State Capture Inc.

“We, the CEOs and business leaders of South Africa join the Government, Business and Labour initiative, and commit to doing the right thing; stand by what is right and reject what is wrong.” CEO Pledge

Bell Pottinger. SAP. KPMG. McKinsey. Each has been sucked into the reputational vortex otherwise known as Jacob Zuma’s South Africa. Each has been spat out in varying states of disgrace.

Bell Pottinger, a British public-relations firm, collapsed after orchestrating a racially divisive campaign against “white monopoly capital”—a clumsy ploy to distract from government corruption. SAP, a German software giant, suspended four executives and launched a probe into $7.5m in alleged bribes to secure state contracts. KPMG jettisoned eight senior partners after signing off a client’s wedding as a business expense and publishing a now-retracted report that maligned a respected finance minister. McKinsey halted work with Eskom, the state power utility, amid claims it partnered with Trillian Capital, a shady advisory outfit, to win contracts.

Why does South Africa seem so toxic for multinationals? The answer lies in a phrase now common in Johannesburg but less familiar abroad: state capture. Coined by the World Bank around 2000 to describe post-Soviet oligarchs’ sway over the state, it has become shorthand for the Guptas’ sway over Mr Zuma.

Unlike petty graft—brown envelopes stuffed with cash—state capture is systemic. It alters laws, regulations and personnel to serve private interests. Transparency International defines it as the use of corruption by powerful actors “to shape a nation’s policies, legal environment and economy to benefit their own private interests.”

South Africa is now its most notorious case study. At the centre were the Gupta brothers, a business clan accused of cultivating Mr Zuma for profit. In 2007, against the odds, he toppled Thabo Mbeki to lead the ANC; by 2009 he was president. Soon the Guptas were winning mining and supply contracts and allegedly steering ministerial appointments. A 355-page “State of Capture” report found evidence of impropriety and urged a judicial inquiry. Nearly a year later, none had begun.

Foreign firms became ensnared in this web through their dealings with Gupta-linked entities. Lesetja Kganyago, governor of the central bank, has warned that suspected money-laundering cases languish unprosecuted. The National Prosecuting Authority, led by a Zuma loyalist, denies favouritism. Mr Zuma himself has dodged 783 charges of fraud and corruption.

The counter-attack

Yet business is beginning to push back. With the state enfeebled and investor confidence ebbing, corporate South Africa has sought to defend transparency and governance on its own. This is more than self-preservation. It signals a break from a long-standing reluctance to confront the state directly.

The disconnect between government and business is stark. In the World Economic Forum’s competitiveness rankings, South Africa scores well for private-sector innovation and sophistication. But in government-dependent metrics—healthcare, education, institutions—it sinks to the bottom.

Quinton Dicks, head of the SA SME Fund, argues that business leaders now recognise they must drive change: “Addressing South Africa’s problems cannot be left up to government alone.” In 2015, at the height of investor panic, 218 chief executives signed a “CEO Pledge” to uphold corporate ethics and help avert a debt downgrade. The downgrade came anyway, but the initiative signalled intent.

Business Leadership South Africa (BLSA), an industry group, has been blunter still. It suspended Eskom and Transnet, two state-owned firms mired in graft, declaring corruption a “cancer eating away at the heart of our society”. Its “Integrity Pledge” commits members to zero tolerance of graft.

This is not merely symbolic. That business leaders now publicly lambast government failures marks a shift. They are increasingly vocal in calling for market-friendly reforms and lambasting state-owned enterprises that drain public coffers.

South Africa’s private sector has been accused of complicity, or at least passivity, in the age of state capture. Now it is scrambling to redeem itself. With the state hollowed out, business must step into the vacuum—not just to defend its own credibility but to shore up the country’s economic foundations.

Defeating state capture is a precondition for recovery. Only then can South Africa hope to rekindle growth, attract investment and—most crucially—create the jobs its citizens so desperately need