Genesis

God is in the details…

Archive for July, 2015

How government plans to legalise corruption: Helen Zille

Western Cape premier and former Democratic Alliance (DA) leader, Helen Zille says that government wants to turn “empowerment” into legalised corruption under new Draft Preferential Procurement Regulations.

The premier launched a weekly newsletter called Inside Government earlier in July and has published a new blog slating the proposed legislation, which she says will collapse the economy:

One of the challenges of daily life in government is the weekly avalanche of documents that must be read, analysed and commented on.  Among them are draft Policy papers, Bills, Regulations, “Instructions” and other documents from national government.

Each must be dissected and “deconstructed” to ensure we understand its relevance and comment within the prescribed deadline – which is sometimes very short.

This week, the new Draft Preferential Procurement Regulations were among the many documents that crossed my desk.  But when I see formulae like these – that are actually supposed to explain the regulations – my eyes glaze over:

formula_ps80

formula_ps90

I have learnt that the more incomprehensible a document is, the more alert one must be. As it turned out, these equations are to an understanding of Jacob Zuma’s “radical economic transformation agenda” what the Rosetta Stone is to the interpretation of hieroglyphics.

I knew the formulae were very important, but I don’t have the mathematical skills to interpret them. That is what chief financial officers are for. Our CFO reads equations and statistics easier than words, and interpreted the impact of the draft regulations as follows:

“Applying the proposed 50/50 preference system to our 80/20 purchases and the proposed 80/20 preference system to our 90/10 purchases, implies that we could be paying a premium of 100% instead of 25% for half of our goods and services and a premium of 25% instead of 11.1% for the other half of our goods and services.”

He explained that the formulae hadn’t changed, but the factors had. And this would make a big difference.

His explanation didn’t help me much. I knew the regulations would make supposedly “broad-based” black economic empowerment (BBBEE) requirements much more rigid, and far more expensive.  But I wanted a specific, practical example.

So my CFO explained the difference between the current preferential procurement system, and the proposed new system, using a simple example.

He wrote back:

“Current practise:  Bidder A, with no BBBEE status, quotes R10 for a bar of soap, while Bidder B with full BBBEE status quotes R12.  The bid is awarded to Bidder B and government pays a 20% or R2 premium to advance economic empowerment in this instance.

Proposed practise:  Bidder A, with no BBBEE status, quotes R10 for a bar of soap, while Bidder B with full BBBEE status quotes R19.  The bid is awarded to Bidder B and government pays a 90% or R9 premium to advance economic empowerment in this instance.

De-coded, the circular also provides for the BBBEE premium on purchases between R10-million and R50-million, to rise to a maximum of 25% from the current 11,1% .”

And then in CFO speak – which tends to extreme under-statement – he said: “the difference in premiums impacts severely on the monies available for goods and services.”

I’ll say. What it means is that for certain categories of purchases – tenders under R10-million – we could be paying almost double for goods and services on the basis of the BBBEE points awarded.

Firms that have the highest rating will get enough “bonus” points to enable them to double the best market price of a firm with no rating, and still get the contract.

There is a sliding scale between firms with no BBBEE status and those with “full” status.  If they attain only half the BBBEE status, we will pay 50% more.

So this is what Jacob Zuma’s radical economic transformation policy will mean:  more cronies getting more tenders, and charging the state almost double the market value. And anyone who criticizes this will be labelled “racist”.

Fortunately, more and more South Africans are seeing through this ruse. They know that the “BBBEE” certification under the Zuma government has little to do with genuine broad based empowerment (which we fully support) and everything to do with the enrichment of “the network”.  Zuma looks after them, and they look after him.

Let’s be blunt: the new draft regulations, if they are accepted, will legalise wholesale corruption at an even grander scale than we are currently witnessing.

The current inner circle of “preferred bidders” – inevitably with close ANC connections – will become even richer, while the poor, who depend most on efficient and effective government services, will suffer dire consequences. Government will pay double the price for the same service. The people will have to pay more for less.

How long will people still be fooled by the ANC’s BBBEE rhetoric as we enter secret nuclear deals worth an estimated R1-trillion, spend almost R1-billion on train coaches that are apparently too tall for safe use on our rail network, and select the most expensive and inefficient method to toll our roads?

The result will be “Eskom”, multiplied many times across the economy: a multi-billion Rand deficit accompanied by an inability to provide basic services. The rich can “make a plan” (such as buying generators). The poor can’t. They sit in the cold and dark, and have to steal electricity that has become unaffordable. And behind the rhetoric of a “turn-around strategy” Eskom’s deficit just grows.

We should no longer mince our words:  this system will cause the collapse of the South African economy. It will not result in broad-based economic inclusion. It will re-enrich those who are already well entrenched; it will not lead to economic growth.

