South Africa: Fronting Poses Risk to Transformation

Economic transformation is still hampered by fronting, says Trade and Industry Minister Rob Davies.

Speaking at the annual conference of the Broad-Based Black Economic Empowerment Commission (B-BBEE Commission) in Ekurhuleni on Thursday, Davies said fronting is still a problem.

"In South Africa, too much [black] ownership is not real economic ownership; too often it is only legal ownership."

"Black people only experience real ownership of a business entity when they are involved in major decision-making and day-to-day operations," the Minister told the gathering.

Fronting, which has been made a criminal offence through the B-BBEE Amendment Act of 2013, is becoming more sophisticated and complex.

In terms of the Act, the B-BBEE Commission, which is an entity of the Department of Trade and Industry, 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 eradicated, Davies said it is equally important to identify, support and value those who are implementing B-BBEE in the spirit in which it is intended.

The B-BBEE Commission's compliance executive, Busisiwe Ngwenya, said in the major transactions that were reported, up to 30% were not complying with the Act.

Research done by the commission also indicated that there is room wherein government can intervene in challenges of economic transformation, including those of access to finance.

Government has aided funding in just 2% of transactions, said Ngwenya.

This year's conference explored black ownership, 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 annual conference also handed out awards to four entities that have worked towards South Africa's economic transformation in 2018/19. The following awards were handed out:

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) and

Mthokozeleni Mbili (B-BBEE Commissioner's Special Award)

The Commission is expected to release its first monitoring report on major B-BBEE transactions next month.

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