Corruption has become SUCH AN OVERUSED WORD South Africa that no one really appreciates what it means to them as taxpaying private citizens. Generalizing how the ANC has corrupted South African life, political and business is meaningless without explaining how it has happened. After ten years and millions of words written about the Arms Deal, if every South African has not by now discerned how devious and corrupt the ANC government of the day was in that, I’m certainly not going to spend any more time on that subject. I am however going to explain how other major projects and some lesser known SCAMS work in the South African context.
At the core of every Tender manipulation and fraud is the illegal and fraudulent expenditure of taxpayer funds. It’s very important to understand that the machinery that has evolved around corruption is driven by public funds only. Where there are outside companies involved as suppliers, the profits they make from supplying the government in fraudulent tender processes are all provided from public money, yours and my taxes. In all of the examples mentioned in this piece, don’t lose sight of the fact that the only source of funding for all the scams is taxes. Bear in mind as well, that there are only about Five Million registered taxpayers in South Africa, among 48 million people. Tax revenue amounts to about R750 Billion per year, this was the figure for 2011 as disclosed by SARS, although their role has also become questionable, more on this later.
The role of BEE
Legislation has been abused by the ruling party to ensure continued support for their corrupt structures at various levels of business but specifically aimed at government awarded contracts and tenders. As with most ANC policies one has to look past the patent and carefully postulate the latent possibilities packaged in the various pieces of legislation that have been enacted in the 18 years of democratic rule. I will not argue the intrinsic racism contained in these laws, it should be self-explanatory, and anyone having any doubts should familiarize themselves with the 1947 United Nations Universal Declaration of Human Rights. Pay particular attention to the fact that the ANC is not mentioned in the document at all.
Back to BEE and its stated objective of addressing the injustices of the past and creating wealth for previously disadvantaged persons, stripping away the euphemisms its racist pure and simple.
BEE’s most important function however is not the publicly stated one; its principal function is to assure that all government contracts are crony beneficial. The public face of BEE is to discourage other business from trying to enter into business with the government without the proper credentials. BEE accreditation does not guarantee government contracts as many companies have found out after complex share transactions to meet compliance requirements. A detailed examination of BEE transactions may well be the topic for a well-funded and lengthy investigation. Many Billions have been lost in these transactions, due to shifting financial conditions impacting on heavily debt leveraged transactions.
BEE has been used as part of a mechanism to effectively run government awarded tenders in what can be described as a closed shop environment. It is important to understand where BEE fits into the overall corruption landscape, this can best be illustrated by some recent events, both from the news and some lesser known but very high value deals.
Capital projects are the happy hunting ground for government driven corruption, due to their large scope for obfuscation of costs. This is where BEE comes into its own, as one leg of the triangle used to defraud taxpayers of Billions of Rand. Simply put, preferred BEE companies are the conduits through which capital projects are used to siphon off billions from public funds, your and my taxes, of course. The process not only appears transparent on the surface, it bears up under scrutiny to a point. The Gautrain comes to mind, as a typical case, because it is such a great example and it can be traced in the public domain, for the most part.
A proposal to build a high speed rail link between Johannesburg and Pretoria is mooted at an estimated cost of R3.5 Billion. Cost seems a bit high, but it based on the prevailing cost of infrastructure to the South African Railways at the time of costing. The project is deemed to be viable, but SAR is not deemed to be the ideal contractor for the job, for various reasons. Enter the company Bombardier with an estimate for R10.5 Billion for a complete system. Three times the initial cost estimate seems unreasonable and would raise serious questions in correctly run business. Not so in South Africa when it comes to Capital Projects funded by the taxpayer.
Enter the BEE player in this peccadillo, the Mbombela Consortium, comprising of well-heeled politically connected ANC elite. The project is initiated without further ado, except for one subtle detail, hidden in the contract are escalation clauses put there by Mbombela to facilitate the fleecing of the taxpayers money into their pockets. These clauses are used to inflate the project price to R30 Billion, no one asks any questions, because all of the documents are public, correct? To put it in perspective, if a builder quoted A million to build you a house and then after completion tried to get you to pay 10 million for the same house, what would your reaction be?
The hidden step and what happens in all publicly funded capital projects is quite simple. The contractor who does the work is employed by the front BEE Company and the price he gets for the project in most cases does not vary, on the surface all the variation orders are real, with one exception, they are in fact fictitious. They are merely a means to inflate the cost of the project, and a substantial portion of the inflated costs are paid to the front company directors by various means, which is why foreign contractors are so popular in South Africa for large capital projects, once the money has left South Africa no South African Authority can trace its movements. Payments can then be made in Europe, to nominated accounts and hidden in the income statements and balance sheets of the companies concerned.
Think of every Capital project undertaken since 2002, look at initial estimates, then look at tender winning companies and then look at final project costs, this is the surest way to track the corrupt entities involved in these projects.
