Connect with us

Politics

Tales of State Capture: Goldenberg, Anglo Leasing, and Eurobond

22 min read.

WACHIRA MAINA examines three major corruption scandals during the Moi, Kibaki and Kenyatta eras that demonstrate how state capture facilitates the massive looting of public funds, and allows the culprits to get away scot-free.

Published

on

Tales of State Capture: Goldenberg, Anglo Leasing, and Eurobond
Download PDFPrint Article

Corruption and politics, never the twain shall part

Politics and corruption have always been intimates in Kenya since independence. Little wonder that the first commission of inquiry appointed after independence, the 1965 Chanan Singh Maize Commission of Inquiry, was triggered by a corruption scandal involving Paul Ngei, the then Minister for Marketing and Cooperatives.

Mr Ngei had permitted his wife Emma Ngei, through her company Uhuru Millers of Kangundo (commonly referred to at the time as Emma Stores) to directly buy maize from farmers, bypassing the Maize Marketing Board, which he chaired. This was despite the fact that the law did not allow Kenyans to buy maize straight from farmers (which was cheaper than buying from the government). Worse still, Ms Ngei was permitted to buy 2,000 bags of maize, but she refused to pay for them; she wrote “return to sender” on payment demands. In addition, she refused to remit the difference between the farmers’ price and the government price to the Board, which was also against the law.

Widespread speculation in maize by well-connected individuals, coupled with the government’s failure to import more maize in time, eventually led to a national shortage. The Chanan Singh commission of inquiry was appointed by President Jomo Kenyatta to investigate the cause of the maize shortage. Because of his relationship with Uhuru Millers, Mr Ngei was briefly suspended from the cabinet but was later reinstated.

Maize, then, before and since has had a long career in both politics and corruption. That first scandal set the tone for future graft: the politically connected rigging the system to benefit themselves, their relatives and their cronies and when unmasked, resorting to inconclusive methods of investigation, such as commissions of inquiry, task forces or inept prosecutions. The difference between that early corruption and the corruption described here as state capture is that most of it involved abuse of discretion and conformed closely to Robert Klitgaard’s definition: Corruption = Monopoly + Discretion – Accountability

The first corruption scandal encompassing major characteristics of state capture was the Turkwel Gorge hydroelectric power project between 1986 and 1991. Many aspects of the process of contracting for this project entailed rigging and repurposing legal processes for the benefit of President Daniel arap Moi and his cronies. According to an internal European Commission Memorandum of March 1986 written by Achim Kratz, the then Commission’s delegate to Kenya, the contract price for the project was more than double the amount Kenya’s government would have paid under a competitive international tender. The memo stated that the government knew that the price of the French contractor Spie Batignolles was extortionate, but hired them nevertheless, “because of high personal advantages”. Those “personal advantages” were millions of dollars paid to President Daniel Arap Moi and to the then Minister of Energy, Nicholas Biwott. Moreover, companies associated with people close to Moi and Moi’s family were sub-contracted to execute many elements of the Spie Batignolles contract.

The first corruption scandal encompassing major characteristics of state capture was the Turkwel Gorge hydroelectric power project between 1986 and 1991. Many aspects of the process of contracting for this project entailed rigging and repurposing legal processes for the benefit of President Daniel arap Moi and his cronies.

The effect of the combination of personal interest and inattention to geological and hydrological factors was that when the project was finally commissioned by President Moi in October 1993, the reservoir was under 25 per cent full and the project had already consumed three times the estimated cost. The knock-on effect was probably even greater: the Turkwel corruption provoked donors to cut funding to the energy sector, which would eventually generate the crippling power outages of the mid-1990s to the early 2000s.

Some of the lessons learnt from the Turkwel Gorge saga on repurposing state institutions and lawful processes to extract regime and personal gain would be applied with a vengeance to the first unambiguous case of state capture: the Goldenberg scandal.

Goldenberg: Designing the methods of state capture

In 1991 and 1992 Kenya underwent a foreign exchange crunch. The proximate cause for this was mounting pro-democracy pressure by the opposition and civil society groups, to which the government responded with violent crackdowns. Political repression and donor concern about corruption, combined with poor export performance of the leading foreign exchange earners of coffee, tea and tourism, led to a significant drop in hard currency reserves.

The government responded to this with an export promotion scheme in which exporters who deposited their hard currency earnings would not only receive the Kenya shilling equivalent of their deposits, but also an additional 20 percent “export incentive”. Goldenberg International, a company jointly owned by Kamlesh Pattni and the then director of the special branch (Kenya’s secret service), James Kanyotu, concocted a scheme to export gold and diamonds to three companies in Dubai and Switzerland on an understanding that they would be paid 35 per cent “export compensation”. The problem with this arrangement was that gold and diamonds were not covered in the Export Compensation Act and the “incentive” paid to the company was 15 per cent above the lawful limit.

The real scandal, though, was that Kenya had no diamonds and its gold mining was insignificant. In the beginning, Goldenberg International exports turned out to be entirely made up of gold smuggled from the Democratic Republic of the Congo (formerly Zaire). Later, the company stopped smuggling gold altogether and merely completed export declaration forms, produced fake hard currency deposit slips and got paid, not only the coupon amount on the fake deposit slips, but also the 35 per cent export compensation.

The total cost of the scandal is unknown, but some estimates indicate that up to 10 per cent of Kenya’s GDP was lost. The 2006 Bosire Commission of Inquiry into the scandal concluded that up to Sh158.3 billion of Goldenberg money was transacted with 487 companies and individuals. This is probably a gross underestimate, as in fact Goldenberg was a series of inter-connected financial scandals rather than the phantom exports of gold and diamonds that most investigations have focused on since 1992. (The scandal was first revealed in the Controller and Auditor General’s reports for 1991 and 1992.) According to various affidavits sworn by the main suspect in Goldenberg and associated scandals, the beneficiaries of these dealings included the President, the Vice President and his business associates.

Notwithstanding revelations in the Controller’s and Auditor General’s reports, together with whistleblower accounts covered in the media, the government initially stonewalled. This prompted the Law Society of Kenya (LSK) to seek the permission of the High Court to file a private prosecution to remedy the inaction of the Attorney General (AG).

The AG, Amos Wako, suddenly bestirred himself, asking to join the LSK case as a friend of the court. He promptly opposed the LSK’s application, arguing that he had been delayed by investigation reports, and requested the LSK to hand him such evidence as they had so that he may act. Backed by an affidavit by Japhet Masya, the Clerk to the National Assembly, the AG also argued that the High Court had no jurisdiction on Goldenberg given that the issue was before a committee of Parliament.

The total cost of the scandal is unknown, but some estimates indicate that up to 10 per cent of Kenya’s GDP was lost. The 2006 Bosire Commission of Inquiry into the scandal concluded that up to Sh158.3 billion of Goldenberg money was transacted with 487 companies and individuals.

Mr Wako’s pleas were both inexplicable and disingenuous: Parliament has no criminal jurisdiction and any policy issue on Goldenberg pending before one of its committees can have no effect on an indictment for corruption. The AG sounded more like a defence attorney than the head of public prosecutions and guardian of public interest that he was.

Dr Willy Mutunga, then the chair of the LSK, feared that Mr Wako’s ruse was proof that the government was “determined to complete the Goldenberg cover-up”. Mr Wako, he predicted, would continue to act like “counsel for all the accused persons” and would engineer “protracted delays”, “mention after mention, adjournment followed by adjournment”, ending in a “dramatic withdrawal of the cases”.

So it proved. The magistrate, Uniter Kidullah, appointed the Director of Public Prosecutions (DPP) after her decision in this case, rendered a rude and intemperate judgment, combining otiose proceduralism with personalised insults against the LSK: Mr Mutunga’s pleadings were inadmissible because he, rather than the secretary, had signed them; the LSK had no legal standing to file a private prosecution since it could not show how its interests had been harmed by the Goldenberg scandal and, so far as she could see, the LSK had acted outside its statutory mandate. Finally, she concluded that the only knowledge LSK seemed to have was that of “stealing from . . . clients”.

There the Goldenberg scandal would have died but for the government’s continuing hard currency crisis. The International Monetary Fund (IMF) and the World Bank warned Kenya that no new programme would be agreed with the country until the government took credible action on corruption in general and on Goldenberg in particular. It was this threat that spurred Attorney General Amos Wako to indict Pattni and his co-accused in 1997, five years after the scandal first broke.

But the charge was not meant to result in effective prosecution. Against the advice of his DPP, Bernard Chunga, the AG framed more than 90 counts in one charge in the face of clear precedent that so many counts would invalidate the charges. Knowing this, in July 1997, Kamlesh Pattni challenged the charges as illegal and was granted an order of prohibition by the High Court, stopping the trial. Donors, aghast at this turn of events, refused to lift the conditions they had imposed on aid to Kenya until Goldenberg was properly prosecuted.

A chastened AG filed new charges in August 1997, calculated to be good optics for an IMF mission that was expected in Nairobi in early 1998. In the meantime, Mr Pattni had concocted a new fraud to defeat any fresh charges that the AG might bring against him. Using forged papers, fake sale agreements backdated to 1992 with the connivance of the Registrar of Companies (in the Attorney General’s Chambers) Mr Pattni purported to be the owner of World Duty Free (WDF), the Isle of Man company to which he claimed to have sold the gold and diamonds. He then obtained court orders allowing him to take over management of WDF shops in Kenya.

