Has SA lost R700bn to corruption?

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01 October 2015 at 2:20pm

Sintha Chiumia and Anim van Wyk

Has SA lost R700 billion to corruption since ’94? Africa Check’s Sintha Chiumia and Anim van Wyk explain why the calculation is wrong.

Durban – It’s been stated as fact that South Africa has lost R700 billion in public money to corruption since the advent of democracy in 1994. But how does one measure the cost of hidden crime?

One of the Unite Against Corruption march organisers and former general secretary of trade union Cosatu, Zwelinzima Vavi, used the R700 billion figure widely. To talk radio show host, Tim Modise, Vavi said: “R700bn could have been used to address the principal challenge of South Africa.”

Vavi also reportedly cited the number to urge Nissan assembly plant workers and a gathering of National Union of Metalworkers of South Africa members to join the march.

When he tweeted the R700bn figure, a Twitter user replied: “No ways. Lucky guess?”

Is it a guess or the result of thorough research? Africa Check got out the calculators.

On social media, Unite Against Corruption attributed the claim to the Institute of Internal Auditors. This likely refers to the January launch of the Anti-Intimidation and Ethical Practices Forum, an association of different organisations fighting corruption.

At the event, the forum’s chair and head of the Institute of Internal Auditors South Africa, Claudelle von Eck, reportedly said: “The cost of corruption in the last 20 years… we have lost R700bn.”

Von Eck confirmed to Africa Check she had made the claim, but said she was quoting the Institute for Accountability in Southern Africa. The institute’s head, Paul Hoffman, was quoted using the R700bn figure last year. (Updated from R675bn he cited the year before and in 2012.)

But Hoffman passed the buck to Tendersure, a web-based tendering tool, owned by a company called Sentigol.

“(Tendersure) worked that out as a percentage of the DP… 20% of the GDP over the last 20 years works out to that,” Hoffman told Africa Check.

An October 2011 article in Engineering News quoted the head of Sentigol, Werner Coetzee, as saying research by international anti-corruption bodies showed Africa to lose “about 25%” of its gross domestic product (GDP) to corruption.

Coetzee then explained that 25% of South Africa’s GDP of R2 700bn (likely 2010s) came to R675bn and that this figure was potentially lost to corruption.

But he told Africa Check he was misquoted: “I don’t know how anyone would arrive at that number.” The businessman said he once attempted to calculate the cost of corruption in the past 20 years, but gave up because it would “ignore the corruption during apartheid”.

Coetzee didn’t pluck the corruption formula out of thin air, but he got the wrong end of the stick.

Global civil society organisation Transparency International published a handbook called Curbing Corruption in Public Procurement in 2006. The very first paragraph states “damages from corruption” are usually estimated at “between 10% and 25%, and in some cases as high as 40 to 50%” of a country’s public procurement contracts – not its GDP.

Yet the bibliography does not contain any reference to studies showing how this share was arrived at. Africa Check contacted the organisation’s public sector integrity programme head, José María Marín, who said he’d look into it, but we haven’t yet received a response.

Since then the statement has become a tumbleweed claim: rolling along year after year, from one report to another, without source or context, supposedly holding true wherever it goes.

So how did do we end up with “R700bn lost to corruption in South Africa in the last 20 years”? Here is Africa Check’s theory, give or take R5bn:

1. The formula from Transparency International, or the various other organisations that quoted its information, made its way to South African treasury official, Sonwabo Tshoko, who stated in a 2010 presentation: “It has been estimated that R30bn per year, which is 20% of the overall government procurement budget of R150bn, is being lost or is disappearing into a black hole of fraud and corruption.”

(Tshoko has since left and Africa Check could not get hold of him or more information on the calculation via Treasury spokeswoman Phumza Macanda.)

2. South Africa’s then head of the Special Investigating Unit, Willie Hofmeyr, used this information when asked to estimate the cost of corruption in Parliament in October 2011.

According to the minutes, “Hofmeyr responded that it was difficult to do so, but one suggestion by National Treasury was that it might amount to about 20% of the annual procurement budget, or about R25bn a year.”

(Hofmeyr confirmed to Africa Check he got the information from Treasury, but couldn’t remember the exact source.)

3. The head of the Institute for Accountability, Paul Hoffman, attributed the figure of R30bn per year to Hofmeyr in a 2012 conference report. However, it seems that when the time came to present the report, he used R675bn as a total figure lost to corruption since 1994.

A news report said: “Hoffman based the figure of R675bn on government’s admission that the economy loses R30bn a year to corrupt activities. The disclosure elicited visible shock among conference goers.” (A quick calculation shows that R30bn times 18 years is R540bn, not considering inflation.)

So how much has SA really lost to corruption?

The frustrating – and logical – answer is we just can’t say for sure.

Macanda said South Africa’s Treasury does not attempt to calculate the cost of corruption. “Our observation is that people speculate and also tend to use the word corruption when what they are talking about is irregular, unauthorised or wasteful expenditure,” she said.

Africa Check spoke to Hennie van Vuuren, research associate at the Institute for Justice and Reconciliation (IJR) and writer of a 2005 Transparency International country study report on South Africa.

He said the idea that corruption costs 20% (or 10% or 25%) of public procurement came from the assumption that middlemen involved in corruption demanded 8 to 10% of a contract’s value.

“But this differs from transaction to transaction and industry to industry,” he said.

Ways to gauge trends in corruption included perception surveys and tallying detected cases.

Van Vuuren said one could even include illicit outflows – where private companies moved money to tax havens abroad – in the broader ambit of corruption, which was estimated to be in the region of R300bn in 2012 alone.

“Our need to define corruption in monetary terms ignores the much more fundamental costs of corruption – carried by individuals in weakened forms of government,” he said.

The head of governance, crime and justice division at the Institute for Security Studies, Gareth Newham, told Africa Check “we simply don’t know what the actual amount is because corruption is a crime in which both parties benefit and will seek to hide”.

However, Newham said he thought a “considerable” amount had been lost to corruption “given the large scale of the problem and the high level involvement of our political elite in corruption”.

It’s “impossible to know” how much money South Africa has lost to corruption, the executive director of non-profit organisation Corruption Watch, David Lewis, told Africa Check.

“Various people, various institutions have come up with estimates. I don’t know how they arrive at these figures,” he said.

“I am comfortable to say there is a high level of corruption in SA but you can’t rely on those estimates.”

Conclusion: the figure of R700bn is a thumbsuck.

Although a firm figure helps spur citizens to action – in a country where experts agree that it’s a big problem – this specific estimate is not reliable.

The amount probably stems from a claim that about 20% of a country’s public procurement budgets disappears into back pockets, attributable to Transparency International as far as we could tell, but not backed up by research studies. Since then it’s been mangled beyond recognition in South Africa.

* This article first appeared on Africa Check (http://www.africacheck.org), a non-profit organisation run from the Journalism Department at the University of the Witwatersrand, which promotes accuracy in public debate, testing claims made by public figures around the continent

** The views expressed here are not necessarily those of Independent Media.

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