Iraj Abedian, one of the most respected South African economists, says that it is not only the public sector which needs to get its house in order The private sector also needs to restore its integrity and to fight corruption and bad practices. Abedian addressed the Cape Town Press Club ahead of the Medium Term Budget Expenditure Programme.
Abedian stopped short of calling for public hangings for the corruption which has infected the public sector. But he said that some people need to be put behind bars. The sooner, the better.
One of the ironies of the budget, and the fiscal deficits which have been run up by the Jacob Zuma administration, is that the private sector is the only growth engine left in the economy. It now has to stand up for what is ethical and right. It cannot hide behind government corruption, nor fail to question the lines of patronage which flows from the public sector. It has to overturn the ethical deficit.
But the private sector has a lot to learn about the restoring ethical confidence in the economy.
Abedian said that South African Airways (SAA), the state-owned airline, was a good example of where business had spoken out. The private sector had demanded that if it was going to continue doing business with the embattled airline, then its voice had be heard on the SAA board – and also that those at the forefront of corruption and bad management should go. This victory now appears to have been won.
Thus business won an ethical victory with the axing of Dudu Myeni, the SAA chairperson.
Abedian said that the public sector had been so compromised that it could pretty much be described as a “predatory” state apparatus. He had – nearly 10 years ago – warned that a patrimonial state (with all power flowing from the leader) could be unleashed by the ANC’s policy of implementing a developmental state.
While the development state idea was not wrong in essence, it had to be underpinned by an efficient and clean administration. But instead, government had been corrupted – and patronage networks had become the order of the day. The extent of this had been much greater than even he had anticipated.
Much of the private sector had been infected by the corrupt business it had done with government. Included are legal firms who defended corrupt deals, auditing firms which did the books where government business with the private sector was involved. It also involved advisory companies, which had masked corruption.
It was now time for business to stand up to the ethical deficit in the land. It was time to see KPMG being dropped as a client by Investec, one of the big banks. There were also be people within government who should be put behind bars for corruption. But, likewise, where business people were corrupt, where appropriate they should also be prosecuted and put behind bars. “We need to become a bit more Chinese,” he said, explaining that corrupt people – be they ministers, the president, or CEOs – needed to be charged and imprisoned.
Abedian was not too hopeful that the new Minister of Finance Malusi Gigaba would be a voice of reason and integrity in Wednesday’s medium-term budget policy statement. Gigaba still appeared to be confusing radical economic transformation with the requirements of a developmental state.
What was really needed was honesty and integrity in state business dealings by the, particularly where they involved providing a better life for the poor and unemployed in South Africa.
Unfortunately, however, the ratios which should be going down were going up – such as the fiscal and budget deficits, and the debt to GDP ratio – which was at an alarming 52%. South Africa, he believed, was at an edge of a fiscal cliff. There was real danger of junk status being applied to the country by all the rating agencies – which would place South Africa in a terrible position for some years to come.
Borrowing becomes more expensive when debt levels are increased. This would have the impact of crowding out (funds for) other government services, such as health and welfare.
Dodgy deals in government – carried out by a sub-committee of the cabinet – had led to “a massive destruction of social capital”. The more the state drove “developmental” projects, which were actually just “patronage projects”, the more the entire edifice of the economy was undermined.
Private business which did deals with the government had continued the pattern of corruption and patronage.
Abedian said fighting corruption in South Africa had no political solution. There had to be a legal solution. Corrupt and dishonest people in government and business needed to be put behind bars.
If Gigaba just did one thing positive on Wednesday, Abedian suggested, he would take action to restore fiscal discipline – so that ministers could not run their departments into the red.