On the Brink. Claire Bisseker
return as ‘preposterous’. ‘The sort of ethical challenges displayed by Molefe, Ngubane and the Eskom board disqualify them from public life and we will do all within our power to ensure that they are driven out of Eskom and all other public institutions,’ he said.34
Finally, on 2 June, Eskom ‘rescinded’ its decision to reappoint Molefe, ending his 19-day stint back as CEO. Molefe was out in the cold for the second time in six months – and this time, it hadn’t been his choice to leave.35
If this was a victory against state capture, rather than a calculated decision by its orchestrators to sacrifice a pawn who had become too radioactive, the credit must lie with those within civil society and the ANC who had finally drawn a line in the sand.
Backlash from investors
Futuregrowth, a Cape Town-based investment house that manages R170 billion in pension-fund money, is one of South Africa’s most socially conscious investment companies. Nearly half its money is invested in socially beneficial projects, including low-income housing and electrification projects.
In August 2016, Futuregrowth’s chief investment officer, Andrew Canter, was sitting with three funding proposals worth a combined R1,8 billion from SOEs on his desk. Canter is nobody’s fool. An American who first arrived in South Africa in 1990, he distinguished himself from many of his countrymen by immediately grasping the need for true black empowerment. But as a man of high principle, the daily revelations of state capture were beginning to wear him down.
Considering those funding proposals, Canter realised he didn’t have the information he needed to make rational investment decisions. ‘We’re worried now, in the world of politics, whether there’s political interference in lending decisions where money gets lent to politically connected persons or just to projects supported by politically connected persons,’ he said.36
So, Futuregrowth did something none of its peers had dared to do. It publicly announced that it would refuse to lend to six SOEs until it got answers: Eskom, Transnet, roads’ agency Sanral, the Land Bank, the Industrial Development Corporation and the Development Bank of Southern Africa.
It was a sensible and wholly defensible decision. As the trustee of other people’s pensions, Futuregrowth was obliged to consider whether backing state companies was still responsible.
But Canter wasn’t prepared for the furious backlash his actions would unleash. On websites and in media owned by the Guptas, Futuregrowth was cast as ‘anti-transformation’ and a stooge of ‘white capital’. ANN7, the Guptas’ television channel, argued that Futuregrowth had taken ‘a decision to effect regime change’. Molefe described Canter as an ‘idiotic imbecile from the lunatic fringe’.37
Lynne Brown, the Minister of Public Enterprises, privately lent on Old Mutual, the large asset manager that owns Futuregrowth, to ‘bring Canter into line’, according to one person with knowledge of the event. Old Mutual, which managed a large chunk of government pensions, seemed to freeze in the spotlight. For a 171-year-old South African company with an intensely proud history, theirs was a depressing response. It had the perfect opportunity to demonstrate its civic responsibility – only it fluffed its lines. Canter’s decision was ‘regrettable’ and ‘unfortunate’, it said.38
The Financial Mail decried Old Mutual as ‘gutless’ – a description that rubbed the head of the company in South Africa, Dave Macready, up the wrong way. ‘I don’t believe we took a gutless approach at all when it comes to Futuregrowth,’ he said. ‘We just don’t believe making a public statement in the media is the appropriate forum.’39
But given that the country’s economy was being hijacked, standing up to state capture publicly was exactly what the situation demanded from business. With Gordhan fighting for his political life and the sanctity of the National Treasury hanging by a thread, there could hardly have been a better time for business to stick its neck out. But it would take a few more weeks before business stood up as one and railed back against the state, loudly and publicly (see Chapter 7).
Canter’s bold move galvanised other money managers to follow suit. Abax Investments, which manages R80 billion, did the same. Its CEO, Anthony Sedgwick, said his clients’ portfolios ‘already reflect limited exposure to SOE debt due to the concerns raised publicly by Futuregrowth and a few more of our own’.40
In May 2017, the 800-pound gorilla of South African money managers, Coronation, also scaled back its bond holdings. ‘South African government bonds look cheap on the surface, but there is an insufficient margin of safety to justify holding them,’ said Coronation’s head of fixed-interest investments, Nishan Maharaj.41 While the language suggested that the decision was being made for technical reasons, many saw it for what it was: an act of legal civil disobedience from the private sector in protest against the crumbling governance of state firms.
Magda Wierzycka, CEO of investment company Sygnia, said that in 22 years in the investment industry, she’d never seen an asset manager take such a bold step. ‘More asset managers should follow their example. Debt instruments issued by SOEs should be shunned until such time as the boards of directors are replaced by ones that can uphold good corporate governance,’ Wierzycka said.42
Ultimately, history was kinder to Canter than Molefe. While Canter has been vindicated, Molefe’s fall remains a potent example of how an excellent public servant can be felled by poor judgement.
The economic harm of state capture
South Africa isn’t the only country to have been hurt by incidents of state capture, nor is this the country’s first brush with the practice. During apartheid, specific Afrikaner lobbies managed to ‘capture’ the policies of the ruling National Party, which led to an abuse of public funds for individual gain.
However, Hennie van Vuuren, director of NGO Open Secrets and author of the book Apartheid, Guns and Money, says comparisons between the apartheid era and the modern era are often misguided: ‘It’s very difficult to compare these two systems. They should rather be seen as a continuum. Certainly, you can say there was a privatisation of state assets during the late-apartheid period. For example, some of the correspondence around the awarding of the pay-TV licences to Naspers had every shade of what we’re seeing today. But the scale and circumstances are different.’43
Roger Southall, a research fellow at the Human Sciences Research Council, wrote in 2006 how the National Party ‘had used the state-owned enterprises to promote the welfare and upward mobility of Afrikaners’.44 The establishment of Eskom in 1924, as well as the Iron and Steel Corporation (Iscor), which would later be privatised and bought by Indian billionaire Lakshmi Mittal, was designed to ‘promote the development of Afrikaner capital and provide employment for … Afrikaners’.45
Lewis agrees that the corruption and diversion of assets under apartheid was more blunt. ‘That was a wider corruption, where 40 million South Africans paid for the private gains of 6 million people.’ But he feels that in the democratic era, in which institutionalised rent-seeking of this sort had supposedly been dismantled, there should have been no room for private individuals to capture the state, let alone to such a degree. ‘It’s on a scale greater than mere corruption, where a bribe is paid to get a specific contract. Here, specific groups are pre-emptively dictating decisions that should be made, so it’s far wider and more insidious.’46
There is a definite economic cost to state capture, Lewis argues: ‘If the interests of the capturer are predicated on government introducing nuclear power, because he might have a uranium mine, and that ends up influencing policy when it comes to a country’s energy mix, well, then, yes, you can measure that in rands and cents.’47
To take just one tangible example, Eskom ended up lavishing large amounts on the Gupta family for coal that it could conceivably have bought for less.
As part of the late-night meeting held to approve the controversial ‘pre-payment’ to the Guptas, Eskom agreed to pay R19,69 per gigajoule to Tegeta for coal. But this was nearly double the average price of R11,04 that Eskom was paying for coal at the time. Had a more arms-length agreement been tabled, it is conceivable that Eskom could have driven a harder bargain, ultimately leading