How Brazil and SA measure up in the corruption stakes

Brazil jailed its corrupt leaders. SA lets them walk. Then Brazil reformed its economy.
SA’s debt servicing costs as a percentage of gross tax revenue – frightening. Image: Shutterstock

This article has been updated.

Brazil and SA lend themselves to comparison: both are resource-rich, struggling with inequalities and have a long history of corruption.

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There are also some key differences. Brazil jailed corrupt politicians and officials, while no high level officials in SA face jail time for corruption, notwithstanding last week’s arrests of four government officials after an investigation into the R255 million asbestos audit project.

Read: Corruption arrests, land sales raise SA spirits

Former Brazilian president Dilma Rousseff was impeached in 2016 after investigations into state-owned petroleum company Petrobas, of which Rousseff had previously been chair, revealed massive bid rigging to inflate contract prices, with a portion of profits being funnelled back to politicians and state officials.

In 2018, another former Brazilian president, Lula da Silva, was jailed for 12 years for corruption and money laundering. It should be pointed out that both Lula and Rousseff denied the charges against them and claimed irregularities in the way their cases were handled, helped by media bias and opportunism by political opponents.

This begins to look rather like former president Jacob Zuma’s new-found contempt for the Zondo Commission of Inquiry into allegations of state capture, which he appointed and promised to assist.

He now wants Deputy Chief Justice Raymond Zondo to recuse himself for supposed bias after ordering the former president to appear before the commission in November to answer allegations of state capture.

Brazil’s swift and decisive action

Alistair MacDonald, institutional portfolio manager at Franklin Templeton Emerging Markets Equity, told the Morningstar Investment Conference last week that Brazil dealt swiftly and decisively with its corruption scandal, punished those involved, and then embarked on a series of reforms.

It relaxed labour laws, reformed the pension fund system, equalised private and public pensions, imposed more rigorous standards for state-owned company appointments, and introduced changes in its mining code, overseen by an independent regulator.

Perhaps most importantly, it introduced a spending cap bill which limits government spending growth to last year’s inflation rate – which means in effect zero real growth.

SA’s reaction …

Contrast this with SA, where budget deficits are exploding and negotiations to reduce the public sector wage remain unresolved. The state wants to save R233 billion over the next two fiscal years, but this seems unrealistic.

Once Brazil had put its high-profile corruption cases to bed and introduced reforms, its economy stabilised (after slumping badly in 2015 and 2016).

2011 2012 2013 2014 2015 2016 2017 2018 2019
SA real GDP growth % 3.2 2.2 2.3 1.8 1.2 0.4 1.4 0.8 0.4
Brazil real GDP growth % 2.7 1 2.5 0.5 -3.6 -3.3 1.1 1.1 0.8

*The original story gave incorrect GDP growth figures for Brazil. This has been corrected.  

There should be a positive message in this for SA, but there seems little passion for pursuing high level politicians.

Big fish more likely to walk free

As political analyst Justice Malala told the Morningstar conference, smaller fish are likely to cop the blame for corruption while the bigger ones walk free.

If we were to follow the Brazil model, we would have to deal decisively with corruption at the top level and then embark on reforms needed to address the oncoming train of unemployment and spiralling debt.

Source: Franklin Templeton Capital Market Insights Group, Bloomberg, Factset

MacDonald said there are some signs of prudence in the board appointments at state-owned entities (SOEs), but still little sign of improvement at larger SOEs such as Transnet, Eskom and SAA.

While Brazil decreased the local content requirement for equipment purchases for oil and gas exploration, SA has introduced no such reforms.

SA’s mining regulations still do not address investor concerns over domestic procurement and ownership. Labour laws in SA are seen as inflexible and anti-competitive, and the ruling party has little appetite to face down the trade unions.

Perhaps the most frightening chart presented at the Morningstar conference is that of SA’s debt servicing costs as a percentage of gross tax revenue.

Interest is now absorbing twice the tax revenue of 2010 in percentage terms. This cannot go on.

SA has been shielded from deteriorating terms of trade by high precious metals prices for gold and platinum group metals. Oil exporting countries have been devastated.

Yet SA remains locked in the old economy of commodities and industry. Asian economies are embracing the new economy of cloud technology and ecommerce, which has now surpassed the old economy of mining and industry as a percentage of national income.

That’s true for most Asian countries. It’s not true for SA.

Asia now accounts for nearly 40% of global IT hardware and semiconductor revenue, and about 85% global IT services.

In other words, virtually every other emerging market in the world is showing us a clean pair of heels.

Source: Franklin Templeton Capital Market Insights Group, Bloomberg, Factset

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1)Brazil jailed its corrupt leaders. SA lets them walk.
2) Brazil reformed its economy.
3) Brazil is not constrained (or destroyed) by BEE.

1. Brazil has a normal train system.
2. South Africa’s working rail system is the ‘Gravy Train’.
3. Brazil has a working labour law system.
4. South Africa’s labour laws are very restrictive.
5. Brazil’s business works on an open and honest system.
6. South Africa’s business system works on bribes and BEEE.
7. Do the maths yourself if you still vote for the cANCer administrators.

When a country abandons socialist policies in favour of a market economy and law and order, it frees up the resources to be exploited by private entrepreneurs in the interest of all citizens. This process improves equality and delivers social justice, empowerment and social security through employment opportunities and rising wages. Such an economy that is growing sustainably can feed a growing population. This economy grows the size of the cake, allowing everyone a bigger slice. Brazil chose to escape the Malthusian Trap in this way.

