Armscor to give partnerships 'a good shot'

Kevin Wakeford, who has been appointed CEO of state-owned defence procurement company Armscor, says the government must unleash the power of the private sector if the economy is to grow.

The former head of the South African Chamber of Business (Sacob) - now known as the South African Chamber of Commerce and Industry - also says organised business needs to be "more robust" as a "rallying point for development".

It is "a divided house", he says, and is "not really making an impact. The private sector is a key citizen of civil society and is not pulling its weight."

Wakeford, 53, was effectively fired from Sacob and blackballed by the business establishment 14 years ago when he blew the whistle on corporate manipulation of the currency market, which he said caused the rand's collapse against the US dollar.

A government-appointed commission of inquiry halted the slide, but left him with few friends in the corporate sector.

He is an unequivocal believer in market-driven economic growth and intends to boost the role of the private sector while at Armscor.

He says this is the only way to achieve the government objective of industrialisation.

It will be interesting to see how this goes down, although he insists that he and the government are on the same page.

If industrialisation is to succeed, says Wakeford, then the government needs to limit its role. "Government should be a regulator and enabler, and the private sector the implementer."

Public-private partnerships are key to economic growth, but can only work if the government allows the private sector to do what it does best.

The parastatal sector is "ripe for concessioning", he says, and at Armscor he will be "committed to making that work".

"We need to start partnering more, and certainly we're going to give that a good shot at Armscor on a basis that will unlock industrialisation."

Wakeford says a key ingredient for economic growth that is absent in South Africa is a sense of confidence and an appetite for risk-taking.

"And the people who bring that sense of confidence and risk-taking is not government, it's the private sector. Risk-taking is the very nature of the beast. We need to unleash that level of risk-taking."

While those whose profits he ended when he blew the whistle on money market manipulation treated him as an outcast, others, including the unions, saw him as a patriot. Wakeford says he never thought of himself as a whistle-blower, just someone who was doing his job.

"These matters had been reported to the authorities already, they'd been tabled with the Reserve Bank, with a variety of regulators from the Financial Services Board to, as far as I know, the Scorpions. So everyone had knowledge of it, but no one was acting on it."

He believes that if he hadn't acted, the rand, which fell from R7.60 to R13.84 in 2001, could have fallen to as low as R50 to the dollar with disastrous consequences for the working class.

"The action of bringing it into the public domain via a ... commission of inquiry cast so much light on the markets that I believe hundreds of deals started unwinding, and that had a very positive effect on the value of the currency."

The attitude of the commission was hostile towards him. The night before it started, Wakeford received a call from someone at the commission who said: "I hope you've taken your Calmex so you can sleep tonight. You do know that if you don't divulge your source I can have you arrested and incarcerated?"

It turned out to be a hollow threat. Wakeford never did divulge his source. He says he promised he wouldn't and he never will.

He says he had "no respect" for the commission, which he suspects didn't really want to get to the bottom of what was happening.

"It should have persisted with its mandate and I think much more would have come out."

But he believes the mere presence of the commission had a large impact on the currency markets.

He says the unethical behaviour of some of South Africa's largest corporations didn't surprise him. "Business by its very nature is opportunistic and manipulative."

Expecting anything else would be naive, he says, which is why strict regulation, oversight and the insistence by shareholders on proper disclosure are so important.

"That is what keeps corporate decision making in check. The moment shareholders become too relaxed about their investment and don't participate in general meetings and don't ask the right questions, that is when things fall apart."

He believes shareholder activism in South Africa is light years ahead of where it was before 1994, but still has a long way to go.

"As a fairly open market economy, South Africans have learnt a lot over the last 20 years. We're no longer a siege economy. We're very much part of a rigorous and robust global environment with shareholders dispersed all over the world via large pension funds, unit trusts and a variety of asset management institutions."

But when it comes to corporate governance, there is still too much box ticking "rather than being true to the spirit of the law".

Wakeford has served on several pension funds since his Sacob days and believes the pension fund industry, which in South Africa represents a huge savings base, "could be playing a far greater role in ensuring accountability, disclosure and performance".

"Among all asset custodians, whether pension funds, unit trusts or private equity funds, there is a need for closer scrutiny, greater involvement, more participation by pension fund members."

Armscor isn't exactly a shining exemplar of transparency and disclosure and all the other good things he talks about. Isn't he concerned that he might suffer reputational damage by association?

"To my knowledge, they've had clean audits with no disclaimers and no qualified audits for the last 10 years," he says.

What about its role in the arms deal?

The arms deal was predominantly government-driven, he says. Although weapons procurement is central to Armscor's mandate, in the case of the arms deal it was handled by the cabinet and government officials surrounding it. "Armscor was involved in some of the scientific and technical assessments, but it wasn't performing the function it was mandated to perform. It had no choice in the matter."

He says its mandate is "quite simple. To procure military equipment on behalf of the South African National Defence Force at the right price." He intends it to carry out this mandate while he is in charge.

How will he resist government interference?

He says he was a project adviser for the Department of Home Affairs under Nosiviwe Mapisa-Nqakula, who is now the minister of defence.

"And she never tried to interfere," he says.

Lessons from Coega's failure

Before becoming head of Sacob, Wakeford led the Port Elizabeth regional chamber of commerce and was heavily involved in raising funding for the government's much-vaunted Coega industrial development project.

This was about providing infrastructure to exploit the city's strategic position on the coast and trigger economic growth in the region.

In spite of the vast amounts invested, it has not succeeded as an economic catalyst.

Wakeford says where it went wrong is that the government insisted on being the manager and owner of the infrastructure rather than sticking to its proper role as regulator and enabler.

"Coega should have been handed over to a private operator, the infrastructure should have been concessioned. The most efficient export processing zones and industrial development zones worldwide harness the private sector.

"Coega is constrained and in many senses moribund because the private sector are merely tenants.

"They should be managing the terminals at the ports, they should be managing the zone itself. We need world-class operators to unlock that potential."