Fronting = BEE?

The Daily Dispatch, a daily newspaper based in East London, has been running articles about allegations of companies “fronting” to get government contracts.

By “fronting”, what is generally meant is falsely claiming to be a majority black-owned company, having black economic empowerment ownership in your company, or having black staff occupying top management positions. This is done to win government business, or to get a higher price for goods and services.

The government allows an explicit “rent” of 10% to 20% for buying from black-empowered companies.

The Dispatch has followed up its articles with an editorial decrying the practice of fronting, and calling for specific solutions.

Somehow I can’t take expressions of grave concern about BEE fronting too seriously.

Instances of such handwringing surface from time to time, like whales breaching. Then, much like the whales, after much spectacle and noise they vanish again. The government is implored to do something about fronting, rage is vented, comments are made about the “tip of the iceberg”, and threats and promises are made.

And then, resoundingly, nothing happens.

The big question is why cases of fronting are not uncovered more often. Only a few egregious examples have ever hit the headlines. You would imagine companies would eagerly want to expose their competitors’ unfair or unethical competitive practices, so that they lose money or go out of business altogether. So why do so few cases ever get publicity?

I suspect this is because fronting, far from being rare, is so common that it has become unthinkingly accepted as normal.

To give an example: a white company supplies schoolbooks to a provincial education department. The government says it wants the school books to be supplied by a black-owned company. A black-owned firm starts an agency, buys the textbooks from the white-owned company, and sells them to the education department, adding on a fee on the basis of its BEE credentials.

Nothing changes except that the textbooks are more expensive and the black owners of the company are richer and have some experience of business. Their experience of business, however, is that all you have to do is interpose yourself between the government and white-owned business to make money.

Unintentionally, in its editorial, the Dispatch may have put its finger on the problem.

“There is also another form of fronting that must be addressed — when a black-owned company wins a contract and outsources the work to a white firm at a slightly lower cost and pockets the difference. No skills transfer or skills development take place there, thus also undermining the intentions of BB BEE.”

The question to be asked here is not how often this happens, but rather how often there is real skills transfer. How many BEE deals are truly empowering rather than being an inefficient form of wealth redistribution or an apparently effective way of buying off political pressure to change economic policy fundamentally?