BBBEE Commissioner, Zodwa Ntuli, says fronting is so embedded in South Africa; even the sophisticated are falling victim to it.
- The B-BBEE Commissioner says 18 years after empowerment legislation came into effect, the benefits do not filter to people on the ground.
- She says more companies are black-owned on paper but not in practice.
- The problem of B-BBEE fronting is so embedded in South Africa, even the sophisticated are falling victim to it.
The Broad-based Black Economic Empowerment (B-BBEE) Commission says it’s time South Africa deals decisively with fronting by terminating operating licences of companies who lie about their black ownership status.
Speaking at the Black Business Council’s Summit on Wednesday, B-BBEE Commissioner Zodwa Ntuli said fronting was still a serious problem in South Africa.
She said her transformation report for 2020 would come out later this month and show that not much has changed.
Economic ownership by black people in the country increased slightly from 29% in 2018/19 to 31%, as the upcoming report will show. There were slight improvements in other areas, too, including preferential procurement deals awarded to black businesses and enterprise development.
While the numbers show improvement, Ntuli said the impact was not being felt on the ground, and there were questions on how authentic these numbers were because B-BBEE fronting was “so embedded” in SA’s corporates.
“This [improvement] is only based on the information that is submitted to us. This is not the information that we have interrogated to even see if those black people do exist behind that black ownership,” said Ntuli.
She also pointed out that even though the commission saw improvements on paper regarding ownership, this didn’t match black people’s voting rights in listed companies, nor did it match their representation in management that controls these companies.
“So, the companies remain black-owned on paper, but the decisions still rest with the people that previously owned the companies,” she said.
Ntuli said B-BBEE fronting is a problem the commission has grappled with since it was formed. While there were corrupt individuals who hunt for B-BBEE deals to make a quick buck, she said a lot of people on the ground had been forced to “drop” their moral and ethical standards because they were hoping that their lives would improve by agreeing to become a B-BBEE partner.
“Fronting is the main problem in this country. It happens to everybody, sophisticated and unsophisticated. So, our job as the commission now is to make sure there is a consequence for that. We’ve appealed to the government to review the framework to make sure that the consequence is severe enough to deter people from fronting,” she said.
She said while many people “trivialise” the issue of fronting, the commission’s investigations into some companies showed that the practice is deeply embedded. For instance, many companies mainly had white-owned vendors.
But when looking to complete transactions with 51% black-owned service providers, the same providers who were majority white-owned on their databases suddenly improve their black ownership without any change in the way they look structurally.
She said the Commission does not have “enough teeth” to police this, and it was hoping that the government would listen to its pleas to change that the framework so that it can mete out harsh punishment.
“At the moment, what we are pushing for is when we find an entity that engaged in fronting or misrepresentation, is for government not to do business with them, cut the licence because misrepresentation in terms of the Act when we find misrepresentation, the government department, organ of the state or state-owned company must terminate that particular licence,” said Ntuli.
Nevertheless, Ntuli said, there are a lot of companies that want to do the right thing – they just need relationships with B-BBEE partners who aren’t trying to line their pockets.
Get the biggest business stories emailed to you every weekday.
Go to the Fin24 front page.