Economic Transformation Still Hampered by Fronting: Minister Rob Davies
The Minister of Trade and Industry, Dr Rob Davies says the more black people are able to exercise true business ownership powers, the more economic transformation will take hold in South Africa. Minister Davies was speaking at the Broad-Based Black Economic Empowerment Commission’s (B-BBEE Commission) annual conference, at Emperors Palace in Ekurhuleni. The B-BBEE Commission is a statutory entity operating under the Department of Trade and Industry as a watchdog over B-BBEE implementation.
This year’s conference explored black ownership, and particularly major black ownership transactions – defined as transactions amounting to R25-million or more. The value of the B-BBEE transactions reported in 2017 and 2018 was around R115-billion, the B-BBEE Commission said at the well-attended event.
“In South Africa, too much [black] ownership is not real economic ownership; too often it is only legal ownership,” said Davies. Black people only experience real ownership of a business entity when they are involved in major decision-making and day-to-day operations, added Minister Davies.
That is why these elements have been incorporated into the new B-BBEE scorecards. The intention with this incorporation is to “develop and nurture” new black business owners.
Fronting, which has been made a criminal offence through the B-BBEE Amendment Act of 2013, is becoming more sophisticated and complex as entities such as the B-BBEE Commission crack down on it, stated Davies. In terms of the Act, the B-BBEE Commission is empowered to investigate, and refer for prosecution, any conduct that “directly or indirectly undermines or frustrates” the Act’s objectives. All such conduct is defined as “fronting”.
While fronting is still a challenge to true economic transformation and needs to be “ruthlessly” eradicated, Davies said it is equally important to “identify, support and value those who are doing the right thing” by implementing B-BBEE in the spirit in which it is intended.
The B-BBEE Commission handed out awards to four entities that had truly worked towards South Africa’s economic transformation in 2018/19. B-BBEE Commission Awards were handed to:
- The Gauteng Department of Economic Development (Empowering Province)
- The Department of Planning, Monitoring and Evaluation (Empowering Public Service Organisation)
- Leomat Construction Pty (Ltd) and Menston Holdings Pty (Ltd) (Transformed Agent)
- Mthokozeleni Mbili (B-BBEE Commissioner’s Special Award)
The Deputy Minister of Trade and Industry, Bulelani Magwanishe said while increasing black ownership is important, it is not the only way in which the economy can, or should, be transformed. The development of black industrialists is also important.
B-BBEE Commission compliance executive Busisiwe Ngwenya said that in the major transactions that were reported 30% were not complying with the Act. She stressed that fronting is still rearing its head in some of these new transactions.
Ngwenya said the B-BBEE Commission’s research also indicates that there is ample room for the government to “come to the party” on another of the serious challenges to economic transformation – access to finance. The government has aided funding in just 2% of transactions.
KwaZulu-Natal Economic Development MEC Sihle Zikalala said B-BBEE has been criticised for being new and for introducing onerous red tape, and for being open to corruption. In fact, job reservation in South Africa harked back to the 1920s, he said. Zikalala said there is no excuse for corruption and it is something that should always be dealt with firmly. He stressed that corruption has no colour and must be dealt with ruthlessly wherever it occurs.
The mandate of the B-BBEE Commission is also to provide guidance the business community on major B-BBEE transactions and such advice is given for free. The B-BBEE Commission will release its first monitoring report on major B-BBEE transactions next month.
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