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How Blockchain can curb corruption in South Africa

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Picture: Karen Sandison/African News Agency (ANA) – Deputy chief justice Raymond Zondo, who heads the Commission of Inquiry into State Capture. The state capture affair, exemplified by the Zondo Commission, exposed how political figures and private interests colluded to manipulate state institutions for personal gain.

By Anthony Kaziboni and Ugljesa Radulovic

The Gloomy Picture

Corruption in South Africa has significant implications for the country’s progress.

The state capture affair, exemplified by the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector, including Organs of the State (commonly referred to as the Zondo Commission), exposed how political figures and private interests colluded to manipulate state institutions for personal gain.

This gravely undermined the country’s democratic institutions, eroded public trust, and diverted resources from essential public services.

The Corruption Perceptions Index (CPI) is an annual publication by Transparency International that assesses South Africa’s corruption levels relative to other nations. A lower CPI score indicates a higher degree of perceived corruption.

In recent years, South Africa’s CPI score has fluctuated in the early 40s, highlighting ongoing challenges in combating corruption and ensuring accountability. In the 2022 CPI, South Africa scored 43 out of 100, ranking 72nd among 180 countries. It is important to note that the scale ranges from 0 to 10 for “highly corrupt” and 90 to 100 for “very clean”.

Looking at provinces, the 2022 Corruption Watch Analysis of Corruption Trends (ACT) received 1,037 whistleblower reports in the first half of the year of the reporting period. The most common type of corruption reported was fraud (35 percent), followed by abuse of authority (17 percent), bribery and extortion (16 percent), and procurement irregularities (15 percent).

Of the reports received, 43 percent came from Gauteng, 9 percent from the Western Cape, 8 percent from KwaZulu-Natal, and 8 percent from Limpopo. These four provinces accounted for approximately two-thirds of all reports.

At the local government level, the Auditor-General’s (AG) findings concerning municipalities have been troubling. Several municipalities have experienced mismanagement, financial irregularities, and the misappropriation of funds, leading to their near collapse and inability to provide essential services to citizens.

In the latest local government audit outcomes for the 2021-2022 period, a mere 38 out of 257 municipalities obtained clean audits. This outcome is a direct result of skill shortages, inadequate accountability, and weak leadership, as reported by the standing committee on the auditor general.

What Are the Losses?

Understanding the cost of corruption has become increasingly crucial. It has had wide-ranging and complex consequences in South Africa, encompassing both measurable and immeasurable impacts. Among the quantifiable effects are substantial financial losses resulting from embezzlement and the misappropriation of public funds, estimated to amount to billions of Rands annually. These losses severely impair essential public services, including education, healthcare, and infrastructure development, which are vital in fostering economic growth and advancing societal well-being.

The state capture affair, which was orchestrated by former president Zuma and the Gupta brothers, can be taken as an example. Former Minister of Finance, Pravin Gordhan, speculated in 2018 that state capture had cost the country over R100 billion. By 2019, these estimates skyrocketed, indicating that the financial cost of state capture stood at around R1.5 trillion. However, this only considered the four years of Zuma’s second term in office.

During the financial year 2021-2022, municipalities incurred significant economic losses due to corruption. Fruitless and wasteful expenditure amounted to R4.74 billion, unauthorised expenditure reached R25.47 billion, and the R1.6 billion allocated for consultants proved ineffective. These alarming figures underscore the urgent need to address corruption and ensure responsible municipal financial management.

The effects of corruption on South Africa have also resulted in unquantifiable impacts. It has inflicted and continues to inflict, damage on the state’s reputation. It has significantly reduced opportunities within the country for its people, has resulted in an erosion of public trust in institutions, as well as having contributed to the fostering of a culture of dishonesty. It is evident that the government’s trustworthiness is in question, with only 27 percent of South Africans expressing trust, according to the 2021 Edelman Trust Barometer.

Corruption also has far-reaching consequences, as it undermines foreign investment, discourages and stifles entrepreneurship, and exacerbates inequality, thereby hindering poverty alleviation efforts. The most affected by this scourge are indigent communities that heavily rely on the government for welfare and service delivery, leading to rising violent protests fueled by frustration.

