LIFTING THE MASK

The total value of these deals, while difficult to pinpoint, is comfortably in the tens of billions of rand.

But in the midst of all these legitimate deals, and just before the ICT Charter is gazetted, the unethical practice of `fronting` (where non-empowered companies win contracts by feigning black empowerment credentials) continues to rear its ugly head.

At the recent Black IT Forum (BITF) annual conference in Johannseburg, the Department of Trade and Industry`s deputy director of the BEE unit, Janeez Hafizulla, issued a stern warning that fronting may soon be criminalised. The forum has in the past called for the charter to define fronting and condemn it.

TO CRIMANALISE OR NOT TO CRIMINALISE

However, some suggest that criminalising the practice of fronting is not the way to go. BITF`s Gauteng executive Brandon Redcliffe suggests that educating small black firms to recognise when they are being used as fronts, and ensuring that traditionally white-owned companies buy into the Code of Good Practice would be more beneficial strategies.

"Criminalising fronting won`t work. Often a black-owned SME won`t even know when they are being used as a front. Criminalising the practice would just blacklist some of these SMEs."

He says one must not forget the most critical concerns for most SMEs is getting regular monthly cashflow - and in light of this sometimes invitations to front can seem irresistible. "Criminalising it is not going to stop the rot," he says.

Instead, the BITF and Business Unity South Africa have developed a handbook to educate small companies on fronting, and on what is acceptable and not.

WHAT IS FRONTING?

Fronting can take many guises, says Siyabonga Ndabezitha, chief officer of transformation at Business Unity South Africa, the most common of which involves white-owned companies adopting a few black figureheads to create the perception the enterprise is empowered.

Sometimes, explains Ndabezitha, the black participants are unaware they are being used as fronts. other times they are very aware of the fa ade: "collusion between white and black participants is well-known - relationships are structured to give the impression that an arrangement is an empowered one."

In another common ploy, a black-owned firm may win a business contract, then outsource or subcontract the work to a white firm at a slightly lower cost - pocketing the difference.

Sometimes a fake company may be hurriedly hashed together, with all the right colour faces to win `preferential bidder` contracts - while underneath a non-empowered firm collects the cash.

Winston Mosiako, CEO of local tech group Lechabile, recites the story of a particular networking company which won a lucrative state contract. "Only later did the government find out that one of the key shareholders was actually a gardener," he says.

SHORTCUTS

"As with most situations in life, there will always be people who will try and find a shortcut," suggests Willie Nortier, COO of Business Partners Empowerment Fund and Private Equity Investments.

"Although the situation has improved, there certainly are still many businesses which I think do employ some form of fronting," he adds.

Nortier believes BEE has evolved over the last five or so years, with business owners more educated about broader-based empowerment (a trend that has given rise to the term broad-based black economic empowerment, or BBBEE).

"The main difference now - compared with five years ago for instance - is that there`s legislation included in the finalised Codes of Good Practice which will hopefully sensitise people to implement more transparent and bona fide BEE strategies."

ACHIEVABLE AND SUSTAINABLE

One of the government`s key goals in its empowerment policies is for black-owned businesses to be sustainable. Lerato Ratsoma, marketing manager at BEE rating agency EmpowerDEX, says the problem of black-owned SMEs forming and then quickly disbanding before tenders and contracts have even been awarded still persists.

"The tendering processes of some government departments and corporates is still quite long. The aim of enterprise development is to make bigger entities more sensitive to the challenges facing smaller ones, and work with them in creating sustainable businesses."

Ratsoma believes real empowerment is achievable, but says partnerships need to develop for the right reasons. "To do a deal just for the sake of it, or to merely get your credentials right, will not work and is unlikely be sustainable," he says.

"A company considering doing a BEE deal needs to analyse their requirements and what they are looking for in a partnership. Successful partnerships are those where the partners share the same goals and outlook in life."

"Perhaps a company may not find a partner who will bring the best technical skills to the table, but if you can find a party with integrity, and who is committed to the business, the battle is half won."

In terms of the ICT sector, Lechabile`s Mosiako believes that if the ICT Charter is applied properly it will mean deeper investigations into shareholder agreements, and create more sustainable empowerment.

A UNITED FRONT?

Lots of government departments are already applying the principles of the charter, adds Mosiako. But what is the government`s stance on fronting when it is discovered?

While the DTI`s Janeez Hafizulla threatens to criminalise the practice, the National Prosecuting Authority is unclear on the matter. Many media sources have quoted NPA members as promising to prosecute `fronters` - but the department was unable to respond to questions about how exactly this could be policed.

Livingston Chilwane, managing executive of the public sector at GijimaAST, believes the problem of fronting is still very much an issue today. He doesn`t see a reason why the NPA would fail in any attempts to criminalise the act.

"The codes are there to guide how BEE should be done - but there need to be mechanisms in place to carry this out," he says

CHANGING THE CULTURE

But Nortier is upbeat on the near-term future of BEE, saying that already about 40% of the deals concluded by Business Partners are to empowered entities.

"We`ve made some excellent investments over the last few years in black-owned businesses. It`s about backing the right people. At the end of the day it`s doing your homework on the party you want to work with." Ratsoma`s vision for empowerment is to "move away from just the scores" and blend BEE into the ordinary world of business.

"Once it forms part of the culture of a company will we see real empowerment. That is in the ideal world. In the meantime, we hope that the codes will lead all companies to understanding the why, and not just the how of BEE."