South African Reserve Bank governor Lesetja Kganyago. Photo: Getty Images
Of all state capture’s legacies — the pillaging of state utilities, the loss of skilled civil servants to the private sector or overseas — one that is rarely spoken about is how governance failures during the period became an excuse for South Africa to continue to toe the line on economic policy.
South Africa’s fiscal and monetary policymakers have been reluctant to move in any direction other than straight down a trail cleared by international financiers. The country’s history of being nudged down these paths is a long one, but with state capture’s scarecrows now dotted on either side, there seems far less reason to resist this frogmarch.
This reality came through during an exchange last week between economic historian Adam Tooze and South African Reserve Bank governor Lesetja Kganyago. During a discussion about the role of central banks amid economic transitions, Kganyago linked his concerns about efforts to encroach on and expand the Reserve Bank’s mandate to state capture.
“In case you’ve forgotten, go back to 2017 and see the efforts to capture the Reserve Bank,” Kganyago said. “They tried to repurpose the Reserve Bank to serve the state capture project … In an esoteric engagement about how institutions evolve and therefore we can throw all these things [at the central bank], we must be careful.”
The debate took place amid a renewed push by the ANC to review the Reserve Bank’s mandate and to restructure its ownership. Some have dismissed calls to expand the bank’s mandate, allowing it to target economic and employment growth, as populist. Others have warned that nationalising the central bank would make it more vulnerable to corruption and mismanagement.
When the panel took questions from the audience, Gilad Isaacs, co-director of the Institute for Economic Justice, challenged the governor’s position, noting that state capture seems to have become a “trump card” in debates about whether the Reserve Bank ought to broaden its mandate.
Kganyago denied that state capture has been used as a scarecrow to limit the Reserve Bank’s mandate. It was targeted, he said. “Be alive to that. Be alive to that. It was very much so and when we raised it and said that our mandate emanates from the Constitution, it was not a scarecrow,” he said.
“The Constitution is a covenant that the people of this country entered into … We must not then pretend that in this society that there are contestations. Yes there are. But there are also evil forces that want to take our democracy down a dark lane.”
It is a difficult position to challenge given that those in our state institutions claim to have a more intimate understanding of the extent of capture’s menace. And it’s an argument that I have heard before, specifically in a discussion with one minister who spoke about his cautiousness when it came to making appointments. Rather have no one in the job than a corrupt somebody, his logic went.
Although I agree that it is important to guard against corruption’s rot (who wouldn’t?), it is also important to ask at what point does the fear of capture become so overwhelming that it undermines the instruments of the state. What is troubling about this dynamic is that concerns about inadequate governance have shaped economic policy on the continent for decades — and not always in our favour.
A 1989 study by the World Bank, titled Sub-Saharan Africa: From Crisis to Sustainable Growth, noted: “Underlying the litany of Africa’s development problems is a crisis of governance.” The 322-page document, which reviewed economic growth in Africa over the preceding 30 years, called for “exceptional external assistance”.
Through structural adjustment programmes, developing countries were able to get loans from the International Monetary Fund (IMF) and the World Bank as long as they accepted conditions such as significant policy reforms. IMF programmes, for example, insisted that countries decrease their budget deficits through spending cuts or higher taxes. The IMF also facilitated the financial liberalisation of developing countries.
Governance issues featured in World Bank-backed energy reforms, which have promoted the private sector’s participation in electricity markets and eliminating state monopolies.
A 1993 policy paper, titled The World Bank’s Role in the Electric Power Sector, suggested that all power lending would require that countries “aggressively pursue the commercialisation and corporatisation of, and private sector participation in, developing-country power sectors”.
The paper noted that the World Bank’s role in addressing power sector needs in developing countries was “a natural extension of the Bank’s work on governance, public sector management and ongoing structural adjustment reforms”.
“The public sector and the power sector in many developing countries have been characterised by uneven revenue collection; poor expenditure control and management; a bloated and underpaid civil service; large parastatal enterprises that provide poor returns on the scarce public funds invested; and a weak capacity of core agencies to design and implement policies to address these problems.”
As I have written before, the World Bank’s push for privatisation in the power sector has not proven to be a success, with a number of countries opting to reverse these reforms when the associated tariff hikes became far too burdensome on customers.
What we have learned, particularly insofar as energy policy is concerned, is that countries may be far better off solving their governance issues than they are after passing off state responsibilities to the private sector, which has often proven to be far less upstanding than many would like to believe.
The state is, after all, best placed to look out for the interests of the public. Economic policy has a huge part in this.
But when state capture becomes a decider of what is possible and what is not, it inevitably limits policy options, driving them down a direction that may well not be in our interest. Now, when the stakes are so high, we ought to be able to consider every possibility for our economy’s future.