INSIGHT-Limpopo "looting" tests S. Africa's ANC on graft
* Spotlight on northern province over corruption allegations
* Limpopo ANC premier shrugs off calls to resign
* Ruling party faces outcry over "corruption, cronyism"
* Fears of wider "system failure" in South Africa
POLOKWANE, South Africa, Feb 23 (Reuters) - When the premier of South Africa's Limpopo province gave his "state of the province" speech this month, he announced that his region led the nation in good financial record keeping.
It left some in his audience blinking in disbelief.
Was he talking about the same platinum- and coal-producing northern province that is the target of corruption probes by a posse of South African law enforcement agencies after being declared "technically bankrupt" by the national treasury?
Critics and supporters alike of South Africa's ruling ANC have denounced what they call the wholescale "looting" of public resources in Limpopo by a group of politicians led by provincial premier Cassel Mathale and his friend and ally, outspoken ANC Youth League rebel Julius Malema.
Both deny any wrongdoing, but Malema, who has his political powerbase in the province, faces suspension from the African National Congress (ANC) for indiscipline.
The outcry over Limpopo shines an unforgiving spotlight on a cancer that many see corroding almost every layer of government in South Africa under ANC rule, 18 years after Nelson Mandela's liberation movement took power in a glow of international goodwill after the end of apartheid.
The graft and governance scandals threaten to undermine the ambitions of Africa's biggest economy to rub shoulders on equal terms with fellow BRICs Brazil, Russia, India and China, to attract investors and to speak for Africa on the world stage.
"The problem of Limpopo is the problem of how the ANC governs," said Sisonke Msimang, executive director of the Open Society Initiative for Southern Africa (OSISA), one of network of pro-democracy foundations created globally by billionaire investor and philanthropist George Soros.
Limpopo is "a bit of a test case for the ANC", said David Lewis, executive director of Corruption Watch, an anti-graft watchdog set up in January with the backing of South Africa's largest trade union grouping COSATU, an ally of the ANC.
Five key departments of Mathale's provincial administration were taken over by President Jacob Zuma's central government in December. Finance Minister Pravin Gordhan said Limpopo had spent far beyond its means to open up a potential financial shortfall of 2 billion rand ($261.1 million). A harshly-worded ministerial report cited "possible illegal payments" to service providers.
The national treasury said it found hundreds of millions of rand of "unauthorised and irregular" spending in Limpopo. Schools in the province started the year without basic textbooks and local hospitals went short of basic supplies and medicines.
"Corruption is growing like a wild fire in the veld, threatening to engulf and destroy the future of a country that has so much potential," COSATU General Secretary Zwelinzima Vavi said at the Jan. 26 launch of Corruption Watch.
All eyes are now on South Africa's law enforcement authorities and judiciary, and on the ruling ANC, to see how they handle the complaints against Mathale and his Limpopo administration, and whether prosecutions will follow.
A spokesman for the special police investigation unit the Hawks said inquiries were under way into allegations of corruption and business irregularities against Mathale, his wife and his friend Malema. He declined to give more details.
Probes into Limpopo's finances are also being conducted by the South African tax agency SARS and the Public Protector.
But if Limpopo Premier Mathale is worried about the widening investigations, he is not showing it.
After his Feb. 16 speech he responded to media reports about dodgy contract tenders and waste by his government with a breezy phrase in Afrikaans "Jy lieg soos 'n koerant" (You are lying like a newspaper).
"Limpopo is not falling apart," said provincial government spokesman Tebatso Mabitsela, adding that media versions about corruption in Limpopo were "riddled with fictions".
But some say Limpopo's management mess is symptomatic of a wider deterioration in government in South Africa.
"It seems to me what we are finding are more and more indications of fairly extensive system collapse," said Glen Steyn, a development economist who works in Polokwane.
The government has also intervened in Johannesburg's health sector and in sectors of Free State province.
Steyn says the problem appears most acute at the level of municipalities, which increasingly lack qualified engineers or financial officers. "It's not just management of budgets at stake, but also their ability to do what municipalities do, giving water to communities, fixing up roads," he said.
"TIP OF THE ICEBERG"
COSATU sees Limpopo's problems as "just the tip of the iceberg", saying government intervention there proved "the looting of the country's wealth is becoming endemic in South Africa".
A former head of the Justice Department's Special Investigating Unit (SIU) estimates the government loses about 30 billion rand ($3.92 billion) to corruption every year.
Most experts believe the real figure is much higher in a country where 2012 spending is expected to top one trillion rand ($130.5 billion) and whose relative wealth - although unequally distributed - stands out on the world's poorest continent.
