Lottery opponents in staff squabble

26 January 2007
IN THE fight over SA’s national lottery, newcomer Gidani has taken a jab at incumbent operator Uthingo, claiming to have received job applications from “scores of Uthingo employees”.

The applications allegedly include those of senior executives, who want to join Gidani when it takes over Lotto operations from Uthingo. Uthingo hit back, saying Gidani’s statement implied that it employed the best staff.

Gidani said this week it was considering job applications from Uthingo staff “very seriously as part of the lottery human resources pool that has been created”. “It is expected of us not to waste the scarce human capital developed by our nation’s economic and developmental initiatives. We are mindful, though, that some of the people applying may have restrictions imposed by their present employer.”

Uthingo is waging a legal battle against the appointment of Gidani as new lottery operator, questioning the decision process, and has filed papers in the Pretoria High Court.

Gidani said it would defend the action brought by Uthingo, and contended that it had won the licence fair and square in a “thorough, scrupulous and well-managed” contest.

But Uthingo CE Oupa Monamodi said: “I am very positive about what Uthingo had achieved over the past seven years. Our credentials speak for themselves. We rank among the top in the world.” he said. It was common practice to include provisions for confidentiality restrictions and trade restraints.

Uthingo employs about 280 staff whose contracts expire on March 31. All employees had signed confidentiality agreements, it said.

The National Lotteries Board confirmed this week that legal papers had been served on the board by two bidders that lost out to controversial consortium Gidani, which last October won the tender to manage the lottery. The board and Trade and Industry Minister Mandisi Mpahlwa are first and second respondents in the case. Board spokesman Sershan Naidoo said Uthingo had lodged papers in terms of the judicial review, while Igwija, a consortium headed by prominent businesswoman Danisa Baloyi, which did not make the short-list in the bidding process, had lodged papers in terms of the Access to Information Act.

Gidani is set to take over from Uthingo at the beginning of April, but the looming court battle has raised concerns about the continued smooth operations of the lottery. However, the board moved this week to allay fears, saying the lottery operations were not likely to be affected by the court action.

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Former estate agency board top dog arrested

January 19, 2007
Valencia Nontobeko Mazibuko, the former vice-chairman of the Estate Agency Affairs Board (EAAB), the statutory consumer protection body of the real estate industry, has been arrested and charged with fraud.

Investigations of other former board members were continuing, but none had been charged at this stage, Gauteng police spokesperson Lungelo Dlamini said yesterday.

Former EAAB chairman Linda Joseph Nyembe, who resigned from his position in the organisation in August 2005, is believed to be among the former board members under investigation.

Dlamini said Mazibuko was arrested at her home in East London on January 6 and subsequently appeared on charges of fraud in the Johannesburg commercial crimes court. He said Mazibuko was granted R10 000 bail and the case was postponed to allow her to obtain an attorney.

At the time of her appointment to the EAAB, Mazibuko was an estate agent for Continental Homes and a member of the Eastern Cape consumer tribunal, a body involved in the protection of consumers against unfair business practices.

Attempts to obtain comment from Mazibuko yesterday were unsuccessful.

The charging of Mazibuko and the investigation into other former EAAB board members follows an investigation launched last April by the commercial crime unit into specific charges against former EAAB board members.

This is in accordance with the findings of a forensic investigation into the affairs of the EAAB conducted by auditors KPMG.

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Dti's textile programme questionable

There was still no sign of the Department of Trade and Industry's customised sector programme for the textile industry, the official opposition Democratic Alliance trade and industry spokesperson Pierre Rabie said on Tuesday.

Rabie, a Member of Parliament, said in a statement on Tuesday that while South Africans stared clothing price hikes of up to 20 percent in the face and the local industry appeared to be deriving no clear benefit — following restrictions on imports of Chinese goods — the Trade and Industry Minister Mandisi Mpahlwa "continues to muddy the waters around the Chinese trade restrictions".

Rabie said he had submitted a series of parliamentary questions in response to cries from the local industry over government's unilateral formulation and implementation of the trade restrictions.

Consultation with retailers?

The minister had responded to one question stating that "representatives of labour, retail and manufacturing actively engaged in the drafting of the customised sector programme which aims to map out the sector's developmental strategy. Trade restrictions are amongst the initiatives identified in the sector programme".

