Eight hundred billion reasons to be careful: SA’s Covid-19 rescue package

First published by ISS Today

Stating his intention to set the country on “a new path of growth, employment and transformation”, South African President Cyril Ramaphosa announced an economic stimulus and recovery plan in September 2018. In the 20 months since then, South Africa’s gross domestic product has contracted, its debt service costs increased, its tax revenue shrunk, and its major state-owned enterprises and municipalities have teetered on collapse.

At the same time the size and cost of its public service have increased, and with this, the “irregular expenditure” incurred by government. Not one significant player in the well-documented corruption of the state over the past 10 years has been prosecuted. 

To sum it all up, on 27 March this year Moody’s rating agency downgraded South Africa to sub-investment junk status. This was the same day Ramaphosa announced a 21-day national lockdown in response to the spread of Covid-19. 

This is the institutional context in which the president, after extending South Africa’s hard lockdown on 21 April, announced a new R500-billion social relief and economic support package. The funds are to be acquired primarily from the transfer of about R130-billion from the current budget, and an allocation from the Unemployment Insurance Fund. The remainder is to be sourced from multilateral financial institutions such as the International Monetary Fund, World Bank and New Development Bank. 

Fiscal and monetary policy interventions would take the total to around R800-billion, to be distributed in a three-phased approach over the next 18 months. This time frame is expected to be sufficient to preserve the economy, recover from the impact of the pandemic, and pivot structural change for faster economic growth. On 24 June, Finance Minister Tito Mboweni is due to provide details about the source of these additional funds and where they will be spent. 

Given South Africa’s recent history of grand corruption, the country could do with more specifics on how this rescue package will be managed, accounted for and reported on. 

Institutional weaknesses and systemic graft make the Covid-19 response a real opportunity for state-embedded criminals to capitalise on the situation. The controversial purchase of blankets, sanitisers, soap and other hygiene products totalling R40-million by the KwaZulu-Natal Social Development Department, is a clear indication of the risks. 

Realising this, the National Treasury released an instruction on emergency procurement procedures to deal with Covid-19. This was accompanied by a document indicating maximum prices of personal protective equipment, specifications for face masks and the list of local manufacturers. 

However, apart from the purchase of personal protective equipment and other movable supplies, the rescue package has also targeted South Africa’s municipal and health infrastructure for upgrade. Municipalities are earmarked to receive R20-billion in support ‘to provide emergency water supply, to sanitise public transport facilities and to support vulnerable communities.’ 

Last year the Auditor-General reported that just 18 of the country’s 257 municipalities received an unqualified audit. The Sweetwaters and Giyani water and sewer reticulation projects in Gauteng and Limpopo respectively are stark reminders of the corruption prevalent in municipal service provision. To date, no detailed expenditure plan has been issued by government on how the R20 billion is to be used, and its use monitored.

Despite this, the Eastern Cape provincial government plans to inject R50-million into its health department to upgrade infrastructure at 28 hospitals in seven municipalities. This department incurred over R266-million in irregular expenditure in 2018. The Auditor-General reports that only one of these seven municipalities received an unqualified audit in that financial year. 

Other aspects of the disbursement of the rescue funds, such as social distress relief, are not immune. The media has reported on alleged incidents of theft of food parcels by councillors, as well as instances of councillors allocating food parcels to their relatives or members of their political constituencies. 

Given this context, there is a clear need for a transparent monitoring system to track the manner in which the R800-billion is allocated, disbursed and spent. Implementation of the principles of the United Nations Convention Against Corruption, to which South Africa is a signatory, would be a good place to start.

This would mean that all emergency procurement processes are guided by the principles of transparency, integrity and accountability. This could include developing an online bid platform to publish application processes, contracting and purchasing in a publicly accessible open data format. This would make it possible to identify potential conflicts of interest, track disbursement and expenditure and ensure accountability. Real-time audits for public procurement, precisely because of the exceptional nature of the disaster, are also recommended. 

The criminal justice system must also ramp up corruption investigations. The recent proclamation of the Special Investigating Unit to actively pursue corruption cases related to the Covid-19 response is encouraging. This could be supported by a dedicated, centralised capability at the National Prosecuting Authority staffed by appropriately screened personnel, to follow up and prosecute cases related to malfeasance in the use of the funds. 

Pending concrete action from these agencies, the lack of successful prosecutions in corruption cases stemming from 10 years of state capture means South Africans will remain sceptical of any new anti-corruption steps taken by government. 

This means that the manner in which the rescue funds are disbursed, accounted for and reported on will be a real test for Ramaphosa’s government. Is it committed to fighting corruption and organised crime, or just paying political lip service to these crucial efforts? DM

Eric Pelser is head of Complex Threats in Africa, ISS and Richard Chelin, a researcher, ENACT, ISS.