It’s been a year since Nhlanhla Nene was axed as finance minister. The seismic four days that followed laid bare a new trend in corruption: state capture. 2016 has been the year of state capture, where private interests began to subsume public power. The State of Capture report by former public protector Thuli Madonsela investigated how deeply South Africa is ensnared. Yet, President Jacob Zuma ended the year emboldened, despite a political crisis. Did 2016 mark the end of capture or its start? Ferial Haffajee offers an analysis
— Featured in City Press
Haffajee is researching state capture at the Public Affairs Research Institute
* Update: An earlier version of this article made reference to an agreement instead of a proposal from Quartile Capital to SAA. This was corrected on January 5 2017.
[nectar_dropcap color=”#27ccc0″]D[/nectar_dropcap]ecember 9 2015 is a typical government Wednesday towards the end of the year – it’s balmy and holidays beckon. A Cabinet meeting is held to tie up loose ends. On top of the usual list of high government business is the announcement that South Africa will pursue nuclear power, but subject to affordability and feasibility studies. It is a pre-Christmas compromise between those who want full nuclear and those who think the spend will bankrupt the country.
Finance Minister Nhlanhla Nene is present at the meeting, which stretches into the early afternoon. He leaves with his colleagues from Cabinet. It is, to all intents and purposes, a normal Cabinet meeting.
At 5.15pm, a senior official in the Treasury’s phone beeps. A WhatsApp message: The presidency is looking for Nene. At 18h10, another message: The presidency is looking for deputy finance minister Mcebisi Jonas.
Two hours later, Nene is history. Jonas is acting minister. Later, Jonas would reveal that Nene’s axing was no surprise to him as he had been offered his principal’s job for R600 000 cash and R600 million more to be paid, if he did as Ajay Gupta – the family patriarch at the centre of what happened in December last year – told him.
Anecdotes say that as he sat outside President Jacob Zuma’s office, Nene saw Zuma’s chief of staff, Lakela Kaunda, prepare the media statement informing the public of his removal. Nene had heard rumours of his end and was not shocked.
Nene is replaced by a minister whose first name is unclear to an incredulous nation when the news breaks later that Wednesday evening. Is he David, Desmond or Des van Rooyen?
It’s Des, says a parliamentary backbencher who was mayor of the Merafong municipality when it went up in flames and ignited a national boundary crisis as residents refused incorporation into North West. Now it’s the markets that are in flames in parts of the world where they are still open and the rand tanks on the news of the putsch of Nene.
‘We’ve taken charge’
December 9 earns the moniker “9/12”, after the US World Trade Center attacks named 9/11, which Treasury staff also experienced as an apocalyptic day. The term sticks, although different date formats means South Africa’s 9/12 is in December and the US’s was in September.
One official describes what happened over the next few days as “an attack”. The people who swooped in with Van Rooyen “came in with the approach that ‘we’ve taken charge’,” says another official.
We meet almost a year later, and he is sleeping so much that his doctor tells him it is because of post-traumatic stress from a tough year at the Treasury.
The Treasury’s officials are mostly brainiacs with long experience in public finance management, often with multiple degrees and with an almost zealous attention to the integrity of public finances. They say “no” more often than “yes”, which makes them few friends in the bureaucracy. Nevertheless, South Africa is most often rewarded on global rankings for the quality of public finance and national debt management.
These four days in December started the assault on the Treasury and the capture of key state institutions that was to follow. Over the following year, the anatomy of South Africa’s capture by a network of Mafia-like interests is exposed, and days later an anti-corruption movement is born.
The movement has support in the ANC and it ended this week with the president facing a revolt in what had always been his clear domain: the ANC national executive committee, the party’s nerve centre and inner sanctum. He has survived, but the ANC is shredded by state capture and the private interests that have come to influence policy and politics.
Spiders and webs of influence
To understand state capture, we have to go back further than December last year. A document titled Project Spider Web crawls into the public. It surfaces in June last year from the email address of Dudu Myeni, who is the chairperson of both SAA and the Jacob Zuma Foundation. The 27-page document alleges a massive conspiracy theory hatched in Stellenbosch and funded by apartheid business barons such as the Rupert, Oppenheimer and Rothschild families.
