Policy weakness in SA is a critical constraint: there is no plethora of workable policies
SA should not resign itself to corruption just because it is possible to grow with moderate corruption, but nor should investors believe were it not for corruption, SA would be growing near 5%
SA is presently in the grip of corruption hypervigilance. When the South African Institute of Race Relations (IRR) briefed foreign investors in London and New York in September, concern about corruption featured prominently.
With GDP growth below 1%, unemployment at a 14-year peak and the number of people on social welfare exceeding those in employment, the opportunity costs of corruption could not be starker.
The risk, however, is that corruption vigilance masks the equal, if not overriding, need for policy reform.
For many of SA’s political parties providing long-term policy direction has been overshadowed by the corruption narrative. The ANC has drifted between ideas of the developmental state, radical economic transformation and inclusive growth, but the electoral battle in December does not centre on any of these ideas. One would be hard-pressed to define the differences in policy thinking between any of the candidates for the ANC presidency.
Similarly the DA’s message, as the largest opposition party, is overwhelmingly about good governance as opposed to policy. Herman Mashaba has declared corruption public enemy number one. The mayors of Nelson Mandela Bay and Tshwane have been equally committed to clamping down on corruption.
Corrupt activity steals from taxpayers and diminishes their confidence about the future, drains resources that could be used to provide a strong social safety net for those in desperate need, and creates systemic inefficiencies by substituting a culture of meritocracy for one based on the appointment and contracting of cronies. However there are several reasons to be sceptical of the view that SA’s economic growth and development are held back by corruption.
SA’s corruption performance over the years
Perceptions of corruption in SA, according to Transparency International’s Corruption Perception Index, improved marginally from 43 in 2012 to 45 in 2016. The scale ranges from 0 meaning "highly corrupt" to 100 meaning "very clean". The global average score in 2016 was 43, meaning that SA was perceived as marginally less corrupt than most other countries in the survey in 2016.
The "control of corruption" indicator from the World Bank’s governance indicators shows a similar improvement in SA in the last four years. According to the World Bank, the indicator "captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as ‘capture’ of the state by elites and private interests’.
Yet despite the scores from these indices it would be difficult to conclude that corrupt activity in SA was on the decline between 2012 and 2016. The 2016 data for these indices may have been collected before news of the state capture report, and therefore its influence may only be reflected in 2017. This, however, reveals the need to be cautious in using perceptions of corrupt activity as proxy indicators for the level of actual corruption taking place.
Challenges with corruption perception
It is important to understand that corruption perception indices do not measure the actual incidence of corrupt activity. Neither should we take increased media coverage on corrupt activity nor even a higher frequency of legal cases against politicians and government officials to signal that corruption is higher now than it has been at any point in the past.
If corruption has not necessarily been on the rise, how then can we explain the increased corruption awareness in SA? It is just as plausible that as the house of cards begins to crumble that members will leak documents and provide information on other members in order to grant themselves some level of amnesty or leverage.
Whistle-blowers who now come forward and disclose any knowledge of corrupt activities are likely to be branded as heroes, not cowards who waited until conditions were favourable.
The same strategy underpins competition policy responses to collusive activity. And in a sense we can understand high-level co-ordinated corruption as a political cartel. In competition policy, many countries have adopted leniency programmes in order to encourage whistle-blowing and the internal implosion of cartels.
Typically the first whistle-blower is afforded full or partial immunity. This leniency creates an internal weakness for cartels, because it creates an incentive for one of the members to exit the cartel. In so doing it sows suspicion and destabilises collusive activity. The public, by being lenient on ANC members who have decided to speak up belatedly, creates a similar effective incentive structure for further whistle-blowing.
Now, instead of facing the retribution of the party and the public, whistle-blowers are met with public adoration. And because of the public adoration the party rebuke may prove to be temporary. With patience, and if they play their cards right, those pushed out to the fringes will in time be the centrepieces of a "new" and allegedly reformed ANC leadership.
As the campaigning intensifies expect to witness further revelations, media leaks, legal battles and members who exhibit belated crises of conscious. As more corruption is exposed, we should exercise caution in reading it as evidence of increased corrupt activity under the present administration.
Understanding perceptions, however, is a valuable exercise in its own right, even if we cannot use them to measure corruption or to compare levels of corruption between different administrations and periods. Perceptions will still drive expectations and confidence levels. But those who understand perceptions will be able to treat it as headline activity as opposed to a shift in the fundamentals of assessing investment risk in SA.
The nature of corruption
Seldom appreciated is the fact that corruption is not all the same, and that the organisation of corrupt activity can be significant in determining its impact. High-level, orchestrated and discrete cases of corruption which have become the order of the day in SA, are quite different to countries that suffer from low level, arbitrary and infinite cases of petty corruption. The former is carried out by those with influence and power and the latter is carried out by ordinary public servants.
The presence of the Gupta family in the bulk of corrupt activity signals a large and almost singular corruption value chain, which can be cut off with electoral change in 2019; either to a different political party or potentially with rooting out the Gupta family and those connected to it in the ANC.
This type of large-scale corruption is more easily identifiable and addressable. Harder to deal with is corrupt activity that has become standard bureaucratic culture in the civil service. Here the risk to the economy is millions of tiny transactions that add a marginal corruption tax to every economic activity, e.g. exports and imports, registering a business licence, leasing and/or buying property, etc.
These fractional, higher-frequency cases of corruption are extremely difficult to root out. They require not only robust systems but a wholesale change in the culture of the bureaucracy, and the public who may perpetuate the culture by resigning themselves to paying bribes as just "the way things are done". The nature of corruption in SA resembles the former instance, rather than the latter.
The economic development literature should turn our attention towards the question of why some seemingly more corrupt countries achieve levels of growth and development that outstrip those of less corrupt countries. Why has Indonesia, perceived as more corrupt than SA across different indicators, achieved growth rates above 5% since 2010?
SA should not resign itself to corruption just because it is possible to grow and still sustain a moderate level of corruption, but nor should investors take the view that were it not for corruption, SA would be growing near the 5% range envisioned by the National Development Plan.
The policy framework in key areas such as education, social welfare, mining, land and agriculture are simply not supportive of such projections. Policy weakness remains a critical constraint, contrary to the view that there is a plethora of workable policies and all that remains is their successful implementation.
Corruption requires vigilance and swift action against those implicated; however, it should not dominate the political conversation above policy concerns. The danger is that in SA, it has. This message has particular importance for anyone concerned about SA’s long-term prospects, as opposed to speculative investments.
Trading in the headlines will lead to hypersensitivity concerning corrupt activity, whereas policy reform should remain the priority focus when corruption can neither be credibly measured, compared across different periods nor prove conclusive in determining economic growth and development.
• Ngwenya is the chief operating officer at the Institute of Race Relations