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Weaknesses in BEE Implementation

The democratic government has since 1994 introduced policies and legislation that seek to de-racialise the South African economy. It has done this through legislation such as the Employment Equity Act no 55 of 1998 and the Broad Based Black Economic Empowerment Act no 53 of 1993.

These statutes are designed to promote a more meaningful participation of Black people in the economy. Despite some progress, problems remain. They include active resistance by established businesses, insufficient financial resources and fraud, including fronting by white businesses.

The Broad Based Black Economic Empowerment Amendment Bill to be tabled in Parliament soon, will further assist in dealing with such practices. It adds a clear definition of fronting and makes the provision of false information regarding the BEE status of an enterprise, a criminal offence. It also establishes a BBBEE Commission that can among other things adjudicate complaints regarding fronting and other problems.

The problems experienced by Black business people often start at the outset of a business transaction for example:

  • lack of independent legal and professional advice
  • inappropriate financial structuring of transactions
  • funding problems

More often than not, when things do go wrong, the problem involves more than simply legal issues. Typically it involves a range of unethical or unlawful practices, poor corporate governance and, failure to comply with relevant legislation especially the Companies Act.

Examples of these unethical practices are:

  • BEE companies are set up for a particular venture, usually public sector work, but once the work has been obtained, the Black partners are excluded and financial records concealed or misrepresented
  • Subsidiary companies are set up post awarding of tender contracts, diluting BEE shareholding in overall venture, with cash siphoned off through artificial transactions with such subsidiaries and a reduced profit for the BEE company.
  • Outright fraud such as fake BEE certification, misrepresentations to government departments, failure to issue share certificates, theft of money, and and asset stripping.

In such instances the wronged party has to go to attorneys, forensic accountants and other professional advisors. This is not only time consuming and expensive but also adds stress to an already stressful situation.

PHOLOSANG relieves this burden. As a multi-disciplinary consultancy, it offers a range of services either in- house or in partnership with other professional companies. So once you step into our offices, we do all the necessary coordination for you and leave you with peace of mind.