Front firms still faking black ownership – report
Cape Town – Challenges posed by front companies that misrepresent their true shareholders by falsely claiming black South Africans as owners continues, the first annual Black Industrialist Report highlighted.
The report, released by the Department of Trade, Industry and Competition (DTIC), provides details of approximately 100 black industrialists and entrepreneurs who have been supported by the National Empowerment Fund (NEF), and the Industrial Development Corporation (IDC), with case studies covering a range of productive sectors including food production; clothing and textiles; and mining metals machinery equipment, among others.
“Fronting practices continue in which companies misrepresent the position of true shareholders and beneficiaries by falsifying black South Africans as owners. In some cases, black-owned firms have lent and continue to lend their names to tender documents, while the work is done by other companies; and the names of individuals are sometimes fraudulently put on a shareholder register without their knowledge,” the report found.
These were some of the challenges that hindered empowerment, the DTIC said.
The DTIC’s agencies, however, have strengthened its regulations and tightened controls, making fronting a criminal offence.
The report also acknowledged that more needed to be done across government for programmes to be more integrated, so that industrial funding was accompanied by procurement support, access to infrastructure, export promotion and more, creating a joined-up package of support.
It also mentioned the need to link economic inclusion more closely with growth and job creation.
Gugulethu Business Forum chairperson Mlungisi Mazana said fronting was a practice killing small-, medium- and micro-enterprises (SMMEs).
“The issue of fronting is not new; it has its roots in the economic history of the country. When you tender for jobs, you must have an amount for the performance agreement to participate in that tender. Then you are expected to have 10% of the amount the project will cost in your account. Our SMMEs don’t have that kind of money.
’’We are told there are state funds out there for small companies to access, but when you (try) it’s not as simple as it sounds. You find there is a pile of forms you have to fill in; it is a tedious exercise to do. So most SMMEs take the easiest way out.
’’They go to big white companies that have funding, but don't meet the BEE score. That company says you can become a partner, but the guy fronting makes most of the money. Most construction companies have a number of subcontractors under them.”
He said capacity building was necessary to teach people how to tender, along with access to finances.
“Fronting is a killer and does not assist the issue of unemployment. It does not assist poverty alleviation and it does not bridge the gap between the haves and the have nots,” Mazana said.