The recent downgrades of South Africa’s sovereign credit ratings (by rating agencies Moody’s, Standard & Poor and Fitch) had less to do with the economy than with the political system and instability, policy uncertainty and the social reaction to these.

“In broad terms, the country’s economic fundamentals wouldn’t lead to a downgrade.” So says Sipho Pityana, executive chairman of Izingwe Capital Limited who has also been hitting headlines recently for his outspokenness as convener of the civil society movement, Save South Africa.

Pityana will be the keynote speaker at CFO Talks on Thursday where he will address chief financial officers (CFOs) on the topics of corruption and accountability. He says it is for a very good reason that the chapter on ethics in the King report has been moved from the back (in King I) to the front of the report since King III.

“That highlights the importance of ethics, integrity and transparency as well as the appreciation that nothing you do in the modern world are you likely to get away with without being exposed, especially blue chip companies, because the regulatory framework enables the net to be cast very wide if you look, not only at finance related regulations, but at the totality of regulations.”

By way of explaining this statement, Pityana refers to the private and state-owned companies who have been implicated in the Gupta leaks, especially Eskom, Transnet, McKinsey, SAP and KPMG.

“In the past you could be naughty in an undeveloped country and get away with it. But if do it now, you may be get caught in Italy or Germany.

“SAP (who is implicated in corrupt dealings with Transnet) is more worried about German and US rules, yet the offense was committed in South Africa. And while South African authorities are thinking about clamping down on SAP or not, the Germans and Americans are already investigating them. The same with McKinsey, KPMG and others implicated in the leaks.”

Pityana says the changing role of CFOs of being brought more into the strategy realm is very critical. “Where government is concerned, the CFO has to be the very important and reliable eyes and source of comfort for the board in translating a lot of concerns from auditors to ensure good oversight.”

Problems arise when the CFO and CEO are “partners in crime”, he says, referring to Brian Molefe (former CEO at Transnet and Eskom, and Anoj Sing, former CFO at Transnet and currently CFO at Eskom.) Calling them “the inseparable twins”, Pityana says they repeated the same transgressions at Eskom and at Transnet.

He says one could ask where the auditors were in all these transgressions, but then explains that part of the problem is that in many cases government make use of black owned auditing firms, most of whom have no other source of income other than doing business with the state. That makes them vulnerable and probably cause them to turn a blind eye at irregularities, says Pityana.

He says one should also ask where the regulatory bodies – who should hold auditors
accountable – are when these irregularities are committed.

“One of the biggest problems we have in the country is that nobody quite sees what price one pays for being a rogue and for stealing money from others. To just lose a tender is not good enough. The last time anybody was sent to jail for fraud and corruption in dealings with the state was in 2005 when Schabir Shaik was sentenced, he says, “and then Zuma got into power and released him on flimsy grounds”.

“Where government is concerned, the CFO has to be the very important and reliable eyes and source of comfort for the board in translating a lot of concerns from auditors to ensure good oversight.”

When SizweNtsalubaGobodo (SNG) was offered a contract to audit Eskom – on condition by the then minister of public enterprises, who is now the minister of finance (Malusi Gigaba) that they first get rid of Vusi Pikoli who oversaw forensic audits – they went ahead and fired him, says Pityana.

“The regulatory body responsible for audits (IRBA) received a complaint but in my view, they brushed over it.

“So yes, accountability is a problem.”

Nevertheless, he says today the world is integrated. “You cannot thrive by cutting corners, which can only deliver short term gains but is unsustainable in the long term.

“So, doing business under difficult circumstances, especially in the modern environment, would require that you avoid cutting corners because the price you pay may be devastating for an enterprise.”

“So, doing business under difficult circumstances, especially in the modern environment, would require that you avoid cutting corners because the price you pay may be devastating for an enterprise.”

He says Business Leadership SA and Business Unity SA should run a process in terms of which they urge their members to volunteer to come out into the open, and not – like McKinsey and SAP – run public relations campaigns to deny their involvement in alleged corrupt dealings, yet at the same time firing employees in South Africa and launching internal investigations.

When SizweNtsalubaGobodo (SNG) was offered a contract to audit Eskom – on condition by the then minister of public enterprises, who is now the minister of finance (Malusi Gigaba) that they first get rid of Vusi Pikoli who oversaw forensic audits – they went ahead and fired him, says Pityana.

“The regulatory body responsible for audits (IRBA) received a complaint but in my view, they brushed over it.

“So yes, accountability is a problem.”

Nevertheless, he says today the world is integrated. “You cannot thrive by cutting corners, which can only deliver short term gains but is unsustainable in the long term.

“So, doing business under difficult circumstances, especially in the modern environment, would require that you avoid cutting corners because the price you pay may be devastating for an enterprise.”

He says there are especially two things that would create a huge impetus for the South African economy – the increase of energy capacity by allowing private power producers to sell to the private sector, and a speedy move from analogue transmission to Digital Terrestrial Television (OTT) on which there has been no movement for almost ten years.

However, despite all the problems facing the country, Pityana says in his view South Africa is still an important investment destination.

“There is a lot of uncertainty, but businesses can be viable and returns are good, especially in certain key strategic sectors.”

He believes one of the major selling points for South Africa which is understated, is that it is a country that is based on the rule of law where legal recourse is readily available.

“There is no room for arbitrary conduct. In cases of breech of contracts or agreements, you can count on the South African courts long before you have to go into international arbitration.

“Our courts are independent and reliable. No investor should be comfortable in an environment that offers less than that.”