The Department of Transport, in collaboration with Barloworld Logistics and the Retail Automotive Aftermarket Federation (RAAF), made a presentation about the numerous challenges of transformation faced by Historically Disadvantaged Individuals (HDIs) in the government vehicle fleet business, specifically focusing on Small, Medium and Micro-sized Enterprises (SMMEs).
RAAF was formed in 2010 after a breakaway from the Retail Motor Industry (RMI). The intention of the breakaway was to create an organisation that would represent the aspirations of black Africans and HDIs in the motor vehicle industry. The two visionary plans of RAAF were simply to fight discrimination and to unlock the potential of black business in the motor vehicle industry. RAAF also raised concerns about the issue of geographical discrimination surrounding the warranty contract by service providers, which hindered the potential growth of small businesses, especially those located in the townships. RAAF was also concerned about the Original Equipment Manufacturer (OEM) approval system, as it was racist and biased against black merchants and also killing the economy of South Africa. RAAF said the OEM approval system had been used to enrich past suppliers, and was outlawed throughout the world. There was also a major concern that Wesbank was spending nothing on HDIs, although the National Treasury had indicated that they needed to spend at least 3% on enterprise development.
The Department focused on a number of issues. These included Contract RT46/2009, the shortcomings of the contract, the implemented changes on the contract, and the improvements to the new Contract RT46/2014, beginning in April. The Department was also considering proposed and additional considerations. The identified limitations included, but were not limited to, the prescribed work distribution process being limited to geographical areas, traffic officers having to decide where a vehicle involved could be repaired, limited reporting on B-BBEE, and the “in” and “out” of warranty repairs. The improvements to Contract RT46/2014 included B-BBEE reporting for all merchants on the contract, and the government now prescribed the work distribution process to include the distribution of non-warranty work to HDIs. Quotations were not limited to within a specific geographical location and transport officers were no longer allowed to decide where a vehicle could be repaired.
The Barloworld Owner-Driver scheme also raised concerns, as they felt that Barloworld Logistics was not empowering and supporting owner-drivers to become independent entrepreneurs. When the first owner-driver scheme had started in 2007 at Barloworld Logistics, there were about 45 owner-drivers, but most of them never ended up becoming independent entrepreneurs. Instead some ended up with a huge amount of debt owing to South African Revenue Service (SARS). The reason for such failure was that while someone was allowed to be an owner-driver, there was someone else who was playing the role of controlling the distribution of finances, and so the owner-drivers were not allowed the independence to make their own decisions. Barloworld Logistics were clearly not complying with affirmative action that planned to address the imbalances of the past, as they failed to adequately address the issue of exploitation of emerging trucking companies.
Members raised their concerns about the fact that the Department had failed to empower HDIs in the motor vehicle industry, as there were no measures in place to compel the service providers to comply with BEE and other transformational measures. They were also concerned about the warranty contracts and OEM policies that literally locked out small and emerging companies in favour of the well-established companies. Members also complained that the Department had not addressed the issues raised by RAAF in their presentation, as they had focused on the Charter instead of projects that would put a dent on the triple challenges -- poverty, inequality and unemployment -- as identified by the government. The Department needed to ensure that they empowered SMMEs in the motor vehicle industry, in the form of funding in order to be able to compete with well-established enterprises in the industry.
Members agreed that there was still much that needed to be done by the Department to empower HDIs in the motor vehicle industry, especially those located in the townships.
Opening remarks by Chairperson
The Chairperson welcomed everyone to the meeting and indicated that the Committee would hear about challenges faced by emerging truck companies and the feedback from the Department of Transport (DOT) on challenges raised by the stakeholders. There would also be a briefing by the Retail Automotive Aftermarket Federation (RAAF) on its concerns regarding Black Economic Empowerment (BEE) and transformation in fleet management, and the Department would be given an opportunity to respond on the pertinent topic. The invitation of RAAF to the Portfolio Committee came as a result of a phone call the Chairperson had received from the organisation. She had then had a meeting with two representatives from the organisation, who had raised their concerns regarding transformation in fleet management. Representatives from the Department were also present at the meeting and they also agreed that they would look closely at the issue of transformation and empowerment of black people in fleet management and come up with possible interventions. The Department also agreed that there were numerous challenges of transformation and empowerment in fleet management which needed to be addressed promptly. The Department would respond to the issues raised by both the RAAF and the emerging contracting company.
