Business confidence and rampant corruption

Busy seasoned readers of the Daily Friend will know that they may need to be enticed into a “long read”. This offering is a long read. It seeks to establish the connection between low business confidence and high rates of corrupt activity by organised criminals. 

This is an important topic of national importance which is not visited often enough in general public discourse, so let’s start with a five-paragraph summary (for the busy reader) of the take- home message of this piece:

There is a strong and growing desire, among those who care for a better life for all in SA, to stimulate the growth of the economy. Plainly the lot of the poor and our unemployed jobseekers, in particular, will be improved by so doing. A brighter future beckons, once the economy grows instead of stagnating as it has since the Mbeki era.

An often-unrecognised major factor retarding the growth of the economy is that investors, both local and foreign, old and new, lack the “business confidence” to make new investments in the SA economy. This sad fact, accepted as a “given”, is illustrated by the oceans of liquidity maintained by those who are already invested in SA, but remain cautious about investing further in new or expanded ventures that would have the effect of stimulating the growth of the economy and creating new jobs, much needed at a time when more than three out of ten would- be workers are unemployed.

The best, most lasting, and yet quickest way out of this bind is to prioritise  countering  our rampant levels of organised crime and serious corruption, about which we all heard so much during the taking of evidence by the Madlanga Commission of Inquiry. It was appointed in the wake of publicly-aired complaints by the chief of police in KZN, concerning the capture of the criminal justice administration by nefarious elements active in SA’s illicit drug trade, taxi tycoons and extortionists. Once government can be seen to be serious about tackling the twin scourges of organised crime and grand corruption, the lack of business confidence will be alleviated if not cured. The willingness to invest in SA will return, as that confidence is stimulated.

The Constitutional Court has already, in the Glenister litigation, pointed our politicians in the right direction: it prescribes a body outside executive control to deal effectively with corruption in all its manifestations. A single body that is adequately independent, properly resourced, secure in tenure of office and populated by trained specialists (who would, out of their professionalism, not be seen dead in the current inefficient “multi-agency” structures that are under executive control) is what SA needs.

The necessary political will to reform the law is growing, as evidenced by two bills pending in Parliament. These bills envisage the establishment and enablement of a new Chapter Nine Anti-Corruption Commission that would satisfy all the legal requirements that already bind government but remain unfulfilled. By accelerating the processing of these bills, Parliament will demonstrate its willingness to address constructively the paucity of business confidence, thereby opening the way toward much-needed economic growth.

The topic is one dealt with previously by Accountability Now:

Inspanning AI to enquire into the issues concerning the relationship between the stimulation of business confidence in the presence of rampant corruption and organised crime is instructive. If we start with general questions for Gemini, and then drill down into the specifics of the parlous situation in which SA finds itself,  also using Gemini, the following is revealed.

Gemini was first asked about the relationship between business confidence and unchecked corruption by organised criminals.  Here is the answer given:

“A lack of business confidence is a direct consequence of unaddressed corruption, as systemic dishonesty destroys the stability, predictability, and fairness that companies need to operate”. When a government or regulatory system fails to tackle corruption, it signals to investors that the rules of the game are rigged.”

Unaddressed corruption erodes business confidence through several key channels:

Increased Financial Costs and Risks

• The “Corruption Tax”. Businesses are forced to factor in the cost of bribes, kickbacks, and extortion just to secure basic permits or contracts, which slashes profit margins.
• Capital Flight. Domestic and foreign investors pull their money out of the country and move it to predictable markets with a strong rule of law.
• Asset Insecurity. Companies fear that their property, intellectual rights, or contracts could be arbitrarily seized or invalidated by corrupt officials.

Market Distortion and Unfair Competition

• Merit is Ignored: Contracts and government tenders go to politically-connected insiders rather than the most qualified or cost-effective businesses.
• Suppressed Innovation: Honest entrepreneurs cannot compete against corrupt monopolies, which discourages new startups and paralyzes industry growth.

Breakdown of Institutional Trust

• Unpredictable Policy: Laws and regulations change depending on who is paying off officials, making long-term strategic planning impossible.
• Ineffective Judiciary: If a business dispute arises, companies cannot trust the court system to deliver a fair trial, leaving them without legal recourse.

The Economic Ripple Effect

Next, drilling down was ventured into by bringing the question asked to the specifics of South Africa. Here is Gemini’s answer:

“In South Africa, the link between unaddressed corruption and depressed business confidence is not just a theoretical concept: it is a documented economic driver that has shaped the country’s macroeconomic performance. Systemic corruption, most notoriously illustrated by the era of “State Capture” and persistent procurement scandals, continues to severely weigh down the local investment climate. [1, 2]

South Africa’s RMB/BER Business Confidence Index sits at a low 38 points (where 50 indicates neutrality), highlighting a sustained era of muted private-sector investment. [1]

The lack of decisive resolution for high-level corruption dampens South African business confidence through several direct mechanisms:

The Financial and Operational Toll of Grey-Listing

• Increased Cost of Compliance: In 2023, the Financial Action Task Force placed South Africa on its Grey List due to systemic gaps in tackling corruption, money laundering, and financial crimes. [1]
• Transaction Friction: While intense regulatory reforms are underway to reverse this, being grey-listed fundamentally damaged investor confidence by making international banking transactions more difficult, and raising the cost of doing business locally. [1]

Infrastructure Collapse via Institutional Decay

• The SOE Crisis: Corruption within State-Owned Enterprises (SOEs)—most notably Eskom (electricity) and Transnet (rail and ports)—directly correlates with operational paralysis.
• Operational Toll: Decades of unaddressed procurement corruption left infrastructure vulnerable. For businesses, this translates to structural supply-chain gridlocks, volatile energy security, and forced operational expenditure on backup solutions, destroying long-term corporate expansion plans.

