Private sector-led growth the answer
There is a letter in #GuptaLeaks batch that goes a long way to explaining the value-added tax (VAT) increase by Finance Minister Malusi Gigaba last week. It’s a long leap of logic and requires some explanation.
The e-mail was sent by Pieter van der Merwe, Pretoria lawyer and CEO of VR Laser, a steel-cutting plant in Boksburg (not to be confused with Pretoria lawyer Gert van der Merwe, at one time the Gupta family lawyer), to the key members of the Oakbay exco — Salim Essa, Tony Gupta and Ronica Ragavan, on September 29 2014.
Accounting firm PWC had contacted one of VR Laser's black-empowerment partners, Benny Jiyane, after a report appeared in the Mail & Guardian about the huge acquisition of railway carriages by Transnet. The PWC representative contacted Jiyane with a view to setting up an interview about the report. Jiyane had clearly panicked and contacted Van der Merwe, who sent an e-mail to the Oakbay exco, talking strategy.
At one point he says: “My opinion is that PWC is arrogant if they think they can walk into every privately owned company and make as if they have unlimited investigative authority. According to me, this is driven by a few vexatious individuals in order to feed their journalist friends with scrap.”
The attitude is instructive, as is the recipients of the e-mail. VR Laser was at this time regularly appearing in the exco meetings of Oakbay along with its other parts — ANN7, New Age, Shiva, Sahara, and JIC Mining Services (the latter is least known, but was once the top money spinner in the group).
Clearly there were things Van der Merwe was not a party to, because the Mail & Guardian had just got a whiff of the story at this point. The story revealed that not only the Guptas but also the head of procurement at Transnet, Iqbal Sharma, had taken stakes in VR Laser just prior to Transnet announcing the outcome of the tender.
In March 2014, Transnet announced it had signed contracts worth just on R50bn with four companies to supply 1,064 locomotives — China South Rail, China North Rail, Canadian company Bombardier, and US conglomerate General Electric.
At the time, there was lots of hoo-ing and ha-ing about who actually owned VR Laser and whether it had any interest in the huge acquisition deal. The board of Transnet decided to initiate an investigation, and one of the issues was whether VR Laser would be invoicing Transnet for the black empowerment component of the Chinese portion of the deal. This presumably prompted the members of the consortium to do it a different way — offshore.
VR Laser took no further part in the locos deal, at least not that we know of at the moment. Instead, investigative journalism organisation amaBungane reported last year that China South Rail signed a deal on May 18 2015 with Hong Kong company Tequesta, which had only one director, Salim Essa. The terms of the contract were eye-popping. Tequesta would be paid an “advisory fee” of 21% of the contract value for Project 359. That would amount to R3,8bn of the R18bn contract, or R10m for every R50m SA would be paying for each CSR loco. It was arguably the biggest story to come out of the #GuptaLeaks trove.
Again, Transnet’s board decided to investigate, hiring this time law firm Werksmans. The company delivered its report and, astoundingly, the Transnet board claimed about a week ago that the report was “incomplete and inconclusive … there are no concrete grounds provided in the report to effect any disciplinary processes or suspensions of any officials at this stage due to the inconclusive nature of the report”. For the second, or perhaps even third time, a professional services firm felt compelled to dump its client under the bus. Werksmans said last week the report was far from inconclusive and recommended an urgent police investigation. Professional services firms all over Joburg are now wondering whether it's worth doing such work if, in the end, clients won’t listen to them. The reputational damage
railway lines — go nowhere. to them is enormous, and to a certain extent, unfair. So what does this all have to do with the budget? It is, in its own way, an important indicator of what has gone wrong with SA’s public finances. In 2009, the Zuma government concluded that to avoid more of an economic bloodbath than there was already, it needed to slam its chequebook on the table to stimulate the economy.
All the factions liked this idea: Cosatu saw it as a job creator; the communists saw it as a way for the state to at last take control of the economy, and the black-empowerment component saw it as a moneymaking window.
Yet it ended up a disaster. SA has massively overpaid for equipment of dubious additional value, produced largely outside the country. It’s a lesson to those who consider state-led economies rooted in infrastructure investment as the way to economic development. It’s not, and will never be.
Without a vibrant private sector, all the roads — and
IN 2009, THE ZUMA GOVERNMENT CONCLUDED … IT NEEDED TO SLAM ITS CHEQUEBOOK ON THE TABLE TO STIMULATE THE ECONOMY