However, Rabie questioned the accuracy of the statement saying that when the trade restrictions were gazetted on 1 September last year "there was no provision for any consultation with clothing retailers".

"In fact," said Rabie: "Not until the dti's ignorance of clothing affordability and local supply capacity issues spilled into the media, did government grudgingly lift a finger for consultation with retailers."

Restrictions questionable

Only after the restrictions were imposed — supposedly to facilitate the recovery of the local clothing manufacturing industry — and had come under fire from the opposition did government make any mention of a customised sector programme, said Rabie. There was still no sign of the sector programme's 1 January implementation date.

Rabie said when parliament reconvened next month, he would question Mpahlwa on the accuracy of "this seemingly grossly misleading answer".

"There exists no rational basis on which to assume that the trade restrictions on their own will benefit local clothing and textile manufacturers or that they will create jobs and the consumer will definitely not benefit."

"The wisdom of the trade restrictions therefore deserve to be questioned. For that to happen, the minister needs to come clean with South Africa and apply his mind properly to the situation," said Rabie.

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Days of BEE fronting numbered

Government on Thursday released the final draft of its black economic empowerment standards.

The standards, entitled Codes of Good Practice for Broad-based Black Economic Empowerment (BBEE), outline what companies need to do to fulfil government's BEE policy requirements.

They were released by Trade and Industry Minister Mandisi Mpahlwa in Johannesburg.

"The focus of the codes is to ensure that BEE is well understood by business as well as all South Africans."

They would ensure that empowerment was broadened to include a broader section of the population, he said

The codes, that outline what companies need to do in order to achieve BEE status in terms of, among other things, ownership, employment equity and management control, will become effective in months.

The absence of an official document explaining clearly what the companies' obligations were in terms of BEE had been cited as one of the reasons contributing to the dearth of foreign investment in the country.

Trade and Industry Director General Tshediso Matona hailed the launch of the codes as a qualitative leap towards higher economic growth.

According to the codes, companies' BEE compliance will be rated on seven core elements: ownership, management control, employment equity, skills development, preferential procurement, enterprise
development and socio-economic development.

To score the highest points a company has to demonstrate how its policies empower among others, women, rural people, the disabled and black people in general.

"The codes lay conditions for a sustained and inclusive economic growth," said Mpahlwa.

Approved by cabinet earlier this month, the codes are silent on the wide-spread problem of fronting that defeats the objectives of the policy.

"This is not an easy area - how do you catch those guilty of fronting and if you finally do, what action do you take against them?" said Mpahlwa.

However, Mpahlwa said the issue could be covered in future legislation.

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Online Gambling Legal in South Africa

The local media in South Africa reported that a draft amendment bill, appointed by the Cabinet, will finally be passed into law. It looks like the South African government is following the same route as the UK government for online gambling.

This past week has been a positive struggle for the South African government as they have been trying to draft regulations to legalize internet gaming.

Business Day said in statement that provincial governments have been losing out on an additional source of tax revenue as well.

Director for Trade and Industry, Astrid Ludin, spoke with the newspaper, stating that the draft bill proposes and licensing system for both online gaming websites and its players, however, the taxation strategy, is still yet to be determined.

The South African online gambling industry has been outlawed by the National Gambling Act of 2004, under the premise that more in-depth research was needed into the regulatory frameworks of the UK, US, and Australian markets.

Minister of Trade and Industry, Mandisi Mpahlwa, received two years to draw up regulations to govern internet gambling, which will be regulated in terms of the proposed Gambling Amendment Bill.

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Greek court cleared Lotto firm — minister

Greek courts had thrown out the “serious allegations” against the international partner in the Gidani consortium, which recently won the licence to operate the national lottery, Trade and Industry Minister Mandisi Mpahlwa said yesterday.

It was not clear, however, whether the Greek court’s decision in favour of Intralot came before or after Gidani’s success in winning the lucrative, seven-year lottery licence in October.

Gidani takes over from incumbent operator Uthingo in April next year.

The allegations faced by Intralot, which is listed on the Athens stock exchange, included espionage, fraud, prize-rigging and money-laundering. Intralot operates the Greek national lottery and is also active in about 34 other countries.

