OPINION: Middleman is not economic empowerment
IOL - OPINION / 09 APRIL 2019 - 16:30 / EUSTACE MASHIMBYE
JOHANNESBURG - In all of our tender procurement processes we are all extremely vigilant, looking out for evidence of spurious joint ventures, black economic empowerment fronting, and middlemen who are jacks of all trades and masters of none.
The latter are common in South African business, with one person often popping up as a supplier of everything from heavy manufacturing equipment to promotional gifts and clothing.
I have written before about local content fronting - when a supplier comes from the township, but the end product or service they are providing is 100 percent imported.
By virtue of the business’s location being in Soweto or Tembisa for example, the procuring entity, whether public or private sector, can erroneously tick a “supplied locally” box.
Supply chain middle men are just as misleading in presenting their credentials as bona fide small, medium and micro-enterprise businesses.
These are not small or medium enterprises, they are one-man bands, dedicated to personal enrichment and not to the growth or real expansion of their businesses. That is, with the exception of growing their turnover which they plough into their own lavish lifestyles without taking anyone along with them or creating jobs in the process.
They do nothing for an ailing economy, which itself is battling to grow and create jobs.
A friend recently moved home and booked a removal company only to find that the man had subcontracted the job.
He didn't own any trucks himself or employ any guys to move furniture. He just made a call and passed the job on, acting as a middle man supplier, marking up the price he was paying to the company that actually fulfilled the contract by 100percent, and my friend paid double what he should have.
One or two cycles of playing the middle man can be the first step on the ladder for a true entrepreneur that is looking to create a sustainable enterprise.
Maybe they are asked to supply chairs for an event.
They in turn go to a company that owns banqueting chairs, mark-up the rental and supply them to the procuring company.
The next contract is to supply carpeting or flooring for an exhibition, so they go and find a company that has such carpets, sub contract from them and pass the carpet, with the mark-up, on to the procuring company.
All the middleman needs is a phone, a PC or a laptop. No office premises, not even a vehicle and definitely no extra overheads such as premises or staff.
Maybe he earns enough on his first few contracts as a middleman supplier to upgrade his phone. To buy a car, and some new clothes befitting his new station in life as a “businessman”.
But where is the growth and development that should underpin real entrepreneurship?
Instead of investing in his own removal truck, chairs or carpet, putting the money back into the business and a product he now owns, he diversifies.
Starts supplying piping to a construction company, T-shirts and caps to a corporate. Becomes that jack of all trades we mentioned.
When you enter a procurement or tender process, it is important to interrogate the supply chain of the company you wish to appoint. If they aren't in the core business you are looking for, they are probably a middleman. If they have third party suppliers for all the elements or components of the tender, they are almost certainly a middleman.
Middlemen don't create jobs. They are front men for themselves, with little or no substance.
Middlemen cost you and I lots of money. They cost the government and therefore the economy money when they inflate prices with their exorbitant mark-ups, but the government often doesn't see past the requirement to engage a black-owned business, overlooking other factors including who the end supplier actually is.
This week I opted to quote from a book instead of a song and Bonang Mohale’s book Lift as You Rise talks of this ethos of enriching others’ lives and uplifting them as your own success grows - specifically he talks about empowering women.
But entrepreneurs are the employers of tomorrow, their success should beget the success of others, providing job opportunities and contributing to the economy as they expand.
Reap as you sow, entrepreneurs. Pay it forward. Lift as you rise. Grow your business and not just your lifestyle. Give others a chance. Give others a job if you can.
Eustace Mashimbye is the chief executive of Proudly South African.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER