The cost of corruption

THE Lethabo Power Station outside Johannesburg, operated by state-owned electricity utility Eskom. The state-owned enterprise continues to come under scrutiny over its regular failures to fulfil its mandate, and multiple allegations of corruption Gulshan Khan The New York Times

The myth that corruption has no victims is a dangerous fallacy. Some politicians argue, and many of their supporters agree, that they (politicians) may be guilty of corruption, but they did not commit a “serious” crime, like killing someone. Corruption kills. Corruption is the overwhelming reason why South Africa’s economic growth rate has plummeted, the country slipped into recession and global rating agencies downgraded it to junk status.

Corruption undermines the delivery of public services, slows economic growth and stunts development. Corruption diminishes public funds for public services, such as health, education and crime fighting. Slowdowns in economic growth, causes mine, factory and shop closures, and with it mass job losses. For example, when South Africa falls into a recession, the country can lose more than 200 000 jobs as an immediate result thereof.

Losing a job causes family breakdown, rise in mental illness and a rise in crime as people turn towards crime. Corruption causes many potential foreign investors not to come to South Africa; but it also causes many local entrepreneurs to reduce current and shelf new investments – both slashes existing and potential new jobs.

A downgrade of a country into junk status, makes borrowing abroad more expensive. Investors either move their money out of a country or put new investments on ice. Many foreign institutional investors have a rule that if a country is assigned junk status they do not invest in such a country. A mass flight of investors, more unemployed and more expensive debt servicing means that a country has less income. It has less to spend on essential public services, on job creating schemes and on new infrastructure or maintaining current infrastructure.

It means that a government has to reduce costs. It has to for example cut the public service, cut certain public services and welfare programmes. Last week Parliament adopted a law to increase VAT from 14 to 15%. The main reason for the VAT increase which will punish ordinary hardworking South Africans already struggling to make ends is that corruption has decreased government revenue, increased government costs, as government have to bailout corrupt SOEs, and channel more money into money-guzzling failing corrupt government departments.

Appointing incompetent managers and staff to run public hospitals, who in turn mismanage hospitals, corruptly give contracts to supply medicines to associates, causes patients who go for routine treatment to die in public hospitals. It is among the main reasons why South Africa’s public health system has in many places essentially collapsed.

Eskom, the power utility last month said it may have to implement national electricity outages because of a sharp fall in coal stockpiles at five of its power stations. In 2015, Eskom, who accounts for 90% of South Africa’s electricity supply, carried out electricity outages, called loadshedding as it ran low on funds, incompetence and corruption.

Eskom’s problems are largely due to corruption, whether through patronage appointments of boards and executives, giving tenders to politically connected businesses without the skills and pushing out competent staff. Coal supply contracts have in the past been given to political connected businesses with no track record, skills or competency under the guise of black economic empowerment.

The past load shedding caused factory, mine and shop closures. Not only did the Eskom self-inflicted loadshedding undermined market confidence in South Africa, it slowed economic growth, contributed to the country’s being assigned junk status by global rating agencies and caused mass unemployment. Last month the South African Broadcasting Corporation announced it will shed more than 900 permanent jobs and more than 1200 freelancers. Corruption, whether through patronage appointing incompetent staff and essentially suppliers, and sidelining and dismissive competent, but critical staff over the past decade has mostly led to the organisation’s current woes.

The corruption has undermined public confidence in the broadcaster. Few people want to pay licence fees, advertisers are not interested and national sports events are not flighted because the broadcasters do not have the money to do so.

For another, the SABC’s descent into corruption, has also destroyed the related independent production houses that used to produce for the organisation. This means it has cut off the potential of building a South African production manufacturing hub which could have created programmes for export to the larger world, earning foreign income.

The plundering of VBS Mutual Bank has not only caused poor black pensioners and stokvels to lose the little savings they have, it has led to the collapse of the bank, with the accompanied massive job losses. The municipalities which deposited their money corruptly at VBS are now without funds for public services, deprived long-suffering citizens of municipal services.

Eight municipalities collectively deposited R1.2 billion with VBS Bank. It is illegal for municipalities to deposit public funds in a mutual bank. Some of the municipalities that deposited their money in VBS do not have the funds now to pay salaries of their employees. Tackling corruption head-on is prerequisite for attracting new investments, creating mass jobs, improving public service delivery and lowering high crime levels.

William Gumede is Chairperson, Democracy Works Foundation ( and author of South Africa in BRICS (Tafelberg).