Company behind Jagdeo’s low carbon financial model embroiled in South Africa controversy

Business consultancy, McKinsey, which crafted the financial model for Guyana’s Low Carbon Development Strategy (LCDS) under the Jagdeo administration is now at the centre of a scandal in South Africa that could see a criminal complaint being brought against it.

According to Reuters, McKinsey is one of three global firms that have been enmeshed in a deepening row in South Africa’s political establishment. The others are accounting firm KPMG and public relations agency Bell Pottinger.

McKinsey is embroiled in a controversy over its dealings with the India-born Gupta brothers who have been accused in various reports of engaging in influence peddling with the government of President Jacob Zuma. The Gupta family has also been accused of abusing state resources and influencing the choice of Cabinet members by Zuma.

Reuters yesterday reported that South Africa’s main opposition party, the Democratic Alliance, said that it would lay a criminal complaint against McKinsey for “fraud, racketeering and collusion” today.

Reuters reported last week that McKinsey had ignored suspicions raised over several years that companies it worked with had been set up to steer state contracts.

“The allegations that McKinsey ignored warnings from senior South African staff, as far back as the beginning of 2013, of possible dodgy deals with Trillian, Eskom and other Gupta-linked companies must be fully investigated,” the Democratic Alliance said.

The Guptas, originally from India and including brothers Atul, Rajesh and Ajay, moved to South Africa in the 1990s and are being accused of using their friendship with the president to influence government contracts and cabinet appointments. They deny wrongdoing.

“Instead of raising the alarm, these companies seemed to have played along,” said Lumkile Mondi, a senior lecturer at the University of the Witwatersrand, who was part of a group of eight academics who in May completed a study into how state-owned enterprises are allegedly being raided. The firms undermined South African laws “in pursuit of profit.”

Anti-graft organizations and the main opposition party are taking their fight overseas while waiting for South African prosecutors to act on allegations against the family, Reuters said. Many of those accusations are contained in a trove of leaked emails that local news organizations have reported on, indicating how the Guptas allegedly used their relationship with Zuma and other government officials to profit from government business.

Corruption Watch plans to approach the U.S. Department of Justice within two weeks to probe McKinsey, executive director David Lewis said in Johannesburg on Monday. Save South Africa, which includes civil-society groups and business leaders, has called on companies to drop KPMG because of the work it did for 36 entities tied to the Guptas since at least 2008. Both companies have started internal investigations into their dealings with the family.

“I don’t think the U.S. Department of Justice would take the accusations about KPMG or McKinsey lightly,” Magda Wierzycka, chief executive officer of Sygnia Ltd., a Cape Town-based money manager that has terminated KPMG’s services, said by phone. Companies in the country will stop using McKinsey if it had to be fined, while KPMG’s South African business would be “in trouble” if one large corporation had to fire it, she said, according to Reuters.

LCDS

 

Under the Jagdeo administration, Guyana had commissioned a study by the McKinsey Consulting Group to assess the true value of the country’s forests.

The study found that Guyana’s forest could generate economic value to the nation of between US$430 million and US$2 billion per year.

This wide range relates to variability driven by fluctuating prices for commodities such as logs, palm oil and rice, but the most likely economic value to the nation is about US$580 million per year, the report had contended. The figure of US$580m per annum had attracted much skepticism from local analysts and for the remainder of the Jagdeo administration and the Ramotar government that followed there were no inflows of any substantial magnitude aside from the commitment by the Kingdom of Norway of US$250m over five years provided that a series of benchmarks are met.

The actual amounts received under this Norway arrangement were lower than expected and a large amount is now tied up at the Inter-American Development Bank until the Guyana Government makes a decision on green energy alternatives.

 

Environmental group, Greenpeace had also criticised the McKinsey study, stating “McKinsey’s cost curve overestimates the benefits of the logging industry and underplays or entirely ignores the costs of biodiversity loss and social upheaval.

In some cases reports on which McKinsey advised make recommendations based on wholly inadequate data”. It added that McKinsey’s approach offers an incentive to governments to artificially increase predicted deforestation rates so that later ‘reductions’ can secure more compensation.

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