Trump has spewed racist hate-speech against four Democratic Party Congresswomen of colour, telling them to “go back home” to their “broken” and “crime infested” countries of origin. Zuma, appearing before the Zondo Commission probing allegations of grand corruption during his tenure, has played the victim of a 30-year conspiracy. He has sought to “out” former ministers of his cabinet as spies of the apartheid regime.
Both Trump and Zuma will disown any intent to foment violence, verbal or physical, against those they pillory. But, they know that their words constitute a dangerous incitement. They may be half a world apart in ideology, yet Trump and Zuma inhabit a similar world of conspiracy, lies, threats and paranoia.
Their world seeks – and to an alarming extent succeeds – in providing explanations of their misfortunes to the socially insecure and economically vulnerable.
The outsider and the conspiracist
By common consent, Trump’s assault on the four Congresswomen is an early salvo of his campaign for reelection as president in 2020. He is making it plain that he will use much the same formula as in 2016.
He will run as the outsider against established elites, claiming to voice the concerns of the little man, but simultaneously positioning himself as an insider, a white male citizen, who promises to reclaim the US from the clutches of unwanted, unchristian and unpatriotic immigrants to restore the country to unsullied whiteness. Those against him he will denounce as unAmerican, as enemies of the people, and as the vanguards of foreignness and of hostile ideologies. Those against him will be criminalised.
Zuma’s fate is what Trump fears – being removed from the presidency. Zuma’s explanation for what has happened to him is to blame an opaque, near shadowy campaign against him. He alleges a plot by intelligence agencies of foreign powers and the former apartheid regime to remove him from any position of influence within a democratic South Africa.
To his mind, this explains his displacement as head of intelligence for the African National Congress (ANC), which now runs the country. It also explains his removal as deputy president by Thabo Mbeki in 2005, on what he regards as specious allegations of corruption.
Despite the best attempts of these hostile forces, he eventually rose to be President – only to be eventually forced out by his enemies in February 2018 – before the end of his term – as a result of trumped-up charges of corruption.
A world without morality
Both Trump and Zuma inhabit a world devoid of morality. It is a world which subordinates any sense of right and wrong to their political survival. Both identify what is right with their persons; both identify themselves not just with, but as the very embodiment, of their parties.
Trump has vanquished the old guard in the Republican Party and has twisted its conservative, neo-liberal ideology into a neo-fascist populism which other Republican politicians repudiate at their peril. Republicans in Congress have reduced themselves to fawning acolytes, desperate to retain the favour of Trump’s popular base.
In his pomp as President, Zuma acted likewise. The ANC in parliament and the country acting in craven subordination to his will, the liberation movement glued together by the material interest of his cronies and their patronage. Now out of power, he continues to identify himself as the “real” ANC, and those who ejected him from the presidency as counter-revolutionaries.
Both Trump and Zuma depict their opponents as enemies. Former US President Barack Obama was depicted as a “foreign Muslim”, foisted on the American people by unAmerican forces. Former South African ministers Ngoako Ramotlhodi and Simphiwe Nyanda, who have implicated Zuma in state capture, are denounced as apartheid spies.
Narcissistic and paranoid
Trump’s racist taunts are deliberately calculated to fire up his base. Zuma’s allegations of spies and conspiracy are equally deliberately calculated to raise the political costs of prosecuting him by convincing his supporters that they too are victims of injustice and falsehood.
The campaign of both comes at a cost to the constitution, the rule of law and – let’s not forget it – common decency.
Trump has embarked on his own campaign of “state capture”, his most famous prize having been his appointment of two right-wing appointees to the Supreme Court. This, backed up by the systematic appointment of conservatives to judges to lower courts, all to appease the white Christian right and to roll back civil rights for blacks, Latinos, the LGBT community and others for a generation to come.
Zuma’s campaign of “state capture”, structured around the interests of his friends, the Gupta family and other shady mafia-style bosses, is now being steadily undermined by the Zondo Commission and other investigatory commissions, yet came at massive cost to the economy, ordinary people and continues to fire destabilising political factional struggles within the ANC.
