Johannesburg - South Africa Deputy President Cyril Ramaphosa on Wednesday said fronting was a gross abuse of economic transformation and that government had put in place measures to penalise transgressors of transformative legislation.
Ramaphosa said the practice of fronting by some companies had been identified as a “significant problem” since the implementation of the Broad-Based Black Economic Empowerment Act. “The policy, when it was initially crafted, did not initially address fronting because it was envisaged that companies would embrace a spirit and the intent of the Broad-Based Black Empowerment Act, and the needs to be transformational at the economic level in our country,” Ramaphosa said. “But we've become aware that there are quite a number of cases of fronting that seek to circumvent the intent of this policy, as well as legislation.”
Ramaphosa was responding to questions during the National Council of Provinces (NCOP) sitting when an African National Congress (ANC) MP asked him about the economic scale of fronting and its impact on the public purse.
Though the amount lost because of fronting had not been quantified, it is estimated to be significant. In March, the Department of Trade and Industry (the dti) said fronting was one of the practices that had become prevalent in South Africa since the Broad-Based Black Economic Empowerment Act of 2003 was enacted, and had significantly derailed economic transformation.
The National Empowerment Fund estimated the equity holding by black people on the Johannesburg Stock Exchange to be at only three percent.
The 2015 report of the Commission on Employment Equity also showed that white people still represented about 70 percent and 60 percent of top management and senior management respectively, with black people representing only about 13.6 percent and 21 percent respectively.
Government thus enacted the B-BBEE Amendment Act of 2013 to create the B-BBEE Commission in a bid to deal with the scourge by monitoring and investigating fronting practices.
According to the B-BBEE Act, companies found guilty of fronting can be fined up to 10 percent of their turnover, or 10 years in prison for their directors.
Ramaphosa said the B-BBEE Act was one of the “most important measures” that the democratic government had put in place to address the economic injustices of the past.
He said the B-BBEE Act had contributed significantly to ensuring the entry of millions of black South Africans to mainstream economy, alongside Employment Equity, Land reform and Preferential Procurement Acts.
“Fronting is therefore what I would call a gross abuse of the very important process of economic transformation. It undermines the very purpose for which B-BBEE policies were established,” Ramaphosa said.
African News Agency