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Africa/Global: Accounting Tricks with Coca-Cola
AfricaFocus Bulletin
February 1, 2016 (160201)
(Reposted from sources cited below)
Editor's Note
"The Cayman-based Conco is one of more than 25 entities located in
tax havens -- just over 30 percent of the [Coca-Cola's] total
'financial' subsidiary disclosures.. Of those based in tax havens,
almost half use Delaware, including the parent Coca-Cola company,
incorporated there since 1919. ... Delaware's secret formula is the
total tax exemption for all income related to intangible capital. In
fact, the Delaware Code specifically highlights the advantages of
holding companies for intangible capital that "charge" their own
global subsidiaries a 'fee' for use of the trademarks and other
intangible capital." - Khadija Sharife, in "Coca-Cola's Hidden
Formula for Avoiding Taxes"
This AfricaFocus Bulletin contains excerpts from the report cited
above by veteran South African investigative journalist Khadija
Sharife, as well as from another investigative report featuring
Coca-Cola from the South African on-line publication The Daily
Maverick.
These two recent reports are revealing examples of strategies that
multinational companies use to maximize their profits at the expense
of both workers and taxpayers. They are well worth wide
dissemination, not only in South Africa but wherever people drink
Coca-Cola and pay taxes, while the parent company hides most of its
profits from the tax collectors by one means or another. According
to these articles, the mechanisms used include subsidiaries in tax
havens (prominently including the Cayman Islands and Delaware in the
United States, as well as outsourcing of distribution to separate
bottling companies, which in turn may outsource driving to
"independent contractors."
Sharife has earlier reported on similar issues in South Africa's
diamond industry (http://www.africafocus.org/docs14/dia1406.php).
But this report on the world's leading consumer brand name shows
that the draining of resources from Africa and from public
treasuries around the world is not limited to the more often-noted
mining sector, but is pervasive among the largest multinational
corporations.
The new Sharife article includes background on Coca-Cola's role in
South Africa and in Swaziland, as well as wider background on how
the company uses its "trade secrets" to transfer assets between
subsidiaries.
Also appearing last month, and briefly excerpted here, was an
investigative report by the Daily Maverick on outsourcing by CocaCola'
s bottling company in South Africa ABI (itself a subsidiary of
SAB Miller), through its "owner-driver" program transferring costs
to the drivers while funneling more profits to the company. ABI and
SABMiller are now being sued by a group of owner-drivers.
For previous AfricaFocus Bulletins on tax evasion, tax avoidance,
and illicit financial flows, visit
http://www.africafocus.org/intro-iff.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Trade Secrets: Coca-Cola's Hidden Formula for Avoiding Taxes
Khadija Sharife
100 Reporters, December 3, 2015
https://100r.org - direct URL: http://tinyurl.com/j3pujab
[Khadija Sharife is the lead Africa forensics researcher for
Investigative Dashboard (ID) and a senior investigator for African
Network of Centers for Investigative Reporting (ANCIR). She is the
author of Tax Us If You Can: Africa.]
[Excerpts only. For full text, see the link above]
... in South Africa, my home country, Coke was a household name
since the 1940s. [but international pressure for divestment from
apartheid grew] By 1978, the pressure was enough for the US Senate's
Foreign Relations Subcommittee, assessing 250 companies active in
South Africa, to specifically rebuke Coca-Cola for perpetuating the
apartheid system. The company refused to disclose, on several
occasions, key information about hiring, pay scales and other
critical issues, citing confidentiality. At the time, Coke
controlled more than 75 percent of the South African market and 10
cents of every 80-cent bottle sold was claimed by the regime as tax.
By the mid-1980s global pressure grew in some of Coke's biggest
markets. In fact, like SABMiller and other companies using a host of
tax havens, trusts and neighboring countries to circumvent South
Africa as provenance, Coke had reorganized business affairs from the
late 1970s to ensure that a management presence external to the
country could still hold the market through selective divestment. In
other words, Coke wanted in--just not from the inside. The company
circumvented the problem of selling its Durban-based concentrate
plant--its syrup manufacturer--by developing another in neighbouring
Swaziland. The company's primary business, after all, is selling
concentrate to bottlers.
...
Swaziland, ruled as Africa's last absolute monarchy since
independence in 1968, was already suffering from a voided
Constitution, imprisoned opponents and the banning of all political
parties. Coke stepped into Swaziland, incorporating Coca-Cola Conco
(1986), almost in tandem with the entrance of a new King, Mswati. A
year later, the company had a concentrate plant up and running,
exporting to its biggest regional buyer -- South Africa. Mswati
would gift Coke with the desired proximity, total legal and
financial secrecy and a 6 percent corporate tax rate -- essentially
providing tax haven-like services to the company. (Swaziland's
revenue agency and Coca-Cola declined to comment).
