More recently, the government chose to relinquish its majority stakeholding in SAA, after it became the first parastatal to go into business rescue. (Delwyn Verasamy/M&G)
In spite of South Africa’s complex public procurement framework, the country’s beleaguered state-owned entities (SOEs) remain vulnerable to corruption. Meanwhile, firms have complained that bulky procurement laws have left them hamstrung in doing business.
The first report by the Zondo commission delves into the complexities of the Public Finance Management Act (PFMA) and other procurement laws, as it tries to get to the bottom of why state-owned entities were able to be captured.
Over half of the 874-page report — which was handed to President Cyril Ramaphosa by the commission’s chair, Acting Chief Justice Raymond Zondo, last week — is dedicated to detailing how certain individuals laid waste to SAA and its subsidiaries.
In 2020, the cash-strapped national carrier was put under business rescue. A year later, Public Enterprises Minister Pravin Gordhan announced the government had relinquished its majority shareholding in the airline.
It is expected that the remaining reports of the three-part Zondo report will deal with the country’s other embattled state-owned entities, including Eskom, Transnet and Denel.
In his report, Zondo says: “It seems scarcely believable that the constant flow of legislation over the years had so little impact in curbing corruption … Corruption has strengthened its hold and extended its hold on public procurement over a very long period of time. Clearly, a new approach is required; it cannot be the same mixture as before.”
The report makes note of testimony by Peter Volmink, Transnet’s governance executive manager, who described “the well-intentioned and detailed legislative framework as belonging to one universe in sharp contrast to the reality on the ground which, he said, inhabited a ‘parallel universe’ within the public procurement space”.
Volmink’s description, Zondo says, is not an exaggeration.
State capture was not the beginning – or the end
The section that deals with South Africa’s public procurement quandary, itself an impressive 134 pages long, notes that the purchasing system ought to operate in a way that advances the country’s national interests. It should be fair, equitable, transparent, competitive and cost effective.
However, history suggests the public procurement system is one of the most prone to fraud and corruption: During the state capture era, South Africa’s SOEs often acquired goods and services when they were not needed and too often deviated from the open tender process.
But the country’s procurement system had not been up to scratch even prior to state capture, Zondo notes.
He cites a 2002 working paper by the Public Affairs Research Institute, which found that, among other concerns, public procurement in South Africa was subject to extensive political interference and “involves stark tradeoffs between the procedural integrity, necessary for fairness and to protect public funds, and the flexibility associated with the operational substance of purchasing”.
Since 2002, the procurement system has changed significantly, the Zondo report indicates. However, the system “has not changed in its essential character, it has simply gotten much worse”.
“State capture, then, was not the beginning of the subversion of the procurement system albeit that it was the most concentrated and aggressive attack upon it,” Zondo says.
“To use the analogy of the current pandemic, state capture aggressively attacked a system that was already weakened by long-standing comorbidities.”
Laws are only as good as the people implementing them
One problem plaguing procurement is the sheer number of laws that regulate it, Zondo says. “There is a need for procurement officers to interpret and to harmonise the various legislative enactments which would not be the case if the legislation was codified and unified,” the report reads.
“The gaps and the disharmonies occasioned by fragmentation present a considerable challenge to the honest procurement official while enabling the dishonest official to exploit obscurities and contradictions in the law.”
The complicated legislative mosaic and excessive decentralisation, Zondo adds, has led to fragmented oversight.
Towards the end of his report, Zondo recommends that the government, in consultation with the business sector, prepare and publish a national charter against corruption in public procurement. The government should also introduce legislation for the establishment of an independent public procurement anti-corruption agency.
Zondo also advises that consideration be given to enacting legislation that will establish a professional body to which all officials who work in the area of public procurement should belong.
Stefanie Fick, the head of accountability at Organisation Undoing Tax Abuse or Outa – which took former SAA board chair Dudu Myeni to court and had her declared a delinquent director – said there is room for improvement in the design of procurement legislation.
“But I think what is glaringly obvious in the state capture report is that people were put in positions to make sure there were no consequences for corruption,” she said. “You can have all the laws. You can have laws that make it impossible to do anything. But if you do not ensure that the laws are implemented, they are useless.”
Fick added that state capture had revealed that “laws are only as good as the people who implement them”.
Fit for purpose?
In the post-state capture era, South Africa’s procurement system has been criticised for a reason other than its inability to guard SOEs against graft. Eskom chief executive André de Ruyter recently said the public procurement framework has at points slowed down the state electricity utility’s ability to purchase goods and services necessary for maintaining its ageing power plants.
At a panel discussion last November, De Ruyter said the PFMA “is great for buying stationery for government departments, but if you try to run something like Eskom it is just not fit for purpose”.
But Ted Blom, an energy analyst, said public finance management law was restrictive for a reason: “It has to stop the crooks … It is designed to stop criminals having free rein.”
“No system is foolproof,” Blom added. “If you accept that premise, then there will be ongoing vulnerability. What one really relies on is a healthy and ethical corporate culture. If you haven’t got that, what you end up doing is just fighting fires. You can’t prevent corruption from happening.”
According to Alexander Forbes chief economist Isaah Mhlanga, it is unlikely that public procurement laws are so restrictive that they prevent state-owned entities from being competitive.
“Most SOEs are monopolies. They are the most dominant companies in whatever sector they operate in … The PFMA, if you look at how it is designed and what it is supposed to achieve, provides enough leeway for SOEs to operate competitively,” Mhlanga said.
“It is just the implementation that is not being done appropriately … And the politics have spilled over into the functioning of every state organ, reducing accounting mechanisms.”
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