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There are two interesting developments that should worry those who have been monitoring government's ability to manage public funds properly in the last few years.
These developments include the reported appetite by government to rescue the embattled VBS Bank recently embroiled in a massive looting scandal by the executives. The second is the reports that government aims to create a sovereign wealth fund to invest in high-risk, strategic areas of the economy. In simple terms, the creation of such a fund is meant to pull public funds to invest in areas the private sector is not interested in because the risks are too high.
These are areas of the economy that are capital intensive and yet strategic for government's economic goals.
Under normal circumstances, there is nothing wrong with government intervening to rescue a bank such as VBS. The intention is to ensure that there are many players in the financial services sector in order to avoid the creation of monopolies. Such intervention by government should however be in the public interest and to the broader benefit of the economy and government's strategic goals for it.
Furthermore, it is important for government to create vehicles such as a sovereign wealth fund as long as it is meant to maximise the focus on investment in areas that are of strategic interest and would otherwise be neglected if left to the whims of the private sector, for example. Therefore, it makes sense for government to venture in and stabilise the local markets in order to ensure the necessary corrections in the economy.
The challenge that the ANC-led government is facing in its attempt to intervene in the economy - by way of protecting VBS and creating a sovereign wealth fund - is that it is government's own ineptitude that has largely perpetuated conditions that require the mentioned interventions. The very collapse of VBS is an indication of what happens when government fails to protect public resources and demand accountability on behalf of the people.
The evidence before the public shows that VBS was looted by politically connected individuals while government stood watch. This raises a moral question regarding the reported manoeuvre by government to protect VBS from liquidation, instead of subjecting it to the harsh reality of the markets according to which the bank should fold.
From a political point of view, VBS is also to be rescued because Steinhoff was not allowed to fail. If the markets are biased towards Steinhoff—by protecting the company from collapsing despite grand scale theft—then why can't we intervene to save VBS, which lost a small amount of money compared to Steinhoff's astronomical losses?
For anyone who has been on this planet for the last seven years, it is clear that some of the decisions by government - particularly the failure to fight corruption - have created a situation where lending institutions are no longer keen to lend it money. A quick observation also shows that the majority of state-owned entities (SOEs) are in a severe cash crunch as they fail to meet their debt obligations. The main cause of the problem, however, is not the structural problems that have to do with the self-sustainability of SOEs, for example. The problems have to do with failure to adhere to basic principles of good governance and accountability by government. In fact, some individuals have used their positions in government not only to undermine accountability, but to facilitate misappropriation of funds.
As a political party, the ANC had no recourse on the conduct of its leaders in government. Worse still, ANC members continue to elect to its ranks individuals who are alleged to have partaken in such schemes.
In all this, the last thing the ANC-led government wants to do is to be seen coming up with schemes that would allow the party's hands back in the cookie jar. While South Africa is reeling from years of rampant corruption, government needs to be sensitive and allow for a cooling-off period before experimenting with vehicles such as the sovereign wealth fund. It is important for government to firstly stabilise state owned entities and demonstrate willingness to pursue good governance. That will assist government to regain its legitimacy as capable of acting in the public interests.
The creation of a sovereign wealth fund at this moment will be premature and will consequently be tantamount to creating a mega fund that government can manage without having to account to anyone; this is outright suspicious. A sovereign wealth fund should be created not to avoid accountability that is required when funds are sourced from the private sector, but to pursue strategic development goals for the economy. When government intervenes to rescue a business entity such as VBS, it should also be about the wellbeing of the economy and public interests.
Our government still has to do more in order to make a convincing case it is acting in the public interest in relation to intervening in such matters.
- Ralph Mathekga is a Fellow at the SARChI Chair: African Diplomacy and Foreign Policy at the University of Johannesburg and author of When Zuma Goes and Ramaphosa's Turn.
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