These days, Coca-Cola is the single most powerful private entity in
Swaziland; at last count, the source behind over 22 percent of GDP
and 38 percent of the country's foreign exchange earnings, closely
following sugar exports. It is also the most powerful brand in the
world, boasting a market capitalization of $177 billion and sold in
over 200 countries. Which is, to say, more countries than the UN has
members.
Coca-Cola claims the world's largest beverage distribution system
through Coke-owned or controlled bottlers and distribution systems
and an impressive network of independent bottlers and other
partners.
Coke informed us that the company uses no sugar produced in
Swaziland (the actual list of countries supplying sugar to Coca-Cola
is confidential), but the company is part of the system generating
unaccountable billions for the monarchy through intertwined
interests, such as a minority shareholding in the State-owned sugar
exporter, the Royal Swaziland Sugar Corporation (RSSC); Coke's
Swaziland-based CEO Manqoba "MK" Khumalo is a member of the board.
The actual value of Coca-Cola's business in Swaziland -- its
operating costs, profits and losses, intra-company loans and
interest rates, etc., is just one of Coke's many trade secrets.
Hidden Values
But there is another Conco, this one disclosed by Coke and based in
the Cayman Islands, a notoriously secretive tax haven. It forms part
of the machinery behind Coca-Cola's lucrative nectar: the actual
value of the brand. The US Securities and Exchange Commission (SEC)
requires multinationals to identify -- at the risk of a small
penalty for non-disclosure -- subsidiaries that are financial or tax
related entities. (Often, when comparing company disclosures from
one year to the next, subsidiaries that remain active, disappear.)
The Cayman-based Conco is one of more than 25 entities located in
tax havens -- just over 30 percent of the company's total
"financial" subsidiary disclosures, exposing a strategy explained by
the company in the annual report as "tax planning." ("Our annual tax
rate is based on our income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in which
we operate.") Of those based in tax havens, almost half use
Delaware, including the parent Coca-Cola company, incorporated there
since 1919. (The re-incorporation shift to Delaware was a legal,
though not physical move, from Atlanta where the company was
incorporated in 1892 and where it continues to be physically
headquartered.)
Delaware's secret formula is the total tax exemption for all income
related to intangible capital. In fact, the Delaware Code
specifically highlights the advantages of holding companies for
intangible capital that "charge" their own global subsidiaries a
"fee" for use of the trademarks and other intangible capital. This
occurs through a technique known as "arms length pricing" or intracompany
trading, based on the transactions that might have occurred
between two different companies. But the process is self-regulated
by companies and transaction details are confidential even to
national revenue agencies. We just have to take their word for it.
Global Financial Integrity (GFI), a Washington- based nonprofit,
estimates that an average 77 percent of the $528 billion (2002-2012)
in illicit flows from sub-Saharan Africa takes place through
transfer mispricing.
Traditional studies tend to focus on the undervaluation of minerals
like diamonds or gold. Yet, in the case of intangible-heavy
companies Coca-Cola, there exists no market equivalent against which
to compare assigned value.
Costs related to use of the company intangible capital are logged in
financial statements as expenses as "selling, general and
administration" or SG&A -- the latest, for 2014, at $17.2 billion.
But here's the catch: internally imputed intangible capital (all of
Coca- Cola's own brands, like Coke, Coke Zero, Sprite, Diet Coke,
etc.) cannot be financially valued or included on the balance sheet
-- at all. According to the International Accounting Standards Board
(IASB) which sets global financial reporting standards, the only
brands that can be listed are those that have been acquired. Simply
put, if Coke bought Pepsi, only Pepsi would be listed on Coke's own
financial statements. In Coca- Cola's case, intangible capital with
indefinite lives (such as brands) is valued $6.5 billion or 7
percent of assets. The company statements paint an interesting
picture: $92 billion book value, about $61 billion in liabilities,
and assets of just $30.5 billion. Half, or $14.6 billion, are
tangible assets, like plants and property. Coke's net tangible
assets--the company's total assets less intangibles, preferred
equity and liabilities--or its book value, is less than $4 billion
(2014). More than 96 percent of the company's value derived from
intangibles, if the metric of market capitalization (less net
assets) is used.