On the contrary, it will destroy growth and jobs because it creates perverse incentives, rewarding inefficiency and uncompetitive pricing. And as government’s capacity to procure goods and services shrinks, many firms will go out of business. People will lose their jobs, while the pre-selected few flourish.

Fortunately we have a constitution. I cannot see how the new draft regulations will meet the requirement of Section 195 (1) b (amongst others):  that “efficient, economic and effective use of resources must be promoted”.  And lawful “discrimination” to redress past injustices, still has to pass the test of “rationality” and “fairness”.

We support rational and fair broad-based empowerment.  Both the City of Cape Town and the Western Cape Government have an ‘open’ and transparent bid adjudication process. This prevents corruption and allows for fair competition in the bidding process.

More BBBEE companies have been empowered through our competitive process than was the case during the ANC’s crony-based tenure in Cape Town and the Province.  We have been able to procure better services and products at reasonable rates, providing the public better value for its money. At the same time the BBBEE companies become competitive in the broader economy.

We must take a stand against the new draft proposals from national government, even though we know that the Zuma ANC will respond by “playing the race card” all the way to the 2016 local government election.

But more people now know what is really going on than ever before.  We are not heading for “radical economic transformation”. We are heading for “radical economic collapse” if we endorse these proposals.

Next year South Africans will have to decide whether they want to continue endorsing legalized corruption – and growing impoverishment  – or whether it is time for change.  In a democracy, the voters get the government they choose and it is the government the majority deserves.

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Politics and Economics under a Rent Seeking Regime by Eddie Cross

The Chief Executive of an organisation made an appointment to see the Vice President, Emmerson Mnangagwa this week. He was told to come to the office at 08.30hrs and was there on time. When he got into the office the person through whom he had made the appointment asked him if he had brought “the envelope”. The CEO said no and that he was not going to pay to see the Vice President. He waited two hours and a Secretary told him to go downstairs and see someone who would get him into the VP – he walked down and when he got there he decided that enough is enough and he just kept going.

I told him to tell the VP of this incident and that I was sure that he would be furious that someone was making money by “facilitating access”. I told him that was the right decision, but the problem is that this sort of “rent seeking” does not stop there.

Another friend, also a very senior executive said to me the other day that the major problem in Zimbabwe is the direct linkages that exist between business of all kinds and the ruling elite – nothing happens if it does not benefit key decision makers. Many accept this reality and simply accommodate the rent seekers and pay what is demanded. In doing so they demean both the beneficiary and the person making the payments.

I have just finished reading Fay Chung’s new book “The Second Chimurenga Revisited”. In this book she goes through a painful process of reliving the nightmare years in the Zanla Camps and the liberation war. For the first time I appreciated the background that has dominated the thinking of the men and women who came to power in 1980. The sense of entitlement and the need to hold onto power at all costs; the practice of eliminating those who contested them for power and control.

Besides being ill prepared for the responsibilities of government in 1980, they were a confused mixture of Marxist ideology, tribalism, traditional religion, military training and values and only the most scanty appreciation of what it took to manage a small, but sophisticated economy and a democratic system of government. Once they appreciated just what was involved in having control and access to State resources, they also fully appreciated that if they lost control at any time, the consequences would be serious for them and their extended families.

With their background training in East Germany, the Soviet Union and China they also came to power knowing that no aspect of national life could be allowed independence and self management and control. So once they had settled in a systematic attack was started on all institutions – the Trade Unions, business Associations, big business. All were deliberately infiltrated and it was made clear to business that if they wanted to get anywhere they had to have people who were “acceptable” in charge. Institutions that refused integration or subjugation were destabilized and eliminated. Every aspect of life was made to serve the State and the direct links between business and the political elite established.

If you were in the system you benefitted and loyalty was rewarded with patronage and wealth. Any attempt to break away from the system was met with savage retaliation so that when Amos Midzi found himself out of the inner circle and was suspended from the Zanu PF Party – he was instantly outside the golden triangle and could not pay even his children’s school fees. He committed suicide.

More than any other factor it is this link between politics and business that is now inhibiting the growth and development of the Zimbabwean economy. The fact that this process is then linked to rent seeking activity just exacerbates the situation. Rent seeking taking many forms from the incident involving getting an appointment with a Vice President to decision making and taking a cut out of every business deal.

It is clear here that the secret determination of salaries for senior executives in many spheres of activities (local authorities, pension funds, state controlled Boards) is directly linked to the need for control and influence over the individuals concerned and even sharing the proceeds. This is how the CEO of the Public Service Medical Aid Society came to get a salary of US$600 000 a month and the top four executives in the Broadcasting Board getting a package well over a million dollars a year despite the fact that the organisation could not pay staff.

