‘The EOH problem’ is a lesson for SA tech and government
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A FEW years ago, EOH was a company that filled many South Africans in tech and business with pride for its spectacular growth.
Recent revelations show a dark picture of how the South African tech giant rose to prominence.
EOH featured prominently at the Zondo commission during Deputy Minister of Intelligence, Zizi Kodwa’s testimony.
Once the darling of the JSE, EOH fell from grace because of questionable contracts with the state.
This was also revealed at the Zondo commission, during company chief executive Stephen van Coller’s appearance.
How did a company with a market cap of close to R1.18 billion end up where it is today?
The company suffered what can be described as “The EOH Problem”, which is the cancer also facing other tech companies that do business with the state in South Africa.
Most of the SA tech companies that do business with the government do not have their own technology systems. They tend to be resellers of technologies by multinational technology companies.
In essence, they become a middlemen between the government and multinational tech companies.
This is how Jehan Mackay came into the picture at EOH.
His company was acquired by EOH to lead the public sector division at EOH.
One of the companies was TSS, which EOH acquired in 2011 as part of its bid to increase its presence in the public sector.
According to evidence presented to the Zondo commission, the public sector division at EOH paid millions to politicians to secure government contracts.
This explains one of the reasons why EOH grew so quickly in the ICT sector to be one of the leading companies. This is a picture from just one tech company in South Africa.
“The EOH Problem” is an issue for many tech companies that conduct business with the state.
Most of them do not own what they sell to the state and this leads to a situation where they try to get an added advantage by bribing a politician who has influence in the government.
Revelations at the Zondo commission should serve as a lesson for the South African government and SA tech companies on how to avoid corruption in the technology space.
To avoid the “The EOH Problem” in future, first, there’s a need for SA technology companies to develop their own technology solutions.
The competitive advantage of a local technology company should be its own innovations.
This would enable local innovation and allow companies to compete, based on what they do.
Second, the government should prioritise local technology solutions and use this as criteria for choosing companies that can do business with the state.
The approach in the initial stages and in the short run will require a sacrifice of some advanced systems for the government.
In the long run, it will enable the development of local solutions and the development of the local tech industry.
The State Information Technology Agency should be proactive about preventing “The EOH Problem” in future.
Part of that process should be about revamping how South Africa procures technology products and services.
“The EOH Problem” is not just an EOH challenge, it is a South African public sector tech challenge.
While focusing on how local tech companies conduct business with the state, there’s also a need to focus on multinational tech companies that partner and hide behind local tech companies to conduct dodgy dealings.
Some of the tech companies that were involved in wrongdoing are multinationals.
According to evidence presented by Paul Holden, the second-biggest recipient of Gupta-related State Capture contracts was T-Systems.
T-Systems is an enormous multinational conglomerate with headquarters in Frankfurt, Germany.
It is a subsidiary of German giant Deutsche Telekom, which is partowned by the German government.
Deutsche Telekom reported total revenue of €101 billion last year.
T-Systems was awarded two huge contracts (referred to as Master Services Agreements or MSAs) to supply IT services and equipment rental to Transnet and Eskom; their connections to the Guptas.
In total, T-Systems was paid R12.3bn.
That’s 21 percent of the total amount paid by the state in capture contracts linked to the Guptas.
The evidence presented at the Zondo commission is enough to trigger a review of the government technology contracts.
“The EOH Problem” may exist in other tech contracts with the state and the sooner the issues are addressed ,the sooner South Africa will improve its technology industry in order to compete globally.
SA Tech companies that conduct business with the state should learn from the EOH experience and avoid “The EOH Problem”.