COUNTING THE COST

State capture is estimated to have cost SA upwards of R100bn. Some economists say the actual figure is much higher, and the devastation wrought on the economy far worse than previously thought

It’s like walking into your own house after a murder scene. The choice is to go sleep in a hotel and buy a new house — or you start with wiping the floor and end up staying up all night, looking and digging, becoming a forensic investigator …”

This is how economist Thabi Leoka describes arriving at SA Express on May 24 as a member of a new board tasked with cleaning up corruption and mismanagement at the airline.

Later the same day, the Civil Aviation Authority grounded the state-owned airline, citing serious safety concerns. Leoka, who stresses she is speaking as an economist and not on behalf of the board, views this as a direct result of “many years of maladministration — and, in many cases, corruption”.

At the time SA Express was on the brink of collapse, with losses amounting to R234m. Irregular expenditure stood at R408m, mostly thanks to contracts being awarded without following procurement rules, and cash was fast running out to pay suppliers and staff salaries.

What Leoka and her newly appointed fellow directors found shocked them. Dozens of contracts worth billions of rand had been signed without proper paperwork, many without going out to tender. There were also suspect payments to companies with ties to the Gupta network. Last year parliament heard that financial advisory firm Trillian, previously majority owned by Gupta lieutenant Salim Essa, was paid R5.7m for capital raising that allegedly never took place.

“You just can’t believe the mess — and you just want to make it right,” Leoka says.

Though SA Express has since resumed limited flights, it won’t survive without a government bailout of almost R2bn.

As with so many collapsing or struggling state-owned enterprises (SOES), including SAA, armsmaker Denel and power utility Eskom, taxpayers are being asked to foot the bill for such malfeasance.

The looting at SA Express is a microcosm of the plunder that took place at SA’S largest SOES — organisations that are supposed to drive inclusive growth — during Jacob Zuma’s pres- idency. The consequences for the broader economy are potentially devastating.

For example, documents contained in court filings and released by whistleblowers suggest that half of the relatively small amounts SA Express paid to Trillian and another Gupta-linked firm, Regiments, was funnelled to Essa to ensure he used his political connections to open money taps.

This model was replicated on a much grander scale at Eskom and Transnet, where billions in suspected kickbacks were diverted to letterbox companies controlled by Essa or the Guptas.

“What has happened to SOES is a travesty,” says Leoka. “We’re still discovering the rot and the leakages … State capture and corruption have played a big role in crippling the economy.”

The looting of Eskom poses the biggest risk. In July, the power utility reported a staggering R19.6bn in irregular expenditure since 2012, including from “criminal conduct”, while recording a R2.3bn loss for the year ending March 31. Its debts have soared to R387bn, R221bn of which was borrowed against government guarantees. This represents almost three-quarters of all government-guaranteed SOE borrowing.

Cross-default clauses written into loan agreements mean that Eskom simply has to default on one loan for the contagion to spread. A default could prompt lenders to recall other government-guaranteed loans, including at other SOES.

This doomsday scenario almost came to pass in July last year, when Eskom’s qualified audit opinion breached loan covenants.

One of its lenders, the Development Bank of Southern Africa, threatened to recall a R15bn loan unless the utility took action against its then CFO, Anoj Singh, a central figure in corruption scandals at both

Transnet and Eskom.

Disaster was averted when Eskom suspended Singh soon afterwards. A new board, appointed in January, embarked on a cleanup campaign. So far it has resulted in 11 criminal cases being opened, five of which involve nine executives, and the departure of five senior executives implicated in corruption. They include Singh and former acting CEO Matshela Koko, both of whom quit earlier this year rather than face fresh disciplinary charges.

However, economists warn that the country is just beginning to count the cost of state capture. The picture emerging is worse than was thought.

State-capture investigation teams chasing complex money trails throughout the world calculate that the Guptas and their associates plundered R40bn-r50bn from the fiscus. In May, public enterprises minister Pravin Gordhan told reporters he “speculated that R100bn or more could have been lost to state capture”. He said he would leave it to judge Raymond Zondo’s inquiry into state capture to determine how much was lost.

Isaah Mhlanga, executive chief economist at Alexander Forbes, has taken a stab at quantifying the loss.

One indicator he uses is the difference between forecast and actual economic growth. In 2015 the national treasury forecast GDP growth of 2% for that year, 2.4% for 2016 and 3% for 2017. In fact, real growth slowed to 1.3% in 2015 and shrank to 0.6% in 2016 before returning to just 1.3% in 2017.

In short, GDP in 2015 was R21bn lower than expected, it was R56bn lower in 2016 and R52bn lower in 2017. That’s almost R130bn below forecast for the three years in which state capture was at its height.

Mhlanga says this amount should be counted towards the cost of state capture. He explains that SA usually tracks the ups and downs of the global economy very closely. But after 2015, while the rest of the world including Sub-saharan Africa experienced an economic upswing, SA stayed behind. “The only difference was local issues — state capture and corruption,” he says.

The money is secondary. We need to ask ourselves how we allowed a few people to take over the state Xhanti Payi