Gidani’s successful bid for the lottery licence despite the allegations of shady dealings by Intralot was slammed by critics at the time, but National Lotteries Board chairman Joe Forster was adamant that the National Intelligence Agency (NIA) had performed a background check on Gidani and its partners.

Forster was reported to have said that Intralot’s “references and background” were checked by the NIA, which declared it to be all above board. He said yesterday that there were “lots and lots” of cases faced by Intralot, details of which had been included in the bid documents. He could not say which ones had been thrown out by the courts.

Mpahlwa confirmed this in a written reply to a parliamentary question by Democratic Alliance MP Les Labuschagne yesterday, saying the allegations faced by Intralot were taken into account when the licence was awarded to the Gidani consortium.

“The courts in Greece were investigating a range of allegations pertaining to this matter. However, the NIA has informed the trade and industry department that the serious allegations have been thrown out of court. The investigations that remain are not of a serious nature,” he said.

Intralot has been dogged by allegations that it contravened its lottery obligations in Russia. Its chairman and 23% shareholder Socrates Kokkalis has also been called upon to answer charges ranging from money-laundering to espionage.

Replying to a question by a vocal critic of the bid, Independent Democrats leader Patricia de Lille, Mpahlwa said the directors of the Gidani consortium were chairman Bongani Khumalo, Lindiwe Mthimunye, Colin Matjilla, Salukazi Dakile-Hlongwane, Thembi Tulwana, Ethan Gilbert Dube, Christos Moumouris and Constantinos G Antonopoulos.

Questioned as to how the 20% share that government received in the transaction with the consortium would be spent, Mpahlwa said no decision had been taken over which entities would hold the stake.

“Government does not receive anything other than the dividends declared annually. In the current licence the Post Office received an average of R15m a year and the National Empowerment Fund R5m a year,” the minister said.

Gidani’s empowerment partners include women’s group Nozala Investments, the Congress of South African Trade Union’s investment arm Kopano Ke Matla Investments, the South African National NGO Coalition, Women’s Development Foundation and the National Organisation for the Blind in SA.

Vunani Capital Investments, Partnership Investments and Gravitas Investment are also members of the consortium.

Businessmen and African National Congress national executive committee members Max Sisulu, Cyril Ramaphosa and Chris Nissen are involved.

Mpahlwa said his department planned to introduce a new package of incentives for small enterprise development.

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Another Erwin bolt?

Taxpayers are to foot a massive bill for the government-mandated inquiry into controversial investment house Corpcapital after inspectors exonerated the company on every major charge levelled against it by former director Nic Frangos.

That is because the Companies Act has no provision to compel people who bring spurious complaints to the minister of trade and industry to pay for any investigation he may order.

Frangos had alleged that the other directors had, among other things, fraudulently inflated the value of Cytech, an online casino company, to produce glowing financial results, and earn large bonuses. He quit the company in a blaze of publicity, suggesting his lone crusade for governance standards could no longer be sustained from inside Corpcapital. The company ultimately ceased operations, saying it was unable to continue under a cloud of scandal.

But the report of the inspectors appointed in 2003 by then minister Alec Erwin clears the company on all of Frangos’s allegations, and hints that it would have recommended that he be compelled to pay for the inquiry if this option were catered for: “The Companies Act should be amended to give the minister a discretion to direct an applicant to pay or contribute to the costs of an investigation … Corpcapital should not contribute to the costs of the investigation,” it says.

Erwin’s successor, Mandisi Mpahlwa, has for two-and-a-half years refused to release the report, and has this week handed it to Corcapital only after being compelled to do so by a court order.

This reluctance has never been explained, but the recommendation on costs, and the fact that Frangos is given short shrift by the report, are potentially embarrassing to the ministry.

Erwin heard representations from Frangos, but not from Corpcapital, and used his powers in terms of section 258 of the Companies Act to appoint Advocate John Myburgh -- best known for his role in investigating the collapse of the rand -- and accounting professor Keith Prinsloo as inspectors.

“This was an ill-conceived process,” says Neil Lazarus, a non-executive director at new Corpcapital. “The minister’s office has wasted a huge amount of money because the initial application was heard ex parte.”