Trump and Zuma are both narcissistic and paranoid leaders, for whom the world of politics revolves around self.
Interestingly too, the politics of both are driven by the need to stay out of jail. Trump could face impeachment and prosecution for financial, tax and fraud offences once he is out of office. Zuma’s need is more immediate, and his present bluster and his threat to unmask yet more spies within the ranks of the ANC is designed to dissuade further criminal charges being laid against him.
But, the most frightening thing is how, from prime ministers Narendra Modi in India, through to Recep Tayyip Erdoğan in Turkey, and Viktor Mihály Orbán in Hungary, the behaviour of both Trump and Zuma is becoming the new normal. And now Boris Johnson is waiting in the wings.
Roger Southall is a Professor of Sociology, University of the Witwatersrand
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It’s been almost a year since the Commission of Inquiry into allegations of state -capture in South Africa began to hear testimony. Also known as the Zondo Commission, it is headed by Deputy Chief Justice Zondo Raymond, who has listened to 130 days of live testimony from more than 80 people. It is probing allegations that the government was captured by private business interests for their own benefit.
During it all, echoes of former South African President Jacob Zuma’s alleged involvement have become deafening. Through various testimony, Zuma has been directly implicated by current and former senior government officials and ministers. They have alleged, among other things, that Zuma leaned on them to help the Guptas – Zuma’s friends who are accused of having captured the state – and to fast-track a nuclear deal with Russia that would have bankrupted South Africa. Also, the governance failures that have resulted in the looting of parastatals, have been blamed squarely on state capture.
Zuma’s turn to give evidence has arrived. Not only does he deny that state capture exists – he’s called it a fake political tool – he’s also cast himself as a hapless victim.
There are people who did things to others in one form or the other‚ and you can call it in any other name‚ not this big name “state capture”.
The allegations against him are that he orchestrated a network of corruption that hijacked South Africa’s developmental project.
The importance of Zuma testifying before the commission should not be underestimated. It will set a precedent that will either show that those that abuse power will be held to account or that the cycle of impunity will continue, reinforcing the unjust systems that enable state capture.
Understanding state capture
Originally, the theoretical concept of state capture referred to a form of grand corruption. In the case of South Africa, it can be defined as the formation of a shadow state, directed by a power elite. This shadow state operates within – and parallel to – the constitutional state in formal and informal ways. Its objective is to re-purpose state governance, aligning it with the power elites’ narrow financial or political interests, for their benefit.
State capture rests on a strategy to align the arms of the state and public institutions and business to support rent-seeking.
In the events being scrutinised by the commission, the evidence being led shows that actors made sure that all the conditions were created and processes lined up to extract more money than the actual goods and services cost as a way to enrich themselves.
This reveals the systemic nature of state capture. To be successful, it requires the deep cooperation and complicity of the highest office in the land to secure rents, hollow out accountability and maintain legitimacy.
The graphic below, by Robyn Foley, a senior researcher at the Centre for Complex Systems in Transition at Stellenbosch University, outlines the alleged strategy of capturing state-owned enterprises, installing compliant officials, undermining the functional operation of government institutions and discrediting critical voices.
The graphic points to a presidency where state capture became syndicated within the state and rent-seeking. Capture is a radical departure from the norms and values upon which a democratic developmental state depends. Like most liberal democracies, South Africa’s constitution provides for checks and balances that are supposed to limit such abuses of power. When these checks are undermined, and the balancing forces are biased, the system becomes a reinforcing loop of bad behaviour, spiralling towards an oligarchic authoritarian state.
But it was precisely within this agenda, and the governance arrangements that supported it, that seeds for state capture were sown. Tighter state control meant that the flows of information were controlled by only a few, while state-owned enterprises used the biggest share of procurement rands.
There was already billions moving through these state-owned enterprises and radical economic transformation was the perfect ideology to bring it all together.