One of the most interesting projects to come to my attention in recent years was the as yet unconfirmed report of a R300 million police station that started out life as a R3 million police station in KZN, I’m told that several high profile generals were behind that and more than one person has died in accidents that might have been commissioned to maintain their silence. The rumor goes that the family of the deceased has all gone to ground outside of South Africa, with our police service, who can blame them?
As a parastatal company Eskom should be the epitome of transparency and due to its high strategic value as a power supplier it should be among the best managed assets of the South African people. In reality it yet another BEE cash cow, plagued by corruption too entrenched at every level to ever be totally corruption free. The concealment of vital project costs and regular escalations in price is brought to the taxpayer for additional funding. A prime example of this is the twin black holes of Medupe and Lephalale power stations, the subject of cost escalations in the order of 3.5 times original estimates. Again no alarm is raised by the government, only additional taxes and an escalation of the cost on energy in the order of 150% over a period of two years or so. Another most interesting scam to come out of Eskom is the Consultant Scam, this works very simply, outside companies are contracted by Eskom to provide consulting services on tender. Only BEE companies need apply, and the scam is simple, Eskom provides volumes of data to preferred suppliers [cronies] who quote at R2500 per hour for analysis. They employ junior consultants and promise to pay them R200 per hour for their services to sit and convert the data to excel pivot charts. Nothing more, the pivot chart files are delivered to Eskom electronically to release payment. Payment is then shared with the person in Eskom doling out the orders, invariably the junior consultant is fired after three to five weeks for some infraction and salary denied on that basis. There is a company in Randburg with an extensive property portfolio paid for in cash generated through such a scheme which has been running for some 5 years.
The obvious link between the ANC front company Hitachi Africa, has been ignored for the purposes this piece, it is public knowledge, no more needs to be said about it.
Company Registration Manipulations
CIPRO or the Company and Intellectual Property Registration Office was a mess, it was fraught with endemic corruption, intrinsically involved with rigged tenders, and run by foreign nationals by remote control. This is what the public was told to justify the total overhaul of the company registration and the safeguarding of intellectual property. So the CIPC was born, the Companies and Intellectual Property Commission was meant to combat both internal fraud and corporate crime. Bear in mind that there was no mass dismissal of employees at CIPC, only the name changed. Mind you a few other things changed as well. The service delivery to the public stopped dead, with up to 28 month delays expected on processing of ordinary applications. How can South Africa hope to attract business investment under these conditions?
A few days spent in the city of Pretoria can provide some interesting information if you spend them observing people at the CIPC precincts, you quickly realize that most of the CIPC business is done outside the CIPC by foreign nationals who have connections inside.
Cost to register a new company via one of these agents is R10 000, the process takes about 8 days at the most, the application is processed inside and appears on the data base, this can include registration for VAT, PAYE, SDL, and UIF if required.
As far as company registrations go, there is nothing which money at the point of transaction cannot buy, some of the more spectacular company hijackings have shown in recent times. It appears that the term business as usual not only applies here at the CIPC but in other organs of state as well.
South African Revenue Service
Using the CIPC agents as intermediaries it’s possible to effect VAT registration in under 8 days, with no inspections no questions asked. Initial reaction from me was that the documents were copy and paste specials that would not bear up under scrutiny, and I scoffed at the possibility that SARS was complicit in such activities. Until I was told that copies of tax clearance certificates were obtained from other SARS branches for companies registered in this manner. Therefore the corruption is complete to the point of the SARS database being compromised by individual within SARS, working in cahoots with CIPC and third party agents effectively preventing any legal means to stem corruption and VAT fraud. The network of insidious commercial criminals seems to extend to every facet and level of South African Life, without exception. The thread joining them seems to be government driven and sponsored, because it is unconceivable that few isolated individuals would be able to construct a network of such proportions. The entire culture of the ANC in this landscape supports extreme corruption, seemingly out of control and driven by an almost apparent sense of urgency, as if the money is soon to run out and everyone has to steal as much as possible before it does. Bear in mind on the topic of SARS, who used to head that organisation, and what his position is now, Pravin Gordhan has much to answer for. His current position should be seen as an indication of the levels he is prepared to descend to in order to remain in favour.
E-Tolls, SANRAL and the drama around it
Current public outcry about the orchestrated theft from motorists in Gauteng who have no alternative but to use the routes selected for criminal theft by the government and SANRAL, fit into all of the scenarios I have described. The interesting twist in this debacle is the commitment by the PIC [Public Investment Corporation] a misnomer for a government front company who is supposed to manage government funds and pensions, to acquire an 85% stake in SANRAL using employee pension funds. The interest lies in the fact that government had no hesitation in gambling the pension funds of some Two million government employees on a venture they could not back out from with severe international implications. Bear in mind that this was done in full sight of the public and the world at large providing absolute confirmation of their involvement in a clearly flawed and corrupt venture.
Surely this emphatic declaration of the government’s involvement in so many equally or more flawed projects sends a very clear message to the voter population and to the world at large that they longer have the inclination or the wherewithal to continue as a government?
The removal of the common denominator via the ballot box is the only recourse that seems to be open to South Africans.