South Africa

South Africa Corruption Report

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Snapshot

South_Africa_230x153.pngSouth Africa suffers from widespread corruption, despite it performing better than regional averages across a number of key measurements. The country has simpler procedures, smoother interactions with tax officials and easier enforcement of commercial contracts than comparable regional countries. Public procurement is particularly prone to corruption, and bribery thrives at the central government level. South Africa has a robust anti-corruption framework, but laws are inadequately enforced. The Prevention and Combating of Corruption Act (PCCA) criminalizes corruption in public and private sectors, including attempted corruption, extortion, active and passive bribery, bribing a foreign public official, fraud, and money laundering, and it obliges public officials to report corrupt activities. It is a criminal offense to provide any form of “gratification” to an official if it is not lawfully due.

Last updated: May 2018
GAN Integrity

Judicial System

Corruption in the judiciary is a moderate risk for businesses in South Africa. The judiciary is widely recognized as independent (ICS 2017), but companies nonetheless indicate they are not entirely confident in the independence of the judiciary (GCR 2017-2018). Bribes and irregular payments in exchange for favorable judicial decisions are uncommon (GCR 2015-2016). However, companies report low satisfaction with the efficiency of the legal framework for settling disputes and challenging regulations (GCR 2017-2018). Around a quarter of South Africans perceives most or all judges and magistrates as corrupt (GCB 2015). Dispute resolution in South Africa can be time-intensive. Interim decisions can sometimes be taken by judges in a matter of days, but resolving the dispute can ultimately take months or years (ICS 2017). Consequently, Alternative Dispute Resolution (ADR) has increased in popularity (ICS 2017). Understaffing and a lack of financial resources undermine the quality of the judiciary (FitW 2017). Enforcing a contract takes less time and costs less compared to the regional average (DB 2018).

A magistrate in Randburg, named Johannes Kgomo, was sentenced to 15 years in jail, for two corruption charges related to accepting a bribe to stop the extradition of Botswana fugitive Paul Mthabela (The Times Live, Apr. 2018).

Police

Crime and petty corruption in the police are significant risks when operating in South Africa. Businesses report the police is unreliable (GCR 2017-2018). Nearly half of South Africans indicate they perceive most or all police officers as corrupt (GCB 2015). Traffic fines are the single most common event in which bribes are requested in South Africa (TEI 2017). Costs arising from crime and violence can be challenging for companies (GCR 2017-2018). The police sometimes request bribes to protect businesses owned by foreigners against xenophobic violence (HRR 2017).

Public Services

Corruption and inefficient government bureaucracy are significant risks in South Africa’s public services sector; irregular payments and bribes are perceived to be very commonly exchanged (GCR 2015-2016), and nepotism and cronyism are common (The South African, July 2015). Legal, regulatory, and accounting systems are generally transparent and consistent with international norms (ICS 2017). Political uncertainty and the failure of economic policy to promote growth are major concerns for investors (ICS 2017). Starting a business takes almost twice as long as elsewhere in the region, but the costs involved are only a fraction of the regional average (DB 2018). Dealing with construction permits in the country takes significantly more steps compared to the regional average (DB 2018).

Major concerns over the ability of businesses interests to influence government decisions exist (BTI 2018). It is alleged that the Gupta family, a wealthy family with close ties to former President Jacob Zuma, carried influence to the extent that they were able to propose cabinet members (BTI 2018). A report by the Public Protector further shed light on the ties between the Guptas and Zuma and raised questions about several deals involving state-owned enterprises (SOEs) and possibly the effective ‘capture’ of key individuals in the SA Revenue Service and National Directorate of Public Prosecutions (NDPP) (BTI 2018). These ties are under investigation as of mid-2018; prosecutors seized more than USD 21 million worth of assets from the Gupta family (Bloomberg, Apr. 2018).

Land Administration

There is a moderate risk of corruption in South Africa’s land administration. Companies are moderately satisfied with the government’s ability to protect property rights (GCR 2017-2018). Property rights are not explicitly guaranteed in the constitution, but in practice, property is protected from arbitrary expropriation without equitable compensation (BTI 2018). However, the Promotion of Investment Act signed into law in December 2015 allows the government to expropriate property at a price lower than market value (ICS 2017). The Act also allows the government to expropriate for a wide range of policy goals, including correcting historical grievances (ICS 2017). Investors should be aware that the Restitution of Land Rights Amendment Bill passed in 2014 has already led to significant claims for restoration of property seized under the Apartheid government or during the colonial period (ICS 2017).

Registering property in South Africa takes less than half the time it takes elsewhere in the region (DB 2018).

Tax Administration

Corruption in tax authorities presents a moderate risk for companies. Companies indicate that bribes and irregular payments are not commonly demanded when making tax payments (GCR 2015-2016). Around a fourth of South Africans perceive most or all tax officials as corrupt (GCB 2015). SARS operates a 24-hour Fraud and Anti-Corruption Hotline where companies can report corruption related to the tax administration.

Paying taxes takes significantly less time and is done in fewer payments per year compared to the regional average (DB 2018).

Customs Administration

Corruption when importing and exporting in South Africa poses a moderately high risk to companies. Incidents of irregular payments and bribes in relation to exports and imports at ports or borders do occur (GETR 2016). Companies are not satisfied with the time-predictability of customs procedures (GETR 2016). The costs and time required to trade across borders are generally in line with the regional average (DB 2018).

In one case, two customs officials were arrested for demanding a bribe from a businessman to evade taxes that were due (News24, Mar. 2018).