The point of this devious scheme was that in a future prosecution Pattni could argue that as the owner of WDF he couldn’t be forced to testify against himself. Armed with this new civil suit, he challenged the fresh indictments, claiming these charges should be stopped as they were prejudicial to the WDF civil case. The court agreed with this risible claim, even though legal principle works the other way: where a criminal case raises the same issues as a civil case, the criminal case is heard first. There are two reasons for this: one, the public interest should be vindicated before the private interest and, two, given that the standard of proof in criminal cases – beyond reasonable doubt – is much higher than the standard in civil cases – on the balance of probabilities – it is more efficient to hear the criminal case first, since facts proved need not be proved again in the related civil case. This botched 1998 prosecution was the last action that the Moi government took to resolve the Goldenberg scandal.

In 2003, Mwai Kibaki succeeded Daniel arap Moi. He quickly set up a commission of inquiry into the Goldenberg scandal, ironically at just about the same time that his own cronies were busy siphoning monies out of Kenya under the Anglo Leasing scandal. The commission was chaired by Justice Samuel Bosire, who would later be declared as unfit to be a judge during the vetting of magistrates and judges mandated by the 2010 Constitution.

The point of this devious scheme was that in a future prosecution Pattni could argue that as the owner of WDF he couldn’t be forced to testify against himself. Armed with this new civil suit, he challenged the fresh indictments, claiming these charges should be stopped as they were prejudicial to the WDF civil case.

The Bosire Inquiry established what everyone always knew but could not prove, because the AG, Amos Wako, had developed feet of clay. Goldenberg, the commission concluded, involved the highest levels of President Moi’s government and Moi had personally authorised two Goldenberg-related payments. After the inquiry, the government imposed travel bans on people named by the commission as connected to Goldenberg. Bosire also recommended that retired President Moi’s role in Goldenberg be investigated. Nothing came of either the travel ban or the Moi investigation. In August 2006, the credibility of the report was seriously dented when Professor George Saitoti (formerly Vice President to Moi), who the commission had found culpable enough to warrant an indictment, got a court order expunging his name from that list of shame.

In the end, no one was ever convicted for any of the Goldenberg crimes. In 2006, six months after the release of the Goldenberg Report, David Munyakei – the man who first blew the whistle on the scandal only to be hounded into destitution for his efforts – died, a lonely and forgotten victim of the forces of state capture.

The Anglo Leasing Scandal

The Goldenberg script would be reprised in the second state capture case, the biggest scandal of the Kibaki era – the 2003 Anglo Leasing scandal. Anglo Leasing was a series of security-related scandals involving 18 state security contracts, collectively worth about $770 million (Sh55 billion), in which the government entered finance lease and suppliers’ credit agreements to pay for forensic facilities, security equipment and support services for Kenya Prisons, the Police Airwing, the police force, the Directorate of Criminal Investigations, the Administration Police, the National Security Intelligence Service (NSIS), and the National Counter-Terrorism Centre. Thirteen of the eighteen contracts were made under President Daniel arap Moi, the other five after 2002 under President Mwai Kibaki. The true identities and whereabouts of the companies remained unclear. Though the immediate investigation that blew open the scandal involved the Anglo Leasing and Finance Company, in truth the scandal involved many more companies owned by the same set of individuals: Deepak Kamani; Anura Perera; Amin Juma; Merlyn Kettering and Ludmilla Katuschenko.

Within these 18 generally irregular contracts, individual contracts were even more blatantly so: the contract for tamper-proof passports granted to Anglo Leasing and Finance Company was described by the Public Accounts Committee (PAC) – ironically chaired by Uhuru Kenyatta – as “an organised, systematic and fraudulent scheme designed to fleece the government through the so-called special purpose finance vehicles for purported security contracts”. How exactly Anglo Leasing became involved in these security contracts is unclear from the records, but the pattern itself is clear.

In 2000, the Department of Immigration did a “computer needs assessment” that concluded that to eliminate fraud, forgery, inefficiencies and revenue loss it would need to procure a passport -issuing system. This was to be done by restricted tender. The Ministerial Tender Committee invited five international firms to submit bids: two British firms, De La Rue Identity Systems and AIT International PLC; South Africa’s Face Technologies; Setec OY of Finland and Johannes Enschede of the Netherlands. Three firms responded. The decision was that AIT International PLC met both the commercial and technical specifications for the award.

However, the ministry’s budget for the 2000/2001 financial year did not cover the Sh622,039,944 contractual sum that AIT International PLC gave as the cost of the system. The procurement was deferred to 2002/2003. Six international firms were now invited to bid, the initial five and GET Group of the USA. Once again, three responded: De La Rue Identity Systems; South Africa’s Face Technologies and GET Group. The previously successful group, AIT International PLC, did not submit a bid.

A technical committee of the Government Information Technology Services concluded that none of the bids were responsive and subsequently recommended that they not only be disqualified but also that, “the system be redesigned and expanded to cover other aspects of the work of the Immigration Department, such as border controls and immigration monitoring”. It was now agreed that the expanded system would have five components: 1) high security new generation passports; 2) a secure passport issuing system; 3) high security new generation visas; 4) a high security visa-issuing system; and 5) computerisation of machine-readable immigration records. One consequence of expanding the system was a spiking of costs, which would require the Treasury to seek donor funds.

That is how matters stood when on 1 August 2003, a firm named Anglo Leasing and Finance Ltd of Alpha House, 100 Upper Parliament Street, Liverpool L19 AA, UK, sent an unsolicited technical proposal to the permanent secretary (PS) in the Vice President’s Office to supply and install an “Immigration Security and Document Control System, (ISDCS)”. The installation would be done by a sub-contractor of Anglo Leasing, François-Charles Oberthur Fiduciaire SA of Paris, France. To ease the funding problem, Anglo Leasing would offer a facility of €31,890,000 (Sh2.67 billion) to be repaid at an interest of 5% (later 4%) over a 62-month period.

On review, the PAC thought this highly irregular: a financing firm had prepared a detailed proposal for a project very similar to the one recommended by the Government Information Technology Services without a request from the government and, most curiously, in a manner that strongly suggested that the firm “had fore-knowledge of the recommendation to enhance and expand the system”.

Nonetheless, a month later, on 5 September 2003, the Vice President’s Office asked the Treasury to contract Anglo Leasing. That permission came through on 25 November 2003. Also on 5 September, the Vice President’s Office sought legal clearance from the AG’s Chambers, and in a letter dated 18 September 2003, the AG advised the ministry to do due diligence. For example, how many projects of this magnitude had Anglo Leasing successfully undertaken? What was the firm’s credit rating? The PAC did not see any evidence that tests had been undertaken or that the ministry had assessed the “authenticity, capacity, experience and track record of François-Charles Oberthur Fiduciaire”.

On review, the PAC thought this highly irregular: a financing firm had prepared a detailed proposal for a project very similar to the one recommended by the Government Information Technology Services without a request from the government and, most curiously, in a manner that strongly suggested that the firm “had fore-knowledge of the recommendation to enhance and expand the system”.

Even with all these things still outstanding, the government signed the Suppliers Services and Financing Credit Agreement for the ISDCS on 4 December 2003, and two months later, on 4 February 2004, a sum of Sh91,678,169.25 (described variously as “arrangement”, “commitment” and “administration” fees) was paid out to Anglo Leasing.

According to John Githongo’s dossier to the President, all the Anglo Leasing-type shell companies were probably established by one Pritpal Singh Thethy, an accountant and engineer who was associated with Anura Perera. These companies routinely won large contracts to supply goods and services at inflated prices to the security services and were notorious for paying generous kickbacks.

The unravelling of Anglo Leasing began when Maoka Maore, the MP for Ntonyiri, tabled documents in Parliament in April 2004, showing that Anglo Leasing and Finance Company Limited had been paid a Sh91 million commitment fee, amounting to 3 per cent of a Sh2.7 billion contract to produce the tamper-proof passports. The Department of Governance and Ethics, headed by John Githongo, tried to get to the bottom of the affair.

In that same month, whilst on a visit to the United Kingdom he asked Kroll Associates to do some due diligence on Anglo Leasing and discovered that no such company existed. Githongo had begun to suspect that very senior officials in the Kibaki administration were involved. Early suspects included Vice President Moody Awori, Minister for Justice and Constitutional Affairs Kiraitu Murungi, Minister for Finance David Mwiraria, Minister for Internal Security Chris Murungaru, Home Affairs Permanent Secretary Sylvester Mwaliko, Finance Permanent Secretary Joseph Magari, Internal Security Permanent Secretary David Mwangi, Alfred Getonga, Deepak Kamani and Jimmy Wanjigi.

From an early stage in a series of private meetings, the Vice President, as well as the ministers for justice and finance, assiduously tried to stop the investigation, partly based on the theory that “the Vice President had already given a parliamentary statement”. The scale of Anglo Leasing and the depth of its penetration into the inner sanctum of power would become much clearer over the next few months. It turned out that even as investigations kicked off, additional payments and commitment fees were being processed.

When these stories hit the media, the then Secretary to the Cabinet, Francis Muthaura, said that Anglo Leasing had contacted him and promised to repay the monies they had already received. Shortly thereafter, on 14 May 2004, Anglo Leasing and Finance Ltd wired back €956,700 from Schroder & Co Bank AG in Zurich.

