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Power of Gupta family in South Africa has people fearing ‘state capture’

Indian businessmen Ajay and Atul Gupta, and Sahara director, Duduzane Zuma speak to the City Press from the New Age Newspaper's offices in Midrand, Johannesburg, South Africa on 4 March 2011.

Muntu Vilakazi/Gallo Images/City Press

The Gupta brothers grew up in an ordinary city in northern India, where their father imported spices and sold rice from his modest chain of grocery stores.

After graduating from university, the brothers explored business ventures in China, without much success. And then, in the mid-1990s, their father sent them off to Africa, believing it would become "the America of the world."

Two decades later, the Gupta brothers – Ajay, Atul and Rajesh – have become one of South Africa's most powerful families. They are the fabulously wealthy owners of huge mansions, private jets, mining companies, media outlets, computer firms and real-estate investments. And they have triggered a provocative question: can a single business family capture an entire government?

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With their close connections to South African president Jacob Zuma and a host of ministries and state agencies, the family has been accused of "state capture." The allegation has even been raised by one of Mr. Zuma's cabinet ministers, who says the Guptas boldly advertised their influence by offering him a cabinet promotion.

It's a phenomenon that has shocked the country, sparking fears of widening corruption. It also reveals the shifting nature of South African politics. With apartheid receding into the rear-view mirror, the post-liberation ruling party is now consumed by squabbles over money, business influence, and the spoils of power.

In 2013, the Guptas flaunted their power at a lavish family wedding in Sun City, a luxury casino hotel complex in South Africa. An entire planeload of 270 wedding guests from India, flying in a chartered Airbus A330 jet, landed at a closed air base in Pretoria, normally reserved for state visits and military use. This allowed the wedding guests to bypass the normal customs checks. They then enjoyed a police escort to the wedding site.

Despite a storm of controversy and an official inquiry into the incident, the power of the Guptas has continued to expand since then. One of South Africa's opposition parties has begun referring to Mr. Zuma and the Guptas as a joint entity – the "Zuptas." A deputy finance minister and a former MP have both recounted how the Guptas offered cabinet jobs to them. Three of the president's family members, including his son Duduzane, have held jobs or directorships at Gupta-controlled companies, and several of his cabinet ministers are accused of representing Gupta financial interests. And a former cabinet minister has recalled how she was heavily pressured to meet a Gupta-linked business.

The ruling party, the African National Congress, has admitted concern over the power of the Guptas. It has launched an informal investigation, and a report is due to be tabled at an ANC meeting this weekend. But with the party facing a major political test at local elections on Aug. 3, it seems likely that the ANC will prefer to bury the issue.

South African media have documented a tight web of connections between the Guptas and the state. Individuals and companies from the Gupta empire have been linked to key state corporations, including the electricity monopoly, the state transportation agency, the state weapons manufacturer, and the state industrial finance institution. These connections have led to lucrative contracts and cheap financing for Gupta companies, according to South African media reports.

"State capture" has become the shorthand phrase for the Gupta controversy. At first it seemed implausible: no single business could seize control of the state apparatus. But it gained credibility in 2015 when Mr. Zuma appointed two obscure newcomers – both believed to be close to the Guptas – to the key posts of mining minister and finance minister. The latter appointment sparked such an uproar that Mr. Zuma had to reverse the move after just four days.

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The allegation gained further legitimacy in March in a shocking statement by the deputy finance minister, Mcebisi Jonas. "The issue of 'state capture' should be of concern to all responsible and caring South Africans," Mr. Jonas said.

He confirmed there were "attempts to capture the state" – attempts that could damage the "moral authority" of the government. And then he named names. "Members of the Gupta family offered me the position of Minister of Finance," he said.

He said he rejected the offer because "it makes a mockery of our hard-earned democracy." But others believe it is too late: the capture has already occurred.

In recent weeks, a Gupta-owned company completed its purchase of a coal-mining company, Optimum – reportedly with the support of Mr. Zuma's mining minister – and gained access to Optimum's contracts to supply coal to Eskom, the state-owned electricity monopoly.

Then came the news that a Gupta-linked company had set up a joint venture with the state-owned weapons manufacturer, Denel, to sell Denel's military products in Asia. The Gupta company, VR Laser, has already won manufacturing contracts from Denel.

Meanwhile, the government is planning to spend tens of billions of dollars to build nuclear reactors – and a Gupta-owned uranium company is poised to benefit from that too.

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The Guptas have denied every allegation against them, complaining they are victims of "political point-scoring" between rival ANC factions. "State capture from any quarter should be condemned," they said in a statement.

South Africa's longest-serving cabinet minister, Jeff Radebe, told The Globe and Mail that the allegations are exaggerated. "As a cabinet minister, I've not been captured by anyone, just speaking for myself," he said in an interview. "If people are being influenced by individual business people, that has to be dealt with in an appropriate forum."

Despite the denials, South Africa's banks have had enough. In recent weeks, all four of the biggest banks have severed their links to the Guptas, closing the bank accounts of the Gupta holding company, Oakbay Investments.

The Guptas were furious. In newspaper advertisements, they said the banks were jeopardizing the livelihoods of 7,500 of Oakbay's "employees and dependents."

The Zuma government swiftly responded by delegating three cabinet ministers to meet with the banks to settle the matter. It was an extraordinary state intervention in a private business dispute. And, critics said, it was further proof of the remarkable power of the Gupta family.

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