YONELA DIKO: BEE falsification and fronting is delaying transformation

OPINION

The BEE Act of 2003, like many other transformative legislation, was underpinned by good-faith that we all want to make a clean break from the inhumane and racial divisions of the past to address the injustices that had locked the majority outside looking in. This was necessary so that all the country's economic sectors could finally reflect South Africa in all its diversity and shared destiny.

As a result of this aspirational posture, the Act seemed not to have anticipated the various evils and underhanded schemes that would emerge later and frustrate the entire transformation project. Almost 20 years later since its enactment, the picture is disheartening and underwhelming, not because of the political football of having enriched a few (a red herring), but because of the falsification of the entire BEE process by entrenched white historical interests and the vulnerability of the new black players.

It is clear that white corporate South Africa may have had a different change in mind going into the new dispensation than the rest of black South Africa, one where their racial power would now not be exercised by legislative force of an illegitimate government but would be retained now through the manipulation of the will of the people.

Challenges of the BEE Act

According to the B-BBEE Commission’s annual report last year, only 2% of JSE listed companies are 100% black owned. This is a serious indictment on corporate South Africa, which continues to entrench white stronghold on economic power in the country.

The biggest challenge of the BEE Act, from the onset, has been fronting. Fronting today constitutes 83% of all complaints received by the B-BBEE Commission and it was not even written in the original Act out of good faith. In 2016 alone, according to B-BBEE commissioner Zodwa Ntuli, of the 822 complaints received by the commission, 687 were complaints about fronting.

Corporations have used their consultants, rentseekers and outright criminals to try and circumvent the Act, frustrating transformation in the process and pretending to meet the requirements of the Act on paper while giving away nothing in the true sense of power, responsibilities and wealth.

Out of desperation and hidden facts, many BEE partners are accepting deals that differ between what is in the documents and what is actually happening. They are also accepting commercially unreasonable contracts, and this again makes a mockery of transformation of these industries.

Since 2003 when the Bill was enacted, it has become clear that the text in the Act alone was not enough to achieve the deep and far reaching transformation as intended. It has required more than words in a document. It has demanded hard work from all stakeholders, goodwill, sacrifice, honesty and where honesty has not been chosen, intense monitoring and biting punitive measures.

Fronting

Fronting is the act of giving a black person equity or a senior management position without any power or responsibility that comes with it. This is said to be prevalent in the mining, transport, construction and engineering sectors. Structures and sophisticated schemes are put together to try to bypass this seemingly burdensome requirement of giving blacks meaningful participation in corporate South Africa.

In this environment it becomes difficult to trust any figures supplied by companies on transformation. Employment and Labour director-general Thobile Lamati cited the government’s 2018/19 Employment Equity report, which said that Africans currently constitute 23.2% and 40.2% at the senior and middle management levels as reported by companies themselves, but it is difficult to trust even these numbers, as highly unsatisfactory as they are.

Unfortunately for every falsification, every act of fronting, every scheme that creates a false reality, transformation is pushed back and black people are trapped in meaningless senior positions, while others fall by the way side and black companies are foreclosed, leaving us worse off as a country.

Lack of transformation and exclusion of blacks in the mainstream economy and real centres of power is not just an imaginary trope posited by political radical economic transformation forces and their Economic Freedom Fighter friends. It is not an excuse for blacks to be corrupt and unaccountable but it is real and must be addressed with great urgency. Whether it's in mining companies, on farms, in construction, black people are still second class players who are expected to be satisfied with fiddling at the bottom. This cannot go on for ever.

Transformation of the economy must not only be in word, but in deed.

Falsifying BEE certificates

According to the B-BBEE Commission, the second biggest problem in realising the transformative goals of the Act is the falsification of BEE certificates.

BDO Verification Services claims to regularly encounter this fraudulent act. It is either individuals at companies, employers themselves or their BEE consultants who are getting paid to keep blacks out of the franchise and all these schemes shortchange blacks and keep the economic benefits firmly in the hands of white businesspeople.

The Department of Trade and Industry has since introduced verified certificates, which companies, along with their suppliers or service providers, must possess in order to comply with B-BBEE. This, of course, has had to be complemented with a certain ease of compliance for companies with turnovers of less than R50 million and black ownership of 51% by simply providing an affidavit stating their B-BBEE compliance. This has also led to yet another mischief of companies taking advantage of this ease of compliance.

BEE requirements

The law requires that all government entities qualify all issuing of licenses, sale of assets, and issuing of grants with a verifiable and credible BEE certificate. This also applies to preferential procurement.

What is also forgotten is another requirement in the B-BBEE policy that seeks to encourage big business to procure their products from small businesses, with a bias to black-owned businesses. With a network of white businesses that have been dealing together to the exclusion of blacks around dinner tables and golf courses, this is a huge lost opportunity in giving transformation a leap forward.

Conclusion

Our task is simple - to continue the great work that was started by the BEE Act of 2003 and amended through the years as new realities emerge. Equality in the mainstream economy is possible, as long as each play his part, with honesty, integrity and a sense of shared destiny with all South Africans.

Fronting and falsifying BEE certificates must be condemned, punished and should lead to withdrawal of operating licenses. Wrongly empowering blacks or losing investment must be exposed for what it is - a false choice. Black people built most of these companies with exploitative wages, stolen ideas and forced consumption because they were excluded from production.

It is time for black people to be the majority in the entire value chain, and not just as consumers. It is all our responsibility to ensure the empowerment of blacks is not shortchanged through manipulation and pretense.

Yonela Diko is the former spokesperson to the Minister of Human Settlements, Water and Sanitation. You can follow him on @yonela_diko.

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