South Africa Corruption Report

Crime and petty corruption in the police are significant risks when operating in South Africa. Businesses report the police is unreliable (GCR 2017-2018). Nearly half of South Africans indicate they perceive most or all police officers as corrupt (GCB 2015). Traffic fines are the single most common event in which bribes are requested in South Africa (TEI 2017). Costs arising from crime and violence can be challenging for companies (GCR 2017-2018). The police sometimes request bribes to protect businesses owned by foreigners against xenophobic violence (HRR 2017).

Corruption and inefficient government bureaucracy are significant risks in South Africa’s public services sector; irregular payments and bribes are perceived to be very commonly exchanged (GCR 2015-2016), and nepotism and cronyism are common (The South African, July 2015). Legal, regulatory, and accounting systems are generally transparent and consistent with international norms (ICS 2017). Political uncertainty and the failure of economic policy to promote growth are major concerns for investors (ICS 2017). Starting a business takes almost twice as long as elsewhere in the region, but the costs involved are only a fraction of the regional average (DB 2018). Dealing with construction permits in the country takes significantly more steps compared to the regional average (DB 2018).

Major concerns over the ability of businesses interests to influence government decisions exist (BTI 2018). It is alleged that the Gupta family, a wealthy family with close ties to former President Jacob Zuma, carried influence to the extent that they were able to propose cabinet members (BTI 2018). A report by the Public Protector further shed light on the ties between the Guptas and Zuma and raised questions about several deals involving state-owned enterprises (SOEs) and possibly the effective ‘capture’ of key individuals in the SA Revenue Service and National Directorate of Public Prosecutions (NDPP) (BTI 2018). These ties are under investigation as of mid-2018; prosecutors seized more than USD 21 million worth of assets from the Gupta family (Bloomberg, Apr. 2018).

Corruption in public procurement is a high risk for businesses in South Africa. Favoritism in decisions of government officials is perceived to be very common, and public funds are frequently diverted due to corruption (GCR 2017-2018). Nearly two out of five companies indicate that they have experienced procurement fraud in the preceding two years (pwc 2018). Nearly half of South Africans believe that most or all government officials are corrupt (GCB 2015). With the Local Procurement Accord, the government committed to increasing the procurement proportion of goods and services from South African suppliers to an “aspirational target” of 75 percent (ICS 2017), which creates a potential disadvantage for foreign companies. The Broad-Based Black Economic Empowerment (BBBEE) strategy aims to increase the participation of black citizens in the economy but has been criticised both for providing too much preferential treatment in the awarding of government contracts to wealthy black elites and for leading to increased corruption in public procurement (WSJ, Apr. 2014), due to a lack of monitoring and evaluation, mismanagement, difficulties in registering companies under BBBEE, and poor accountability (Shava, E. Dec. 2016). Companies are recommended to use a specialized public procurement due diligence tool to mitigate corruption risks related to public procurement in South Africa.

Serious concerns have been raised about the governance of procurement processes executed by large parastatal companies, as well as the extent to which these companies have become vehicles for political patronage (BTI 2018). A report by the Public Protector concerning state capture questioned a recent deal for Eksom, the country’s largest electricity company, which involved procuring coal from the politically well-connected Gupta family (BTI 2018). Moreover, the National Treasury declined to approve a refinancing proposal for a number of South Africa Airlines (SAA) planes which would have benefitted another politically connected entity (BTI 2018). South Africa’s Passenger Rail Agency (PRASA) made a multimillion order for Spanish locomotives, after a dubious procurement process, that were too large to fit through tunnels in South Africa (BTI 2018). In another high-profile case, President Zuma, received kickbacks from French arms company Thales in return for the procurement of their weapons systems; the charges against Zuma are repeatedly dropped and revived (News24, Mar. 2016). As of March 2018, the National Prosecuting Authority has announced it will prosecute Zuma along with Thales’ local affiliate (News24, Mar. 2018).

Mining operations in South Africa are particularly vulnerable to corruption and illegal activities (Bloomberg, Jan. 2015). The scale of mining operations and the large sums of money involved – coupled with many interactions with government officials such as securing concessions, customs clearance and obtaining permits – increase corruption risks (Corruption Watch, July 2014). Illegal mining and money laundering are widespread in South Africa, costing the industry 5 to 10 percent of its annual production (CNN, Aug. 2015; Bloomberg, Jan. 2015). Corruption risks are particularly high for the licensing process (NRGI 2017).

The sector also suffers from politicization, resulting in the mining regulator being staffed with individuals who do not possess the relevant knowledge nor expertise needed to make decisions (CW 2017). Corruption Watch found in a 2017 report that this politicization along with many other shortcomings in the governance of the sector poses significant corruption risks (CW 2017).