At first the economy was able to carry this burden but as the demands for rentals rose and the management of the economy deteriorated, the combined effects simply became too much to bear and economic collapse and decline became endemic.

Big organisations that are State owned and controlled and have a significant cash flow (utilities) are an obvious target. So in South Africa you have ESKOM, a well managed and funded State owned company in 1994, able to supply cheap power to a growing economy. In the past 20 years Eskom has become a shadow of what it once was – aging infrastructure, inadequate maintenance, inept senior staff and massive rent seeking and corruption. Their latest project, a huge coal fired power station in the north west of the country, is 150% over budget, 5 years behind schedule and the Directors say they may not be able to get it operational. Mammoth failures on this scale are now crippling the South African economy – once the engine of African growth.

Rent seeking can take many forms – in Zimbabwe we have created a number of organisations that have been given the right to either tax residents for income or charge for their services. The list of such institutions that are essentially rent seekers and who are not creating any real value in return is long – the Environmental Management Agency, NOIC, Zinara, Zinwa, NSSA, the National Aids Council, Zimtrade are all absorbing revenue and delivering very little. Instead they become mainly concerned with making enough money to meet their inflated salaries and perks and enough surplus to respond to the political machine when called upon to pay their dues.

Then there is the situation where the Police are being allowed to raise money from their operations from fines other charges at road blocks. These are so routine, that they are accepted as the norm here even though such activities are unheard of elsewhere. The cost of such a system must be doubled or trebled to take account of corrupt activities.

This situation is now so serious that the regime can be described as a parasitic enterprise that is so demanding that it is paralyzing all forms of economic activity. Decisions are not being taken on key issues, demands for payments for all sorts of services are a daily occurrence. Can this system be reformed – I doubt it, it has to be destroyed to bring us freedom and progress.

Eddie Cross

Harare, 14th July 2015

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The Path We Travel by: Howard Feldman

To quote Robert Frost would be a little trite. But indeed two paths now diverge in our yellow wood, and South Africa has the choice as to which road to travel. The country has turned towards the ill-advised option, and we need to be very certain that this is direction of choice before journeying forward. Crossroads are often uncomfortable and the enormity of the decision can paralyze even the most experienced traveler. Only this is not the time for inaction, because lack of contemplation will lead us in the direction we are already facing.

We have been here before. August 15th 1985. I was 17 and I recall my whole family gathering around the television as we awaited an announcement that would alter the course of the country, for the better. The time had finally arrived and although we were nervous (having been subject to the years of racist propaganda) we knew that South Africa had to change. We were not alone. More than 200 Million people from around the world believed that Nelson Mandela would be freed and that Apartheid would end, and tuned in to this speech. Only it didn’t. And PW Botha chose to walk into the abyss. The result would be a State of Emergency, detention without trial, brutality and bloodshed. He chose the wrong path and it would take the country years to recover.

And now, once again it is in the air. Change is needed and a new direction critical. South Africans have been assaulted by corruption, by Nkandla and e-Tolls, by Prasa and SAA, by crime and FIFA and Eskom. It has been abused by Government attacks on the Judiciary and by colossal and embarrassing inefficiency. The Education system, Healthcare and Home Affairs and the electricity crises bare testimony to a broken system. It is time to choose an alternative path before it is too late.

We have options. Nothing is broken beyond repair (except maybe the post office and maybe the SACP). All it takes is the simple recognition that things aren’t working and then we can decide how best to proceed. Some areas are easier than others. It is not difficult to acknowledge that the new Home Affairs visa decision is a debacle. Say sorry, reverse the ruling and all will be forgiven. Admit that Prasa (who some of us hadn’t even heard of until a few weeks ago) screwed up. Admit that the al-Bashir fiasco was a gargantuan folly and that the Judiciary is correct and untouchable and we will all breath easier. Stop lying to us about Eskom. Stop dancing around Nkandla and go back to the drawing board on e-Tolls. But start by agreeing that we are poised to travel the wrong path and that we need to cease from doing so before its too late (or have I already said that).

Our elected leaders need to act like adults. The energy spent on petty political in-fighting (and fashion) is also pretty unhelpful. Parliamentary antics inspire no one, and aside from the reassuring consolation that at least we have freedom of speech, it does little to aid progress. It’s time that we left the playground activities to the children and got serious about saving this country. Or as we say to our children – don’t make us tell you this again – grow up before it’s too late.

South Africans love South Africa. And it’s very irritating (to say the least) to have to witness the daily descent of our beloved country. There is no good reason that we need to be in the situation we are in and every good reason we shouldn’t be. It’s time to choose a new path to travel by, because when two paths diverge in a yellow wood, that’s the decision that will make all the difference.

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