Understanding Cronyism

In Dante’s Inferno, corrupt public officials were punished with eternal imprisonment in a lake of boiling pitch in the eighth circle of hell. In comparison, public officials[i] in South Africa often get away with little more than a slap on the wrist for abusing their office. Corruption occurs whenever a person in a position of power abuses their authority for private gain, either for themselves or for others. [ii] It has many faces, including manifestations such as bribery, extortion, fraud, BEE- fronting, nepotism, and cronyism. Although the private sector is also beleaguered by corruption, this brief is concerned solely with public-sector corruption, and specifically on a type corruption that is occurring with very little regulation to prevent it- the practice of cronyism. While nepotism involves favouritism of a family member, cronyism in the public sector occurs when a friend or associate of a public official acquires a job, contract or other benefit on the basis of their relationship with the public official, rather than their suitability and merit.[iii] This brief considers the lack of regulation around cronyism, and suggests a way to hold public officials accountable when their friends benefit from government contracts.

Why Does It Matter?

Anytime a politically-connected person is granted a benefit based on their link with a public official, other legitimate candidates who had applied for the benefit are unfairly eliminated from consideration. These candidates may also suffer financial prejudice through expenses they incurred in preparing an application that was bound to be rejected.

However, favouritism also affects the public at large. As an example, in 2020 it was reported that Royal Bhaca, a company owned by the husband of the President’s spokesperson, received a R125 million contract from the Department of Health (DoH) for the provision of personal protective equipment.[iv] It was further reported that Royal Bhaca charged the DoH ‘up to seven times the cost of goods and services’, which was accepted by the DoH, in disregard of its pricing regulations.[v] Although the contract was purportedly cancelled, the scandal demonstrates that nepotism and cronyism have an effect on the public purse, since better-valued bids are overlooked in favour of costlier contracts.

The Difficulty With Cronyism

Politically-connected persons may benefit from government contracts in two ways: directly, through their company being awarded a government contract; or indirectly, by securing employment at an entity which has been awarded such a contract. There is nothing inherently wrong with either scenario, so long as there was no undue influence by the public official, and the person or their company was the best for the job. To ensure that this is so, there must be some disclosure so that others can examine the award or appointment, and ascertain that it was above-board.

In this respect, nepotism is somewhat easier to curb than cronyism. Multiple frameworks require public officials to disclose their own financial interests, as well as those of other close family members.[vi] Through this disclosure, others can determine whether these family members have any interests in government contracts, and if so, whether they acquired the interest based on qualification or political-connectedness. Naturally, it would be imprudent for a public official to disclose the financial interests of all their friends. As such, friends of public officials may benefit from government contracts while the public official sits by silently.

Currently, the only safeguard against cronyism is the requirement that bidders for a government contract complete a Declaration of Interest form,[vii] to disclose if any relationship (including friendship) exists between themselves and a person employed by the state who is involved in evaluating the bid. A complete failure to disclose will result in disqualification of the bid, while a misrepresentation that is later discovered may see the bidder facing face a charge of fraud. This brief suggests that disclosures in the Declaration of Interest form should include relationships with public officials even when the public official is not involved in the bid evaluation. The focus on relationships with state employees directly involved in the bid evaluation unnecessarily limits the ambit of the inquiry and allows cronyism to thrive. It is difficult to define with precision what links are relevant, but in general, it should be required that any work, political or social relationship with a public official in a particular sector, going beyond a merely superficial nature, has to be disclosed. A relationship could be classified as going beyond a ‘merely superficial nature’ where it persists for longer than a specified time period. To prevent public officials from claiming ignorance, the tender office should inform the public official of the disclosure, and if the tender is awarded to the politically-connected bidder, that the contract has been granted to them.

Similarly, job applicants and employees should be required to disclose to an employer any relationship that they have with a public official. In the event that the company enters into a contract with the government, that company should communicate to the Department that a person with a link to a public official within that Department is employed, or seeks to be employed, at the company. This is the only way to provide clear evidence that holders of public office were actually aware of the contract.

However, it is insufficient to merely alert public officials that their friends have benefitted from the award of a tender. Rather, the public official should also be under a legal obligation to disclose this information. To illustrate why, it is useful to consider the scandal involving the Minister of Health, Zweli Mkhize. Recently, news broke that at least four people with close links to the Minister were employed at a company called Digital Vibes after it had been awarded an R82 million contract from the DoH.[viii] The Minister was not involved in awarding the contract to the entity at which his associates were later employed. But did he, or should he, have any legal obligations in this instance?

Obligations Of Cabinet Members

Section 96(1) of the Constitution[ix] provides that Cabinet members must act in accordance with a code of ethics prescribed by national legislation. This code, the Executive Ethics Code (the Code),[x] requires Members of the Executive (Members) to disclose their financial interests, and the financial interests of certain close family members, to the extent that they are aware of those interests.[xi] The Code does not contemplate that a Member should disclose a situation where a non-family relation is granted, or linked to, a government contract.

The only provision of the Code that seems capable of directly dealing with cronyism is clause 2.3(d), which provides that Members may not ‘use their position or any information entrusted to them, to enrich themselves or improperly benefit any other person’. However, the Digital Vibes scandal demonstrates the difficulty with using this provision. In order to hold the Minister accountable under this provision of the Code, it must be shown that he had used his position to influence the Bid Evaluating Committee to grant the tender to Digital Vibes, and/or that he had used his position to ensure his associates secured a job at Digital Vibes. This is no easy task.

It may be possible for him to be held liable under clause 2.1 (d) of the Code, which provides that Members should act ‘in a manner that is consistent with the integrity of their office or the government’, taking into account the ‘promotion of an open, democratic and accountable government’. In the spirit of accountability, Members should have to disclose as and when they become aware that persons closely linked to them are involved in entities that have received government contracts. One would assume it is unlikely that the Minister would have been ignorant that four persons linked to him had been employed by a company which had secured a lucrative contract from the Department he heads. Under an expansive reading of the Code, and if it is shown that the Minister was aware that persons known to him were linked to this entity, one could hold him accountable for breaching his duty to act with integrity. However, the Minister may argue that he was, in fact, unaware of the situation. For this reason, the suggestion that public officials be informed when their associates are granted tenders or are employed at entities that are awarded tenders, is crucial.

One could theoretically hold Members of the Executive accountable under their duty to act with integrity. However, the more desirable solution is for the Code, along with other frameworks, to be amended to explicitly require disclosure by public officials when they are made aware that persons with whom they have, or have had, a work, political or social relationship, going beyond a merely superficial nature, are involved in an entity that secures a government contract. There should be no reticence in disclosure if the relationships are of an innocent nature, and therefore any failure to disclose should be sanctioned. This will ensure that wrongdoing can be uncovered, and that persons do not secretly and illegitimately benefit from government contracts.

Conclusion

Cronyism flourishes because public officials are not required to disclose the activities of their friends, who then become involved with entities which contract with the government. The solution proffered in this brief requires a system of multiple disclosures and information-sharing: persons pursuing government contracts or employed at entities with government contracts should make disclosure about any linkages of substance to public officials; this information should then be conveyed to the public official; and finally, the public official should disclose that the person with whom they have a relationship is linked to a government contract. Non-disclosure should be sanctioned. This will ensure that the public official, who is ultimately the party that is responsible for creating the benefit for their friend, is held accountable.

[i] For purposes of this brief, ‘public official’ is defined as it is in Article 2 of the United Nations Convention against Corruption (adopted 31 October 2003, entry into force 14 December 2005) A/58/422: