By Lynda Loxton

Cape Town - Companies caught fronting or using sham empowerment transactions to get government contracts would be blacklisted, but the government would resist calls to legally compel companies to implement black economic empowerment (BEE) policies, parliament heard on Friday.

Briefing the portfolio committee on trade and industry, Lionel October, a deputy director-general in the department of trade and industry, said fronting had emerged as a major risk to BEE as it was "not only bad from an economic point of view ... but also gives BEE a bad name".

To root out this problem, companies that engaged in fronting to get government contracts would be blacklisted, which would exclude them from future contracts.

At the same time, the database that would be used to source suppliers for government contracts would be thoroughly vetted to verify actual shareholdings in companies tendering for government business.

October said that while the number of mergers and acquisitions involving BEE deals had tripled to 189 last year at a value of about R40 billion, this number would have to be doubled every year between now and 2014 if the 25 percent BEE equity ownership target was to be met by then .

He expected there to be at least 300 BEE deals this year but said attempts by members of parliament to get the government to impose caps on the number and value of BEE deals individual black people could get involved in or to change the constitution to force companies to adopt BEE strategies would be resisted.

Instead, the government had opted for an approach that would encourage broad-based BEE as opposed to the enrichment of a few. It would create a commercial rationale for companies to meet BEE targets to get government contracts.

"Through the charter process we will encourage companies to voluntarily set transformation targets and there will be no legislative compulsion," he said.

This would result in the control over equity moving into black ownership over a 10 year period "without the dangers of state-driven transfer of wealth".

Polo Radebe, a trade and industry director co-ordinating BEE financing, told the committee that it might seem as if only a small number of black-owned companies were involved in BEE deals but many had been taking place out of the public eye with spin-off benefits to the wider community.