Briefing by RAAF
Mr Moeketsi wa Mitane, President of RAAF, welcomed everyone present and introduced his delegation. He indicated that RAAF was formed in 2010 after a breakaway from the Retail Motor Industry (RMI). The intention of the breakaway was to create an organisation that would represent the aspirations of black Africans and historically disadvantaged individuals (HDI’s) in the motor vehicle industry. The two visionary plans of RAAF were simply to fight discrimination and to unlock the potential of black business in the motor vehicle industry. The current government was spending a huge amount of money on vehicle fleets, and the disposable income that comes from the black middle class contributed to the sector in various ways. This was proved by the fact that the motor industry had experienced growth, and this was mainly in the insurance sector, the banks, brokers, maintenance, and auto parts.
RAAF was particularly displeased with the current service provider, Wesbank, and the Department had been aware of their concerns since 2010.
RAAF was seeking intervention from the Department through the Portfolio Committee to raise numerous issues, but specifically the racist and anti-transformation situation at all levels in fleet management. In areas of Durban, like Umlazi and KwaMashu, a black merchant applying to be on the vendor list would take almost eight months to be approved, but when the applicant was white, this process would take less than a month. Mr Mitane indicated that he was also deeply concerned that Wesbank was distributing procurement in terms of benefiting towing according to radius, as their computer system was specifically designed to choose a service provider that was not far from a 5-10km radius. This was the worst form of segregation and apartheid in the working place, as it meant a well-qualified and well-equipped service provider in areas like Orange Farm or Ga-Rankuwa would never enjoy government procurement, because of their geographical location.
Mr Mitane also believed that the Department, together with Wesbank, was creating a division amongst HDIs nationally, as Wesbank required a service provider to be an RMI member. He believed that this was violating the right of association, as it was clearly stipulated in the Constitution that everyone has a right to be a member of any organisation.
The Department, together with Wesbank, was using the excuse that they were buying new fleet with a warranty that dictated who is supposed to be the repairer, and this was locking away opportunities and excluding HDI’s. The Original Equipment Manufacturer (OEM) approval system was racist and biased agains black merchants, and also killing the economy of South Africa. The OEM approval system had been used to enrich the past suppliers, and was outlawed throughout the world, and he wanted to know why the Department had adopted a policy that was outlawed globally. Wesbank had indicated that they were spending R2 million on black merchants, when in reality they had spent nothing. Wesbank needed to create a methodology that would make sure that from day one, the expenditure was reported on a quarterly basis to the Department. The Department was responsible for creating enterprise development for black vendors, but Broad-Based Black Economic Empowerment (B-BBEE) was not fully implemented in fleet management. He recommended that within a Department, there was a need to include the insurance companies who could advise the Ministry on new tenders, and also formulate a task team that would meet four times a year to report to the Portfolio Committee, but also be proactive in addressing issues affecting black merchants in the motor industry
Mr Mitane said RAAF had made many strides with Wesbank to deal with the issue of exclusion of black vendors in the motor vehicle industry, but was concerned by the continuous lack of transformation at Wesbank. National Treasury (NT) had said that Wesbank was supposed to spend 3% in terms of transformation and BEE restriction, but for the past 15 years, Wesbank had spent nothing on black merchants. RAAF wanted to create a harmonious relationship between the Department, the service provider and Small, Medium and Micro-sized Enterprise (SMME) merchants.
He concluded by saying he was very emotional about his industry, as he felt that the industry could empower ordinary people. He was also pleading to the Department to prioritise the issue of transformation and empowerment of black merchants.
The Chairperson thanked the RAAF for its presentation, and asked the Department to make its presentation on the same issues.
Presentation by the Department of Transport (DoT)
Mr Clement Manyungwana, Acting Deputy-Director General (DDG): Integrated Transport Planning, DoT, introduced his delegation and apologised for the absence of the DDG, Mr Mawethu Vilana, who could not make to the meeting as he had an engagement with the Minister. In the last meeting, the agreement was that the Department would present the Transport BEE Charter to the Committee. The Department was aware of the issues raised by stakeholders. He handed over to Mlungisi Maphanga, Director of the Department of Transport.