It reads: “The white establishment through the private sector has a huge influence in the running of the National Treasury … The white establishment felt it was too risky to leave the running of the government solely in the hands of the ANC.” And so it goes on to knit a conspiracy that the Treasury is not beholden to the governing party, but to white business interests.
Former finance minister Trevor Manuel, who is at the centre of the alleged conspiracy, laughs it off because the document is a confection of bad spelling and worse grammar. But Finance Minister Pravin Gordhan takes it more seriously, with the themes of the document emerging again and again this year and Treasury getting attacked and criticised in Cabinet as it keeps parastatals on a tight leash.
Treasury guarantees R400 billion in spending by state-owned enterprises – making it a honey pot.
Though in life-cycle decline, commodities are also a honey pot. As Madonsela’s report would reveal, mining and the granting of mining licences is at the heart of the story of capture.
South Africa is still coal country, both for the export value of black gold, but also because it fires the power stations that keep the economy going.
In September 2015, months before Nene is axed, ANC veteran Ngoako Ramatlhodi is dethroned and replaced as mining minister by Mosebenzi Zwane, a provincial minister from the Free State. At the time, ANC members raise concerns about his links to Gupta family interests in the province. In December last year, Zwane helps facilitate big coal deals for the Gupta family, jetting with them to Switzerland to meet Glencore to buy the Optimum Mine, while Eskom gives the mines it buys preferential terms, reports show.
Notes for the ‘FM’
Forty-four days before Nene is fired, an executive in Illovo, Joburg, is furiously scribbling an important email on the morning of October 26. It is from Eric Wood to Salim Essa.
Later in the year of capture, the two will emerge as key lieutenants who are fabulously enriched by various contracts and deals that the Gupta family facilitate for them. In the email, Woods writes: “As discussed, I have quickly jotted down a few points for the FM. These are not comprehensive – in time, I’m sure I can develop a more comprehensive list.”
FM is short for finance minister and Nene has confirmed to City Press that the document, an eight-point work plan, was not commissioned by or for him.
A separate whistle-blower report reveals that later that morning, Woods briefed staff at Regiments Capital, the asset management company he and Essa own (later he and Essa would break away to form their own capital advisory company, Trillian), and told them Nene would be replaced.
Even before Nene is axed, this private sector financial whiz, who once worked at Investec, sees how money could be made by the ouster.
The whistle-blower writes: “[On] October 26 2015 I was informed by my direct line manager, Eric Wood at Regiments Capital, that the president of the Republic of South Africa was going to replace Finance Minister Nhlanhla Nene. He subsequently sent me an email outlining National Treasury’s new initiatives and his proposed fees for each initiative that he had drafted.”
The whistle-blower continues: “On December 9 2015, the morning after the president had made the announcement to replace Nene with Des van Rooyen, Eric Wood informed me that Mohammed Bobat would be the new finance minister’s special adviser. Bobat was a principal at Regiments Capital…”
Bobat arrives at the Treasury on the morning of Friday, December 11, as much a stranger to Van Rooyen as he is to the shocked officials. The freshly inaugurated minister and his adviser exchanges numbers, indicating a new relationship. Bobat arrives at Treasury with Ian Whitley, who is ANC deputy secretary-general Jessie Duarte’s son-in-law, and with Malcolm Mabaso,
who is a business partner of John Duarte, Whitley’s father-in-law.
Mabaso’s mother, Linda, is the chairperson of Transnet where Wood’s company Trillian (and its previous partner Regiments) did business worth R600 million in the past two years, AmaBhungane reported.
