Calling out the crooked empowerment game – Ed Herbst

CAPE TOWN — Perhaps one of the thorniest questions for post-apartheid South Africa is how to set right our damning collective legacy while maintaining standards and service delivery. So far, we haven’t done very well; nearly everywhere the ruling party has attempted to create a semblance of racial balance by passing arbitrary “empowerment” laws, things have gone pear-shaped. Here veteran journalist, Ed Herbst, highlights how the normative empowerment narrative has become the bar against which success is measured – with spectacularly bleak results. What stuck in his craw this week was senior PIC official, Sunil Varghese telling the Mpati Commission that the PIC’s criminally-high AYO shares valuation was based on expected market share growth in the IT and related services industry – because of its superior black economic empowerment credentials. When the PIC’s pension fund component faces a record R583bn funding shortfall and AYO’s financials are dire, it begs the question of how successful their wholesale ethnic transformation has been. Somewhere the greater likelihood of ideologically-similar buddies feathering one another’s nests gets lost in a smoky politico-ethical debate. Like the English schoolboy who picked up the soccer ball and ran, Herbst breaks unquestioned rules, prompting vital debate and perhaps even, an entirely new game. – Chris Bateman

Does ethnicity determine business success?

By Ed Herbst*

Varghese said the AYO valuation was based on the premise that the PIC expected it to win market share in the information technology (IT) and related services industry due to its superior black economic empowerment (BEE) credentials. – Sizwe Dlamini IOL 18/3/2019

The Government Employees Pension Fund (GEPF) faces a record long-term funding shortfall of R583 billion, partly due to bad investment decisions. The fund has 1.281 million active members and 441633 pensioners and is a defined benefit pension fund, which means the government and ultimately taxpayers will cover any shortfall in the benefits of the fund’s members or pensioners or their beneficiaries. – Justin Brown City Press 24/3/2019

My knowledge of  and interest in the business, financial and IT world is minimal but I have heard and read about the titans of this world, Warren Buffett, Jeff Bezos, Bill Gates, Mark Zuckerberg and Steve Jobs.

Which is why the anchor quote to this article, derived from the reported testimony of a senior PIC official, Sunil Varghese, before the Mpati Commission about ‘superior BEE credentials’ being a guarantor of financial success, led me to Google ‘Forbes rich list.’

It doesn’t substantiate what I will call the ‘Sunil Varghese Hypothesis’ – always assuming that he was correctly quoted. This is not an assumption one can blithely make given the propensity for Fake News and for proclaiming easy victories for which the relevant media company has become justifiably notorious.

Fourteen of the top 20 billionaires are Americans and Africa does not feature  in this list at all.

Furthermore, if the Sunil Varghese Hypothesis is correct then I am at a loss to understand why all our SOEs – which were ‘transformed’ decades ago in terms of ANC-driven ethnic imperatives – are effectively bankrupt and why my writing of this article in response to the Sunil Varghese postulation was delayed for two hours this morning because of load shedding.

Take Eskom for instance which doubtless meets all such racial criteria and, despite the skills flight which has contributed to the current emergency, plans to cull yet more white staff.

In the absence of that expertise and the life-threatening loss of institutional knowledge, Eskom now makes crucial engineering decisions which it cannot explain.

I was, however, interested to read that both Cyril Ramaphosa and Pravin Gordhan are appealing to white former engineers from Eskom – now scattered all over the world and working on mega projects where their input is valued and their skin colour and hair texture is of no consequence – to return to South Africa. Ramaphosa and Gordhan feel they can help to resolve our electricity shortage crisis.

A date etched in our collective memory is 11 November 2005 when the Koeberg Nuclear Power Station tripped for the first time. On 23 December that year a fugitive bolt caused Koeberg to trip again – ask Alec ‘Human Instrumentality’ Erwin, he’ll tell you.

In 2007 President Thabo Mbeki acknowledged the ANC’s destructive role in this regard.

Let’s not, furthermore, forget the role of Comrade Valli  (Squeaky Clean) Moosa who may not  be renowned for his candour but did at least guarantee Chancellor House a 5,000% return through the Medupi/Hitachi boiler scam which haunts us to this day.

Orange overalls

The darkness has become ever more Stygian and ever more costly since 2005 and the country yearns for the New Dawn to take on a more brilliant hue and to illuminate our future with a brightness reminiscent of orange overalls.

What is also interesting is that, to sort out the Eskom mess – 25 years in the making – Ramaphosa and Gordhan have called in the assistance of Enel, an Italian company not known for its adherence to Zupta–era Bribe Based Black Elite Empowerment policies. On the basis of merit rather than the ethnicity of its staff it serves 73 million end users of electricity across five continents.

Eskom, and thus you and I, are the most significant victims of the ANC’s transformation drive and its illegal deployed cadre policy – two initiatives in which merit plays a minimal role, if any.