The “Trust Gap” and Policy Uncertainty

• Stagnant Corruption Perceptions: According to Transparency International’s Corruption Perceptions Index, South Africa hovers at historic lows (scoring 41 out of 100).
• Capital Reluctance: Local business lobby groups like Business Leadership South Africa (BLSA) note a distinct “trust gap”. When public architecture fails to enforce accountability transparently, boards withhold capital expansion. Companies opt to retain cash or invest globally rather than deploying capital into unpredictable domestic projects. [1, 2, 3, 4]

Comparative Friction in the South African Market

Finally, I asked Gemini a simple question: “Would implementing the Glenister decisions properly help?”

“Yes, properly implementing the Glenister decisions would be a powerful step toward restoring South African business confidence.

In the landmark Glenister II (2011) and Glenister III judgments, the Constitutional Court ruled that the state is constitutionally obligated to maintain a highly independent anti-corruption agency. The court outlined what legal scholars call the STIRS criteria: the anti-corruption body must be Specialised, Trained, Independent, Resourced, and Secure in tenure. [1, 2, 3]

Properly enforcing this legal precedent would directly address the core concerns of the private sector in several specific ways:

1. Eliminating Executive Interference and Political Risk

Currently, South Africa’s key anti-corruption organs, such as the Hawks (situated within the police) and the Investigating Directorate Against Corruption (IDAC, situated within the NPA), remain located within structures ultimately under executive control. [1, 2, 3, 4]

• The Business Impact: Domestic and international boards fear “political risk”: the idea that an investigation will be shut down if it targets politically-connected elites. [1]
• The Glenister Solution: Fully implementing the judgments requires creating a body entirely outside executive control. If structured as a permanent, stand-alone entity (such as a proposed Chapter 9 Integrity Commission), its leadership could not be arbitrarily suspended or fired by politicians. This stability reassures companies that the rule of law is predictable and absolute. [1, 2, 3, 4, 5, 6]

2. Replacing the Fragmented “Multi-Agency” Flaws

South Africa has historically relied on a fragmented, multi-agency approach split across the Special Investigating Unit (SIU), the NPA, and the Hawks. This creates jurisdiction clashes, red tape, and delays in prosecutions. [1, 2]

• The Business Impact: Businesses need swift justice. When infrastructure sabotage, procurement fraud, or extortion rackets (like the “construction mafia”) drag on for years without trial, business costs rise exponentially.
• The Glenister Solution: Legal reforms aligned with Glenister aim to consolidate specialized personnel into a single, dedicated entity. A streamlined, powerful agency means corporate fraud and public sector corruption cases can be resolved rapidly, restoring normal market competition. [1, 2]

3. Lowering the Country’s Risk Premium

A major dampener on South African business confidence is the cost of capital. Because of corruption perceptions and the state’s historical struggle to secure high-profile convictions, international ratings agencies view SA as a higher-risk market.

• The Business Impact: Higher national risk means local banks and corporations pay more to borrow money on global markets, limiting expansion.
• The Glenister Solution: Transitioning to a legally compliant, unassailable anti-corruption framework sends an undeniable signal to global markets. As advocacy groups like Accountability Now note, showing the political will to enact these constitutional reforms is the most direct precursor to convincing hesitant foreign investors that the country has permanently turned the corner. [1]

Current Progress in Parliament

Rather than just a theoretical solution, concrete steps are actively being debated to achieve this:

• Pending Legislation: Parliament has been evaluating draft bills aimed at establishing a permanent, structurally insulated anti-corruption commission.
• The Hurdles: Moving from the current model (like IDAC) to a fully independent body requires immense political will and potentially a two-thirds majority in Parliament to amend the Constitution. [1, 2, 3, 4]

The Bottom Line: Business confidence is built on institutional trust. By creating a fierce, independent corruption watchdog that satisfies the Glenister mandates, South Africa would remove the threat of state capture permanently, giving the private sector the green light to invest long-term capital back into the economy. [1, 2]”

Paul Pretorius SC was the chief evidence leader at the Zondo Commission of Inquiry into State Capture. He has confidently asserted, with full justification, that state capture is still in progress in SA. It seems, from the low scores on the business confidence front, that business leaders and decision-makers agree with his assessment.

Former Chief Justice Zondo has recently expressed his disappointment with the lack of implementation by government of the recommendations he made in his 2022 final report.

The dysfunction in the capacity of the SA state to “deal effectively with corruption” (as the court put it in Glenister Two) may have to be litigated once more after the Madlanga Commission publishes its final report. Mustering the political will to act appropriately appears to be beyond the will and capacity of the current crop of elected politicians in SA.

[Image: by LightFieldStudios]

The views of the writer are not necessarily the views of the Daily Friend or the IRR.

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