Mabaso is also an adviser to Zwane. The overlapping personalities and roles reveal a web of connected interests working together. “Things are going to change around here,” says Van Rooyen in his first message to staff. “Treasury will be accessible to rural areas.” The minister uses the phrase “accessible” again later that day in his only statement as finance minister. A Cabinet minister is allowed two advisers; in Van Rooyen’s case, Whitley and Bobat. Van Rooyen says of Mabaso, the third person who joined him on his first day at the Treasury: “[He] is going to work here. He will have a desk.” Officials say Treasury director-general Lungisa Fuzile fumed: “If I’m not paying him, he can’t be here.” Mabaso would never again be seen at the Treasury.
That night, after he has been harangued for documents all day, Fuzile emails a confidential briefing for Cabinet on the economy to Whitley, who promptly emails the state documents to Bobat and then to Wood, with the words: “Gents, finally.”
The Treasury has been captured by private interests.
At Luthuli House, the governing party’s headquarters in Johannesburg, the political chiefs are watching the markets in panic on December 10 and 11. The rand is in free fall and so are share prices. Broadcasts and social media are aflame with public outrage. Phones are ringing off the hook.
Political and business pressure force urgent change. Cooperative Government Minister Pravin Gordhan agrees to return as finance minister. By Sunday night, he and Van Rooyen change jobs. The crisis ends, but the battle for the state is just starting.
What changes in the second term?
“In his first term, Zuma was happy to have Cabinet’s economic cluster do its own work, as long as he was in control of security. But in his second term, he started asserting himself. This is because the Guptas had realised that the Treasury, Eskom, Transnet and the Passenger Rail Agency of SA were key to unlocking great wealth,” says a public finance official.
The Gupta family comes from Saharanpur in India. They came to South Africa just over 20 years ago as moderately successful traders in computer parts. They immediately set about cultivating political influence by hospitality at their sprawling Saxonwold mansion.
And they ensured their naturalisation as black South Africans to benefit from black economic empowerment. They made friends with Zuma, who was still deputy president of the ANC, but out in the wilderness without a job after being fired by former president Thabo Mbeki. By Zuma’s second term, their friendship had been cemented.
A former government official who spent a lot of time in Saxonwold says the oldest Gupta son, Ajay Gupta, would always joke with visitors: “Hey, you want to be a minister? I can make you a minister.”
The Gupta family, led by a matriarch, but managed by three sons – Ajay, Atul and Rajesh (Tony) – began to build an empire that was government-facing. This meant focussing on state licences, advertising contracts and parastatal tenders to build their fortune.
The Gupta networks wanted in on mining, banking and media deals and the massive infrastructure spending trip the young democracy was about to embark on.
Trains (Transnet, for example, is spending R50 billion on 600 new trains), planes, defence equipment and commodities are in the cross hairs of this network of capture, which is calculated to have cost South Africa billions in lost tax revenues, pilfered mining funds and ill-gotten gains, including dodgy advertising deals and mining licences extracted with the help of top politicians.
In October, Gordhan asked the court for a declaratory order confirming he could not interfere in the banks’ decision to close the accounts of the Gupta family. Attached to the documents was an eight-page certificate by the Financial Intelligence Centre detailing red-flagged transactions to the value of R6.8 billion.
The president and the Treasury
The network around the Gupta family needed to neuter the Treasury, whose praetorian guard of officials repeatedly put up roadblocks to their ambitions.
In a nuclear subcommittee meeting that Zuma chaired in the week of Nene’s axing, he joked to a Treasury official who was leaving the meeting after he had labelled plans for eight nuclear reactors as completely unaffordable to the fiscus: “Your last minister [Gordhan, who was Nene’s predecessor] defied me in many ways.”
Officials say this was a reference to when Treasury in 2013 scuppered PetroSA’s plans to buy Engen from Petronas, the Malaysian company that owned a controlling stake.
Five finance officials City Press spoke to detailed numerous occasions last year, prior to Nene’s axing, when Zuma would rail against the Treasury. Officials who refused to co-sign an early agreement with Rosatom, the Russian nuclear agency, got up the presidential nose well before the axing.
