Time to re­move the façade

Fronting, whereby white-owned com­pa­nies “win­dow dress” with BEE, only to ex­clude their black part­ners once they have se­cured busi­ness, is per­pet­u­at­ing black eco­nomic ex­clu­sion, not em­pow­er­ment, writes Andile Ntingi.

Finweek English Edition - - CONTENTS - Andile Ntingi is CEO and co-founder of GetBiz, an e-pro­cure­ment and ten­der no­ti­fi­ca­tion ser­vice. ed­i­to­rial@fin­week.co.za

hopes are run­ning high in the black busi­ness com­mu­nity that the Black Eco­nomic Em­pow­er­ment Com­mis­sion (BEEC) es­tab­lished late last year will bring fronting to an end.

The watch­dog’s act­ing com­mis­sioner, Zodwa Ntuli, has vowed to vig­or­ously tackle fronting – where a façade is cre­ated that black busi­ness­peo­ple are ac­cu­mu­lat­ing wealth, only to emerge later that the bulk of riches ac­tu­ally goes to white own­ers pulling the strings in the shad­ows.

At the heart of fronting is a de­lib­er­ate at­tempt to ex­clude black peo­ple from par­tic­i­pat­ing in share­hold­ings, man­age­ment struc­tures and sup­ply chains of in­dus­tries. Hence, 20 years af­ter apartheid, black in­volve­ment in the econ­omy is still woe­fully low.

Black busi­ness ac­tivists have con­demned fronting as a form of in­sti­tu­tion­alised racism that poses a risk to SA’s long-term eco­nomic and po­lit­i­cal sta­bil­ity as it en­trenches poverty and in­equal­ity.

While some may ar­gue that the real trig­ger of racial ten­sions is the weak econ­omy, re­sult­ing in many peo­ple fight­ing for few op­por­tu­ni­ties, the cur­rent race de­bate cen­tres around the eco­nomic ex­clu­sion of black peo­ple.

Had there been a con­certed and sus­tained ef­fort to boost black par­tic­i­pa­tion in the econ­omy, we wouldn’t see a resur­gence in left-wing ide­olo­gies, driven by the Eco­nomic Free­dom Fight­ers (EFF) and the grow­ing mil­i­tancy of lobby groups like the Black Man­age­ment Fo­rum (BMF) and Black Busi­ness Coun­cil (BBC) – all vo­cal about the in­clu­sion of black peo­ple in ex­ec­u­tive man­age­ments of big cor­po­rates and the open­ing up of pri­vate sec­tor sup­ply chains to black sup­pli­ers.

Fed up with fronting, gov­ern­ment crim­i­nalised the mal­prac­tice as it un­der­mines broad-based black eco­nomic em­pow­er­ment (B-BBEE). The depart­ment of trade in­dus­try (dti), which the BEEC falls un­der, de­scribes fronting as a de­lib­er­ate cir­cum­ven­tion or at­tempted cir­cum­ven­tion of the B-BBEE Act and BEE codes of prac­tice.

Ntuli’s of­fice has the reg­u­la­tory pow­ers akin to those of the Com­pe­ti­tion Com­mis­sion. The BEEC can im­pose hefty penal­ties on com­pa­nies and busi­ness­peo­ple found guilty of fronting. Penal­ties range from a fine of 10% of a com­pany’s an­nual turnover to 10 years’ im­pris­on­ment for per­pe­tra­tors. Guilty com­pa­nies could also be black­listed or ex­cluded from bid­ding for gov­ern­ment ten­ders.

Will this strike fear in the hearts of un­scrupu­lous busi­ness­peo­ple?

I be­lieve the es­tab­lish­ment of the com­mis­sion will ex­ter­mi­nate crude forms of fronting (there are well­doc­u­mented cases of white own­ers mak­ing their do­mes­tic helpers and gar­den­ers share­hold­ers in their com­pa­nies – with­out their knowl­edge – while starv­ing them of the fi­nan­cial ben­e­fits as­so­ci­ated with be­ing in­vestors in a thriv­ing en­ter­prise). But while cer­tain con­di­tions ex­ist, fronting will not be com­pletely rooted out. Black South Africans get caught up in fronting, un­wit­tingly or will­ingly, mainly be­cause many black-owned com­pa­nies, par­tic­u­larly small busi­nesses, have lim­ited ac­cess to cap­i­tal, skills, tech­nol­ogy and mar­kets, and there­fore don’t have the mus­cle to com­pete on their own.

Short-sighted, op­por­tunis­tic short-cut­ters aren’t in short sup­ply in SA. There will al­ways be pli­able black peo­ple will­ing to sell their skins for a quick buck – with­out car­ing whether their ac­tions en­rich wealthy white-owned com­pa­nies un­will­ing to em­brace real and last­ing trans­for­ma­tion.

Op­por­tunis­tic fronting kills black en­trepreneur­ship, is a drag on eco­nomic growth (as it holds back peo­ple with po­ten­tial to fully par­tic­i­pate in the econ­omy), and en­cour­ages de­pen­dence on white busi­ness for mere crumbs.

As long as black peo­ple have lim­ited ac­cess to the means of pro­duc­tion, black en­trepreneurs will re­main vul­ner­a­ble to fronting and gov­ern­ment will be re­stricted to tack­ling the symp­toms in­stead of the dis­ease.

Over three months ago, I par­tic­i­pated in a ra­dio in­ter­view with Ntuli on the es­tab­lish­ment of the BEEC and how it planned to curb fronting and the cir­cum­ven­tion of the B-BBEE Act.

A num­ber of lis­ten­ers called in, re­count­ing how they were in­vited to be BEE part­ners of white com­pa­nies, only to be ditched af­ter the ten­ders were se­cured. In most of these cases, the black part­ners weren’t com­pen­sated when the ten­ders were won.

At the heart of fronting is a de­lib­er­ate at­tempt to ex­clude black peo­ple from par­tic­i­pat­ing in share­hold­ings, man­age­ment struc­tures and sup­ply chains of in­dus­tries.

The dti has iden­ti­fied three meth­ods used to cir­cum­vent black em­pow­er­ment leg­is­la­tion:

Win­dow dress­ing – black South Africans are in­tro­duced to an en­ter­prise on the ba­sis of to­kenism and may be dis­cour­aged or in­hib­ited from sub­stan­tially par­tic­i­pat­ing in the core ac­tiv­i­ties of the en­ter­prise or are par­tic­i­pat­ing in a way which is not in ac­cor­dance with their stated lev­els of par­tic­i­pa­tion.

Ben­e­fit di­ver­sion – eco­nomic ben­e­fits re­ceived by an en­ter­prise for hav­ing a par­tic­u­lar BEE sta­tus do not flow to black South Africans in the ra­tio spec­i­fied by law or the rel­e­vant struc­ture doc­u­ments.

Op­por­tunis­tic in­ter­me­di­aries – an en­tity with a rel­a­tively high BEE score is in­serted into the sup­ply chain to in­crease the BEE score of a procur­ing en­tity. Get­ting caught fronting will ruin a com­pany’s rep­u­ta­tion, es­pe­cially in a cli­mate where the econ­omy is tank­ing and race re­la­tions are at an all-time low since 1994.

Penal­ties range from a 10%fine of of a com­pany’s an­nual turnover to 10 years’ im­pris­on­ment for per­pe­tra­tors.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.