In Berlin-based Transparency International's gauge of perceived corruption, South Africa has slid negatively in the ranking from 38th in the world in 2001 to 64th in 2011.
Peter Attard Montalto, emerging market economist at Nomura International, sees the practice of "cadre deployment" in South Africa - assignment of positions by the ANC on the basis of party loyalty and standing, rather than on competence - as a major factor behind growing local governance problems.
"Politicians are not kept in check by independently minded, competent technocrats," he said in a research note.
Denunciations of graft in South Africa focus on allocation of government tenders, ranging from multi-billion rand infrastructure and public works projects to supplies of books and stationary to schools and food and equipment to hospitals.
Such is the perceived prevalence of irregular tenders in South Africa, the term "tenderpreneurs" was coined to denote a whole class of politically-connected businessmen who have made fortunes under ANC rule since the end of apartheid.
Limpopo seethes with talk about crooked tenders: contracts awarded without competitive bids, often illogically without regard to price or technical competence, and involving business or family networks linked to politicians in power.
"It's always the same people and if you look, they are the ones around the premier and Malema," said Desiree van der Walt, leader of the opposition Democratic Alliance (DA) party in Limpopo. "As a citizen of this beautiful province, it's not nice to hear you're actually run by mafias."
Supporters of Mathale and Malema have portrayed the Zuma government's intervention as a witchhunt aimed at punishing party figures who have supported replacing Zuma as party head at the next ANC leadership conference due in Mangaung in December.
"You have to understand, what is happening here in Limpopo has the Mangaung elective conference stamped all over it," said one ANC insider in Polokwane, who asked not to be named.
Malema, who faces a five-year expulsion from the ANC for violating its rules and sowing division, has kept up a campaign of defiance against Zuma, frequently mocking him in public.
The provincial ANC and Youth League branches have questioned the motives behind the intervention in Limpopo, suggesting Mathale and Malema were targeted for their anti-Zuma stance.
But the local branch of the South African Communist Party (SACP), a traditional partner in the ruling ANC alliance, dismissed these suggestions as "fabrication". It said their aim was to try to defend "corruption and cronyism".
"It's one thing for the ANC to have internal battles and for somebody to go rogue within the party. It's another thing for that to have a direct impact on how a province is governed," OSISA's Msimang told Reuters.
Corruption Watch's Lewis says public sensitivity to graft is growing. "If you live in a small town and you see the mayor go from a VW Polo to a BMW 7 series in two years of his mayoralty, you know there is something wrong," he said.
In the week leading up to Mathale's speech, Polokwane's normally tranquil city centre saw a flurry of anti-corruption protests calling for the ANC provincial premier to quit.
These came not just from the opposition DA, but also from traditional ANC allies, and even from the movement's own ranks.
Camouflage-clad anti-apartheid veterans of the ANC's now disbanded Umkhonto we Sizwe (MK) military wing marched to local party offices and performed the high-stepping toyi-toyi protest dance to demand the removal of Mathale and his cronies.
"These comrades are not comrades," local MK veterans' association chairman Teenage Monama said.
Simon Mathe, provincial secretary for Limpopo of the South African Municipal Workers Union (SAMWU) said: "Once you have the MK Veterans Association marching against the premier of the province, then you have a serious political problem."
SAMWU is calling for the central government to take over the running of failing local municipalities too.
"This is clear wrongdoing, we have no doubt about it. We can't tolerate it in a democratic South Africa," Mathe says, smacking his hand on a thick folder in his office in Polokwane he says contains evidence of illegality in municipal tenders.
CAN THE ROT BE STOPPED?
Many in South Africa still believe the institutions exist in the country to check and roll back corruption.
"You need a good constitutional order: we've got one. You need a relatively independent judiciary: we've got one. You need a strong media: we've got one," says Corruption Watch's Lewis.
But he says his organisation has been receiving complaints about the judiciary. "Obviously, if you have a rotten justice system ... you're not really going to get anywhere."
The ANC's track record for putting its own house in order on corruption remains compromised by an unresolved arms deal scandal that has festered for more than a decade, casting its shadow over both Zuma and former President Thabo Mbeki.
They have repeatedly denied any wrongdoing.
Zuma escaped graft allegations when prosecutors dropped charges relating to the 30 billion rand ($3.88 billion) deal to buy European military equipment in the 1990s. But he has never quite shaken off perceptions of impropriety over an arms transaction that saw his financial adviser jailed.
The president has ordered a new inquiry into the arms deal scandal.
"That's the biggest danger ... that the message that comes through is that it's OK (to be corrupt)," Steyn said.
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