Mr Maphanga said that the Department had already had several interactions with the RAAF, together with NT, especially regarding the issue of Wesbank. He was also passionate about the issue of BEE, and believed there was a need to remove barriers that hindered emerging black merchants. The presentation would deal with the issues raised by RAAF, as they were closely related to Contract RT46. The presentation would also deal with the shortcomings of the Contract RT46/2009, which was coming to an end at the end of March 2014, and would also touch briefly on the implemented changes in RT46/2009 and address the shortcomings that had been identified. Lastly, the presentation would deal extensively with improvements on Contract RT46/2014 and the proposed consideration moving forward. Each and every province managed its own fleet, and there were about five provinces that had set up their own trading entities with CEOs. The whole structure of management, and the budget allocation, was also a provincial issue. It was important for Committee Members to be aware that Contract RT46 was a transversal contract, procured through NT, and the Department dealt with the implementation.
Mr Maphanga said that Contract RT46 dealt with issues related to fuel cards, repairs of the vehicle, the structural repairs of the vehicle and also maintenance. This contract was used by most government departments (e.g. SAPS, and trading entities). The current contract was coming to an end at the end of March 2014, and the new contract was running for a period of five years. The Department had indicated that through interaction with RAAF and other stakeholders, they had managed to identify the limitations of Contract RT46/2009. The Department had noted that there was a shortcoming in terms of the prescribed work distribution process, as this was limited and did not take all the factors into consideration, as quotations were limited to geographic areas, as previously indicated by RAAF. In some provinces, the transport officers were deciding on where the work distribution went, and the rotation system did not guarantee work distribution. The Department had also noted that there was no coherent differentiation on expenditure on “in” and “out” of warranty vehicles. RAAF found that this was also a major barrier to black merchants. The reporting on “in” and “out” of warranty repairs was not detailed enough in terms of expenditure to HDIs and the distribution of contracts. There was more reporting on BEE, rather than B-BBEE, and the Department had requested that Wesbank should unpack its presentation to be more detailed. The Department had indicated that Wesbank had asked for a quarterly database registration, due to system challenges. This meant a supplier could register on the database whenever they wanted to, and at their convenient time.
The implemented changes to the current contract included reporting on “in” and “out” of warranty work distribution. There was now an advisory process to inform HDI Merchants where their quotations were out of line -- for example, the Department had requested Wesbank to review quotations, as some of the suppliers may not necessarily have the technical knowledge of how to quote. This meant the merchants who did not quote properly were given a second chance to resubmit the quotation for consideration. The OEM Certified Merchants were now allowed to quote for warranty work for government. The Department had decided that the work that did not affect the warranty work was in future to be given to HDI merchants. The Department had also introduced a rotation policy for all out of warranty work of low value.
The improvements to contract RT46/2014 included reporting on B-BBEE for all merchants on the contract, whereas previously the reporting was only on BEE. In addition, government now prescribed the work distribution process to include distribution of all non warranty work to HDI’s, as well as work that did not affect warranties, such as mirrors, windscreens and bumpers. There was now anytime registration on the supplier data base, and also membership to retail bodies for reporting purposes only, and not to determine work allocation.
Contract RT47 was not to be looked at as a “stand alone,” as the vehicles referred to were from Contract RT57, and this contract had its own requirement. The Department needed to find ways to align both of these contracts to be complementary. There was now an equitable rotational procedure for work distribution to ensure a balance between the amount of work and its monetary value. The Department had removed the limiting of quotations within a specific geographical area, as RAAF had indicated this was the major barrier to the empowerment of black merchants who were located in the periphery. The Department had also pointed out that there was a need to synchronise the duties and responsibilities of transport officers. This was to limit their potential power to decide a location where a vehicle involved in an accident could be repaired. The Department also planned to introduce a monthly report on expenditure for retail bodies such as RAAF. This was to ensure that the Department was aware of the money that had been spent on the HDI’s.
The proposed considerations regarding the current contract were to be included during the implementation of RT46/2014, and there had been consultation sessions with provinces, merchant bodies and service providers. There had also been additional considerations which included consultation with Department of Trade and Industry (DTI) on developmental programmes, as it was the responsibility of the DTI to ensure that HDI’s were well-equipped and given assistance through funding and also bulk buying.
The Chairperson thanked the Department for its presentation and opened the meeting for discussion and clarification.
