Paul Holden – Corruption holds African economies back

GTA To what extent do you think the murky nature of corruption impacts on potential for growth in Sub-Saharan Africa?

Basically it creates a dysfunctional state that is unable to deliver services to as wide a range of population as possible. Africa has grown a huge amount in the last few years but it’s largely been driven by primary extraction.

For Africa to develop on a sustainable basis it needs to develop an industry that’s downstream from primary extraction – manufacturing – that would be adding value to the raw materials that the country already has. I still can’t wrap my head around the fact that Africa’s a large part of the diamond trade, but the real value is added in Belgium…where the diamonds are cut, where they are presented, where they are made into jewellery.

Corruption has a major impact on limiting the willingness of people to engage in long-term investment in bricks and mortar, in developing, and manufacturing for a downstream capacity.

The second thing, is that it undermines the ability of the state to deliver basic services to the average person in Africa. And that’s a real developmental challenge. Rather than the creation of a couple of urban elites that benefit a corrupt system, for a long-term sustainable development path you need education. You need a healthy population. That will only come about with an effective state mechanism to provide that, and corruption completely destroys the ability of the state to do that on a fair and equitable basis.

GTA Why does corruption limit willingness of people to invest in ‘bricks and mortar’?

For any stable development to happen you need really concerted commitment to property rights. Corruption completely destroys that concept.

[Think of] Liberia, where there was a huge amount of corruption during Charles Taylor’s regime around timber logging. What often happened was a person would be in favour, and be granted access to facilities…and then a year later would fall out [of favour], lose that access to those logging facilities, lose access to the points, lose their concessions. And that is just disastrous for sustainable development and manufacturing to happen.

Corruption – especially when it involves high-level governmental individuals – places a particular burden on the criminal justice system to remain independent, in order to prosecute people for corruption. You need more than just a lack of violence. You need political stability, you need continuity, you need to know that the court system will be free from corruption so you can take investment decisions and business as normal – without that you operate in a vacuum.

There’s also the issue, in hard economic terms, of Africa’s dependence upon extraction and the fact that it’s largely facilitated by a very authoritarian set of elites who maintain power by force.

GTA Is democracy necessary for sustainable development?

That’s a complicated issue. Look at China, which is incredibly successful and isn’t democratic in any meaningful way. So to argue that democracy is the only real requisite for development is to simplify matters. What democracy does do is it helps to achieve development and has a number of other side beneficial impacts in terms of respecting human rights. These are not small things.

You could say [China] functions well but it comes at a cost that I think is unacceptable. The complete lack of individual freedom at the most basic level to allocate your resources, allocate your time, allocate your labour in any way that you wish. It’s based on the inability to unionise, on a lack of protection of others. The reason China is successful is because they’re basically put in a system that allows for the mass exploitation of cheap labour without protection. That has major social and human consequences; it’s not acceptable.

The devil’s advocate argument, the amoral argument, is that everyone benefits to a degree – I don’t think that’s justifiable. You would hope that a democratic system is more likely to be pro-development and provide a whole load of mentally important and social things that you wouldn’t get through a Chinese system.

GTA What impact does corruption have on development in South Africa – especially with regards to the deadly protests in Marikana last year?

Two million people every year are engaged in service delivery protest. That’s a huge section – 5 per cent – of the South African population actively involved in protest to do with service delivery. Huge amounts of studies have been done about this and the thing that always sparks it off, constantly, is corruption.

The violence of Marikana needs to be seen in the context of the fact that the police, especially since Zuma’s presidency, have explicitly adopted a militaristic stance. It has adopted a shoot to kill policy. So with delivery protests, they turn violent largely because the police become violent first. There’s been an incredibly brutal response of the police to violence in those communities, and that leads to broader violent protest.

South Africa’s credit rating was reduced largely on the back of that violence. That’s a major tangible impact on production. People are angry at corruption, at least with violent protest, it brings credit down.

There’s also the very real impact of the diversion of resources away from development. South Africa is not a first world country by any means, but it’s certainly not a poor country, and there’s a huge amount of evidence to suggest that South Africa would be in a much better position from an economic point of view, and not just from a social justice point of view, if funds would be spent in a non-corrupt manner and in the ways they’re supposed to be spent.

The best example to my mind is the arms deal. It’s going to cost 70bn Rand when it’s finally paid off [US$7-8bn]. That’s enough to build houses for every single homeless person in South Africa. It’s enough to upgrade South Africa’s entire electricity network. The arms deal is completely unnecessary and wasteful expenditure. It was pursued for corrupt purposes.

Corruption has a knock on effect – it’s not just about reallocation of resources and funds – it diverts resources away from economically productive and socially productive facilities.

GTA What effect does corruption have on mining?

Why was Marikana violent? There’s a direct link between corruption and the failing police system, and [the] response to that which is – the police shouldn’t be able to shoot whoever they want, as in the case of Marikana. The police service has become incredibly ineffective because it is so corrupt.

I still think that within the mining sector itself the differential between somebody who is a rock driller and the amount of profit the company still generates – let’s not beat around the bush here, they’re not going to be making a hundred pounds profit, they’re still making billions and billions pounds profit. And the directors are still getting paid an absolute fortune.

The simple reality is that you still have a community of people, [who] despite working for a very profitable industry contributing a huge amount of tax…have a complete lack of basic services. Would a Marikana miner necessarily be demanding 12,000 rand if they knew that they would have cheap running water?

These are things that within the budget should be relatively cheap but it’s not cheap for a very particular reason, and that’s corruption.

GTA How is unionisation going to factor in Africa’s prosperity?

Unions are very useful in economic terms for a number of things; primarily it provides a centralised bargaining mechanism, which leads to decisions that are collectively enforced. It provides a degree of contract making and discipline as a result. One of the biggest movements against Robert Mugabe has been [formation of] the unions. That could only be good for South Africa.

The problem [in Marikana] is the bargaining method excludes a union; the point is they’re not actually allowed to enter into a centralised bargaining mechanism at all.

GTA Where does the future lie for SA? Would you invest in SA if you were in business?

I would invest in South Africa but I would maybe wait two years, for the elections. Obviously I’m very pessimistic about the state of corruption and about the state of ANC [African National Congress] governance in South Africa. I’m a pessimist about the ANC. I’m incredibly cynical about the ruling class. That doesn’t mean I’m cynical about South Africa.

The thing that really was amazing to me the last time I went back to South Africa was the maturity of single discourse on corruption. It’s very clear to me the ANC is losing electoral support rapidly. Now I don’t particularly like the DA [Democratic Alliance], I completely disagree with their economic philosophy. But they will gain more seats and it will cut into the ANC’s majority, and I think that will lead to better governance. Once that transition takes place, then we’ll have a mature democracy.

By Rachael Kirby & Jeremy Kuper 2013