Investigations would reveal even more dirt. By early June, inquiries had established that Anglo Leasing had been paid $5 million for a forensic laboratories contract for which they had done no work. The brains behind the revival of this Moi-era contract were Deepak Kamani, Jimmy Wanjigi, Chris Murungaru, Dave Mwangi, Alfred Getonga, and C. Oyula, the Financial Secretary. It was clear that there were many more Anglo Leasing type contracts, and eventually 16 of them would become public.

From an early stage in a series of private meetings, the Vice President, as well as the ministers for justice and finance, assiduously tried to stop the investigation, partly based on the theory that “the Vice President had already given a parliamentary statement”. The scale of Anglo Leasing and the depth of its penetration into the inner sanctum of power would become much clearer over the next few months.

The case of two of these Anglo Leasing-type companies – Sound Day Corporation and Apex Finance Corporation – closely followed the conspiratorial modus operandi of the contracts for the tamper-proof passports. The two companies, which were managed by Brian Mills, a US national, had signed four contracts, cumulatively worth more than $145 million. According to newspaper accounts, the three Kamanis – Chamanlal Kamani, Deepak Kamani and Rashmi Kamani – became directors of Sound Day in April 1990. Sound Day, like other Anglo Leasing companies, was to provide credit, as well as supply the equipment to be financed through that credit. However, the contract terms were that the equipment would not be supplied until the government paid the first instalment. Sound Day provided no credit, but charged 3 per cent interest on this “financing” whilst, in fact, the financing was the money that had been advanced by the Kenyan government in the first place. This Byzantine arrangement was later described in court as a “classic case of reverse financing”.

As Anglo Leasing unravelled, the attempts to stop investigations became both frantic and menacing. The Minister for Finance, David Mwiraria, indicated that he would not lay before Parliament a damning special audit report compiled by the Controller and Auditor-General until the Treasury had made some “major changes”. The Minister for Justice, Kiraitu Murungi, weighed in with the caution that Mr Githongo should be careful not to “knock out key political people” like Alfie (Alfred Gitonga) and Murungaru given that both were “key players at the very heart of government”. He would later add that, “if Chris [Murungaru] is dropped and Alfie [Gitonga] is dropped we are in trouble, the enemy will have won”. According to him, people were concerned that John Githongo “did not appreciate the political costs of his work”.

A different politician was later to emphasise these warnings, saying that if Githongo’s investigations threatened the “stability of the regime” then the President would stop backing him. Both Mwiraria and Kiraitu said that they hoped that the investigations would stop as soon as Anglo Leasing repaid the money. Over time, the cover-up efforts would turn bizarre: Francis Muthaura even questioned the legal authority of the Kenya Anti-Corruption Commission (KACC) to conduct the investigation and implied that the Anti-Corruption and Economic Crimes Act was not reasonable legislation, ostensibly because of the broad powers it gave to the KACC.

What the pressure on Githongo and the repayment of the money on the publicly known contracts revealed was a clever ploy to head off investigators from the other numerous yet to be known contracts by issuing a mea culpa on what was then publicly known.

One issue surrounding the scandal is what President Kibaki knew and when he knew it. For instance, on the forensic labs contract, the Secretary to the Cabinet had indicated to Githongo that he had briefed the President on this contract, but when Githongo met the President on 29 May 2004 Kibaki said that no one had briefed him and asked to be furnished with a copy of the contract. Two days later, Muthaura would insist that the President had been fully briefed and that it had been agreed that all payments were to be stopped and that the authorities must establish who Anglo Leasing were.

Later still, Mwiraria would claim that the President had requested that they “go easy” on Anglo Leasing given that the money had now been returned. Mwiraria and Kiraitu would argue that if the public were to know that there were other corrupt deals of this magnitude, “our government would fall”. Had the President in fact said this or were Mwiraria and Kiraitu using the authority of the Presidency to smother inquiries? Had the President lied when he told Githongo that he had not been briefed?

From the determined opposition to his inquiries, the lukewarm support he received from the President and the threatening messages that he received throughout this early phase of the investigation, Githongo feared for his life and went into self-imposed exile in the United Kingdom in 2005. His conclusion was that the Anglo Leasing scandal went all the way to the top and that its baseline was a scheme to finance the 2007 election.

One issue surrounding the scandal is what President Kibaki knew and when he knew it. For instance, on the forensic labs contract, the Secretary to the Cabinet had indicated to Githongo that he had briefed the President on this contract, but when Githongo met the President on 29 May 2004 Kibaki said that no one had briefed him and asked to be furnished with a copy of the contract.

In November 2005, President Mwai Kibaki finally acted. He dropped Chris Murungaru from the Cabinet. On 1 February, he dropped David Mwiraria and a fortnight later he had “accepted” Kiraitu Murungi’s resignation. Although 80 MPs demanded that the President fire his Vice President, Moody Awori, the President demurred. As with Goldenberg, the government imposed the usual travel bans on the principals and announced that it would also freeze their assets. Whether this happened or not is unclear; there is no official indication that it did.

In 2007, the UK’s Serious Fraud Office tried to get to the bottom of a $30 million transfer made by Apex Finance, one of the Anglo Leasing companies, between April 2002 and February 2004 through the Channel Island tax havens of Jersey and Guernsey. But by 2009 this effort had petered out, partly due to obstruction by Kenya. That same year, authorities in Switzerland launched investigations into Swiss companies named in the scam and froze their bank accounts. It, too, came to naught. By the time President Kibaki had served out his two terms in 2013, no action had been taken on Anglo Leasing.

The next time Anglo Leasing would be in the news was in early 2014, ahead of the country’s debut launch of a $2 billion sovereign bond, half of which would disappear into thin air in the biggest scandal of the Uhuru Kenyatta presidency. The facts were as follows. Kenya had lost a lawsuit in Geneva filed by two Anglo Leasing companies linked to Anura Perera – First Mercantile Securities Corporation and Universal Satspace. (Perera was one of the suspects named in the 2006 special audit of Anglo Leasing.) It then turned out that the country had to pay Sh1.4 billion to improve its credibility with international markets by clearing its (ostensible) debts in preparation for the launch of its debut in the foreign sovereign bond market, the Eurobond.

This was odd for two reasons. First, there was also a contrary judgment from the High Court in Kenya. Justice Mathew Anyara Emukule had ruled in 2012 that the two companies were non-existent entities that could not sue. Second, the government had claimed that the contract was vitiated by bribery and there was a PricewaterhouseCoopers (PWC) audit showing that the goods were over-priced and some had never been delivered, even though payments had been made. The Geneva court rejected these PWC findings.

As a matter of Kenyan law, the government had paid this large sum to non-existent parties. According to Treasury Cabinet Secretary Henry Rotich, it was necessary to pay out this amount lest the country suffer huge interest penalties. The Deputy Solicitor General, Muthoni Kimani, buttressed the Treasury’s argument with the claim that the Anura Perera litigation in Switzerland had adversely affected the issuing of the sovereign bond. Hot on the heels of this payment, National Treasury Permanent Secretary Kamau Thugge told the Public Accounts Committee that Mr Perera was now demanding an additional Sh3.05 billion for services given to the National Security Intelligence Service, now known as the NIS. (According to Thugge, Perera’s new demand related to another project, Flagstaff National Counter Terrorism Centre,that the government had contracted in 2004 at a cost of $41,800,000.)

A payment of $16.4 million to Deepak Kamani in 2014, also purportedly to facilitate the launch of the Eurobond, seems to have triggered the government’s interest in prosecuting the Anglo Leasing principals. In March 2015, 11 years after the scandal broke, 13 people connected to Anglo Leasing, including businessman Deepak Kamani and former minister Chris Obure, now a senator, were indicted.

The prosecution might be explained by President Kenyatta’s fury at the $16.4 million (Sh1.6 billion) Kamani payment and the extra Sh3.05 billion being demanded by Perera. In addition, some pressure seems to have come from Switzerland. Jacques Pitteloud, the Swiss ambassador to Kenya, told the Financial Times that Switzerland was tired of suffering reputational loss as a safe haven for stolen money. But the real political reason could well be that prosecuting Anglo Leasing deflected attention from scandals involving the friends and relatives of Mr Kenyatta. None of the targets of the Anglo Leasing indictments were connected to the Kenyattas.

As with Goldenberg, none of the arrests and indictments have so far led to convictions. This script of never holding to account those involved in state capture scandals would be replayed by Uhuru Kenyatta, as President, when he was himself caught up in the Eurobond scandal.

The Eurobond Scandal

Less than a year after the election of President Uhuru Kenyatta in March 2013, Kenya went to the international money markets to issue Kenya’s first sovereign bond worth $2.75 billion. This was done in two tranches. The first issue raised $2 billion (Sh176 billion at the time) and the second $815 million (Sh74 billion) for a total of $2.8 billion (Sh250 billion). The government said that the money would be used to reduce official borrowing from the domestic market, which would spur private investment by lowering interest rates.

According to an analysis by economist David Ndii, the government executed two transactions from the offshore account into which the $2 billion had been credited. It paid off a pending loan of $604 million (Sh53 billion) and then transferred $394 million (Sh35 billion) to the exchequer, leaving $1.002 billion (Sh88 billion) in that account. The government has never accounted for this money.

When inconsistencies were pointed out, the government responded with both lies and insults. The lies were that up to Sh120 billion had been used partly to pay pending bills to road contractors and for budget support. But as Ndii points out, the recurrent budget for the 2014/2015 financial year was funded by domestic revenues: the government raised Sh1.106 trillion in revenues, of which Sh229 billion was transferred to the counties. That left Sh877 billion for national government functions. The national government’s recurrent budget for that year was Sh897 billion, a mere Sh20 billion more than the revenue, reflecting no inflow of the Sh120 billion as claimed. According to this logic, the national government required only Sh20 billion more than what it had earned through revenue, so there was no way it could have used the Sh88 billion from the bond.