The Petronas reminder also came as a warning because earlier in December, the Treasury had questioned an expensive aircraft-leasing proposal made to SAA. The proposed transaction, which would have seen SAA use outside company Quartile Capital to raise capital for the new aircraft lease deal with Airbus, never went through despite Myeni pushing hard for it. Treasury and SAA management say the proposed deal would have been at a significant premium to market.
“The events of December were focussed on SAA and nuclear,” says a senior government leader. They were also about a big defence deal.
Salim Essa, a young Johannesburg businessman regarded by some as a fourth Gupta son, had gone from being a successful Houghton businessman to a multimillionaire, some say billionaire, as he grew his own fortunes in alliance with the family in a series of deals where a sweetheart relationship with the state was essential.
In December last year, Essa was champing at the bit to take Denel offshore through his company VR Laser Asia, which he had engineered into a joint venture with Denel to manufacture equipment for the Indian market.
Treasury refused to approve the deal, although the arms company’s board had already done so after firing CEO Riaz Saloojee, who opposed Essa’s plans.
In the end, though, most agree that Nene was nuked by nuclear. A day before Nene’s last Cabinet meeting, Zuma was to chair a meeting of a high-level nuclear Cabinet subcommittee he had taken charge of.
Before the formal meeting, he met in caucus at the presidential guesthouse with ministers, including State Security Minister David Mahlobo, International Relations Minister Maite Nkoana-Mashabane, Public Enterprises Minister Lynne Brown and Energy Minister Tina Joemat–Pettersson.
Nene was excluded from this meeting because of Treasury’s consistent view: “The bottom line is that 9.6MW of nuclear was unaffordable”.
After the caucus, the formal nuclear committee meeting started, where the assembled ministers presented a chorus of lines about why nuclear power was imperative. “Energy is power. National security is energy security. We want it.”
Nene attempts a question. He asks why the deal is being priced at eight rands to the US dollar when the currency is far weaker, which would create false cost assumptions. Then he agrees that a request for proposals for a nuclear build partner would be announced at the next day’s Cabinet meeting. He is fired the next day.
The end. And the beginning
In his first week, Gordhan acquaints himself with the condition of the economy and calms the ruffled nerves he finds at the Treasury.
He and his team see off the Quartile Capital proposal to SAA and begin to put pressure on the airline to provide its financials, which are months late.
They hold off on issuing guarantees that will keep the airline airborne. Then Gordhan drives down to Durban on holiday in December. His phone rings. It’s Zuma saying: “Why are you being so hard on Dudu?”
This year, Gordhan faced three onslaughts by the Hawks and the National Prosecuting Authority, which culminated in fraud charges laid and dropped. This week rumours – which had gained currency in August – again swirled about a potential Cabinet reshuffle.
If Cabinet is divided and cannot make decisions on energy, education and other policies because factions are batting for private networks, we count the costs in delayed implementation and uncertainty. Business confidence is down and private sector investment is at an all-time low.
The cost of capture
What does state capture cost you and me? Once entrenched, the costs are innumerable from the direct diversion of public money to private enrichment. A developing country counts this in taps not connected, houses not built, diverted taxes and fees unpaid. There are indirect costs of a loss of confidence and of policy confusion
-> “Perceptions of elevated political risk and concerns about the ability of public institutions to make decisions on difficult trade-offs and manage change have undermined confidence.” –Medium-term budget policy statement (MTPBS) 2016
-> “While corruption has always existed in the public and private sectors, there are perceptions that state corruption and rent-seeking have grown in recent years. Such practices, if not combated with vigour, threaten to corrode trust in institutions and set back national development. Government is committed to promoting inclusive economic transformation through fair, transparent processes. The benefits of empowerment should be accessible on an equal basis, not limited to connected insiders.” –MTBPS, 2016
City Press requested interviews with President Jacob Zuma’s office, as well as those of the ministers of mineral resources Mosebenzi Zwane and co-operative governance and traditional affairs Des van Rooyen. They were promised but not forthcoming. Subsequent questions were sent on Thursday afternoon but not answered. Queries were sent to the Gupta family on Thursday afternoon and were not answered by the time of going to press. – Ferial Haffajee
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