Some firms unfairly tainted by BEE being linked to corruption
Widespread corruption is often flagged as one of the main threats to successful implementation of broadbased BEE (BB-BEE) policy.
For years, politically connected people and their business associates have used the policy as a Trojan horse to enrich themselves. These days you will be hard pressed to find people who dispute the reality that corruption has compromised BEE, which has led to the policy delivering a mixed bag of results since its introduction more than 20 years ago.
It is well documented that BEE has widened inequality, creating an extremely wealthy but small politically connected black business elite while condemning the majority of poor people to the edges of our economy. On the other hand, thanks to empowerment strategies such as preferential procurement and employment equity, BEE has catapulted many people into the middle class.
Failures and successes aside, BEE is under threat in a way that is rarely discussed: unfair policing and excessive scrutiny of black wealth, driven by the unfounded stereotype that black people are inherently corrupt. This problem is also perpetuated by fierce political battles between political parties and inside parties that taint the emerging black-owned businesses that are making headway in lucrative sectors of the SA economy.
One example is the failed R25bn merger between black-owned property firms Rebosis and Delta. Despite this transaction being conceived on a sound rationale, it received negative media coverage to a point that the two landlords decided to abandon their plans. The end result was that an opportunity to create a black-owned “significant player of scale” was missed, which would have enabled the merged entity to reduce its debt, grow market share and withstand a downturn in the market.
The second example involves fleet management company Afrirent, which faced an investigation after media allegations surfaced that in October 2018 it was irregularly awarded a R1.2bn contract to supply, finance and maintain 2,700 nonspecialised vehicles for the City of Johannesburg.
Despite being exonerated of any wrongdoing by the city and an external probe by attorneys MSN in January 2019, Afrirent has been dragged into a new investigation after the municipality, now run by the ANC, recently suspended two municipal executives.
In February the ANC-led municipality announced that its preliminary investigations had uncovered alleged violations of regulations involving its fleet contracts. The contracts, which include the extension of a rental contract for specialised vehicles with multinational company Avis, were awarded by the city when it was governed by the DA in partnership with the EFF.
Since the collapse of the coalition in December 2019 and the recapture of the municipality by the ANC, Afrirent has found itself once again caught up in the middle of political battles among the ANC, EFF and DA.
In the case of the RebosisDelta merger, the transaction attracted negative publicity after Redefine Properties, the second-largest player in the property sector, opposed the merger because it had funded a black shareholder, Cornwall Crescent, that bought a 22.8% stake in Delta.
ENTREPRENEURS ON THE VERGE OF BECOMING BLACK INDUSTRIALISTS ARE FRUSTRATED INSTEAD OF BEING ENCOURAGED
In 2017, Cornwall Crescent was lent R1.46bn by Redefine to buy the Delta stake, and at the time there was no indication that the transaction would compromise the loan repayment. So Redefine, a competitor of Rebosis and Delta, played a part in derailing the transaction.
The way things are going, SA is unlikely to produce the sustainable large-scale, blackmanaged industrialists we aspire to. It is disappointing that entrepreneurs who are on the verge of becoming black industrialists are frustrated instead of being supported and encouraged.
The founders of Rebosis, Sisa Ngebulana, and Delta, Sandile Nomvete, took many years to build their companies, as has the founder of Afrirent, Senzo Tsabedze, who started with two trucks and transformed his venture into a company turning over R400m a year.
If our government is serious about developing black industrialists it should be creating an enabling environment for black-owned businesses to thrive. This means insulating them from destructive political battles over tenders and protecting them from large, whiteowned competitors that do not hesitate to play rough. The businesses we suspect of being villains can sometimes be the real victims.