In its first public statement on the matter, the Treasury promised to give information on the projects that the Eurobond money had funded. It subsequently gave ministries three weeks to furnish the relevant information. Five weeks later, in an interview with Business Daily, the Cabinet Secretary for Finance lamented that “the ministries cannot differentiate whether the money they have received from the Exchequer came from VAT, income taxes, customs duties, excise taxes, domestic borrowing or the Eurobond”. This is true but irrelevant to the issue. Treasury should have been able to provide the answer. As Ndii points out, the government has a monitoring and evaluation responsibility. “For the Treasury to disburse a huge external loan, the biggest ever, without expenditure tracking seems downright irresponsible,” he commented.

In the following months, the government would “torture” the figures to show that the missing Eurobond money had indeed financed development projects. This was done by “wildly” (Ndii’s word) inflating the cost of nine projects in the energy sector that showed overruns of nearly Sh67 billion. Rural electrification of primary schools was said to have cost Sh34 billion rather than the Sh9.9 billion that had been budgeted. An unbudgeted item for the financial year, military modernisation, gobbled up another Sh62.8 billion. The point of cooking the figures, Ndii surmised, was to create a plausible storyline to explain the missing Eurobond money. “How high up does this fraud go?” he asked.

The government couldn’t – or rather wouldn’t – answer this question directly but its conduct in the coming years had the guilty air of an adulterer caught in flagrante delicto. As David Ndii explained, the government’s real problem was that it could not account for the Eurobond money that it had not spent and still manage to balance its accounts. In the 2014/15 financial year, it partially pulled off this miracle by reducing domestic borrowing for the year from Sh251 billion to Sh110 billion. The Sh140 billion reduction covered the exact amount of Eurobond money that it claimed to have carried forward from 2013/14. Unfortunately, this voodoo accounting was undone by the Central Bank accounts on domestic borrowing and was flatly contradicted by the interest that the government reported having paid on domestic borrowing for the year.

In the following months, the government would “torture” the figures to show that the missing Eurobond money had indeed financed development projects. This was done by “wildly” (Ndii’s word) inflating the cost of nine projects in the energy sector that showed overruns of nearly Sh67 billion.

In 2016 the Auditor General, Edward Ouko, tried to get to the bottom of the affair by conducting a forensic audit of Eurobond transfers from the Federal Reserve Bank of New York. As part of his preparations, he told Parliament that he had already made appointments with top US and UK financial institutions involved in the transactions. Mr Ouko promised to send forensic auditors to scrutinise transaction data at JP Morgan, the Federal Reserve Bank, City Transaction Services New York, JP Securities, Barclays Bank, ICB Standard Bank, Qatar National Bank and other banks that had handled the $2 billion Eurobond transactions.

Mr Kenyatta promptly blocked the investigation, arguing, implausibly, that by saying that “the Eurobond money was stolen and stashed in the Federal Reserve Bank of New York”, Mr Ouko was implying that the Kenyan government and the United States had colluded. “Who is stupid here?” the President scornfully asked.

In the next few years, the government became cockier and more belligerent. With the Auditor General not allowed to follow the international money trail, he was reduced to informing Parliament at the end of each audit year that “investigations into the receipts, accounting and use of funds related to the Sovereign/Eurobond are still ongoing and the accuracy of the net proceeds of Kshs 215,469,626,035.75 is yet to be ascertained”.

As Ndii’s analysis pointed out, unravelling this mystery should not have been as complicated as the Auditor General’s laconic conclusion might suggest and the Treasury’s effort to explain the mystery only compounded it, even with the IMF weighing in to support the official explanation. But as the Mozambique Eurobond story shows, the IMF has been criminally negligent in these matters.

In this case, the IMF’s attempt to aid the government was unavailing. The Fund showed that Eurobond money was received and spent in the 2013/14 financial year. But given that the Eurobond money was received in the last week of that financial year, it would not have been possible for it to be spent in that year. There was no drawdown until the first week of July, which was the start of the 2014/15 financial year. The difference between the Fund’s fiddling and the Treasury’s fiddling was that the IMF reported a domestic borrowing figure of Sh251 billion for 2014/15 domestic borrowing, whilst the Treasury showed one of Sh110 billion. As Ndii noted, “The IMF cooks the books one way, and the Treasury, the other”.

Mr Kenyatta promptly blocked the investigation, arguing, implausibly, that by saying that “the Eurobond money was stolen and stashed in the Federal Reserve Bank of New York”, Mr Ouko was implying that the Kenyan government and the United States had colluded. “Who is stupid here?” the President scornfully asked.

But the Treasury’s lies were also compounded by the mandarins’ poor memory. By 2015/2016, they seemed to have forgotten the 2014/2015 numbers. Now the Treasury reported Sh251 billion as the correct domestic borrowing figure. With Sh251 billion confirmed as the correct amount, the only way to account for the Eurobond Sh140 billion was to show the projects in which it was invested. That no such projects have been named implies that at least $1 billion of the Eurobond money has disappeared into thin air. The conclusion that it has most likely been stolen by some very senior untouchables is compelling.

With investigations never having been started, the Auditor General, beaten down by the President, and the marked lack of enthusiasm from the United States (particularly the New York Federal Reserve), it is unlikely that we will know who stole nearly $1billion of taxpayers’ money.

This is Part 3 of an abridged version of State Capture: Inside Kenya’s Inability to Fight Corruption, a report published by the Africa Centre for Open Governance (AfriCOG) in May 2019.

Support The Elephant.

The Elephant is helping to build a truly public platform, while producing consistent, quality investigations, opinions and analysis. The Elephant cannot survive and grow without your participation. Now, more than ever, it is vital for The Elephant to reach as many people as possible.

Your support helps protect The Elephant's independence and it means we can continue keeping the democratic space free, open and robust. Every contribution, however big or small, is so valuable for our collective future.

Avatar
By

Wachira Maina is a constitutional lawyer based in Nairobi, Kenya.

Politics

John Magufuli: The Death of a Denier-in-Chief

Late president John Magafuli never was the anti-corruption saviour international media claimed.

Published

on

John Magufuli: The Death of a Denier-in-Chief
Download PDFPrint Article

Tanzania, a country that produced Julius Nyerere, is a country tottering on the precipice of a pandemic catastrophe. The philosopher-president ruled for 23 years and put the nation on the international map as a frontline state that stood up to Apartheid South Africa and helped liberate modern Uganda by ridding it of Idi Amin.

With the abrupt death of its populist president John Magufuli on March 17, 2021, ostensibly from a COVID-19 related ailment, Tanzania finds itself at a crossroads, insofar as tackling the devasting disease is concerned. Magufuli who was the commander-in-chief of the armed forces, became the denier-in-chief of COVID-19. The disease has decimated scores of Tanzanians, including top government officials.

Magufuli was hailed as a tough anti-corruption crusader, as he entered state house in 2015. Ordinary Tanzanians initially saw him as their saviour in the fight against institutionalised state corruption. The international media also saw him as a man keen on tackling state corruption, “but Magufuli was all about optics,” said a Tanzanian journalist. “He wasn’t fighting state corruption pers se, what he was doing was to get rid of Jakaya Kikwete’s (immediate former president) networks in the government and replace with his own. So, it was just a matter of time before Tanzanians and the world realised Magufuli was just interested in musical chairs.”

Magufuli was re-elected on October 28, 2020 in one of the most controversial post-Nyerere’s Tanzania elections with a whopping 84 percent. His “true colours” revealed themselves after Benjamin Mkapa’s death in July 2020. After mourning the ex-president, Magufuli turned his attention to the business of crippling the opposition.

Magufuli was a protégé of Mkapa who served as president between 1995–2005. It was Mkapa, who in 2015, prevailed on the ruling Chama Cha Mapinduzi (CCM, ‘Party of the Revolution’) national executive council (NEC) to pick newcomer Magufuli as its flagbearer for what was to be a hotly contested general election in October 2015. Magufuli was then primed to run against Edward Lowassa, a CCM stalwart, who had bolted to Chama Cha Democrasia na Maendeleo (CHADEMA), after not clinching the CCM ticket, in which he was touted as one of the hot favourites.

The “true colours” was the ruthlessness with which Magufuli pursued the opposition in the lead-up to the presidential elections. That massive victory came in the backdrop of President Magufuli’s continuous campaigns since being inaugurated as the fifth president in 2015. “Magufuli never stopped campaigning,” said a Tanzanian journalist: “He rode on the wave of populism – dishing out money and favours to select supporters and well-choreographed individuals wherever he went.”

The 2020 Magufuli campaigns were a mirror-image of his mentor’s similar campaigns in 2000. Just like Mkapa’s mission was to presumably pulverize the nascent opposition, Magufuli’s mission 20 years later was similarly to ensure that the “irritating” opposition is no more and is, literary ran out of town. Mkapa in the October 2000 elections unleashed so much violence on the opposition that many of its supporters sought exile in neighbouring Kenya, after the elections.

Mkapa’s use of unmitigated force by Jeshi la Polisi (Tanzania has a police force, as opposed to a police service) and Field Force Unit (FFU), a paramilitary outfit much like Kenya’s dreaded General Service Unit (GSU) was unprecedented in Tanzanian politics. Just like Magufuli, it seems Mkapa’s “true colours” were revealed only after his mentor’s death the previous year on October 14, 1999. Mkapa was a protégé of the founding father Julius Kambarage Nyerere.