Lazarus argues that had Erwin been prepared to listen to Corpcapital before ordering the inquiry he might have acted differently, not least because Nigel Payne, a corporate governance expert appointed by the company to investigate the claims, had already cleared the company. Frangos described Payne’s report as a whitewash, and hired his own experts, who disagreed with Payne.

“The minister and his officials backed the Frangos horse … It is a huge embarrasment,” Lazarus told the Mail & Guardian.

“Taxpayers have ended up paying millions to fund Frangos’s ego.”

Lazarus puts Corpcapital’s costs for lawyers and expert testimony at between R7-million and R8-million. The total cost of the inquiry and the failed court bid to keep its findings confidential is likely to be much higher.

Mpahlwa, who took over as minister from Erwin just as the report was completed, has, since 2004, been fighting off calls to release the report, and the Department of Trade and Industry continues to refuse to make the document available to the media. Mphalwa is now appealing the court order on principle in an attempt to ensure that he has the final say on the release of similar reports in future.

In a statement following the judgement, Mpahlwa said he had reservations about the way the inquiry had been conducted, and suggested it had exceeded its mandate. He also echoed Frangos’s claims of procedural unfairness, saying Frangos had not had a chance to respond to some of the expert testimony provided by Corpcapital.

The inspectors do have some criticisms of Corpcapital, notably that it may have violated exchange-control regulations when it set up its offshore businesses, and that its corporate governance structure was not always compliant with requirements of the King commission. But the damage to Frangos looks much worse.

He breached his fiduciary duties by giving confidential, price sensitive information to a select group of institutional investors, the report says.“[He] was advancing his own cause, and not that of the company, Corpcapital.”

The report also finds that in his attempt to find evidence that Corpcapital and Lazarus had ordered a private investigation firm to spy on him, he not only invaded the privacy of Lazarus and his family, but“acted badly, contrary to the portrayal of himself as an ethical, righteous upholder of sound corporate governance”.

What is more, Frangos had no basis to believe that the Payne report was a whitewash, or that he had not been given an adequate hearing, the inspectors found. Mpahlwa’s office had not responded to a request for comment when the M&G went to press.

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BEE deal makers get a lot for relatively little commitment

There is one major problem with the broad-based black economic empowerment (BEE) codes of good practice that were published yesterday by the department of trade and industry: the codes do not hold black people accountable for the outcomes of the BEE process.

Take the once empowered, always empowered principle. In terms of this principle, a company will be allowed to claim ownership points after the black investors have sold their shares in the company.

This is subject to some criteria, including that black shareholders must have owned the shares for at least three years; black investors must have made a profit on the deal; and the company must have achieved a certain level of transformation (in terms of the other six scorecard points) by the time the black shareholder sells the shares.

These criteria arise out of the BEE experiences of the late 1990s, when many black investors were left with very little to show for their BEE ventures after share prices went south in reaction to the Asian crisis and the dotcom bomb.

Black investors have since blamed onerous financing structures, which resulted in the shares being handed back to the financiers.

The codes effectively mean that the companies that undertake BEE deals will have to ensure that black investors make a profit from these deals. The codes are silent, however, on what black investors must do to ensure that they make money on these deals.

Also, the codes say nothing on what obligations the BEE investors have to ensure that the company they have bought into achieves certain transformation targets, such as more than 40 percent of management being black or buying more than 70 percent of goods and services from BEE suppliers.

These two points are important because the basis of broad-based BEE is that black investors are expected to use their equity ownership and their board seats to ensure that the other 80 percent of the transformation scorecard is achieved. But as the codes stand, it would appear that the government is giving much to the BEE deal makers but expects very little of them in return

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SAA executives in illegal share deal

South African Airways (SAA) may have contravened a number of statutes during the tenure of former CEO André Viljoen, over and above failing to follow proper procedures in the sale of the company’s shares to its executive directors, a report co-authored by corporate governance doyen Mervin King says.

The report followed an investigation instituted by Trade and Industry Minister Mandisi Mpahlwa on the “affairs of SAA since its incorporation as a company in December 1997”.

At the centre of the report was the investigation of the incentive shares that were sold to the airline’s top management and to pilots.

According to the report, 13 former SAA executives illegally benefited from the sale of 27-million shares that were held under the SAA Employee Share Trust. The trust was established in October 1999 to administer and control the parastatal’s three employee share schemes — the Employee Share Ownership Programme, the Flight Deck Crew Scheme and the Incentive Scheme.

