Super-rich government cronies in South Africa vs the world
A new report highlights how crony capitalists – individuals who earn their riches thanks to their ‘chumminess’ with government – have had a golden era up until the past few years.
Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials.
The Economist’s crony-capitalism index of 22 countries shows that the worth of billionaires in crony industries soared by 385% between 2004 and 2014, to $2 trillion.
However, thanks to falling energy and commodity prices, politically-connected tycoons have come under the pump over the past two years. Among the indexed economies, crony wealth has declined by $116 billion since 2014.
The report noted that another reason for the pressure is a backlash from the middle class, while corruption scandals have lit a fire under governments, as has happened in South Africa.
The report warned that if commodity prices rebound, crony capitalists’ wealth is likely to rise again.
The Economist used data from Forbes to calculate the total wealth of those billionaires whose activities are largely in industries that benefit from political influence.
At last count, South Africa had six dollar billionaires, while the sectors under question include the likes of defence; infrastructure; oil/gas/chemicals and other energy; construction; mining; commodities; utilities; and telecoms.
“Crony capitalism – or ‘rent-seeking’, as economists call it – shades from string-pulling to bribery. Much of it is legal, but all of it is unfair,” The Economist said.
“It undermines trust in the state, mis-allocates resources and stops countries and true entrepreneurs from getting rich. So the dip in crony activity is welcome. To stop it roaring back, governments need to seize the moment.”
Germany is seen as the ‘cleanest’ country on the index, where only a fraction of its billionaires derive their wealth from crony sectors. Russia is the worst – wealth from the country’s crony sectors amounts to 18% of its GDP.
South Africa is ranked 13th, where wealth from the country’s crony sectors amounts to approximately 3% of its GDP (± R156 billion).
The results are presented for 22 economies: the five largest rich ones, the 10 biggest for which reliable data are available and a selection of other countries where cronyism is a problem.
“The rich world has lots of billionaires but fewer cronies. Only 14% of billionaire wealth is from rent-heavy industries,” The Economist said.
Developing economies account for 43% of global GDP but 65% of crony wealth.
More on wealth in SA
How South Africa’s richest people make their money
Black billionaires sold their skin for wealth: Malema
Big shift in racial distribution of South Africa’s super-rich
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