C&B Notes

The Costs of Corruption

Jacob Zuma and his ruling ANC party are having a rough month. In local elections, the ANC has lost control of both Pretoria and Port Elizabeth, after previously losing Johannesburg.  On the national level, Zuma’s finance minister has been embroiled in a controversy dating to his former tax authority post, and now Zuma is having to defend against heightened allegations of crony capitalism involving key allies and business partners of his family.  This combination of factors led a key lender to cease funding for six key state-owned enterprises.

After months of political intrigue over their links to Jacob Zuma, South Africa’s president, the Gupta family announced that they plan to sell their shareholdings in all their businesses in Africa’s most industrialized nation by the end of the year.  The move will cut the family’s ties to a multibillion-rand mining-to-media empire which critics say has benefited from a string of politically-connected deals.  The Guptas have close ties to Mr. Zuma and controversies about their relationship with his family and alleged political influence has added to criticism of the president’s leadership and fueled mounting concerns about corruption and cronyism.

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The exit will affect the Guptas’ interests in Oakbay Investments, a holding vehicle for their empire, which includes Tegeta, a mining company in which Mr. Zuma’s son Duduzane Zuma was a major shareholder…

The family has been dogged by allegations — which have never been proven — that they used relationships with Mr. Zuma and his relatives to obtain valuable state contracts for their businesses and influence state appointments.  Pressure had been building on the Guptas since Mcebisi Jonas, the deputy finance minister, said in March that members of the family had offered him the Treasury’s top job.  That revelation followed a crisis in December triggered by Mr. Zuma’s decision to fire Nhlanhla Nene as finance minister and replaced him with an unknown backbencher — a move that shocked South Africans and investors, and wiped billions of dollars of the country’s markets. Mr. Zuma and the Guptas have always denied the allegations against them.

“The fact is that in [the end] the Guptas are like rats abandoning a sinking ship in South Africa,” said David Maynier, an MP for the opposition Democratic Alliance.  Blade Nzimande, head of the South African Communist Party, a partner in the African National Congress-led government, told reporters on Sunday that he viewed the exit with “a great deal of scepticism.”  Mr Nzimande, who is believed to have fallen out of favor with Mr. Zuma, said he suspected that the Guptas intended to sell the shareholding to themselves through foreign-based companies.

The Guptas had stepped down from executive roles at their companies in April citing a “sustained political attack” on them.  Duduzane Zuma, who was involved in numerous businesses with the Guptas, also said he would withdraw from his investments in the family’s companies.  The same month KPMG said it would no longer act as Oakbay’s auditor, a decision that came after South Africa’s four major banks moved to end relationships with Gupta companies.

The Guptas were last week linked by South African media to a political storm surrounding Pravin Gordhan, the finance minister.  The Hawks, an investigative unit of the police, are probing an alleged spying operation at South Africa’s tax authority when Mr. Gordhan headed the agency. South Africa’s News 24 on Friday reported that Mr. Gordhan told his staff the Guptas were attacking him.