When citizens move away from the system of the individual ownership of property, towards a system of shared resources, then accountability and law and order are the first casualties. Any system of shared resources incentivises the most unscrupulous individuals in the group to overgraze the land for his personal benefit but at the expense of the group. In such a system, one person can’t become wealthy without impoverishing another. Socialism is a zero-sum game. One person’s gain is another person’s loss. The cake is of finite size and the system allows the unprincipled few to claim larger slices than the rest. The system incentivises unprincipled members of the community to plunder the common resources in the quickest way possible. Those who want to protect the resource will be punished, pushed aside, fired, ridiculed or killed, while those who plunder the resource will benefit personally. The author Pieter-Louis Myburgh describes this process in his book “Gangster State”.

The ANC has set the Malthusian Trap for South Africans. At the moment, as part of a vote-buying exercise, the ANC pretends to return to a state of law and order, but we know that this is merely a mechanism to remove one faction of plunderers in favour of another group of plunderers because the economy is still a zero-sum game under the ANC. BEE is a mechanism to grab larger slices of the cake to benefit some connected cadres, leaving everyone else, including the business owner and the shareholders, with the crumbs.

We cannot measure an economic system by what it intends to deliver. We should measure the effectiveness of a system by what it actually does deliver. The road to hell is paved with good intention…..and economic ignorance.

I like the way people compare Brazil to SA all the time when they are totally different countries!

Brazil has one official language which a major plus
Brazil has most of home affairs services online and actually DOES the work (police clearances etc are all ordered online and come on time)
Brazil does not have race-based policies
Brazil’s education is better than ours and offer free tertiary education at public institutions – most people are actually educated!
Brazilians will demonstrate and protest if the regime does something wrong, here they are praised and blame apartheid
Brazil actually jails corrupt officials
You can still walk around in many areas of Brazil although I hear Rio is bad like Joburg

To your last point; There are hotspots of crime as there are iin most cities/countries. Sao Paulo however is fairly dodgy. Lots of poverty and people sleeping in the streets all over the city.

those GDP figures for Brazil r very incorrect, the author must go relook

GDP in Brazil contracted both 2015 and 2016 and GDP growth has been anaemic … in dollar terms GDP has declined since 2015, with little growth in 2018.

I am not sure if the author is trying to make a case here, but it is not the truth he presented.

Even a simple tradenomics will tell you GDP in Brazil is not what is presented in this article: https://tradingeconomics.com/brazil/gdp

Brazils deficits have not improved it is now 88% public debt to GDP.

GDP in Brazil contracted both 2015 and 2016 and GDP growth has been anaemic … in dollar terms GDP has declined since 2015, with little growth in 2018.

I am not sure if the author is trying to make a case here, but it is not the truth he presented.

Even a simple tradenomics will tell you GDP in Brazil is not what is presented in this article: https://tradingeconomics.com/brazil/gdp

So here goes.

Brazil is governed by a right winger who is Trumpesque to the extreme. Brazil’s policies, in particular in relation to Covid-19, are roundly condemned world wide. And (brutal) the police force has become emboldened just like in the USA. Racism is also rearing its ugly head in Brazil and its inequalities are as legendary as South Africa’s.

So yes, if you want growth, go right wing. Whether Balsonaro will remain in power remains to be seen. Business is less corrupt than in South Africa but wasn’t always. Brazil did well under Lula and Roussef for a while, but the wheels came off under a variety of pressures.

The political angle was completely ignored and the article tries to credit the incarceration of corrupt leaders with the rebound of the economy, but it is much more complex than that.

Will South Africa ever move to the right of the political spectrum? Because that is what is required for our economy to come right. Jailing our corrupt politicians will not overnight sort out our economic mess without changes in economic policies which are not likely to happen.

Is Mashaba our Balsonaro?

The extreme right-wing politics and extreme left-wing politics are quite close to each other actually. The political spectrum is not linear. It is shaped like a horse-shoe.

Economic growth depends on the private ownership of property and the rule of law. When individuals own the means of production, and the law protects their rights and does not abuse them and plunder their property with taxes on capital formation, it does not matter whether the ruling party is right-wing or left-wing. Under such a beneficial political situation politics become irrelevant because the rule of law is supreme.

When our cognitive ability enables us to judge the alternative political-economic systems, not according to what they are intended to deliver, but by what they actually do deliver, it becomes clear that the choice between private ownership of property and collectivism isn’t merely a choice between political-economic systems. It is a choice between social cooperation and civil war. It is a choice between social cohesion and anarchy. It is a choice between prosperity and famine.

We need to promote and uphold the rule of law. In SA it seems that rule of law does not exist from basic crime to high level crimes like Construction Mafia, Township tenders , the abuse and terrorising of SA citizens and companies by crime!

How far we have fallen when we use Brazil as a country for SA to aspire to.

Brazil had the highest inequality in the world previously.

South Africa over took this value and is the highest in the world.

BEE, CORRUPTION, RESTRICTIVE LABOUR POLICY has made the poorest even poorer. Wake up Cyril Ramaphosa!

“South Africa remains a dual economy with one of the highest inequality rates in the world, with a consumption expenditure Gini coefficient of 0.63 in 2015.” – World Bank

“As of 2017, Brazil was deemed the most unequal country in Latin America, with a Gini coefficient of 53.3.” – https://www.statista.com/statistics/981226/income-distribution-gini-coefficient-brazil/

SA in the period of the 1970’s or 1980’s (deep into Apartheid)…

…SA’s corruption levels would’ve been compared to countries like the UK, France, Germany….or at worst Italy 😉

Fast forward to the year 2020, after two+ decades of freedom…
…here we have an article (suitably) comparing SA’s corruption to places like BRAZIL!! (…and our crime worse than Mexico)

How far she has fallen, due to terminal cANCer.

End of comments.

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