Business

State institutions shape the future

Songezo Zibi

Businesses will circumvent the law to protect their interests if government is corrupt, writes Songezo Zibi.

Alan Greenspan said the rule of law helps economies to grow. (AFP)

Asked what he considered to be the most significant contributor to economic growth, Alan Greenspan, the former chairperson of the United States Federal Reserve, responded: "The rule of law."

His somewhat unorthodox answer comes to mind in light of the revelations by the Sunday Times that the country's former chief prosecutor, Mokotedi Mpshe, ignored the advice of his prosecuting team and decided to halt the prosecution of President Jacob Zuma on serious criminal charges.

It is now common cause that Zuma's legal team used illegally obtained phone call intercepts to convince Mpshe to drop the charges. Mpshe confessed to never having listened to the tapes himself and they allegedly remain with Zuma's attorney, Michael Hulley.

It is a criminal offence in South African law for an ordinary citizen to possess classified intelligence information, as Hulley does.

The tapes are the subject of an ongoing court dispute between the Democratic Alliance and the National Prosecuting Authority, which claims, astonishingly, that it does not have the tapes. At the time Mpshe claimed that although his prosecutors listened to them, he later obtained his own copy from the country's intelligence services. What is clear is that either Mpshe lied then or the NPA is lying now – but both possibilities carry grave implications for the institution's standing and legitimacy.

What does this squalid saga have to do with Greenspan's answer?

Founding father
Tom Bingham, in his excellent book The Rule of Law, quotes Lord Mansfield – who is regarded as the founding father of English commercial law. "In all mercantile transactions, the great object should be certainty … because speculators (investors and business people) then know what ground to go upon."

This principle applies in all law – that it must be clear, fair and consistently applied to give meaning to the principle of equality before the law. South Africa's Constitution aims to ensure the same.

But in recent years it has become apparent that the state institutions and the instruments available to them can be abused to create special rights and exceptions for highly placed individuals or those connected to them. This has serious implications for the rule of law, because it delegitimises bodies meant to arbitrate commercial and other disputes, or pursue justice for those who are victims of commercial trickery.

Zuma's case is not the only instance in which processes set out in the law appear to have been abused for the benefit of powerful individuals. The courts are still dealing with the case involving Kumba Iron Ore and Imperial Crown Trading, in which it appears that the licensing processes of the department of mineral resources were perverted without visible consequences for those who did so. This case also involved individuals connected to the highest offices in the country.

Interestingly, there is an expectation that if there is evidence of fraud in this case, it will be prosecuted by the same NPA that appears to have created an exception for a powerful individual who could avoid facing justice like everyone else. There is also boiling anger about the failure of the same prosecuting authorities to secure a jail sentence for convicted thief Wendy Machanik, who admitted to pilfering more than R20-million from her clients. This is while shoplifters and other petty offenders are thrown in jail.

These and other cases have a profound impact on South Africa's ability to attract foreign investors or encourage its own ordinary citizens to invest their money in commercial enterprises. Given the high level of competition for fresh investment among countries, one of the critical factors is the strength and legitimacy of state institutions. If ours are seen as weak or open to improper influence, this diminishes the likelihood of further investment.

Diligence and honour
Before ploughing large sums of money into long-term ventures, investors want to be comfortable that they can rely on the law and its institutions to retain access to their investments and rights. They also need to be certain that when they approach the authorities for administrative justice, it will be dispensed with fairness and integrity and that agencies tasked with facilitating commercial transactions will pursue this with diligence and honour.

There have been cases when this assurance was broken for inexplicable reasons. The most prominent case involved the Independent Communications Authority of South Africa (Icasa), which approached the courts in a bid to halt the takeover of Vodacom by Vodafone. The bid failed and Icasa never convincingly explained why it waited until the last minute before pursuing the case. It led to suspicions that it was put under pressure by powerful ideological interests. The intervention cast South Africa's regulatory environment as murky and unreliable.

A country in which political or social rank determines the extent to which people are held accountable creates an opaque, uncertain system of justice. It prompts those who retain an appetite for investment risk to seek extra-legal assurances that their investments will grow or be safe from interference or theft. It opens the door to bribery, political patronage and corruption.

We have already seen many instances in which those who enjoy close proximity to the centre of power in the ruling party suddenly develop entrepreneurial flair they did not possess before. It appears that many foreign business people first want to be sure they are "protected" from the proverbial political cold shoulder that often has dire consequences for the growth or sustainability of their investments. So a complex and very public extortion system has developed arising out of a lack of confidence in the normal regulatory and administrative processes of the state.

This is a dire state of affairs best explained in the words of the author Ayn Rand. "When you see that money flows to those who deal not in goods but favours; when you see that men get rich more easily by graft than by work and your laws no longer protect you against them but them against you … you may know that your society is doomed."

Gangster state
It would be a stretch to suggest that South Africa has now become a gangster state, but the extent to which the state and its instruments have been hijacked for the benefit of politically powerful, connected or upper social classes is a cause for serious alarm.

In the underclass, this apprehension is demonstrated by the extent to which they have consistently ignored legal institutions to which they are meant to take their grievances, and have opted instead for the streets where they engage in running battles with law enforcement agencies.

The question South Africa's business sector has to reflect on is whether it can exist in such an environment. It also needs to think carefully about its own role in delegitimising state institutions by seeking the intervention of powerful individuals outside normal administrative processes to get things done in its favour.

The easy thing to do is to blame the politicians alone. This is dishonest. If the responsibility for growing this economy rests with all South Africans, then everyone who prospers in a shadowy, crony economy that trades on influence is equally guilty. As Greenspan aptly observed, we cannot grow the economy and achieve economic justice when the playing field is so tainted and unequal.

Songezo Zibi is from the Midrand Group, a loose association of thinkers trying to establish a just and economically stable society

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