighter. It is getting tighter as the grip of state capture rips the soul out of state-owned companies, encourages gross financial mismanagement, and promotes unfettered looting.’
– Sipho Pityana1
‘If you say “state capture”, what do you mean? … We are talking about small issues, and you make them big issues. You are merely using phrases. You are using what people call, if they want to say things to the media, soundbites.’
These were the disdainful words Zuma used, speaking to a provincial meeting of the ANC in Irene in May 2016.2 It was a moment rich in irony. After all, it was Zuma’s friendship with a family of immigrants, the Gupta family, who had arrived in South Africa in the 1990s from India, which had led to the phrase ‘state capture’ becoming part of the local lexicon.
Atul Gupta – the middle of three brothers, sandwiched between the eldest, Ajay, and the youngest, Rajesh (also known as Tony) – came to South Africa in 1993 on his father’s orders, ostensibly because he believed that ‘Africa would become the America of the world’. Ajay, the master tactician of the family, followed Atul in 1995, and Rajesh joined them in 1997.3
The family started small, hardly foreshadowing the immense hold they would eventually gain over the South African economy. They opened a shop selling shoes imported from India in Johannesburg’s swanky Killarney Mall, and then a business called Correct Marketing, which imported and sold computers.
That business would be renamed Sahara Computers (after their home town, Saharanpur), and although its revenues were only R1,4 million in 1994, its fortunes would change dramatically once the family got a foot in the door of government.
The Guptas assiduously courted politicians (the first was said to have been Thabo Mbeki’s trusted confidant, Essop Pahad) and, soon, Sahara was rolling in government contracts. By 2016, Sahara was clocking up R1,1 billion in annual revenues. But it was the family’s meeting with Zuma, then deputy president to Mbeki, that would later provide them with a gilded invitation to the R500 billion in government contracts that are divvied out each year, largely to the private sector.
Atul Gupta said he first met Zuma in 2002, ‘when he was the guest at one of Sahara’s annual functions’.4 From there, it all became rather cosy. By 2005, Zuma’s then 24-year-old son, Duduzane, began working at Sahara and soon after, his company, Mabengela, ended up as ‘investors’ in the Gupta network of firms. The relationship provided invaluable political cover for the Gupta family, with Duduzane becoming the proxy for the Guptas’ investment in the presidency.
When the Gupta family’s investment vehicle, Oakbay Resources, bought the Shiva uranium mine for R270 million in 2010 (thanks to a R250-million loan from the state-owned Industrial Development Corporation), Mabengela snapped up an effective 11,9% of Shiva. The Mail & Guardian went so far as to say Mabengela ‘appears to be the vehicle for the Zuma family’s empowerment by the Gupta family’.5
What is indisputable is that the Gupta family has made the Zumas fabulously wealthy. At last count, Duduzane Zuma’s effective stake in Oakbay Resources, the company listed on South Africa’s JSE Securities Exchange that incorporates Shiva, was worth about R1 billion.6
It was a mutually beneficial relationship and the Guptas’ timing was impeccable. Once Zuma was elected as president in 2009, he set about repositioning the state to make it the driving force of the economy, ostensibly using government budgets to benefit black-owned companies. The biggest tool in his arsenal was the SOE sector. Of these, the two largest spenders were the rail utility, Transnet, and electricity company, Eskom. With a purse of more than R200 billion a year across 13 entities, the SOE sector had a free hand to dish out large contracts, provided they had board approval.
By contrast, any direct tender from government would be subject to parliamentary oversight, a cumbersome process. So the SOEs began ladling out generous helpings of tenders, for just about everything. Some have dubbed this the ‘near-complete outsourcing of government’s core functions’; the Public Affairs Research Institute called it the ‘contract state’.7 Either way, for those firms that had nurtured political connections, the SOE sector became a cash cow.
Zuma, speaking in Irene to his ANC comrades that autumn morning, rubbished the notion that state assets had been diverted to assist any single private-sector interest. ‘I know politicians love it,’ he told the appreciative crowd, then continued in a mocking tone meant to mimic his critics: ‘The state capture, the state capture. But what does it mean? What is the state?’
It’s not an especially difficult question to answer. At its heart, it means an illicit and wide-ranging system in which certain private-sector players have gained the ability to influence the government – including cabinet ministers, SOEs and public officials – for their private benefit. If corruption is simply bending the rules of the system, state capture is redefining that system and its rules entirely.
For example, if a CEO bribes a politician to pass a new law that gives his company a permanent privileged position in the market, that would amount to state capture. In this way, resources meant for the public benefit are diverted to serve private interests – rent-seekers, essentially.
‘State capture can be extremely pernicious to an economy and society, because it can fundamentally and permanently distort the rules of the game in favour of a few privileged insiders’ – this according to a World Bank publication, Anticorruption in Transition.8
The practice is far more audacious than vanilla corruption. In 2017 a group of academics released the Betrayal of Promise Report, in which they argued that state capture is far more than simply a way of amassing wealth: ‘Institutions are captured for a purpose beyond looting. They are repurposed for looting as well as for consolidating political power to ensure longer-term survival, the maintenance of a political coalition, and its validation by an ideology that masks private enrichment by reference to public benefit.’9
A novel spin on an old idea
Zuma might claim the term ‘state capture’ has no meaning or that there is no evidence that the state had been captured. Even though there was no hard evidence at that stage that Zuma had personally ordered that contracts be given to the Guptas, the circumstantial evidence was immense. Soon, the Guptas were hosting cabinet ministers at their Saxonwold estate, making offers of political office they would never have dared make without Zuma’s tacit agreement.
As these details emerged, critics accused Zuma of not simply being captured, but of being metaphorically ‘owned’ by the Guptas. Memorably, Julius Malema coined the term ‘Zuptas’ to illustrate his point that the motives of Zuma and the Gupta family were indivisible.10
Mmusi Maimane said, ‘Zuma is controlled by the Guptas. Once you have a weak institution like the ANC and a government that is institutionally captured, you only have to win control over a few individuals like Jacob Zuma and you control everything.’11
David Lewis, who heads Corruption Watch, says that what distinguishes South Africa’s situation from other instances of state capture around the world is that, here, the country’s president plays a central role.12 ‘In other countries, there have been cases of institutions becoming heavily subordinated to one lobby or another. But it’s extraordinary for one family to have such a hold over a head of state. And this has cascaded down, to the South African Revenue Service, companies like Eskom and others,’ says Lewis.
Lewis says the ’capture of the state’ happens so rapidly