But black business hardly benefited at all from the profits of state capture. If radical economic transformation were to be effected through the constitutional state, it would be enacted through an economic policy that supported livelihoods and employment creation. In addition, state capture has hollowed out the very institutions that would have been able to realise radical economic transformation through the constitutional state.
Numerous events over the past decade point to a slow-burn abuse of key state resources. One of the first was the irregular landing of a civilian plane at Waterkloof Military Air Base in 2013. The plane was carrying foreign guests to a family wedding hosted by Zuma’s friends, the Gupta family.
Two years later evidence emerged that millions of rands of public funds had been used illegally for upgrades to the then president’s Nkandla homestead. This spending was outlined in a report prepared by the former Public Protector Thuli Madonsela.
The turning point came only months after the release of the Public Protector’s State of Capture report, when Zuma fired then Finance Minister, Pravin Gordhan and his deputy, Mcebisi Jonas in March 2017. The events sent a shock wave through South Africa, triggering mass protests and mobilised public outrage, forcing Zuma to initiate the robust inquiry into state capture.
Our unpublished research shows that, to date, there have been 28 public state capture investigations, inquiries and commissions. There are also 118 outstanding cases of corruption involving government officials and politicians in the intray of the newly appointed head of the country’s National Prosecuting Authority, Advocate, Shamila Batohi.
The true cost of the damage cost by state capture, including the destruction of institutions and lives, is unquantifiable.
South Africans may well be seduced by the prospect of Zuma taking the stand at the Zondo commission. But he was not alone in driving the state capture project. And, the network of actors and influencers is extensive and still very much active. This much has been laid bare in testimony before the commission.
Throughout the world, people who follow politics are fixating on leaders. South Africa follows the trend and so President Cyril Ramaphosa has become an obsession.
Ramaphosa, of course, replaced Jacob Zuma, who was associated with patronage politics and “state capture”, handing over public power to (wealthy) private people. Ramaphosa’s presidency was greeted with brief enthusiasm by the media and the middle-class, who shape the South African political debate, as a sign that the state was now back in the hands of the citizenry rather than connected politicians and their private sponsors. This has now given way to cynicism and fear.
The cynics don’t believe Ramaphosa is a cure for the ills Zuma brought. They point out that he served as deputy president under Zuma; while he did break publicly – albeit politely – with Zuma, he and his allies never left the governing African National Congress (ANC). And, the sceptics charge, they were content to enjoy high office in a government which did the country huge damage. Ramaphosa’s presidency, in this view, has given a plausible face to a governing party still more interested in looking after itself than South Africa.
The fearful believe Ramaphosa really is an antidote to Zuma. They feel he is serious about tackling corruption and “state capture” and mending his predecessor’s damage to the justice system and much of government. But, they fear he will be stopped by Zuma’s supporters in the ANC whose effective leader is now secretary-general Ace Magashule. Any sign that Magashule and his allies retain any influence in the governing party is greeted by near-panic, prompted by the fear that Ramaphosa is merely a figurehead or is about to be overthrown – or both.
Currently, these fears have been triggered by the fact that several chairs of parliamentary committees which oversee ministers and discuss legislation are former ministers loyal to Magashule. They plan, reports claim, to use their power to obstruct Ramaphosa-aligned ministers.
All this may seem another case in which politics is being reduced to personalities. But at stake is whether the country will undo the damage of the past decade and begin to address its huge social and economic problems.
So who, if anyone, is right?
The fear argument seems based more on the South African debate’s habit of assuming the worst than on evidence. Everyone knows the ANC is divided and that Ramaphosa became president only because of a deal which split elected posts almost evenly between his supporters and Zuma’s.
So Magashule loyalists and the patronage politics they support were not going to disappear soon. To conclude, as many in the public debate do, that the presence of Magashule supporters in official positions shows that Ramaphosa is powerless, lacks logic.