Public Procurement

Corruption in public procurement is a high risk for businesses in South Africa. Favoritism in decisions of government officials is perceived to be very common, and public funds are frequently diverted due to corruption (GCR 2017-2018). Nearly two out of five companies indicate that they have experienced procurement fraud in the preceding two years (pwc 2018). Nearly half of South Africans believe that most or all government officials are corrupt (GCB 2015). With the Local Procurement Accord, the government committed to increasing the procurement proportion of goods and services from South African suppliers to an “aspirational target” of 75 percent (ICS 2017), which creates a potential disadvantage for foreign companies. The Broad-Based Black Economic Empowerment (BBBEE) strategy aims to increase the participation of black citizens in the economy but has been criticised both for providing too much preferential treatment in the awarding of government contracts to wealthy black elites and for leading to increased corruption in public procurement (WSJ, Apr. 2014), due to a lack of monitoring and evaluation, mismanagement, difficulties in registering companies under BBBEE, and poor accountability (Shava, E. Dec. 2016). Companies are recommended to use a specialized public procurement due diligence tool to mitigate corruption risks related to public procurement in South Africa.

Serious concerns have been raised about the governance of procurement processes executed by large parastatal companies, as well as the extent to which these companies have become vehicles for political patronage (BTI 2018). A report by the Public Protector concerning state capture questioned a recent deal for Eksom, the country’s largest electricity company, which involved procuring coal from the politically well-connected Gupta family (BTI 2018). Moreover, the National Treasury declined to approve a refinancing proposal for a number of South Africa Airlines (SAA) planes which would have benefitted another politically connected entity (BTI 2018). South Africa’s Passenger Rail Agency (PRASA) made a multimillion order for Spanish locomotives, after a dubious procurement process, that were too large to fit through tunnels in South Africa (BTI 2018). In another high-profile case, President Zuma, received kickbacks from French arms company Thales in return for the procurement of their weapons systems; the charges against Zuma are repeatedly dropped and revived (News24, Mar. 2016). As of March 2018, the National Prosecuting Authority has announced it will prosecute Zuma along with Thales’ local affiliate (News24, Mar. 2018).

Natural Resources

Mining operations in South Africa are particularly vulnerable to corruption and illegal activities (Bloomberg, Jan. 2015). The scale of mining operations and the large sums of money involved – coupled with many interactions with government officials such as securing concessions, customs clearance and obtaining permits – increase corruption risks (Corruption Watch, July 2014). Illegal mining and money laundering are widespread in South Africa, costing the industry 5 to 10 percent of its annual production (CNN, Aug. 2015; Bloomberg, Jan. 2015). Corruption risks are particularly high for the licensing process (NRGI 2017).

The sector also suffers from politicization, resulting in the mining regulator being staffed with individuals who do not possess the relevant knowledge nor expertise needed to make decisions (CW 2017). Corruption Watch found in a 2017 report that this politicization along with many other shortcomings in the governance of the sector poses significant corruption risks (CW 2017).

Legislation

South Africa has a well-developed legal framework for curbing corruption, but officials sometimes engaged in corrupt behavior with impunity (HRR 2017). The PECD has also repeatedly raised concerns about low levels of enforcement in South Africa (OECD 2016). The Prevention and Combating of Corruption Act (PCCA) criminalizes corruption in public and private sectors and codifies specific offenses, making it easier for courts to use the Act. It specifically criminalizes attempted corruption, extortionactive and passive bribery, bribing a foreign official, abuse of office and money laundering, and it obliges public officials to report corrupt activities. See the website of the National Anti-Corruption Forum for a useful guide to the Act and its components and for information on blacklisting. It is a criminal offense to provide any form of “gratification” to an official if it is not lawfully due, including gifts and facilitation payments (C&P 2018). Whistleblowers are protected by a variety of laws (Baker McKenzie, Oct. 2017). The Public Finance Management Act addresses unauthorized government expenditures. The Promotion of Access to Information Act provides for access to public information, but it has not been fully implemented (BTI 2018). The Code of Conduct for Assembly and Permanent Council Members requires public officials to disclose gifts and interests, but monitoring capabilities are lacking and there are reports of public officials who fail to declare their interests (HRR 2017).

South Africa has ratified the United Nations Convention against Corruption, the African Union Convention on Preventing and Combating Corruption and the OECD Anti-Bribery Convention.

Civil Society

Freedom of expression is enshrined in the constitution and is well respected in practice (HRR 2017). South Africa’s media environment is diverse and pluralistic, but there are growing concerns about the share of private outlets owned by people allied with the government (FotP 2017). In November 2016, the editor of the newspaper The Citizen was fired after publishing an investigation into corruption involving the former finance minister in addition to other reports critical of the current finance minister (FotP 2017). Courts have consistently affirmed the right to information (FotP 2017). South Africa’s media environment is classified as ‘partly free’ (FotP 2017) and the country’s internet freedom is classified as ‘free’ (FotN 2017).

Freedom of assembly is provided for by the constitution, but throughout 2016, the police dispersed hundreds of demonstrations by using violent means (HRR 2017). South Africa has a vibrant civil society in which NGOs are able to operate freely and lawmakers regularly consider input from NGOs (FitW 2017). However, the government has become more hostile towards civil society by cooperating less and frequently ignoring requests for basic information (BTI 2018). The activities of many organizations have limited reach and mostly focus on their immediate communities (BTI 2018). South Africa has many civil society organizations that are concerned with anti-corruption efforts (Iol, Sep. 2015). Most of these organizations are funded by international donors (BTI 2018).

Sources

2018-05-14T13:09:27+00:00 Region: Sub-Saharan Africa|

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