Guptas in spotlight over South African dealings

Below is an article from our Affirmative Action Media Monitoring Project. These articles represent a wide variety of views. These views do not necessarily represent the views of AAPF but instead are intended to provide you with an overview of the current affirmative action debate.

March 19, 2011

By Gavin du Venage

Three billionaire Indian brothers have found themselves in the spotlight after their alleged dealings with – and influence over – senior South African government figures has shown up the flaws in a system designed to improve the lot of impoverished black Africans.

Ajay, Atul and Rajesh Gupta arrived in South Africa in the early 1990s from Saharanpur in Uttar Pradesh shortly before the end of apartheid. They rapidly made contact with rising stars of the new black elite.

Today, the Guptas are known for their billionaire lifestyles and open-door access to the highest levels of government, including the president Jacob Zuma.

Living in a 52 million rand (Dh27.1m) mansion in Saxonwold, a Johannesburg suburb lined with century-old oak trees, the brothers are alleged to have used close political links for participation in contracts legislation had set aside for blacks.

South Africa is home to about 1.2 million people of Indian descent. Most of their ancestors arrived in the 19th century.

Under apartheid, they were subjected to the same discrimination as blacks. As a result, Indians are legally regarded as black in terms of affirmative action legislation designed to redress past injustices.

Critics of black economic empowerment legislation say it has increasingly served a small elite, creating Russian-style oligarchs who enjoy vast wealth while doing little to serve the plight of the millions of poor.

The lifestyle of the newly minted millionaires, and not a few billionaires, is regular fodder for local tabloids. Kenneth Kunene, a former convict turned businessman has, for instance, earned himself the title Sushi King after being photographed eating raw fish from the bodies of semi-naked women in a nightclub.

But at least oligarchs such as Mr Kunene can claim to have lived and suffered under apartheid, while the Guptas arrived once it was over.

It is unclear just how the brothers made all their wealth, although they do own one of the largest distributors of personal computers in South Africa.

What is known is that the Guptas, together with the president’s son, Duduzane Zuma, 28, have become increasingly linked to deals that have been lucrative in the extreme.

The three are part of a consortium that will give them a stake in the global steel giant ArcelorMittal worth more than 3 billion rands. The brothers have been linked to plans to build a 350bn rand high-speed railway system using state and Chinese funding.

They are also said to have become involved in the 9.7bn rand purchase of the V&A Waterfront in Cape Town, the country’s most valuable piece of property, from a consortium that included Dubai World. The Waterfront was sold to a local group that included a state-owned pension fund.

Somehow, the Guptas and Duduzane Zuma were able to come on board as black partners, a legal requirement in any deal involving a state entity.

The three have denied any impropriety in their deals.

“We have not, will not, and have not ever historically taken such commercial advantage,” Ajay Gupta recently told the Business Day newspaper.

But Trevor Manuel, the much-respected former finance minister who is now the head of the government’s strategic financial planning, was quoted in The Wall Street Journal as saying the ArcelorMittal deal was “the ugliest face” of black economic empowerment.

And last week, the Nobel laureate Archbishop Desmond Tutu also expressed his disquiet over the relationship.

“Perhaps the Gupta family would make all those lucrative deals and it is merely coincidental that the president’s son is a beneficiary,” Archbishop Tutu said. “It may be above board but it is worrisome.”

It has not helped that the Guptas’ lifestyle is so at odds with how most South Africans live. An application for a helicopter landing pad at their compound drew wide media coverage last year.

Their launching of a daily newspaper, viewed as a counter to the continuing negative publicity they and their ruling party connections have received, has also not helped.

Now it appears that some in the ruling African National Congress (ANC) have had enough.

Allegations that the Guptas have grown so powerful they can summon cabinet ministers to their compound and authorise the appointment of senior officials at state-owned enterprises appear to be the last straw for some.

The party’s powerful youth league said this week the brothers were “colonising this country”.

The country’s trade union federation, Cosatu, which is part of the ANC’s governing alliance, has also said it will launch an investigation into alleged “plundering” of the economy by the Guptas.

Looking back

Under apartheid, black Africans were barred from all but the most menial jobs and legally prevented from operating most businesses.

When the African National Congress took power in the first democratic elections in 1994, it inherited an economy utterly dominated by whites, who make up 10 per cent of the population. Black economic empowerment (BEE) has become a driving force to change this.

BEE legislation introduced in the 1990s sets targets for business and industries to take on black stakeholders.
Because other groups such as the locally born Chinese, Indians, people of mixed heritage and even white women were also discriminated against, they also qualify.

BEE is loosely similar to Malaysia’s New Economic Policy, which tries to change the balance of a Chinese-dominated economy.
Although companies are not forced to comply, they have a powerful incentive to do so. Anyone hoping to win a state contract or secure mineral rights to establish a mine, must be BEE compliant. For mines, 26 per cent must be black owned to satisfy requirements.

It has served to create the beginnings of a black middle class but BEE has one enormous drawback: white corporations have scrambled to attach themselves to connected black politicians to enhance their chances of winning state tenders.

Often, the same individuals are invited to participate in many deals that earn them stakes across the sectors.

As a result, a generation of black billionaires has been created without actually enhancing black entrepreneurship, critics say.

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