Ramaphosa is in control of government: Magashule allies are very scarce in his Cabinet and none are in positions crucial to the president’s plans. He has also significantly changed key government institutions by replacing officials who share Zuma and Magashule’s agenda. In some cases, he has done this by insisting that the officials be replaced not by his edicts but by judicial commissions or committees which include professionals as well as politicians. This could create important precedents.
The fact that Ramaphosa ministers will need to deal with Magashule supporters as committee chairs matters far less than the fear lobby believes. Besides the fact that the chairs are roughly evenly divided between the two factions, and only a handful of key chairs are in the hands of the Magashule camp, committee chairs can make life difficult for ministers but they cannot do much to stop them doing what they want to do.
Another problem for Magashule’s chairs is that, unlike ANC committees, the parliamentary equivalents have a strong contingent of opposition members, most of whom are not well disposed to Magashule’s faction. This may make it more difficult for them to challenge ministers, let alone to frustrate them.
Change in the government is clearly moving much faster than the change in the ANC. But, while that complicates life for Ramaphosa and his allies, they can pursue their agenda in government despite the presence of the Magashule faction in the upper reaches of the ANC. Nor is Ramaphosa in danger of being removed, certainly not after becoming the first ANC President in 15 years to improve the ANC’s share of the vote compared to the previous election (in this case local elections in 2016).
But what is Ramaphosa’s and his allies’ agenda in government? Are the cynics right that it does not matter whether his faction is strong or weak because they will not steer the country in a new direction?
No, and yes.
Insiders and outsiders
No, because there is a huge difference between the factions. Ramaphosa speaks for people who need the market economy to work – essentially anyone who earns at least a wage or salary. Magashule speaks for politicians who want to use government office to access resources and so are not immediately worried about the fate of the marketplace. So, Ramaphosa and his allies are serious when they say they want the institutions to revive and are set on resuming economic growth.
Yes, because it is not clear whether they want anything beyond that. The Ramaphosa faction’s actions and words make it clear that they want to take the country back to 2008, before Zuma became president. This means undoing the damage of the past decade.
But the damage under Zuma did not afflict a healthy economy and society. Problems which had existed for decades but were not solved when the political system changed ensured that the economy remained divided between insiders who enjoy its benefits and outsiders who do not. This laid the groundwork for those who wanted to use insider deals to buy the support of the outsiders. If all Ramaphosa and his allies plan are to take the country back to that period, everything they mend could be in peril later because the economic exclusion which created the problem survives.
Ramaphosa and his allies talk about measures to tackle exclusion – a youth employment programme and plans to integrate the millions who use immense energy and resourcefulness to survive in poverty-stricken areas into the mainstream economy. But the details remain vague and the President’s speeches tend to relegate this core issue to an afterthought.
Until and unless the President and his allies make including the excluded the centrepiece of his government and reveal workable plans to achieve this, it will remain unclear whether the change at the top is merely taking the country back a decade – or towards a new direction.
Rating agencies are meant to give comfort about an issuer’s ability to repay debt. Ratings are essential in determining the level of interest rate that a borrower must pay. Inaccurate ratings, therefore, distort both the prices of debt instruments and the interest rates payable on them. As history has shown, this creates asset bubbles that eventually burst, disrupting the functioning of financial markets.
The three dominant international credit rating agencies – Standard & Poor’s, Moody’s and Fitch – have been accused of many faults including:
These shortcomings originate from their ‘issuer-pays’ business model. The institution being rated pays for the rating which is used by investors. This means that the model has an inherent conflict of interest.
Although this has been evident through various crises – most notably the financial meltdown in 2008 – regulatory mechanisms are yet to address this problem. And, despite these known weaknesses, rating agencies are still being referenced in key financial market decisions.
Why current regulations aren’t working
A number of studies have identified the issuer-pay revenue model as a key driver of conflict of interest. Here are four reasons why I think the current attempts to regulate rating agencies will not address conflict of interest.
