How the Guptas’ brand turned toxic in South Africa

How the Guptas' brand turned toxic in South Africa

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President Zuma’s son Duduzane (r) has strong business ties to the Gupta brothers (l)

The reputations of major international firms Bell Pottinger and KPMG have been badly damaged by their work relating to the controversial Gupta family in South Africa. BBC Africa Business Report editor Matthew Davies looks at whether the family’s business can survive.

The embattled Gupta family, who own a range of businesses in South Africa, have had all their accounts with a number of banks closed supposedly because of alleged dubious business dealings.

And without banks they cannot pay their staff, which they have put at nearly 8,000.

But how did we get here?

When the Gupta brothers, close friends of President Jacob Zuma, arrived in South Africa as ordinary immigrants from India in the 1990s, they established a computer business Sahara, later going on to buy up stakes in mining and engineering companies, a luxury game lodge, a newspaper and a 24-hour news TV station.

But those very lucrative businesses are now at the heart of their fall from grace in what has been termed “state capture” here – allegations that the family, through a slew of corrupt deals, have used their influence to access millions of dollars worth of government contracts.

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There have been massive demonstrations against the Guptas

The three brothers, Atul, Rajesh and Ajay have always strenuously denied the allegations.

South Africa’s four big banks, ABSA, FNB, Standard and Nedbank told the Guptas in March 2016 that they would no longer provide banking facilities to the Gupta-owned Oakbay company and its subsidiaries.

Some have said the scandal points to a bigger problem for South Africa and its governing African National Congress (ANC).

Questions about wealth

South Africa Communist Party head Blade Nzimande pointed to “parasitic patronage networks” in the government. He added that it takes two to tango:

“We can’t only blame the Guptas. We must also blame their collaborators inside our movement and government as well‚ and unless we deal with that‚ we are on a slippery slope.”

The principal connection between the brothers and Mr Zuma came through the president’s son, Duduzane.

He has worked for the Guptas for 13 years, starting out as a trainee at Sahara Computers.

He recently told the BBC the reason the Guptas chose to go into business with him was that he was a “likeable guy”.

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Media captionDuduzane Zuma denies that his relationship with the Guptas is improper

Corporate documents show that he and the Guptas have served together on at least 11 company boards.

One of President Zuma’s wives worked for a Gupta-controlled mining company and his daughter was a director at Sahara Computers.

The family is worth billions of South African rand, and based on the Johannesburg Stock Exchange figures for 2016, Atul Gupta is South Africa’s 7th richest person with a net worth of around $770m (£600m).

In recent years, questions have been asked about how one family came to amass such wealth in such a relatively short period of time and the negative attention surrounding the Gupta brand began to make those doing business with them jittery.

The Zumas and the Guptas – ‘the Zuptas’

• Bongi Ngema-Zuma, one of the president’s wives, used to work for the Gupta-controlled JIC Mining Services as a communications officer

• Duduzile Zuma, his daughter, was a director at Sahara Computers

• Duduzane Zuma, a son, was a director of some Gupta-owned companies but stepped down in 2016 following public pressure

Will ‘the Zuptas’ fall in South Africa?

The Guptas and their links to Zuma

Jacob Zuma – South Africa’s controversial leader

By July, the Guptas were reduced to using just two banks operating inside South Africa, the Bank of China and the Bank of Baroda – both of which have now bailed on them.

There was really only one thing to do: Sell up.

So in August, the family put a “For Sale” sign on Oakbay and its other companies.

Within two days, its media assets – the 24-hour news station ANN7 and The New Age newspaper – had gone for a combined $34m to former government spokesperson Mzwanele Manyi, an avid supporter of Mr Zuma.

But this was a vendor-financed deal – essentially with the seller lending the money to the buyer.

The deal was followed with the sale of mining company Tegeta for $228m (£175m) to Charles King.

Charles King is based in Switzerland, and until July had no clear track record in the mining sector. It was registered to trade in fashion.

Leaving South Africa?

The Guptas announced that they would be selling all of their South African assets by the end of the year:

“As a family, we now believe that the time is right for us to exit our shareholding of the South African businesses which we believe will benefit our existing employees,” they said in a statement.

But how detached the Guptas’ business empire becomes from South Africa remains to be seen.

Many observers feel that they will continue, in some fashion, to pull the levers and call the shots.

Again, this is something they and their associates deny.

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President Jacob Zuma has been accused of allowing members of the Indian-born Gupta family to wield undue influence

But back to their undoing.

“There will come a point, however, when they are properly dumped by their backers in the ANC [the Zuma faction] but this is unlikely yet and might only happened closer to 2019,” says Peter Attard Montalto, an expert on emerging markets.

“We have seen some public distancing of the Zuma faction and the Guptas but behind the scenes, I’m not sure much has changed yet,” he adds.

Corporate South Africa has been hit by an earthquake because of its links to the family and it will suffer the aftershocks for some time to come.

Several large companies have been shaken to the core and senior staff have resigned or been suspended.

British public relations giant Bell Pottinger is in administration, while international accounting firm KPMG has found itself in the firing line, along with financial consultants McKinsey.

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Media captionAndrew Harding reports on allegations of high-level corruption in South Africa involving a British PR company

German software company SAP has suspended four of its managers in South Africa while an internal investigation is conducted into alleged kickbacks.

At this stage, the long-term reputational damage to all is hard to gauge.

Having said that, Daniel Silke at Political Futures Consultancy believes the whole saga has actually strengthened the position of South Africa’s private sector:

“There are enough top-notch companies who are politically and morally beyond reproach and this is a relatively isolated political incident. The private sector has shown that it can take action quickly.”

What happens next? It’s a question many South Africans are asking.

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Global accountancy firm KPMG removed the leadership team of its South African arm after an internal investigation into work it did for the Gupta family

Opposition politicians and parties are calling for inquiries and investigations.

In the country’s parliament, four committees have been ordered to conduct investigations.

Only one has scheduled public meetings so far. The National Prosecuting Authority says its investigations are ongoing, but has been thin on any details.

Chief prosecutor Shaun Abrahams told parliament: “My silence does not mean that no work is being done.”

As yet, no-one has been arrested or charged in connection with any allegation of corruption linked to the Guptas.

They remain resolute in their denials, saying there are no cases to answer and that they are now in the process of clearing their name “in the face of unfounded media allegations”.

Whether the Guptas quit South Africa completely is, at this point, a future only known to them.

Selling up completely and moving the proceeds offshore would take some time, even if they wanted to.

Still, their dealings in South Africa have affected a wide range of people, companies and institutions both within and beyond the borders of South Africa.

When this saga is over and the music stops, where everyone will be left standing is a complicated call to make at the moment.

The full picture may take years to emerge.

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