It was Nyerere who held Mkapa’s hand in 1995, after influencing his nomination by CCM, and single-handedly campaigned for him throughout the country. Tanzania held its first multiparty general elections in 1995, pitting CCM against a disparate opposition for the first time since its formation in 1977.

He dished out money and favours to select supporters.

Revisiting this unparalleled violence orchestrated on fellow Tanzanians, Mkapa, the former journalist-turned-diplomat-turned-president in his memoirs: My Life, My Purpose – A Tanzanian President Remembers published in January 2019, regretted the 2000 election ordeal. To some Tanzanian journalists and political analysts, Mkapa and Magufuli are today referred to as the chief advocates and perpetrators of state violence in post-independent Tanzania.

Both the presidential elections of 2000 and 2020 happened under a cloud of America’s own election problems: In 2000, it was the “Florida fiasco.” Florida was then governed by the Republican’s presidential candidate, George Bush’s brother, Jeb Bush. Bush was running against the Democratic Party’s Al Gore. Jeb was allegedly accused of rigging on behalf of his elder brother.

Like the Americans say, the electoral college vote was too close to call: the vote was not only going to determine who was going to be the winner of the states’s 25 votes, but the next president after Bill Clinton. A recount was called by the Democrats and for a brief moment, the democrats believed they had taken it, only for the Republicans to also ask for their own recount. Bush won with a razor thin win vote. The democrats were not persuaded. To cut a long story short, the sunshine state’s case found itself in the supreme court, where the republican-led court declared George Bush the eventual winner.

In 2020, with both the Tanzania and US elections being held days apart, America once again came under the world spotlight after the “Pennsylvania problem”, in which President Donald Trump claimed his votes had been tampered with and paid for a recount. The MAGA Republican Party candidate was defending his seat against “sleepy Joe” a derogatory tag given by Trump to Joe Biden.

The citing of both examples here is to emphasise that America in 2000 and 2020 could not claim a moral compass to the Tanzania government’s excesses in its elections. Covering the 2000 elections, I remember in Dar es Salaam, a CCM top official telling us journalists that America could not lecture Tanzania on matters election – “they should first deal with their own election rigging in Florida, before accusing us of unleashing violence and rigging the islands’ results.”

Nyerere had always been opposed to the twin islands of Pemba and Zanzibar’s divorce with the mainland Tanganyika – a sticking sore thump between the mainland and the islands, since the republic turned to plural politics. But he never advocated state violence, instead, he sued for dialogue and persuasion.

Magufuli was determined to put the opposition in its place this time round: In a parliament of 261 members, the opposition only won seven. “By the time I’m through with Tanzania, there’ll be no opposition in the country,” said the deceased in one of his campaign rallies.

There is not a doubt that he loathed the opposition, so much so that he warned the regional commissioners and election officials, “I don’t pay you so that you can allow opposition to win.” Tume la Uchaguzi (National Election Commission) flatly refused any presidential debates and told the opposition it could debate among itself if it so wished.

In Tanzania, CCM ni tasisi,” a local journalist reiterated to me. Literary it means the ruling party CCM is an institution. Figuratively it means, CCM is Tanzania and Tanzania is CCM. Anybody going against the “wishes of the party” would be crushed. The CCM’s propaganda machinery against the leading opposition figure Tundu Lissu of CHADEMA was geared to pulverize all his efforts of running a successful campaign. “He was being hunted down like a wild animal,” said the journalist.

Magufuli claimed Lissu was a supporter of LGBTQ and that he was a tool of the West being used to campaign for mashoga, homosexuals’ rights. Several African presidents during their re-election campaigns have turned the hot-button issue of LGBTQ, their favourite bogeyman: In the terribly conservative African societies, nothing evokes emotions of antipathy like suggesting gay-ism could be mainstreamed. Yoweri Museveni has done it, John Magufuli did it, just like Robert Mugabe did it before him.

CCM being Tanzania and Tanzania being CCM, not even the bravest of private media would dare report on the opposition or against Magufuli and CCM. “There was total blackout on the opposition by the media. All what Tanzanians could read and listen to, on politics, was on the ‘indefatigable Magu’ and his infrastructural developments,” said my Tanzanian journalist friend. Hence, Tanzania media did not report on politics – it reported on Magufuli, the person.

By the time I’m through with Tanzania, there’ll be no opposition in the country

Being heavy users of social media, Tanzanians turned to VPN – virtual private network. Found as an app in many smart phones, it protects one’s communication from snoopers like government agencies and hackers. What VPN does when activated is to bypass the conventional internet service providers (ISP) when connecting to the internet. In the case of Tanzania’s government shutting down its ISP, tech savvy Tanzanians resorted to VPN to access facebook and especially Twitter, to fend off the states’s eavesdropping.

This is the reason why Magufuli ordered all social media outlets shut, said the journalist. All what the Tanzania Communication Authority needed was a nod from Magufuli. A consumer of foreign news outlets, Tanzanians also resorted to BBC, Deutsche Welle (Sauti ya Ujerumani) and VOA, to stay informed on their country’s politics. “This is how many of them were informed and kept tabs on Lissu’s campaigns,” said the journalist.

Even after being sworn-in for the second term, President Magufuli pursued the browbeaten opposition. Chief opposition figure Lissu had to escape the country a second time. “Run or be run over, these people are not joking,” Lissu was ostensibly warned by his intelligence team. In September 2017, Lissu had survived an assassination attempt in Dodoma, that saw his vehicle sprayed with bullets by “unknown” assailants, as he left parliament for his house for lunch. On November 7, 10 days after the elections were over, he hid at the German embassy, then onwards to Brussels, where he had been recuperating for three years after treatment in Nairobi.

The former MP for Arusha Urban Godbless Lema also skipped the country and sought refuge in Kenya after claiming government people were after him. Lema, with his family was granted asylum in Canada.

Nyerere’s CCM may have operated in the one-party era during the cold war, but many Tanzanians of the post-independent generation remember those days with nostalgia. “The party was more democratic and free, unlike today,” said a former CCM mkereketwa (party diehard).

Magufuli’s populism was laced with autocratic tendencies. He told fellow Tanzanians msinijaribu mimi ni jiwe (don’t try me, I’m as tough as a rock), meaning he prided himself in being tough-headed.

“Magufuli’s CCM in the era of multiparty brooks no dissent, is dictatorial and dangerous, while Nyerere’s CCM preferred a palaver type of democracy where party issues were discussed until it arrived at a consensus,” said a University of Dar es Salaam don.

Continue Reading

Politics

South Africa: A New Politics From the Left?

Assuming today’s socioeconomic crisis benefits the Left is folly. That will only happen if we have the political vision to make class the fault line of social polarisation, and for that we need to face the challenge of constructing a new party.

Published

on

South Africa: A New Politics From the Left?
Download PDFPrint Article

Over the last decade, the Left in a number of Western countries has undergone a historic transition from “protest to politics,” to borrow the words of the late Canadian Marxist Leo Panitch and his frequent co-author Sam Gindin. From Podemos in Spain to Sanders in the United States, a new wave of parties and electoral coalitions have emerged and made rapid gains. Despite setbacks and defeats, Panitch and Gindin’s indispensable analysis of these events in The Socialist Challenge Today, casts them in an unambiguously positive light. None of the examples they study offer formulas for resolving the vexing dilemmas facing the socialist movement in our globalised present.

But in their determination to take state power seriously they constitute an unmistakable step forward, after decades in which the Left’s confinement to episodic instances of mobilisation left the electoral field wide open to the parties of business. Part of this “new new” Left’s success stems from a willingness to shake free of its own past. Building a viable socialism of the 21st century, they argue, requires dispensing with the outmoded parts of the Leninist model, like its wager on insurrection, while retaining that which still holds value, like its internationalist spirit.

These developments hold important lessons for us on the South African Left. Just under a decade ago it seemed that we were on the verge of effecting a similar transition “from protest to politics.” During the first decade and a half of democracy, a socialist opposition had found a locus in the so-called “new” social movements—like the Anti-Privatisation Forum—which grew in reaction to various parts of the ruling African National Congress’ neoliberal agenda.

These waged a number of important defensive struggles and scored a few key victories but fundamentally did nothing to loosen capital’s grip on policymaking. By the end of the 2000s most were a spent force. It became clear to a growing segment of the Left that lasting gains would not be achieved unless social agitation were more effectively linked with efforts to seise governing power. The ability to think these more ambitious terms received a major boost when the National Union of Metalworkers South Africa (NUMSA), the nation’s largest manufacturing union, appeared to redraw the political map of the country by breaking from the ANC, amidst a wave of working class militancy.

Of course for the “official” left which NUMSA represented there had never been any turn away from politics as such. But decades of compromise had bred a form of politics that had become completely unmoored from the guiding thread of class antagonism. NUMSA’s move thus constituted a kind of mirror image transition—from a back-room corporatism to a politics more grounded in the methods and spirit of “protest”. This is what imbued the “NUMSA moment” with such hope—it promised to re-connect the two sides of South Africa’s bifurcated Left, and supply the strategic elements that had been missing from each. By matching the militancy and class-independence of the social movement Left with structural and organisational might of the “official” Left, it seemed possible that a mass socialist movement could be rapidly brought into being.

