The Zuptas’ Influence on South Africa’s Economy

Gahena Gambani, Class of 2020

On One Family and its Adventures in South Africa

On 14th February 2018, Jacob Zuma, President of South Africa since 2004, resigned amid repeated allegations of corruption and bribery because of his family’s close ties with the Gupta family. The Guptas, also known as the “Zuptas of South Africa”, are business giants who have been accused of influencing the running of the government for the duration of Zuma’s presidency and ruining a few things for the country in the process. Zuma was was replaced as President by Cyril Ramaphosa.

What is the current situation of the South African economy?

As it stands today, South Africa’s GDP growth rate is at 2%, a drop from the 2.8% of the previous quarter. The unemployment rate stands at 26.7%, a slight improvement from the previous 27.7%. The inflation is at 4.4% and poverty rate 55%, as of 2015. These indicators give important signals about the strength of a country and South Africa’s picture looks bleak. 27 years after the end of apartheid in the country, the inequality is abysmally high. Today, the majority of the population lives in poverty and is most discriminated against in the community historically. Most important corporate and bureaucratic positions are still held by white people, a significant exception being the office of the President, among few others. However, the aftermath of colonisation isn’t the only reason behind this pitiable condition of the economy.

How did it come to be this way?

In 1993, a seemingly harmless family from Saharanpur in Uttar Pradesh, the Guptas, came to live in South Africa and soon made it their home. This was two years after the abolishment of apartheid rule and a year after Nelson Mandela had been elected as the country’s first democratically elected leader. Taking advantage of the nascent economy, the Guptas laid the foundations of their empire of the future — computers, media, mining, technology and engineering. Their relationship with Jacob Zuma and his family began way back in 2003, when their company Sahara Computers was still growing, and Zuma was vice-president. It was through this close equation that after 2009, when Zuma became President, the Guptas started interfering in the running of the South African government. Right from influencing the hiring and firing of minsters to demanding diplomatic passports, this was one corporate family with enormous political power. Several objections were also raised when the Guptas’ wedding guests were flown in for the Sun City affair in a chartered Airbus A330 that landed on a military base, permission for which had been allegedly granted by President Zuma. While the family has constantly denied all allegations, members of the Zuma family holding important positions in several Gupta family ventures further raised suspicion. In 2016, Deputy Finance Minister Mcebisi Jonas claimed that a member of the family had offered him a promotion in exchange for political support. In May 2017, a string of leaked emails confirmed the close links between the government and the Guptas.

How did this impact the economy?

Corruption that touches all levels of the government and society does not bode well for any economy, and South Africa is no exception. With the increasing amount of red tape in the country, business confidence in Africa’s most industrialised state has started falling. The focus of the South African economy since 1994 has been on imports, something that led to a vicious cycle of a deteriorating currency, failing exports and increasing dependence on imports. It is also important to note that South Africa has one of the largest dual economies in the world — the gap in equality is so high that the poorest 20% of the population consumes less than 3% of the expenditure while the wealthiest 20% consumes 65%. As far as unemployment goes, South Africa is caught in the middle-income trap, having reached a stagnation of sorts.

What is going to happen in the near future?

With the appointment of Cyril Ramaphosa, the attitude towards the economy has improved even if marginally; people seem to have certain expectations for Nelson Mandela’s preferred successor. However, whether he will be able to deliver on this hope remains to be seen. The first step hasn’t been the most promising, with the Budget for 2018, delivered by Malusi Gigaba, having received a lukewarm response. Most experts agree that structural changes in the educational system are most needed, along with a focus on supporting SMEs; however, these are long-term plans and what South Africa desperately needs at this point are some definitive short-term actions along the lines of increasing investor confidence in the economy; with the current deficit of R4.82bn ($400mn), this is imperative. Tapping into the country’s potential of mining, agriculture and tourism can have a significant impact on correcting the export crisis being faced currently. Projecting a promising future for the South African economy will play a key role in bagging some of the promising investments from countries like China that are currently making their way to Africa.

There was a time when South Africa was the strongest economy in the continent, but things have gone quite downhill since then. With a new President at the helm of things and an outraged public in the country, it will be interesting to follow how far the country can go in regaining its lost status. As Michael Power put very aptly, solving South Africa’s problem lies in understanding the economy — ‘the core works but cannot grow; the periphery subsists and hence prevents the core from growing.’