The International M o n e t a r y Fund (IMF) has apparently detected a classical State-Capture in Eswatini where formal procedures, such as laws and social norms and government bureaucracy are manipulated by private individuals and firms so as to influence state policies and laws in their favour.
This stems from the strong advice the global lender has issued to government on in November that government, in parallel with fiscal adjustment policies, reforms should focus on streamlining business regulations, strengthening governance to reduce “vulnerabilities to state-capture and corruption”, including through better public procurement, improving efficiency in key network industries such electricity and telecommunications, and establishing a well-structured wage policy to better align wage dynamics to productivity growth.
This is contained in the End of-Mission press release of the IMF team that convey preliminary findings after a visit. The IMF team, led by Geremia Palomba, visited Mbabane during October 23-November 4, 2019 to conduct the 2019 Article IV consultations with Eswatini.
State capture describes a form of corruption in which businesses and politicians conspire to influence a country’s decision-making process to advance their own interests. As most democracies have laws to make sure this does not happen, state capture also involves weakening those laws, and neutralising any agencies that enforce them.
The term “state capture” was first used by the World Bank, around the year 2000, to describe the situation in certain central Asian countries making the transition from Soviet communism. Specifically, it was applied to situations where small corrupt groups used their influence over government officials to appropriate government decision-making in order to strengthen their own economic positions; these groups’ members would later become known as oligarchs. Allegations of state capture have led to protests against the government in Bulgaria in 2013–2014 and Romania in 2017, and have caused an on-going controversy in South Africa beginning in 2016.
It was sparked by the revelations of the relationship between two families – the Zumas, centred on the former president, and the Guptas, three Indianborn brothers who moved to South Africa after the fall of apartheid. The two families became so closely linked that a joint term was coined for them – the “Zuptas”. The Guptas owned a portfolio of companies that enjoyed lucrative contracts with South African government departments and stateowned conglomerates.
They also employed several Zuma family members – including the president’s son, Duduzane – in senior positions. State capture may not be illegal, depending on determination by the captured state itself, and might be attempted through private lobbying and influence. The influence may be through a range of state institutions, including the legislature, executive, ministries and the judiciary, or through a corrupt electoral process. It is similar to regulatory capture but differs in the scale and variety of influenced areas and, unlike regulatory capture, the private influence is never overt.
The private influences cannot be discovered by lawful processes, since the legislative process, judiciary, electoral process, and/or executive powers have been subverted. Also, in cases of corruption (even rampant) there is plurality and competition of corruptors to influence the outcome of the policy or distribution of resources. However, in state capture, decision-makers are usually more in a position of agents to the principals, captors, who function either in monopolistic or oligopolistic (non-competitive) fashion.
Other than the state capture warning, the IMF further advised government to implement fiscal adjustment measures to reduce the fiscal deficit and stabilize public debt, and roll out structural and governance reforms to boost long-term growth and reduce poverty and unemployment. “Significant fiscal adjustment is needed to ensure fiscal sustainability and rebuild external buffers. Adjustment policies should combine both expenditure and revenue measures that support long-term growth, while protecting and improving social assistance programs.
Moreover, they should focus on rationalizing large spending items, particularly wage costs, capital outlays, and transfers to parastatals and other entities,” reads the release in part. The global lender went on to say that rationalizing public entities and enterprises, developing medium-term fiscal plans and expenditure controls was critical to deliver adjustment plans. It said strengthening public procurement would improve the functioning of the administration, reduce mismanagement, and deliver needed spending savings. “The mission welcomes the authorities’ plans to restructure key loss-making public entities and improve the efficiency of public spending.”
On a positive note, the mission noted that despite the weakening economy, the financial sector remains sound as government is gradually implementing Basel II requirements for banks, and advancing a series of legislative changes to overhaul the oversight framework of the sector.
The IMF said with the economy weakening, it is important to intensify the supervision of the banking sector. Moreover, accelerating the adoption of the new legislation would provide a strong base to strengthen the non-bank regulatory and supervisory frameworks, and developing adequate macroprudential and crisis management structures.
These steps will help to better manage macro financial risks and structural vulnerabilities in the sector, it said. Government was also advised to undertake reforms to facilitate private investment and strengthen competitiveness to lift growth and reduce unemployment. Regarding projected economic growth, the IMF reported that in recent years, GDP growth has averaged 2.0 per cent, but fiscal and macroeconomic imbalances have built up. The bank said since 2016, rising government spending and low revenue from the Southern African Customs Union (SACU) have widened the fiscal deficit. Public debt has increased, domestic arrears have accumulated, and international reserves have declined.