The first big problem is the relationship between the rating agencies and the issuers. This relationship naturally creates pressure for both the lead rating analyst – around which the whole rating process is centred – and the rating committee to give favourable ratings over time.
This is how the process works: after an issuer contracts a rating agency, the rating agency assigns an analytical team (lead and support analysts) to gather information about the entity from different sources they deem credible. The analytical team makes recommendations to a rating committee, convened by the lead analyst. The lead analyst also determines the size and composition of the rating committee based on the size and the complexity of the credit analysis.
The second problem is that rating agencies are bound to be concerned about the sustainability of their revenue sources because they’re profit-driven businesses. They will fight to protect their income at the expense of aggressive or objective ratings that could compromise revenues, although in the long run will damage their businesses.
The third problem is that the individual employees of a rating agency face no criminal liability. Conflict of interest usually manifests itself through members of the analytical team.
Lastly, the credit rating industry is highly concentrated. Moody’s Investors Service and Standard & Poor’s together control 80% of the global rating market. Fitch Ratings accounts for a further 15%. The ‘big three’ credit rating firms seek to maintain dominance in the industry through discouraging any activities that may lead to a loss in their market share. They are unwilling to allow competition, suggesting that it could lead to poor ratings.
Following the 2008 Global Financial crisis the US, European Union, China and South Africa introduced legislation to address the flaws in rating agencies’ operations.
Although strict civil laws are necessary to deter misconduct and encourage compliance, enforcing civil regulations only is both an ineffective and expensive way of curbing conflict of interest. Tighter scrutiny of credit rating agencies by investors, regulators and the media is also not effective.
Despite these regulatory responses, rating agencies are still being caught on the wrong side of the law. Recent cases are proof of this. But there’s still the possibility that a lot of wrongdoings go undetected.
Earlier this year the European Securities and Markets Authority fined the Fitch group of companies in France, Spain and the United Kingdom a total of €5 132 000 for failing to maintain independence and avoiding conflict of interest. Fitch UK, Fitch France and Fitch Spain issued ratings on Casino Guichard-Perrachon, Fondation Nationale des Sciences Politiques, and Renault. This was despite the fact that they knew one of their shareholders – which indirectly owned 20% shares in each of the Fitch group companies – was also a board member of the rated companies.
In 2018, China suspended licences held by Dagong Global Credit Rating, one of China’s biggest agencies. Dagong was found guilty of submitting false information to regulators and charging borrowers very high fees, actions that regulators said compromised the rating agency’s independence.
In South Africa, the Financial Sector Conduct Authority recently found the Global Credit Rating Agency guilty of failure to avoid a conflict of interest. The agency was fined an administrative penalty of R487 000. The CEO of the GCR undertook to an issuer, whose credit rating had expired, that the GCR would issue a credit rating. This was contrary to the rules that required the CEO to act separately from the agency’s rating analysis team.
At the time of undertaking, the issuer was the process of procuring the services of a rating agency, a process in which global agency was one of the bidders.
A shortfall in the regulatory mechanism
The continuing infringement by credit rating firms on rules and analysts’ actions that compromise the independence of their opinions shows there is a major shortfall in the current regulatory mechanism.
Although problematic, abandoning the ‘issuer-pays’ business model is not the solution and will push some rating agencies out of business.
The only solution is to criminalise rating misconduct such as breaching conflict of interest. The strict monitoring, scrutiny and penalising of credit rating firms alone will not be enough to deter bad behaviour. Individuals responsible for breach of conflict of interest rules should face criminal prosecution. If this does not happen, analysts will not hesitate to take chances.
South Africa’s economy is in dire straits. Unemployment has reached a 15-year high of 27.6%. And in the first quarter of this year GDP growth dropped by 3.2%. That’s the biggest quarterly drop in a decade.
Considered in conjunction with the country’s dismal education outcomes, which the IMF found are perpetuating inequality and contributing to the country’s low economic growth, and the possibility of a rating downgrade, the outlook isn’t auspicious.
