South African advisers rebuild trust after Zuma-era corruption
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Jacob Zuma’s nine-year presidency of South Africa inflicted serious damage on the country, breaking the trust of the people in its government and institutions. But the harm it did to the business of management consulting left the industry with a dilemma. Consultants in South Africa are best placed to rise to the challenge of fixing the country but must first themselves overcome the reputational damage that tainted their industry in the Zuma years.
“There has been a huge backlash against consulting firms,” says Isaac Shongwe, founder and chairman of the Letsema group, one of the earliest and largest black-owned consultants in the country. “It creates a gap for smaller firms but we still have to see how that plays out.”
South Africa is a country searching for answers. A recent national election has returned the African National Congress to power but with a sharply lower share of the vote. South African unemployment is more than 30 per cent, most rating agencies brand its sovereign debt as “junk”, and it is measurably the most unequal nation in the world. It should be a management consultant’s dream.
Instead, as the story of state capture by Mr Zuma and his business partners becomes clear, so too has the role consultants and auditors played in helping them to loot the fiscus.
A judicial inquiry found that KPMG consultants underwrote blatantly false reports in an attempt to discredit the leadership of the South African Revenue Service. Bain played an active role in the appointment of a Zuma acolyte to run the tax authority, leaving the new administration under President Cyril Ramaphosa with big revenue shortfalls as the service shed expertise. McKinsey played an active part in the mismanagement of Eskom, the country’s electricity supply monopoly and, it now appears, at the state transport agency, Transnet, as well.
It has all left consultants somewhat disoriented. “There are an awful lot of competing models [in the South African market],” says Derek Thomas, chief executive of Letsema. “I wouldn’t encourage a youngster to enter this business now . . . I think the industry is overtraded, with many people whose service offering just isn’t up to it.”
Consultant Angelo Kehayas estimates there are 90,000 consultants in the country, but the sheer amount is irrelevant, he believes. “Less than 50 per cent of them are competent, according to our standards,” Mr Kehayas says, referring to the consultancy he founded.
Mr Kehayas has been trying for years to form a professional association of management consultants, to create a form of certification under an international standard and to seek official recognition as a self-regulating profession with a code of conduct. But in a market as fragmented and in flux as South Africa, creating order out of chaos is difficult. Mr Kehayas’s Institute of Management Consulting has more than 100 members, mostly independents.
His objectives are “laudable” says Mr Thomas. “[South Africans] need to start behaving as if we are in charge of our own destiny.”
Steve Asbury is one of South Africa’s better-known independent consultants. Recalling the old days, the industry has changed he says. “There’s a big difference,” he says. “Clients were experienced. They knew which firms they needed. Who did what best. You’d call up the CEO of a large company, get a meeting, write him a letter and you’d start the work and you had no option but to do your best work.”
South African companies are increasingly driven by the dictates of their procurement departments. They want to keep on the right side of government regulations, which encourage procurement from black-owned firms. Everything is put out to tender and procurement can seem almost endlessly bureaucratic. But, says Mr Kehayas, “procurement departments don’t know how to procure intangibles”.
The procurement process, even for relatively simple contracts, is often exhausting. It leaves the Big Four firms and smaller independents alike spending long periods chasing relatively small jobs — although it tends to be the larger firms that have the stamina to make it through. The slog is a necessary one, as failing to tender to a big state corporation can damage the standing of a consultant in the eyes of a client.
The state is the main market now. Young and often inexperienced managers in the public sector are often accused of over-reliance on consultants and there is a drive to limit their use. The government has this month brought extensive new municipal cost control regulations into law, which clamp down of the use of local and foreign consultants by the many financially constrained state-owned enterprises.
It is too early to tell whether the Zuma years will have a decisive effect on consulting. Black economic empowerment laws that predate Mr Zuma are probably far more influential in the long term. It was by manipulating these laws — requiring the likes of Eskom to procure from McKinsey only if it had a black partner — that Zuma was able to direct spending at the utility. This was done in conjunction with the Gupta family, who are accused of using their friendship with Mr Zuma to sway state decisions and, ultimately, to profit from them. In this case, if McKinsey had the “right” partner it would get the work.
Also, mirroring a wider trend in South Africa, Mr Asbury notes that “in the 1990s the best people were in the big firms but not so much any more as people see a life for themselves outside of corporates”.
Still, says Mr Kehayas, “there’s a very difficult market out there for independents”. At Letsema, Mr Thomas sees the majors as perhaps slightly more vulnerable. “In this business you make your margins on your juniors,” he says. If the big foreign firms import young consultants, they do not know the terrain and they might not be the best available.
The industry has faced up to some hard home truths in the aftermath of the corrupt Zuma regime, but there are some harmful consequences of that administration they cannot control. “There’s been a loss of productive capacity in this country,” says Mr Kehayas. “When it goes your clients go with it.”