One of the most painful phenomena in South Africa’s BEE landscape is the extent to which multinational companies bribe their way into compliance. Instead of sincerely participating in genuine transformation, companies spend a lot of resources on faking compliance.
Unfortunately this happens under the nose, and with the collusion, of high-ranking officials at Parks Tau’s department of trade, industry and competition (the DTIC).
This conduct has worsened due to a phoney scheme called “equity equivalents”, where multinationals can get away with not complying with the country’s BEE laws. A number of companies have, in recent times, fallen foul of empowerment by invoking this terrible arrangement.
To be considered compliant, a company needs a financial arrangement equivalent to a required level of equity, such as 26% or 51%. This often applies to multinationals where primary shareholders are nominated abroad — in a jurisdiction where the BEE Act will obviously not apply. Variations of this manipulation have been seen in cases such as FlySafair’s questionable ownership structure.
This conduct is also fuelled by Tau’s predecessor, former minister Ebrahim Patel, who has now formed a strange company called the localisation fund which receives millions from multinationals, who can be excused from properly complying with BEE regulations.
A recent glaring abuse of this system has emerged in the ongoing dispute between BT Industrial, a black-owned company, and multinational pharmaceutical company Pharma Dynamics. Pharma, introduced to BT Industrial by the DTIC, had promised to invest R60m in BT as part of its BEE compliance efforts. Based on this promise, the company was awarded a BEE certificate by the DTIC. Pharma also claimed it would build a “Digital Village” in Limpopo for R11bn, a project reportedly completed according to parliamentary reports but with no evidence to support this claim.
When Pharma failed to meet its obligations, its BEE certificate was not revoked, giving an impression of impropriety on the part of DTIC officials. The Industrial Development Corporation (IDC) proceeded to attach BT in what can only be described as a callous action that destroyed a black industrialist. One would have assumed the IDC would take a different approach than commercial banks. Or they could act differently even if it meant getting involved more constructively to restructure the debt and even take equity to make sure the business does not come to a grinding halt.
Pharma Dynamics has been in cahoots with the DTIC — Tau has intended this and has so far failed to intervene on this and other similar cases that show that his officials are up to no good. This conduct is also fuelled by Tau’s predecessor, former minister Ebrahim Patel, who has now formed a strange company called the localisation fund which receives millions from multinationals, who can be excused from properly complying with BEE regulations.
This means instead of multinationals striving to have meaningful empowerment arrangements with black businesses as envisaged by the spirit of BEE legislation, they can now simply sign a cheque to Patel and his friends in the so-called localisation fund where such a fund can be spent anywhere else in the economy. With the perverse corruption, the fund is likely to buttress the connected few instead of the intended purpose of ensuring compliance.
I have written to the public protector to investigate this corrupt scheme as I have no confidence that Tau will rattle that cage — a shadowy scheme that suggests that Patel is ruling from the grave, making Tau toothless against multinationals like Pharma Dynamics that haunt the spirit of what ‘equity equivalents’ was meant to achieve and tarnish the purpose of the BEE.
This horrid example shows that we are still far as a country from taking black industrialisation seriously. There are 1,000 such industrialists that the DTIC has birthed. The fact that some of these black companies can be allowed to perish instead of being supported must be an indictment of the DTIC where their BEE mandate is concerned. There is no concerted effort to promote who these industrialists are because they are facing a nightmare in getting their businesses off the ground.
Some of them have found themselves having to part with some of their grant money to pay unscrupulous DTIC officials who are tasked with selecting them for these and other grants that have been promised by the government. These funds have unfortunately become another avenue of corruption. When a forensic investigation is conducted into these funds we will all be shell-shocked. At some point, the black industrialists will get tired of covering up this grand corruption. Tau still has a chance to redeem the DTIC and how they are treating black businesses — quite frankly one doubts he will rise to the occasion.
Prof JJ Tabane is an adjunct professor of media studies at the University of Botswana.
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