That was not to be. From today’s vantage it’s impossible to regard the NUMSA moment as anything but an abject failure. The political party which eventually issued from it is the farthest cry from the unifying force that so many had hoped for. While the international left has been able to advance by breaking with its shibboleths, the Socialist Revolutionary Workers Party (SRWP) has fallen back on a slavish appropriation of Bolshevik ideology, almost comical in its extremes.

Despite enormous resources, a large part supplied by a US-based billionaire, the party ran a dismal general election campaign in 2019 where it failed to get even a tenth of NUMSA’s own membership to vote for it (it ultimately only amassed 25 000 votes nationally, below the threshold to obtain one seat in Parliament). It’s since never recovered, joining a host of other failed socialist parties on the margins of political life. Marginality seems in turn to have degraded the internal culture of the party, which now resembles closely the Stalinism of the ANC-aligned South African Communist Party in all its worst aspects.

The floundering of the NUMSA moment is a terrible blow. But the setback inflicted on us will far greater if we fail to draw the correct lessons from it. Perhaps the most worrying outcome is that it precipitates a slide back into movementism, and shuts the window that we’ve had to execute the transition from “protest to politics.” Party politics acquired a bad name during the era of “protest” in South Africa, and many on the Left already feel that the SRWP’s example vindicated their worst suspicions.

But what the SRWP actually reveals to us is are not flaws inherent in the party-form as such, so much as the limits of a certain kind of party, one founded on a hidebound Leninism. If the Left were to abandon party building altogether there would, quite simply, be no socialist future. All visions of radical change that eschew parties and an active takeover of the state suffer from a principal defect in that they misconceive the nature of class formation—the process by which individuals become aware of their class position and begin to articulate their politics through it. This is presented as a quasi-automatic effect of the capitalist class structure.

But history offers no support for such a view. Class is impactful because it frames the options we have over so many major decisions in our lives—but not so narrowly as to make resistance to one’s employer, or the system behind him, inevitable. Indeed, the extreme vulnerability of workers under capitalism means that individualised modes of coping tend to be more commonplace than collective action. That’s why socialist consciousness has been the exception rather than the norm in the global history of capitalism, and exceedingly rare in the absence of a well-organised party. As Panitch argued with the force of a life’s work—parties make classes as much as they are made by them.

Thankfully, an outright repudiation of the party-form is not really where we are at in South Africa. The variant of movementism which took hold here, and which has revived in the aftermath of the NUMSA moment, was not really this more extreme kind, which denies the ultimate need for a party. Rather what it advocates is a downgrading of the role of party building or its deferral to some indefinite future.

What seems to be the common premise for this position is that party building can only succeed when perfectly timed to the right “objective conditions” —conditions which are only likely to form in the wake of a rupture moment defined by intensified street-level mobilisation. Only the transformation of mass consciousness brought about by such an episode of struggle can furnish the base for a party. Moreover, efforts to “impose” a party on the working class before this are liable to be rejected by its most conscious and active layers. Cut off from nourishing energy of grassroots movements, they are likely to grow in authoritarian directions. The task of socialists in the present, therefore, is devote ourselves to strengthening movements, and hope that a party may gestate from within them in some future context.

Related but distinguishable from this, is an ingrained hostility on the South African Left towards electoral politics. This view tends to draw a sharp line between the electoral arena and movements. While movements unlock popular power by sensitising their participants to their potential for collective action, elections offer no such platform for consciousness-raising. Instead, they tend to reproduce the atomisation of liberal democracy, and to fortify the myth that progress is possible within it. Moreover, movements which take the electoral road subject themselves to debilitating pressures. The logic of getting the vote tends to conflict with the logic of grassroot mobilisation, and all too often to overwhelm it.

Movementist positions contain many insights. It is wise, for example, to be attuned to the importance of ruptural breaks—the likelihood that we will ever get to a mass party simply through a molecular accretion of our ranks is slim. But the contention that movement building alone is the best way to prepare for such a rupture fails to take seriously the inherent weaknesses of social movements.

Of the numerous movements which sustained the first era of “protest” in post-Apartheid South Africa virtually none remain (barring one major exception). New ones have of course cropped up, and a tide of less organised community protests has continued unabated across the country. But these show equally little likelihood of autonomously cohering into anything bigger or more resilient.

It’s now very hard to avoid the conclusion that their failures resulted from internal rather than external factors. The model underpinning them rested on localised mobilisation around immediate demands, while actively eschewing efforts to politicise a leadership layer. Some of their more excitable proponents portrayed them as crucibles of anti-capitalism, in which the mere experience of collective decision making offered a form of political education beyond what traditional forms of Left organisation could hope to match.

But in doing so they exhibited the same fallacious thinking about class formation that informs all ventures aimed at “changing the world without taking power.” Much less a break with capitalism, it’s not clear that social movements even succeeded in getting most of their members to question their loyalty to the ANC. That left them prone to demobilisation and disorganisation when circumstances changed, when defeats where incurred or when key individuals drifted off or were co-opted.

One strategic upshot of this critique is that the trade-off between movement and party building posited by movementists is a false one. It’s likely that there is no winning formula for transforming single issue mobilisations into lasting, mass organisations without NGOifying them. But what we can do is to ensure that the small advances made by movements each time they arise are not dissipated. After all—the notion that struggle develops consciousness is not a false, what movementists get wrong is overstating the extent to which it does so organically. Virtually every movement throws up militant leaders, who stand to become tribunes for socialist politics if they can be identified, recruited and supported appropriately. This is work that a party is best suited to undertake.

But facing up to the limits of social movements should lead us to even stronger conclusions than this. It should lead us to question the overwhelming strategic significance that they have been accorded in the politics of the “independent left.” If movements are tough to sustain and to politicise, they may not be the vehicles best suited to bringing about a political rupture or ensuring that it outcome favors the Left.

Of course this was a strategic orientation that was largely foisted on us by circumstance. The stranglehold that the Tripartite Alliance (whose third member is the Congress of South African Trade Unions) exercised on organised labour and mass politics generally left little room for an alternative. But the situation has changed. The factionalisation of the ANC, the split in COSATU and the emergence of its rival, the South African Federation of Trade Unions, have created an opening for a more militant socialism to regain a foothold in organised labour. This ought to be the clear priority of socialists.

For all its infirmities, the union movement still presents a much more promising site for grounding socialist politics in a mass base. Although this may not hold for much longer, unions remain mass membership organisations with considerable resources. Most importantly, and most differently from social movements, they have access to structural power (i.e, the power to withdraw labour and shut down the economy). Here is one insight of Leninism which time has not invalidated– that our project will most likely fail unless that structural power is at its center.

If organised labour is once again to become our strategic focal point, this strengthens the case for not consigning the party to an intangible future. The synergies between party-building and organisation building are arguably stronger in the case of unions than social movements. At a fairly abstract level, one reason for this is that union building (or revitalisation) typically relies on a few individuals being prepared to take bold action out of moral conviction. Marxists have often argued something very different—that shopfloors collectivise as soon as workers wake up to their material interests. But narrow self-interest is unlikely to ever motivate someone to take the first steps towards organising their co-workers, since doing so incurs enormous risks but yields no extra benefit—the essence of the “free-rider” problem.

Thus, it’s not a coincidence that so often in history, socialists of various stripes have been significantly overrepresented among the “militant minority.” The values that draw people to the banner of socialism are often the same as those that move them to action against workplace injustices. It’s also not a coincidence that a militant minority is more likely to take shape when socialist ideas are more prominent in the public realm.

Arresting the decline of South African unions, and returning them to their proud history of worker control and grassroots democracy will require a herculean organising effort. At the simplest level this is why we need an organisational vehicle that at  least broadly resembles a party. Without one we have no real means of translating strategic debates into action—of coordinating our energies towards the tasks most likely to yield long-term gains.

There’s therefore a case for not delaying in building a fighting organisation, that tries to cohere leading militants from workplace and community struggles around a socialist program. But such an organisation should do more. As soon as it has the numbers needed, it should seek to involve itself in elections. In all likelihood it would have to start at the local level, and logic would dictate that it seeks out community and social movement partners in doing so. But as quickly as possible is should seek to graduate to the national stage. South Africa’s unusually proportional representation electoral system (which was in fact designed to provide space for smaller parties), makes this a reasonable short-term goal.

Arresting the decline of South African unions, and returning them to their proud history of worker control and grassroots democracy will require a herculean organising effort. At the simplest level this is why we need an organisational vehicle that at least broadly resembles a party.

The first thing that sceptics of this strategy tend to get wrong is that they overstate, or misunderstand, the legitimacy problem facing formal political institutions. The SRWP seems to think that any worker with lingering attachments to electoral politics is suffering from “false consciousness.” But in our current circumstances, there is nothing the least bit irrational about remaining invested in the electoral arena, even while recognising the severity of its class bias. The simple reason for that, is that there is no existing social force capable of challenging state power while remaining entirely outside its institutions, nor does one show any prospect of coming into being in any foreseeable horison. Worker organisations in SA are locked a desperate defensive struggle—not preparing to set up a parallel state.

It’s not a failure of dialectical imagination that causes people to conflate politics with elections, but an appraisal of our situation that is more accurate than the one provided by the apostles of imminent revolution.

It’s thus not surprising that despite the tremendous alienation produced by decades of neoliberalism, electoral movements in the West have been able to engineer a political realignment that was much deeper than what post-2008 movements were able to achieve on their own. Their location within the domain of mainstream politics provided both visibility but also a kind of credibility—they promised to take over the institutions in front of us, rather than replace them with ones we can’t see and can’t yet imagine. Several of these examples stood the movementist model on its head. Rather than an electoral breakthrough growing out of a period of intensified movement activity, it was the electoral arena itself that has delivered the rupture moment, the energy from which can then be filtered down to social and labour struggles.