Mr I Ollis (DA) said that RAAF was asking profound questions of the Department, especially concerning existing warranties and the requirements in South Africa for repair and maintenance. The challenges identified by RAAF were similar to problems experienced with the National Economic Development and Labour Council (NEDLAC), where big government, big labour and big business colluded to keep the SMMEs out of business. It was not just that the Department was using conflicting systems for its own fleet maintenance -- the main issue was on warranty agreements, as they were unfair and locking out small businesses. He did not believe that this was a race issue, as previously indicated by RAAF, but was more about restricting small businesses -- some white merchants. In order to ensure the success of emerging trucking companies, there was need to tackle corrupt practices, sometimes involving government officials. It was imperative to empower SMMEs to get access to contracts and the ability to reach the quality needed in order to be competitive. The Department needed to look at regulations and legislation to guarantee quality while allowing small businesses to grow in the motor vehicle industry. He appealed to the Department to interrogate the collusive practices further, the lockout contracts and the warranty lockout, and look at ways to tackle these problems.
Mr N Duma (ANC) asked if it was possible to monitor the standard and quality of everyone in the South African motor vehicle industry.
The Chairperson agreed with Mr Ollis on the issue of collusion in the motor vehicle industry. He also agreed that there was a need to free the market for everyone, while at the same time ensuring that quality was guaranteed by the setting of standards. She also raised concern at the practice of lockout contracts, as they were discriminating against small businesses. The Department needed to take the blame on this issue, as in all the strategic plans that had been presented to the Committee in the past five years, fleet management had never been mentioned until the Committee had been approached by RAAF.
She wondered if the Department was aware that when developing its strategic plans and making presentations to the Portfolio Committee, the Committee needed to know everything. The government had committed itself to being a developmental state, meaning that with all the work that was done by departments of government, there were developmental policies that needed to be taken into consideration and prioritised. The presentation by the Department had failed to take into account the laws that had been made by the Parliament to transform the country. The presentation had also failed to address three main challenges that the government of South Africa had committed itself to address -- poverty, inequality and unemployment. The presentation did not tell the Committee whether the Department had put measures in place to adhere to the NEDLAC agreement on enterprise development and job creation.
The Chairperson said it was surprising that the Department was silent on how it used the Cooperative Development Act of 2005 to assist associations and graduating them into cooperatives, as associations were people who came together because they had similar problems. The Department had also failed to elaborate on how they were using affirmative action to empower HDI’s, especially in the motor vehicle industry. The presentation by the Department was also quiet on how to address the issue of youth unemployment, especially in a country where the majority of young people were unemployed. The Department was also silent on the percentage set aside for HDI’s and if it was 3%, then what informed such a percentage?
Mr Manyungwana responded that they were aware of the challenges faced the Department and they planned to rectify these challenges with a new contract, starting in April 2014. He agreed with the Chairperson that there was a need to use B-BBEE to empower HDI’s in the motor vehicle industry.
The Chairperson interjected and said the Committee Members were not interested in the Charter, but on the projects that would help tackle unemployment and poverty. The Charter was there, and was like a Bible, as nobody forced someone to read it, but what was critically important was how the programmes, projects and contracts reflected what was in the Charter. The Charter was not supposed to have been presented as a separate document from the programme. She was concerned that there was no indication that the issues raised by RAAF had been adequately addressed in the presentation.
Mr Manyungwana continued and admitted that the Department needed to go further to identify and provide possible solutions to the main challenges faced by HDI’s in the motor vehicle industry, especially those raised by RAAF. These issues would be considered during the implementation of the new contract.
The Chairperson interjected again, and emphasised that the contract needed to be aligned to the triple challenges of unemployment, poverty and inequality. Therefore, the contract needed to elucidate more on how it would deal with these challenges.
Mr Manyungwana thanked the Chairperson for the clarification, and again admitted that the Department has not done enough to tackle the triple challenges identified by the South African government. There was a need to report periodically on these issues.
Mr Maphanga also echoed that the Department had not done enough to tackle the triple challenges, and therefore needed to report periodically on them, as these were issues affecting ordinary people.
Mr Mitane appreciated the Department’s response regarding the improvements moving forward, and acknowledged the shortcomings experienced by the current service provider. However, the Department needed to do more on empowering emerging businesses, especially those located in the townships, where youth unemployment and poverty was rife. In order for the Department to monitor the amount spent on HDI’s, they needed to set aside a proper target, as this would ensure compliance. Wesbank had failed to spend 3% on enterprise development precisely because the Department was not pushing them to implement such a target. The Department needed to introduce a developmental approach, by compelling the new service provider to spend at least 3% on the HDI’s. He requested the Department to fully interrogate the OEM contract that locked out small businesses.
