Graft Toll Mounts as South African Services Firm Faces Collapse

JOHANNESBURG (Capital Markets in Africa) – A South African company embroiled in allegations that it paid millions of rand a month in bribes to secure government contracts is facing collapse, becoming the biggest casualty since President Cyril Ramaphosa started a probe into state corruption.

African Global Operations, the services company formerly known as Bosasa, will apply for either a voluntary liquidation or business rescue after a local bank informed the firm it will close its accounts by the end of the month, it said in an emailed statement on Monday. Other domestic and international lenders turned down its applications for a trading facility, citing reputational risks of being associated with the business, African Global said.

As many as 4,500 jobs and 3,100 suppliers are at risk, along with 32 childhood development initiatives in a township called Orange Farm near Johannesburg, it said.

The winding up of African Global comes three months before Ramaphosa’s African National Congress faces elections, bruised by almost nine years of policy missteps and plundering of state assets under his predecessor, Jacob Zuma. Zuma and several serving and former cabinet ministers have been implicated in taking bribes from businessmen in exchange for influencing the awarding of state contracts and protecting them from prosecution, allegations they deny.

It also comes as Africa’s most industrialized economy grapples with 27 percent unemployment and little fiscal space to rescue cash-strapped and debt-laden state companies decimated by poor management and irregular spending. Ramaphosa has replaced the boards and top management of the government-owned companies at the heart of the looting spree, and several senior Bosasa officials and an official who oversaw the nation’s prisons have been arrested.

Absa Group Ltd. and FNB, a division of FirstRand Ltd., both informed African Global they would close the company’s accounts, Johannesburg-based News24 reported, without saying where it got the information. Absa and FNB declined to comment due to client confidentiality when contacted by Bloomberg News.

Still Solvent
“The decisions made by the financial institutions are not based on the African Global Group’s liquidity status, financial stability, operational performance or growth forecasts,” the company said. “On the contrary, the group is both factually and commercially solvent.”

The closures of the bank accounts echoes similar steps banks took against members of the Gupta family and companies under their control after they were accused of using their friendship with Zuma to win deals and pick cabinet members, charges they deny. Companies such as McKinsey & Co., KPMG LLP, SAP SE and Bain & Co. have also been dragged into the scandals.

Ramaphosa last year ordered several investigations into the rot in state institutions, including the Commission of Inquiry into State Capture, a judicial panel probing the influence of private businesses over the government. During nine days on the stand, Angelo Agrizzi, the former chief operating officer of Bosasa, detailed how the company bribed Zuma, the head of Zuma’s charity foundation, members of parliament and other state officials. However, no politician implicated in the probes has yet been bought to book.

Source: Bloomberg Business New