The first wave of state capture had its origins in the cadre deployment and transformation policies of the African National Congress (ANC) which degenerated into the looting of state institutions. These policies allowed the party, through the government, extraordinary regulatory and administrative powers and deployed cadres just could not withstand dipping into the public purse.

A senior ANC leader once told me that what the party desired was a model of ‘sustainable wealth extraction’ in which the party, through the state, could draw wealth out of the country without driving investment out of the country – but bemoaned that greed and infighting among cadres was so great that they could not help but destroy the institutions they were deployed to lead.

The consequences can be seen in Eskom, in creaking infrastructure, failing municipalities, toxic rivers, dangerous hospitals, and corrupt policing. They can be  read in the testimony to the Zondo commission, the Gupta leaks, and the reports of the Auditor General. As Minister of Public Enterprises Pravin Gordhan is reported to have said, ‘If you thought it was bad, it was worse.’

But I am afraid that if the first wave of state capture related to the destruction of public institutions and infrastructure, the second (and later) waves may relate to the attempts at their rebuilding.

The formulae for those subsequent waves will have three components. The first will be large amounts of corporate, pension, and development financing being made available for rebuilding. The second will be the nominal ‘privatization’ or private contracting of firms to rebuild that which has been broken. The third will be to apply the above via the same regulatory and administrative mechanisms that led to the first wave of state capture.

Here are some practical examples:

The energy parastatal/municipal water works/public hospital/mining industry is failing. South Africa suffers an electricity/water/healthcare/mining crisis. Something must be done. New generating capacity/refurbished infrastructure/better healthcare administration/new mining investment must be brought on line to save the country. Large amounts of development financing must be raised, with business, government, labour, and the international community (especially under wave three) working closely together. Collectively they will agree that the ‘private sector’, or at least private-public partnerships, must do the delivery as the capacity of the state is so eroded. Calls will go out for applications from suitably qualified firms to do the work or lead these partnerships. But these firms and the contracts they win will be surveyed by the same political leadership and through the same prisms of cadre deployment and transformation that led to the first wave of state capture.

We at the Institute of Race Relations (IRR) think transformation is very important in the sense of introducing effective empowerment and affirmative action policies that identify people on the grounds of socio-economic disadvantage and help them into the middle classes. But what passes as transformation in the government and the ANC is not that but rather a racial nationalist policy that acts as a fig leaf to conceal corruption, malfeasance, and the looting of public funds by painting any critic of the policy as racist.

Put it quite bluntly; you can grow rich off looting Eskom into the ground, and then win the financing and tenders to supply the renewable energy that South Africa needs to keep the lights on. When anyone questions what is going on you can again throw the racism accusation at them (and in the case of renewable energy) the climate-change denialist accusation.  

What ends up happening is that, having exhausted the resources available from public institutions, the ANC’s political elite pivot under the guise of privatization and reconstruction to keep the cash taps flowing. State capture is ongoing – it is only the business and financial model that has changed. If you have any doubt think about what has happened at South African Airways (SAA) where banks and a development financing institution have stumped up several billion rand to keep the cash flowing without which that fragile cadre-deployment house of cards would already have come tumbling down. When asked why they did it, the development bank said that if they had not then SAA would have folded – not the basis of sound banking or investment policy.   

An implication of our ‘waves of state capture’ thesis is that it is too early now to speak of public-private partnerships, raising development finance, and rebuilding, and will remain so as long as the current political elite that looted the country is still in charge.

The first cycle of state capture lasted almost twenty years before running out of cash in the aftermath of the 2009 financial crisis and the frenzied looting that followed. If the looting had been done in moderation it might have lasted longer. The second may not last as long but given the quantum of private funds held within the country, including pension funds, it could last for many years. The third wave will come after those private funds are exhausted and international funding agencies are forced to step in.

The IRR first warned about the implications of cadre deployment and what is today called state capture almost twenty years ago. For much of the time that followed, the warnings were ignored or loudly countered. It is important to say that because this is not our first rodeo and the methods and tools we used to make that call 20 years ago are the same as those that allow us to flag the lining up of state capture ducks all over again.   

If you ask how these next waves can be avoided, the most compelling answer now is the complete defeat of the ANC so that it is out of government. Short of such an outcome, and short of a sincere effort to jail the corrupt in its ranks, our assessment is ever more that the ANC in government will repeat the cycle of state capture time and again, simply changing the source of finance ahead of each new wave.

Twenty years ago very few influential people were willing to admit, let alone speak out or act against, the dangers inherent in the nexus between cadre deployment, what passes as transformation policy, and the enormous administrative power of the state. Today, equally few seem able to admit that the ANC must be driven out of government to stop the cycle.

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Frans Cronje
Frans Cronje was educated at St John’s College in Houghton and holds a PHD in scenario planning. He has been at the IRR for 15 years and established its Centre for Risk Analysis as a scenario focused research unit servicing the strategic intelligence needs of corporate and government clients. It uses deep-dive data analysis and first hand political and policy information to advise groups with interests in South Africa on the likely long term economic, social, and political evolution of the country. He has advised several hundred South African corporations, foreign investors, and policy shapers. He is the author of two books on South Africa’s future and scenarios from those books have been presented to an estimated 30 000 people. He writes a weekly column for Rapport and teaches scenario based strategy at the business school of the University of the Free State.

3 COMMENTS

  1. Spot on, ‘sustainable wealth extraction’ and “redistribution” to some selected cadres.
    I read an article by a black man -Chigozie Obioma in Foreign Policy Magazine – There Are No Successful Black Nations, Chigozie Obioma is an assistant professor of English and creative writing at the University of Nebraska-Lincoln.

    My observations reminded me so of the dogmas of the ANC and BLF and EFF- Black elites and activists operate exactly as defined in the article.

    a) Farcical democracies ruled by Elitist men who exclusively cater to their interests and those of their clipped circles.
    b) A culture of incompetence, endemic corruption, dignified ineptitude
    c) Destructive nature, selfishness and greed
    d) Tyranny, in a way in which they shut down any effort to reason or criticize any black-majority nations by labelling such attempts as “racism” or “hate speech.”
    e) Anyone within their race who makes such a suggestion will be deemed weak and pandering or a sell-out and will readily resort to violence to enforce their demands on an unwilling participant
    f) Desire to control their own Fiefdom

  2. “The most compelling answer now is the complete defeat of the ANC so that it is out of government” (extracted from article). No, there will also be political waves of corruption. The second political wave when the ANC drops below 50% is that the ANC and EFF will form a “coalition of the looters”, so the second political wave will extend for another 20 years or so.

  3. Thanks for a thought-provoking article.

    I may be a bit more pessimistic. I judge the state finances including state debt (including state enterprise debt) to have reached the point of breakdown already. If not yet, then after the Corona crisis (this year income will nosedive and the deficit soar pushing debt up further). All this means, the IMF umbrella is closer than all think. Which means, economic policymaking is about to be taken out of the hands of the ANC. Which will (hopefully) make it more difficult to steal money in a 2nd and 3rd round. Especially if the IMF insists that BEE be dumped on the ground that it’s economically inefficient.

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