The Chairperson admitted that there were challenges faced by the Department, and thanked RAAF for bringing these issues to the Committee meeting. She also appreciated the manner in which the Department had handled these identified challenges, as they had cooperated and were not defensive in admitting that there were challenges that still needed to be addressed in the new contract. She proposed that the Department write a report and submit it to the Committee, spelling out how the issues raised in the meeting would be addressed and implemented in the new contract and also indicating those issues which required long-term interventions.
The Chairperson handed over to Barloworld Owner Driver to brief about their concerns and experience as emerging trucking company.
Mr Ollis requested to be excused for 10 minutes to vote in another Committee meeting, and come back.
The Chairperson suggested that all the Committee Members should go together to vote when the bell rang.
Briefing by Barloworld Owner-Driver
Mr Mandla Maseko, Chairperson of the Owner-Driver Committee, thanked the Chairperson for the opportunity to voice their concerns on Owner-Driver schemes and Barloworld Logistics. Although Barloworld Logistics offered owner-drivers an opportunity to be entrepreneurs, they were not offered full support so as to be able to grow and become autonomous.
The first owner-driver scheme had started in 2007 at Barloworld Logistics. There had been about 45 owner-drivers, and most of them had never ended up becoming independent entrepreneurs. Instead, some had ended up with a huge amount of debt from South African Revenue Service (SARS). The reason for such failure was that while someone was allowed to be an owner-driver, there was someone else who was playing a role in controlling the distribution of finances, so the owner-drivers were not allowed the independence to make their own decisions. He also believed that the system that was used by Barloworld Logistics was not empowering HDI’s, especially emerging trucking companies, as the owner-drivers were not given independence to manage their finances, and know where they could minimise their operational costs.
Some of the owner-drivers had had their houses or trucks repossessed because they could not manage to pay back their debts. Although in some cases, a truck was still under warranty, it could take two months for a truck to be fixed, and he believed Barloworld Logistics was responsible for these unnecessary delays. He was appealing to the Department to assist in terms of addressing their concerns with Barloworld Logistics, as they had already consulted lawyers and the DTI without any success. He was hopeful that the new contract to be introduced by the Department would be able to address these key challenges, as HDI’s were continuously disempowered in a democratic South Africa. In conclusion, he also emphasised that Barloworld Logistics was clearly not complying with the affirmative action that was planned to address the imbalances of the past, and he was hopeful that their concerns would be addressed by the Department..
The Chairperson thanked Owner-Driver for their presentation, and asked for a 10 to 15-minute break for Committee Members to vote and come back, as previously suggested.
The Chairperson mentioned that the Department had failed to address the issues raised by Owner-Driver Scheme, as there had been a lot of exploitation at Barloworld Logistics. At the previous meeting with Owner-Driver Scheme, the members had indicated that in some instances they had been enticed to use their pension money to buy a new truck. She viewed this as disempowerment of people, as they had been made poorer than when they were just truck drivers. She repeated that the Department focused only on the Charter, while ignoring the main issues of exploitation and disempowerment of small businesses, like RAAF and Owner-Driver Scheme. The issues raised by Driver-Owner Scheme were the tip of the iceberg with regard to the exploitation taking place in the trucking industry.
The Chairperson asked Ms D Pule (ANC) to be a caretaker Chairperson of the Committee, as she had to leave to get to an important gathering.
Mr Ollis indicated that he also had to go to another important meeting at 12:30pm.
Ms Pule indicated that she would be a caretaker Chairperson. She indicated that there was already limited time for the Department to make a presentation on the Integrated Transport Sector B-BBEE Charter, and therefore asked the Committee Members for suggestions on the proceeding of the meeting.
Ms R Motsepe (ANC) suggested that it would be unfair for the Department to make a presentation in less than ten minutes and it was therefore advisable to find a suitable day so as to give the Department enough time to make their presentation.
Mr Manyungwana digressed, and pointed out that it was the first time that the Department had heard about the issue of Barloworld Logistics. He requested that Members allowed the Department to respond to their issues at the next meeting.
The Chairperson said that since the Department had been unaware of the issues raised by Barloworld Logistics, they needed to write a report back to the Portfolio Committee, and then they would brief the Chairperson and Committee secretary to find a possible day to tackle the issues raised by Barloworld Logistics.
She thanked everyone who was present to the meeting, but especially RAAF and Owner-Driver Scheme for their presentations, and for raising concerns and the challenges affecting HDI’s in the motor vehicle industry. She urged everyone to drive home safely.
The meeting was adjourned.
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