Thousands of words written about black economic empowerment (BEE) every week examine the problems of lack of funding, foreign investor perceptions, faulty deal structures and so on. Little of any sense is written about the greatest threat to BEE — ”fronting” by white companies and corrupt practices by BEE companies.
Nobody talks much about fronting, except prissily to condemn it and urge the government to ”do something about it”.
A cynical manipulation of rules and regulations to get or retain business, it stands in the way of the government’s BEE strategy to energise small black business through procurement.
What makes the difference to a deal being fronted or real BEE is whether one is abiding by the spirit or by the letter of the legislation.
For example, last year Multichoice sent me a letter asking me to provide my BEE credentials so that I could be put on its database for procurement. I had once written an article on social investment for the company.
Other than lying about my race, there was nothing I could do to comply. So I shrugged it off. But what if I had regularly supplied articles, or edited the annual report, for example? What if losing the Multichoice business meant I couldn’t pay school fees? It would be tempting to pay someone a fee to act as my black partner simply to have those business credentials, wouldn’t it?
The honest way would be to look for a real black partner, with whom to share work and income. Many entrepreneurs and small business people are not keen on sharing hard-won cash, however.
It is difficult to assess how common fronting is, but it may be more common than apparent.
In my previous column (”The art of the small deal”, May 28) I noted how franchises were useful empowerment vehicles. The Industrial Development Corporation has provided finance specifically for black franchises.
Yet franchises and agencies are also handy fronts. If a white business wants to supply the government and parastatals, one way is to set up a separate black franchise and supply through the franchisee. Is this empowerment?
Joint ventures offer the prospect of risk-sharing and real involvement. But these, too, can be fronts if the black partners are brought in without regard to their operational contribution.
Generally, the fronting only becomes apparent when the parties fall out, the white firm accusing the black partner of greed, the black partner accusing his former ally of exploitation.
It is all very well calling for greater vigilance, but businesses procuring from small suppliers have their hands full. It would be better if those doing the fronting did not take the tainted coin in the first place. Greater media scrutiny of tenders might also help, especially when large companies are fronting.
Transparency, openness, accountability and an assertive media that brings ”irregularities” to light are essential for BEE’s success.
Take the matter of beneficiaries of BEE deals. I have already written about the NGOs and other groups brought in to give ”broad-based” credibility to deals, and the necessity of questioning their credentials.
What about trusts set up to benefit from BEE deals? A look at a recent big BEE deal reveals several trusts are part of the black consortium. But who are the trusts’ beneficiaries? Has anybody asked the obvious question?half
A black businessman and dealmaker, whose ethics I respect, tells me he has been told he had better set up a trust if he wants to do business with government. The beneficiaries would be government officials.
This has the stench of terminal cancer to it. Already BEE is controversial because a few former politicians seem to be targeted for every big transaction. BEE is a political programme of enormous importance. Corruption plays into the hands of those who, for whatever reason, oppose it.
The Mail &Guardian has been attacked for doing its job in revealing dishonesty in BEE deals. The argument is that, by subjecting BEE deals to intense scrutiny, the idea of transformation is brought into disrepute, and that black people are presented as inherently corrupt.
This idea underlay the Human Rights Commission’s witch-hunt into racism in the media, inspired by the anger of prominent BEE personalities at being exposed in print.
It’s pure bullshit, of course. Doing the deed is wrong, not being found out.
If the M&G, and the media in general, can do one service for BEE it is to expose the fronting and corruption that threatens this vital national project.
Reg Rumney is director of the BusinessMap Foundation