Deputy President Cyril Ramaphosa yesterday said fronting was a gross abuse of economic transformation and that government had put in place measures to penalise transgressors.
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 (BBBEE) Act.
“The policy, when it was initially crafted, did not address fronting because it was envisaged companies would embrace the spirit and the intent of the BBBEE Act and the needs to be transformational at the economic level,” 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.”
The deputy president was responding to questions during the National Council of Provinces sitting, when an 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 said fronting was one of the practices that had become prevalent in the country since the BBBEE Act of 2003 was enacted. It concluded that fronting 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 3%.
The 2015 report of the Commission on Employment Equity showed that white people still represented between 70% and 60% of top and senior management, with black people representing only an estimated 13.6% and 21%, respectively.
Government thus enacted the BBBEE Amendment Act of 2013 to create the BBBEE Commission in a bid to deal with the scourge by monitoring and investigating fronting practices. According to the BBBEE Act, companies found guilty of fronting can be fined up to 10% of their turnover, or 10 years in prison for their directors.
Ramaphosa said the BBBEE Act was one of the “most important measures” the democratic government had put in place to address the economic injustices of the past. He said the BBBEE Act had contributed towards ensuring the entry of millions of black South Africans into the mainstream economy, alongside the 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 BBBEE policies were established.”