Chris Hart, chief strategist at Investment Solutions
Chris Hart, chief strategist at Investment Solutions

CHRIS Hart is chief strategist at Investment Solutions.

SUMMIT TV: South Africa dropped from 64th place to 69 out of 176 countries in the Transparency International worldwide corruption index. Chris, is this a surprise that we’ve fallen back, given the news flow like Nkandla that we’ve seen?

CHRIS HART: I think it is disappointing that we are slipping back. Given the challenges that we are facing, corruption is something that aggravates some of the unemployment and poverty challenges. The point about this survey is that South Africa is now in the 60s…

STV: That’s not too bad — we are ahead of Italy…

CH: That is the point — corruption is a worldwide problem and remains a problem if one doesn’t deal with it in a robust way. It requires robust systems to detect and deal with it and one has to do that. Unfortunately it looks like that is slipping back. South Africa is in a very good position in some ways, for instance when it comes to corporate governance and reporting standards, which helps to keep corruption at bay. South Africa rates pretty well in the world — we are often in the top five in that area — but when it comes to other areas we rate very low. When there are very heavy sets of regulations that usually provides "salary supplement" opportunities for officials. We find the more red tape there is, where you can’t make a living unless you have this form and that form, and "you can’t get past me unless you have this form", the consequence is corruption.

STV: Are you saying the corruption really is to be found in government institutions? You did mention that corporate governance in South Africa is very strict, with Mervyn King leading the charge on integrated reporting, for example…

CH: Exactly. The cancer is in government and often it’s to try deal with some of the problems of the past — so it’s not an insincere attempt — but there is the tenderpreneurism where you’re taking what is a good and necessary concept and corrupting it into something that it should never have been. Unfortunately what happens is, as corruption seeps into the political lexicon, it becomes very difficult to reform because how do you reform your own meal ticket away? It has to be independent because it becomes a cancer and that is the challenge we have — can we push it back? I do believe we can — we have a very strong constitution going for us, and we have fairly good systems. We don’t need more complexity — that adds to the problem. We need simplicity. Sometimes, because we are over-concentrating economic activity with the corporates. For example, if one has to build 10,000 houses and there are 50 builders and they are all competing in that business, there is very little scope for corruption because each business deal is small. But if we say, let’s build one stadium, if you’re a builder you either get the stadium and you stay in business or you don’t and you are out of business. The stake are much higher for corruption. The big prestige projects open up the scope for corruption where with smaller businesses one can deal with it more easily.

STV: If you extend that argument it’s not just about prestige projects — presumably in a tough environment where everyone is scrapping over fewer projects and jobs, is that where you see corruption increase?

CH: Yes, if there’s fewer projects how do you progress? The scope for corruption starts to rise…

STV: Are there any severe implications that we have fallen down the list? Fairly recently we were in the 40s so there’s been a fairly steady trend…

CH: It’s been a precipitous fall.

STV: Are there implications for investment in South Africa and job creation? Do people look at South Africa and say, "I don’t want to invest there…"

CH: Corruption is one of those things where you’re trying to do business but you get into a tangle of hidden interests that you have to try deal with where you have to pay this one off and give a present to that one — and that’s one of the reasons why investors often steer clear of Africa because it’s known if you do business in a particular country the general’s wife needs a present and somebody else needs a car so it becomes exceptionally complicated, especially if one gives the car to the wrong person instead of that one and then you’ve fluffed it. If you’re not operating within decent constitutional arrangements where there is a decent legal framework and contracts with protection of property rights — these things are so important. South Africa has all the elements to be a good investment destination but we are blowing it…

STV: I suppose there are manifold countries on the "red list", with Greece being one, and it’s interesting how badly they scored this year where they really need to be getting their act together…

CH: The reason is they have an incredibly Byzantine red tape structure where to do business or own an asset is exceptionally complicated — and the more complicated it is, the more "salary supplement" opportunities there are for officials. You’re putting officials in a position of power. Contrast that with a country like Mauritius, where their whole thing is to say, "officials are there to facilitate". One wants to take power out of the hands of the officials but still have legal controls in place so people know there are rules to the game. It’s a fantastic place to do business as a consequence and they rate more highly than South Africa as a consequence. That’s not to say that certain people or cultures are more genetically or culturally disposed towards corruption. One needs detection systems in place that are cost-effective so it doesn’t become a barrier to entry.