The report found that Viljoen and his management team assumed the duties of the trustees, acting contrary to the provisions of the Trust Properties Control Act. Management took control of the trust because the first three official trustees — Bheki Sibiya, Sango Ntasluba and Gloria Serobe — were found to be “inactive and never met”.

In terms of the Trust Property Control Act, trustees must appoint an independent valuer on an annual basis to determine the value of the shares, and the shares must be sold at the current market price.

However, Viljoen and his management team sold their shares in 2001 at the previous year’s healthy price of R2,87 a share.

“It is open to argument that management, who were also directors, acted wittingly by directing the valuations and effectively being both seller and purchaser,” King and his co-author, Brian Abrahams, said in the 101-page report.

Although management at the time had directed Wiphold to determine the value of the shares, the report contended that the sale was null and void because management was not duly authorised to act on behalf of the trust.

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Cipro’s crippling problems

IT BEGGARS belief that well over a year after the alarm was officially raised over the huge backlogs and administrative problems dogging the Companies and Intellectual Property Office (Cipro), no action has been taken.

Not only did auditor-general Shauket Fakie issue a disclaimer in his 2004-05 audit report because of serious financial problems within the organisation, but Cipro’s own chairman, Rob Angel, expressed concern in the annual report the same year about the body’s substandard performance. There is quite obviously a major problem at Cipro, and it is up to the responsible ministry — trade and industry — to take action.

That has not happened. The problems have been going on for years. Companies’ complaints about Cipro’s poor performance, like that of many other trade and industry institutions, have fallen on deaf ears. Once again this week Parliament’s standing committee on public accounts called for heads to roll in the department for the financial mismanagement at Cipro.

The issue is now critical. Registering companies, close corporations and their directors is vital to the functioning of business. In addition, Cipro handles the registration of trademarks, patents, copyrights and designs.

Complaints range from slow turnaround times in processing applications to losing documents. Indeed, Angel noted that Cipro had been criticised for its “unbearable” turnaround times in processing applications, for losing documents and for various mistaken amendments to corporate data. It takes Cipro five days to register a new company and, at the end of March last year, the process of registering a trademark took 19 months.

Backlogs in updating information have meant that businesses have been forced to wait for many months to lodge new information with the organisation. The logjam recently resulted in a highly embarrassing situation when Fakie fingered several ministers and senior officials for not fully disclosing business interests. It turned out that his report was based on outdated information from Cipro, and most of these ministers were subsequently cleared.

Given the trade and industry ministry’s casual attitude to Cipro’s crippling problems, we should not hold our breath for action any time soon. This is an area where the private sector would not only do a far better job, but would probably jump at the chance. It should be given the opportunity to do so.

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Strategy for small business out soon

GOVERNMENT would release its small-enterprise strategy in the next two months at the latest, said trade and industry department chief director for enterprise development Mandisa Manjezi.

The strategy is regarded as the basis for government’s approach to supporting small, medium and micro-enterprises. Its objectives include creating an enabling regulatory environment and enhancing their access to finance.

The strategy was initially completed and submitted to cabinet last year but “cabinet felt that there were certain areas that needed to be strengthened”, Manjezi said.

“Some of the pertinent issues that cabinet wanted to be looked at again included access to finance, public procurement and issues of rural industries.”

With regard to the so-called rural industries, cabinet wanted the strategy to spell out opportunities other than agriculture that could be exploited, Manjezi said.

“All these issues have been addressed in the revised strategy.”

Issues concerning the strategy are likely to come under discussion at the annual small business summit.

The department said Labour Minister Mandisi Mpahlwa would host the summit and “share his perspective on achievements and how the department and its partners have been responding to small business development challenges”.

Mpahlwa is expected to inaug-urate the newly appointed small business advisory council at the summit. Mpahlwa announced in August this year that the council was to represent and promote the interests of small business.

The council will advise Mpahlwa on strategies to address so-called market failures affecting small businesses and the influence of current and new legislation on small businesses and skills development.

Manjezi said mechanisms to address small businesses’ struggle to access finance would come up at the summit.

“We realise as government that we do not have all the resources to address financial needs across the board. We need the private sector,” she said.

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