What has Been Done?

South Africa has undertaken various measures to tackle corruption, including the establishment of anti-corruption institutions, strengthening legal frameworks (such as the Protected Disclosures Act, Act No. 26 of 2000, and its subsequent amendment, the Protected Disclosures Amendment Act, Act No. 5 of 2017), and the recent implementation of the National Anti-Corruption Strategy 2020-2023.

The Strategy was adopted to “[r]ejuvenate a national dialogue and direct energy towards practical mechanisms to reduce corruption and improve ethical practice across sectors and amongst citizens in South Africa”. The Zondo Commission, while exposing institutional weaknesses, has stood as a testament to the country’s dedication to combating corruption by uncovering and holding wrongdoers accountable.

These efforts have encountered obstacles, such as inadequate access to resources, political interference, and limited transparency in various processes. Innovative solutions that capitalise on technology and prioritise transparency are imperative to make a more substantial impact.

What about Blockchain?

Blockchain technology offers a transformative opportunity to combat corruption effectively across all three spheres of government in South Africa, including the national, provincial, and local levels. Its decentralised and tamper-resistant nature ensures data integrity and opens new possibilities for transparent governance and enhanced public service delivery.

Blockchain technology can revolutionise procurement processes, guaranteeing transparency and traceability throughout the supply chain. This eliminates opportunities for bribery and favouritism, ensuring that contracts are awarded based on merit and compliance with regulations.

An example of this application could be used in the case of corrupt procurement practices where the prices of goods and services are inflated. With blockchain, every step of the procurement process can be traced and verified, making it nearly impossible to manipulate contracts for personal gain. Smart contracts can be implemented to automatically enforce procurement rules, minimising the chances of corruption in the bidding and awarding processes.

Furthermore, blockchain enhances financial management and accountability. By providing an immutable ledger, blockchain technology tracks and secures transactions, leaving no room for misappropriation of funds. This ensures that resources are directed towards their intended purposes, benefiting citizens directly and eradicating corruption-driven diversions of public funds.

A notable benefit of blockchain lies in its ability to eliminate data silos in conventional bureaucratic systems. Through secure information sharing across various organisations and entities, blockchain facilitates seamless collaboration and provides access to critical data for informed decision-making. This eradicates the opacity that often facilitates corruption, promoting transparency and accountability in government operations.

In addition to preventing corruption, blockchain streamlines data management, making it more efficient and reliable. With reduced opportunities for data falsification and a decreased risk of a single point of failure, government can enhance the accuracy and trustworthiness of their records. This fosters an environment where accountability is prioritised, and corruption becomes increasingly difficult to commit and conceal.

What about Ethics and Good Governance?

While technology like blockchain can be a powerful tool, it is not a panacea for corruption. To truly combat corruption, ethical and moral leadership is essential. Leaders must set a precedent of behaviour grounded in integrity, where accountability is the norm, and a culture of transparency and honesty is the benchmark. Ethical leadership should, therefore, prioritise the common good over personal gain, and take a stand against corrupt practices. Furthermore, leaders should support anti-corruption measures, reinforcing the message that corruption will not be tolerated.

Conclusion

South Africa faces a daunting challenge in the battle against corruption. However, attainable progress lies within a multi-faceted strategy that combines technological innovation with ethical leadership. Harnessing technology like blockchain can help to increase transparency and accountability in government.

This will help to restore public trust and attract investments. Fostering ethical leadership is also essential in fighting corruption. Leaders need to set an example by upholding the highest standards of integrity, in a climate where corrupt behaviour is held to account.

By combining technological innovation with an unwavering commitment to ethical governance, South Africa can build a society free from the shackles of corruption. This will create an environment where citizens’ well-being and the common good take precedence.

Dr Anthony Kaziboni is Head of Research, Institute for the Future of Knowledge, University of Johannesburg. Dr Ugljesa Radulovic is Postdoctoral Research Fellow, Department of Sociology, University of Johannesburg.