In the process they challenged another fallacy of movementism—that the electoral arena is entirely inimical to a politics of struggle. Sanders, Corbyn, and others imbued their campaigns with a spirit of insurgency that succeeded in appealing to many otherwise turned off by politics, particularly among younger generations. Rather than sucking energy from the streets, these examples provided a renewed model of “class struggle elections” —not their own invention but one that had faded from the Left’s repertoire during the era of movementism.

Class struggle elections seek to deliberately leverage electoral campaigns, and political office itself, to bolster movements. They use every platform available to raise awareness of, and encourage solidarity with, labour and social struggles. In doing so they try to inculcate the understanding that radical policies can only be won with an inside-outside strategy, in which legislators are supported and pushed forward by powerful movements. At the same time they use campaigns as tools of organisation building.

They recruit and deploy a mass of activist to spread a socialist message, and simultaneously try to develop those activists by building political education into their activities. Done properly, this can bridge the gaps that supposedly separate movement from electoral organising, infusing the latter with a powerful sense of collectivity. That’s why so many thousands of young Americans (to pick a recent example), were politically activated through their involvement in the Sanders campaign, which became a gateway to organising in their workplaces, campuses and communities.

Note that this is completely different to the SRWP’s narrowly propagandistic approach to elections which didn’t promote social struggles so much as fantasies of revolution, whilst denouncing ‘bourgeois democracy’ as a sham and doing nothing to actually win. After a predictably disastrous outcome, the party chose to compound the embarrassment, and feed into a profoundly dangerous trend by denouncing South Africa’s independent election management body and claiming the result was rigged.

It’s not a failure of dialectical imagination that causes people to conflate politics with elections, but an appraisal of our situation that is more accurate than the one provided by the apostles of imminent revolution.

Contrast its subsequent marginalisation with the early trajectory with the Economic Freedom Fighters (now South Africa’s third-largest party), which leveraged the electoral know-how of its ex-ANCYL cadre and Malema’s media savvy to run an enormously successful first campaign. It then built on the success, steadily expanding its vote share each cycle, while using parliamentary office to bolster its national profile. Sadly it drifted off the orbit of the Left along the way. But the two diverging cases provide an obvious lesson: if elections are to be useful to us, we have to show that we are capable of succeeding in them. If we can’t, how on earth will we convince anyone that we’re capable of transforming society from its roots up?

None of this is to suggest that the concerns movementists raise about electoral politics are meritless. Its unquestionably true that electoral competition imposes its own logic, which can be ruinous if it totally subsumes the party’s strategic purview. We can trace the decline of many a worker’s party, at least proximately, to misguided efforts to capture middle-class votes by abandoning a politics of class antagonism. But all socialist strategising in our dismal conjuncture is the consideration of perilous alternatives. Far better for us to confront the dangers of succumbing to a narrow electoralism than the near certitude of permanent marginalisation should we choose to abstain from mainstream politics altogether.

The NUMSA moment may have come and gone. But the many elements of the broader conjuncture which produced it, and which seemed to augur a new direction for socialist politics, persist. The Alliance coalition is in the doldrums. Expecting its inevitable demise is of course a pastime of which we “independent leftists” should now be wary. But the material facts this time really are different. The state faces a fiscal crisis that President Cyril Ramaphosa has neither the wherewithal nor the institutional tools to escape from. His factional opponents preach a “radical economic transformation” that offers nothing whatsoever to workers.

Social strains look set to keep accumulating. But assuming that any crisis they produce will automatically redound to the Left’s benefit would be folly. That will only happen if we have the political vision and the organisational capacity to ensure that class becomes the fault line of social polarisation. And for that we need to face up to the challenge of constructing a new party.

Continue Reading

Politics

Is a Plutocratic America in Terminal Decline?

We may not be aware of it yet, because of the hold the nation has on global media, but America’s decline appears to be terminal.

Published

on

Is a Plutocratic America in Terminal Decline?
Download PDFPrint Article

As President Joe Biden begins to get comfortable in the White House, there are those who might say that America, under a democratic system of government, has once again allowed the voice of her people to be heard, and that they have elected a new leader into office. Some might go so far as to say that the world’s most affluent democracy has once again proved that government of the people, by the people, for the people is alive and well.

But just below the surface, there are questions deserving of a deeper examination. One is how narrow the margins of victory were. For while it is true that President Biden won the highest number of votes in American electoral history, it is also true that President Trump won the second-highest number of votes in American electoral history; 10 million more people voted for President Trump in 2020 than did so in 2016. Mr Biden’s margin of victory in Georgia was 0.48 per cent, while that in Arizona was 0.63 per cent. Further, even as the Democrats belatedly won a majority in the Senate, again by the finest of margins, the Democratic majority in the House of Representatives actually narrowed. Why, if the choice was so clear, were margins so narrow?

The regrettable truth is that the US is not a democracy – not merely because true democracy has never existed, but because even that imperfect form of democracy that characterises modern politics long perished in America. The United States today is in fact a corporatocracy; mega-corporations rule the country, a polite way of saying that that nation is now a plutocracy. This development is not really new – wealth has always, eventually, determined leadership, in America and elsewhere.

This article attempts – colossally log-in-eye, and at a distance of thousands of miles, admittedly – to furnish proof of the existence of this plutocracy; to demonstrate the effects of this plutocracy on American life and politics; and to establish whether there is any way out of the present morass.

That America is a plutocracy

A total of US$14 billion (KSh1.4 trillion) was spent on campaigns in the US this year, twice as much as in 2016. Where is this money coming from?

In 2010, the US Supreme Court handed down a decision called Citizens United that allowed unions, corporations and associations to spend unlimited amounts in elections provided they would not coordinate their efforts with a candidate. As a result, political action committees (or PACs – private organisations established to raise money in support of a candidate or an issue) morphed into Super PACs that could receive unlimited amounts of money for campaign purposes. The effect was immediate: in 2012 non-party outside spending tripled 2008’s total and topped US$1 billion for the first time. Of that amount, Super PACs spent more than US$840 million.

The regrettable truth is that the US is not a democracy.

Yet the amounts spent in 2012 pale in comparison with spending during the 2020 campaign; in October 2020 alone, outside spending by super PACs and other big-money groups totalled nearly US$1.2 billion. President Joe Biden alone raised US$1.6 billion. President Trump raised US$596 million, itself a significant haul. Given the closely fought nature of the presidential election, it would not be wrong to conclude that money helped tip the scales in favour of the new president. Nor was this true only of the presidential race; it was true across the ballot. Eighty-nine per cent of House races and 71 per cent of Senate races were won by the better financed candidate. The conclusion is clear: money – corporate money – wins American elections.

The effects of the plutocracy on American life

It is all very well and good to conclude that corporate money runs and wins American elections. The issue is what the effect of all this money is on American life. If corporate hegemony is harmless – even beneficial – arguments can be made that it should be left alone. If it is not, however, then that fact should be exposed, and reform commenced.

The American mega-corporation has achieved a number of victories (from a corporate standpoint) that have constituted assaults on the wellbeing of the American people and populace. For example, these corporations have been allowed to outsource American manufacturing jobs to China and other nations. The iPhone, signature product of America’s second largest company by market valuation (Apple), is assembled in Shenzhen. Nike began outsourcing manufacturing in the 1970s; today it has plants in Vietnam and South Korea as well as China. IBM now has more workers in India than in the US. As of April 2012, Walmart’s supply chain included some 30,000 Chinese factories, producing an estimated 70 per cent of all of the goods it sells. This trend has gone on so long that there now exists a portion of the northeastern US, formerly known as the Manufacturing/Steel/Factory Belt, that is now known as the Rust Belt, owing to industrial and economic decline occasioned by outsourcing and the automation of jobs.

Meanwhile, for those jobs that have escaped being shipped overseas, the average wage has been stagnant for 40 years. A generation has now arisen in America that will be the first in modern American history to end up poorer than their parents. To make up for stagnant incomes, American citizens are drowning in private debt (US$14 trillion worth) including mortgages (US$9.44 trillion) and student loans (US$1.5 trillion). Indeed, absolute US household debt was higher in November 2019 than prior to/during the great recession, although the debt-to-income levels during the great recession were higher than the 2019 levels (83 per cent to 73 per cent). High house prices, supported as they are by mortgage lending, coupled with student loans, together mean that new graduates are experiencing “failure to launch”, i.e. the inability to leave one’s parents’ home and start one’s own family.

(We should pause here to note, parenthetically, that the level of any nation’s private debt, and America’s in particular, is a very important metric. The level of private debt was the key indicator that enabled Professor Steve Keen, one of the Bezemer 12, to predict the North Atlantic financial crisis of 2007-8, a prediction mainstream/neoclassical economics, quite criminally, failed to make.)

The US$14 trillion of private debt that American citizens owe is owed to the very same mega-corporation class whose wage stagnation has necessitated the need for lending (since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2 per cent per year). Most unfortunately, this wage stagnation is not uniform: the ratio of CEO-to-worker earnings has soared from 21-to-1 in 1965 to 320-to-1 in 2019.

A generation has now arisen in America that will be the first in modern American history to end up poorer than their parents.

