Pay the vig or swim with the fishes

Shady characters are circling our economy like two-bit loan sharks

REMEMBER Goodfellas, the Martin Scorsese movie about the workings of the Mafia? Well, South Africa is ripe right now for a narrative that features as “goodfellas” those people hellbent on looting the state.

Such a narrative will ride on the coat-tails of a number of legitimate factors. These include concerns in some political circles, including the ruling party, about the need to break the stranglehold of the so-called minerals-energy complex, and the need to transform the economy to open up space for Africans.

There is also a need to break the dominance of certain sectors of the economy by a few big firms, an issue that has been raised several times by the IMF and the Organisation for Economic Cooperation and Development. There is also the study by the World Bank which shows that South Africa’s exports are dominated by very few firms. This, too, creates a legitimate policy window for the corrupt.

To this list one can add a downgrade of South Africa’s government bonds to junk status.

This, therefore, is the mother of all opportunities for the “goodfellas” to push through policies that on paper appear to address the issues above, but whose real outcome will be to line the pockets of their families, friends and cronies.

So I would not be surprised if the noise about radical economic transformation is raised a few decibels. Yet it will be nothing but an opportunity for a few politicians and their beneficiaries to feast.

Consider the minerals-energy complex, at the centre of which sits Eskom. The complex, named by economists Ben Fine and Zavareh Rustomjee, is defined as an economic development trajectory characterised by cheap coal used for the generation of cheap electricity, which, coupled with cheap labour, provides input into export-oriented mining and minerals beneficiation.

“The interlinkages within and between the energy, mining and minerals beneficiation sectors mirror an interconnected industrial elite that comprises private capital and state actors, and a particular historical dynamic of ‘conflict and co-ordination’,” Lucy Baker, of the University of Sussex, and Jesse Burton, Catrina Godinho and Hilton Trollip of the University of Cape Town, explain in a recent study, “The political economy of decarbonisation: Exploring the dynamics of South Africa’s electricity sector”, published by UCT’s Energy Research Centre.

Add to this mix Eskom’s financial woes and the energy crisis.

Politicians could say, legitimately, that they are breaking the stranglehold of big mining firms over Eskom. But the detail of how they do so matters too.

Much more important, though, is the transparency around freeing Eskom from the clutches of big mining firms as well as who is brought on board as the new suppliers. Without light being shone on this area, corrupt politicians, assisted by civil servants and Eskom executives, will line their pockets — all in the name of transforming the economy.

Now replicate this over the entire economy and you have money for jam, but only for a few.

Then there is the matter of the downgrade of government bonds to junk status.

Contrary to what some people expect, a downgrade will not lead to a shortage of money for the government. In fact, the government may be offered more money than it actually needs.

However, this money will be from unscrupulous sources that will offer what looks like cheap money on paper, but for which South Africa will pay dearly in the long run.

Fiscal transparency will fly out of the window and, with it, the integrity of the financial system, which would be a perfect outcome for those hellbent on looting the public purse. CHEAP, CHEAP: Ray Liotta, Robert de Niro, Paul Sorvino and Joe Pesci are the ’goodfellas’ who have a licence to steal, as would those hellbent on looting state coffers in South Africa if it continues on its current trajectory

This is the mother of all opportunities to push through policies that appear on paper to address issues

So yes, a downgrade of the government bond will mean that the government pays more interest on what it borrows. And because interest payments are deducted first — before the budget cake is divvied up between national, provincial and local spheres of government — increases in interest payments will result in less money being available for expenditure.

Perhaps it’s best to pause here to explain.

At present, the government borrows by issuing bonds to banks, pension funds, insurance companies and entities that manage money. State-owned companies, primarily Eskom and Transnet, do the same.

Such borrowing is done transparently. Obviously, it is not done in front of a live studio audience, but it is transparent in the sense that borrowing by the government follows due process and the prescript of relevant laws. There is a paper trail that can be followed should the need arise.

How much the government borrows and how it goes about it are not an outcome of secret meetings in Saxonwold.

To return to the downgrade story, funds will remain available to the government from institutional investors, but the government will pay dearly for these. And this is where corrupt politicians come in.

Hovering in the wings for many years now have been myriad shady characters who offer what on paper appears to be very cheap money. These individuals have been working the corridors of municipalities and provincial government departments, offering cheap money that can be used for “development”. Thus far they have not succeeded.

But if South Africa continues on its current trajectory, tomorrow may be another story. Thieves would, to borrow the words of Henry Hill, the main character in Goodfellas, have a licence to steal — a licence to do anything.

Sikhakhane is the deputy editor of The Conversation Africa Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za