In an article published on this website in September 2016 I wrote about the obsession that former Eskom CEO, Joseph Maroga, had about ‘transforming’ Eskom by ridding it of its white expertise.

Maroga was obsessed with “transforming” Eskom and to prevent local minority ethnic groups from being employed the parastatal fraudulently recruited black Americans – something which had a devastating impact on their lives – as a subsequent Carte Blanche exposé revealed.

Capetonians got to know all about this approach in 2003 when National Party leader Marthinus van Schalkwyk betrayed his party members, abandoned principle, honesty and honour and threw in his lot with the ANC in return for a cabinet post. This gave it control of the Cape Town municipality coffers.

The ANC’ first priority at the time was to spend R60 million in persuading the municipality’s top 100 white managers to take taxpayer-funded retrenchment packages – in the alleged interests of ‘transformation’ of course. The real reason was that the ANC correctly assumed that these managers would oppose the planned tender scams.

Its next priority was to close the tender meetings which had previously been open to the public.

Then, on the watch of Mayor Nomaindia Mfeketo and City Manager Wallace Mgoqi, the looting became epic – albeit not on the BBBEE-compliant Eskom scale.

Mgoqi now works for the apparently PIC-favoured Ayo Technology Solutions.

When the ANC was unseated in 2006 the new mayor, Helen Zille, invited those managers to return and Cape Town has been the least corrupt and most effective municipality ever since – as Moody’s recently confirmed. Merit was a singular criterion in this initiative.

Increasing costs

Merit, however, still plays no role in ANC policy and, at the moment, companies are facing increasing costs in meeting BBBEE targets without assured beneficial outcomes – ask the Chamber of Mines, they’ll tell you.

As Deng Xiaoping said when he started transforming China’s feudal economy into the second-largest in the world:

“It doesn’t matter whether a cat is white or black, as long as it catches mice.”

We are nevertheless grateful for the insights being provided by the Cyril Ramaphosa-appointed Lex Mpati commission of inquiry at which Sunil Varghese recently testified about the controversial R4.3bn Ayo transaction.

What the Mpati Commission testimony so far indicates is that the Public Investment Corporation, like the Industrial Development Corporation – ask Ben (Baby Mama) Martins he’ll tell you – has become a trough of note and the beneficiaries are living very well, thank you very much.

The obvious question in relation to the Varghese Hypothesis has not been asked at the Mpati hearing.  If Sekunjalo Investments Ltd – which followed the Gavin Watson name change route as a result of relentless scandal – to become African Equity and Empowerment Investments, is unable to repay the R1 billion it borrowed to buy the Independent Media newspapers, then how is it going to repay, with interest,  the R4.3 billion PIC investment in Ayo Technology Solutions for which the PIC initially did not have sufficient funds?

This trenchant question has, however, been asked by Dirk de Vos in a Daily Maverick article.

And does the fact that the PIC investment in Ayo has already lost half its value not emphatically torpedo the Varghese Hypothesis?

Somehow I doubt whether, in years to come, the name of Sunil Varghese will be mentioned in the same breath as Adam Smith and John Maynard Keynes. It was, after all, on his watch that the PIC robbed Peter to Pay Paul  in what seems to have been an ethically dubious transaction.

Nobody can claim, however, that they were not forewarned and then warned again.

Due diligence

What the Varghese Hypothesis does not seem to take into account is the routine due diligence investigation and analysis which a company of acknowledged ethical probity – Berkshire Hathaway for example – would undertake before getting involved in a business venture with the ‘other Mandela doctor’ and business associate of the late Brett Kebble.

If you deem such a liaison to be a likely occurrence, then I have a pretty nifty bridge to sell you. You can find the details here.

President Cyril Ramaphosa promised us a ‘green shoots’ future at Davos in 2018 and the 1.4m civil servants who contribute via a monthly stop order on their salaries to the Government Employees Pension Fund would undoubtedly agree with the sentiments expressed in  a recent City Press editorial:

That the Government Employees’ Pension Fund (GEPF), Africa’s largest pension fund, has a significant long-term funding shortfall is bad news for its members and for taxpayers.

It is yet another example of government squandering precious national resources – in this case, government employees and pensioners’ money – with no consequences for those responsible. This has to stop.

The GEPF members will therefore be encouraged by the new-found vigour and determination of an emboldened PIC to recover the obscenely inflated R4.3bn invested in Ayo Technology Solutions.

Ultimately, abandoning merit is what got us into our current mess and this has seen South Africa drop precipitously on every world ranking list of good governance since the ANC came to power 25 years ago – ask Sadtu, they’ll tell you.

For as long as ethnicity and party affiliation determine one’s station in life and one’s professional progress – as they do now and as they did in the apartheid era – for so long will the Beloved Country regress and for so long will it fail to realise its potential and  for so long will it continue to export its expertise.

The rolling blackouts tell us that.

  • Ed Herbst is a veteran journalist who these days writes in his own capacity. 
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