Has the American mega-corporation been censured by the political class for these excesses? Hardly. In fact, the large American corporation, while using American infrastructure, using some degree of American labour and selling to Americans, is allowed to pretend that it operates outside America, by invoicing from nations with low tax rates, such as Ireland, thereby avoiding paying federal taxes on its income. From 2009-2018, for example, Amazon paid an effective federal tax rate of 3 per cent on profits totalling US$26.5 billion. In 2018 alone, the company received a tax relief of US$129 million dollars on profits of US$11.2 billion. Such is the scale of tax avoidance by American corporations that by 2016 a staggering US$2 trillion in untaxed corporate profits was stashed outside the US, according to the New York Times. (What makes this doubly lamentable is that the Internal Revenue Service tells the American citizen in unambiguous terms that “Your worldwide income is subject to U.S. income tax, regardless of where you reside.”)

Corporations, therefore, enjoy egregious advantages. It is in order to keep them that they are so willing to fund political campaigns. In other words, corporations will do everything to avoid paying the taxes that would improve American infrastructure and healthcare (to their own benefit) but spend billions on political campaigns to inoculate themselves from losing the unfair advantages they have carved out for themselves.

The effect of the plutocracy on American politics

The shock election of President Donald Trump in 2016 can be seen as a response to the deleterious effects of corporate hegemony on the American political and economic life. Candidate Trump campaigned as an outsider, promising to “drain the swamp”, even though, ironically, he was himself a self-styled billionaire who shipped jobs to China and paid very little in taxes. America was suffering economically. He claimed that the blame for this could be placed squarely on the shoulders of China and immigrants. In an illuminating two-part, three-and-a-half hour 2019 interview with PBS, key Trump campaign advisor Steve Bannon (who was arrested for fraud and then pardoned by President Trump on his last full day in office) stated that the cost of the 2008-09 bailout was loaded onto the American middle class, and that American gig economy millennials are nothing but 19th-century Russian serfs. Many may disagree with Mr Bannon’s political views, but his statement had its finger on the pulse of post-bank-bailout America. The genius of the Trump campaign was its ability to identify these pain points; to incorrectly but convincingly blame foreigners – locally (immigrants) and abroad (China) – for what were and continue to be the excesses of the plutocracy; to identify the existence of a swamp in Washington and characterise Hillary Clinton as the personification of these ills; and to ride that wave all the way to the White House. The lesson – a lesson seemingly yet unlearned by mainstream politics – is that it actually worked.

Candidates however, campaign in poetry; rulers, on the other hand, govern in prose. During Trump’s presidency Faustian bargains, in Steve Bannon’s words, were made; here again the power of the corporatocracy made itself felt. One of the early indicators of the direction and tenor a presidency will take is a president’s cabinet picks; Steven Mnuchin, yet another ex-Wall Street executive, was placed in charge of the Treasury. While President Trump did not drag the US into another war – in spite of the assassination of Iranian Major-General Qassim Soleimani – his presidency did not up-end Washington in ways meaningful to the nation’s citizenry. Readers may recall the US$2 trillion of untaxed corporate profits mentioned earlier; President Trump’s signature legislative achievement was to open new windows for tax rebates for major corporations, reducing taxes on the wealthy. This legislation resulted in the repatriation of US$777 billion in 2018, but the Federal Reserve noted that “the strongest effect of repatriation was on share buybacks” by corporate America. This particular episode is a textbook example of the plutocracy at work.

Trump does not greatly differ in this way from the way in which Candidate Obama contrasts with President Obama. Candidate Obama campaigned on Change We Can Believe In. Yet, once elected, he bailed out the banks (the abiding question on this, some wonder, is why citizens did not retain their houses if the banks’ losses were made good). Obamacare, a very significant advance in the fight for decent healthcare for Americans, did not include a public option although it could have. Nor did President Obama succeed in extricating himself from American warmongering abroad: in a particularly sad and tragic episode he helped end the Libya Gaddaffi had created. Libya under Gaddaffi was a nation that had free university education, free healthcare, no external debt and reserves of US$150 billion – all ideals that America, ironically, declares it wants but has yet to achieve despite its claim to being the richest nation in history. Allied “intervention” replaced that Libya with today’s bombed-out nation, in which incessant internecine strife went on for a decade. This in Africa, the land of Obama’s fathers. Only two years previously, at a location just two hours from Benghazi by air, the new President had given his “A New Beginning” speech in Cairo, which speech contributed to his winning the Nobel Peace Prize later that year.

In these two presidencies, we see, microcosmically, the effects of the plutocracy at work: the lofty ideals of the campaigning candidate and the searing needs of the masses, once office is assumed, are replaced by a kind of neutered, ineffective pragmatism, as far as the wellbeing of American citizens is concerned, and a sly and insidious effectiveness where corporate welfare is concerned.

The 2020 campaign

Perhaps the defining characteristic of the 2020 campaign is that it took place against the backdrop of a global pandemic. The cost of this pandemic – in the gruesome currency of American lives – has been more than 500,000 dead Americans and counting, nearly 10 times the number of US soldiers who died in the Vietnam War, and more than the number of American lives lost in World War II.

Uniquely among developed nations, the structure of America’s healthcare system is such that very often one only has healthcare if one is employed. So that when 44 million Americans filed for unemployment during the pandemic, they lost their medical cover at precisely the time they most needed it. The pandemic therefore threw into sharp focus the critical importance of having a healthcare system that is not based upon employment.

(Nor is the state of health insurance all that is wrong with American healthcare – in several tragic articles it has been reported that American diabetics have been driving to Canada in caravans to buy insulin – some driving up to 5 hours one way. Price-gouging by pharmaceutical companies means that the drug is ten times cheaper in Canada than it is in America.)

The bipartisan response to the pandemic was to pass the Coronavirus Aid, Relief, and Economic Security (CARES) Act that – while it gave individuals with less than US$99,000 a year annual income a check of US$1,200 a month – also gave further tax cuts to the wealthy. According to the nonpartisan Joint Committee on Taxation, just 43,000 individual tax filers covered by one of the Act’s provisions would see their tax liability fall by a combined US$70.3 billion in 2020 (or about US$1.7 million each). This is the America that corporatism has created.

And yet, mid-pandemic, was healthcare on the national ballot? How, when pharmaceutical and health product industries have spent a total of US$4.7 billion on lobbying the federal government, US$877 million on state candidates and committees, and US$414 million in the 20 years to 2018? Indeed, by the time he won the nomination, Joe Biden had already said he would veto a Medicare for All bill if it landed on his desk (a colossal if, it must be said), proposing a public option instead.

So what was on the ballot? Democrats, choosing to characterise Trump’s presidency as the problem, instead of seeing it as the natural consequence of the decades of wage stagnation, high healthcare costs, inordinately high levels of private debt, etc., campaigned on the platform of “restoring the soul of America”. The president’s narrow margins of victory perhaps find an explanation here: the problems Americans face were not really on the ballot. And they were not on the ballot because the corporations that stump up the money to fund electoral campaigns benefit from providing privatised solutions to the problems Americans face.

Is there hope?

There is an American constituency that is in broad agreement on the issues raised above: a Fox News exit poll, for example, showed that 72 per cent of Americans were at least somewhat in favour of changing to a government-run healthcare plan. Florida, a state President Trump won, voted to increase the state’s minimum wage to US$15 an hour.

However, it is unlikely that this broad constituency will be allowed to unite under the current political system. The reality is that the US is a de facto one-party state. If that party were to be honestly named, it might be named the Megacorp Party, or, slightly more genteelly, the Corporatist/Establishment Party. It has two wings: a supposedly left-leaning Democratic wing and a supposedly conservative Republican wing. Under the framework of Citizens United these two wings will continue to swap power ad infinitum. Yet, even as the presidency bounces from party to party, a president from one party will bomb Iraq; the next president, from the other party, will campaign on the platform that he never voted to go to war in Iraq, only to subsequently bomb Libya. These tragic contradictions find their resolution in the fact that this war activity happens at the behest of the military-industrial complex.

Political consultants will keep finding new, misleading ways of “framing the political argument,” creating false choices and developing narratives such as restoring the soul of the nation. Meanwhile, the money that pays them will continue to fortify itself against the needs of the people; the rich will get richer, the poor will get poorer and power will remain with the wealthy.

As long as this continues, we can expect two outcomes. The first is that the issues that Americans need solved will not be solved. (We are now reading, for example, that the US$15 dollars/hour minimum wage President Biden promised (during a presidential debate), is unlikely be included in the US$1.9 trillion-dollar stimulus package President Biden intends to bring to Congress.) The second is that, as a result of the failure to resolve these issues, America will, in the words of Robert Reich, continue to produce candidatures like Donald Trump’s as far as the eye can see. The American political system does not contain within itself the mechanism to correct the current malaise. As a result, money will continue to win out: it will continue to select which issues are on the ballot, and it will continue to choose which candidates win. America’s long decline, therefore, is likely to continue.

The corporations that stump up the money to fund electoral campaigns benefit from providing privatised solutions to the problems Americans face.

We may not be aware of it yet, because of the hold the nation has on global media (the concentration of media ownership in America is yet another triumph of the plutocracy), but America’s decline appears to be terminal.

I return to the beginning – this article is written colossally log-in-eye. As a Kenyan I know we have major, pressing domestic issues to resolve. If or as we make a detour to examine the American political situation, let our contemplation resemble our use of a mirror, and let our aims be those of helping us to avoid the problems others have experienced, in order to more wisely and speedily resolve our own.

Continue Reading

Trending