Academics and political leaders have long warned that a combination of high youth unemployment, poor educational outcomes, and high inequality levels will eventually explode into large-scale social disorder. There has indeed been a steady rise in the number of protests. The country is now classified as a fragile state by Corruption Watch.
However, the recent elections provide two interesting pointers. The first was the extremely low voter turnout of just 49%. The second was a near doubling of the Economic Freedom Fighters’ (EFF) share of the vote, from 6.4% in the 2014 poll to 10.8% in 2019. Taken together, these factors suggest that South Africa’s vulnerable citizens are frustrated with the established political parties. However, they are not as yet widely attracted to the potential re-distributive policies of populists.
This raises a question. If South Africa’s political and socioeconomic stability is so fractured, how has the country managed to defuse the ‘ticking time-bomb’ for so long?
According to economists Daron Acemoglu and James Robinson, the democratic system attempts to balance two forces. The revolutionary redistributive pressure of the citizens on the one side, against the repressive power of the elites on the other. But high levels of inequality interfere with democratic consolidation and make revolutionary change more attractive. For self-preservation reasons, elites must stomach high tax rates, or land and capital redistribution.
In the first decade of democracy in South Africa, the country followed a path of financial and trade liberalisation as it re-engaged with the global economy. The relatively strong economic performance then enabled the government to placate the formerly disenfranchised through redistributive policies. The key ones were black economic empowerment and social grants. This was underpinned by an effective tax system.
Unfortunately, the ability to balance the insider-outsider economy with social support was then significantly rocked by two major disruptions. The first was the global financial crisis. The second was the misrule of President Jacob Zuma.
Over the next decade, state capture and crony capitalism, coupled with economic decline, weakened the middle class and entrenched meritocracy. In turn, this raised pressure for greater re-distributive policies, both among factions of the ANC and eventually with the emergence of the EFF. The dire state of private sector investment and growth meant that the increased redistributive pressure was initially alleviated by public sector employment creation. This grew from 2.2 million in 2008 to 2.7 million by the end of 2014.
But in recent years, as the corrosive effects of corruption took hold, economic decay has become entrenched. This has resulted in declining tax revenues and spiralling state-owned enterprise debt. Political factionalism and policy paralysis have also increased.
Consequently, the government no longer has the financial wherewithal to fund the dysfunctional and indebted state-owned enterprises. These enterprises have been associated with the failed developmental state ideology. Weakened government finances have also made it difficult to provide social support via public sector employment.
As a result, the African National Congress (ANC) has increasingly turned to desperate policy debates such as expropriation of land without compensation, prescribed assets, off-shore income taxes, and changing the mandate of the South African Reserve Bank to print more money.
To make matters worse, the global economy is experiencing instability associated with trade wars and populism. South Africa’s economy will therefore likely continue to perform worse than the slowing global economy.
Tough choice ahead
If the country is to survive its current crisis, the government will need to undertake two difficult tasks simultaneously. It will need to:
refocus on resuscitating inclusive growth by supporting the informal economy and removing red tape for small, medium and micro-sized enterprises,
allow the private sector to invest in state-owned enterprises, and
facilitate the move away from a fossil-fuel based mining economy.
At the same time, the government will also have to free up budgetary resources by reducing the size of the bloated public sector and withstanding trade union wage demands.
If the inclusion of left-leaning ministers in the new cabinet and the recent contradictory policy statements from ANC leaders are a precursor to continued fractional government paralysis, then the country can expect even more economic instability and policy stagnation ahead.
Eventually, this will lead to significant socio-political stress as the private sector disengages and disinvests. The public sector will collapse under its own weight, and disenfranchised citizens will clutch at populist straw men.
Given the dysfunctional state of the ANC alliance and the over-arching quest for ‘unity’, it is apparent that President Cyril Ramaphosa must make a choice between saving the ANC alliance or saving the country. He can’t save both. Let’s hope he chooses wisely.