Coke is not alone. "Over the past thirty years," said Professor
Roger Sinclair, a marketing specialist based at Wits University,
"the value of the intangible portion of world stock markets has
increased. In the early 1970s the balance between tangible and
intangible was 80:20 in favour of tangibles. Today that is
reversed--80 percent of the value of most stock markets is
intangible." Sinclair explained that Coke's hidden value was $152
billion, after deducting net value from market capitalization data.
"That is how, and where, investors incorporate the brand," he told
us. "But that value is not admitted on the balance sheet."
The value, however, holds sway.
Intangible Goldmine
Interbrand, a leading brand consultancy, usually ranks Coca-Cola in
the top three brands, alongside Google, and Microsoft -- companies
that make their business from intangible capital. These same
companies are renowned for very low tax rates and very high
undistributed income--example, Microsoft's $108 billion �offshore'
cash stash or Google's 17 percent tax rate. Ironically, this hidden
value is an open secret. Brand Finance acknowledges that "most high
value, internally generated, intangible assets never appear in
conventional balance sheets."
...
The dangers of exclusion, however, are more lethal for governments,
small shareholders and ultimately, the taxpayer: quite simply, selfregulated
space leaves room to fudge the numbers. From 2010-2014,
Coca-Cola has logged over $82 billion in expenses under Selling,
General and Administrative costs, deducted from pre-tax profits.
These expenses include advertising ($16 billion), bottlers and
distribution ($38 billion) and other expenses ($27 billion). How
much of this in (dollar value and percentage) were payments to their
own subsidiaries for use of their own brands, and, in the absence of
any disclosed valuations, how were these payments determined? CocaCola
declined to comment.
What has not been said -- and arguably the reason behind the closely
guarded secret of Coca-Cola's own concentrate, known mysteriously as
Merchandise 7x, is simply that so much of it is air and sweet
nothings: the cost of Coke's formula for instance, is sugar, water
and bits of cinnamon, neroli and coriander. Not too expensive.
While not disclosing the actual details, the company concedes, "We
derive a significant portion of our net operating revenues from
sales of concentrates and syrups to independent bottling partners"
-- estimated at 38 percent from 2012-2014. The company also
concedes, without disclosing details, that the profits from
concentrate revenue is high.
Alongside Pepsi, but far in advance, Coca-Cola's concentrate has
created a collusive and oligopolistic market structure, with
bottlers globally dependent on concentrate produced only by Coke
(and Pepsi). The company not only sets the prices of concentrate
(varying according to market) but controls or determines the entire
process, including how much the end products may sell for and
whether rival products in any category--such as still, sparking,
juice, coffee, iced tea, etc.--can be sold. Coca-Cola's gross profit
margins usually rank above 60 percent.
...
The total absence of defined and disclosed costs for a company's
internally developed intangibles could not be more significant: it
also allows multinationals to reduce, with little or no external
scrutiny, pre-tax profits with the accompanying effect of setting
their own tax rates. The New York Times assessed the varying tax
rates between industries, finding that pharmaceuticals and other
industries dependent on intangibles, and therefore able to shift to
low-tax jurisdictions, pay much less. Coke's effective tax rate,
globally, was listed at just 15 percent (2007-2012) or $9.4 billion,
far below the nominal top tax rate of 35 percent.
The company declined to answer most of our questions, requesting a
teleconference, in which Coke's media and public affairs director
instead asked reporters to explain the interest in Coke's financial
and tax structures.
Coca-Cola further declined to detail the substance of $26.9 billion
it claimed in "other operating expenses" and how this line item, in
addition to bottling and distribution expenses, concerns transfer
pricing of intangible capital. No doubt, some of these expenses are
legitimate. The question is, how much and how is it verified? The
lack of market equivalent, documented value of intangible capital
and total secrecy allows the company tremendous latitude with
virtually no outside oversight. It is an issue that spans Coke's
corporate character from Africa to the Atlantic, and that of any
number of companies that claim tax breaks on intangible capital,
potentially using one location or system to undercut the other.
This brings to mind the $33 billion question.
From Africa to the Atlantic
Coca-Cola justifies its relatively low tax rate in the US by
reporting that 80 percent or so of the company's business takes
place outside the US, based on volumes sold. But there exists
another yardstick: revenue. Almost 50 percent of the company's total
revenue is generated in North America. In contrast, Europe, Asia
Pacific, Eurasia and Africa, each generated an average of 10 percent
of total revenues from 2012 to 2014. Logically, it makes sense that
North America would be the highest: Coca-Cola's main business is
concentrates and the value of intangibles -- not necessarily the
same jurisdiction where value is allocated -- primarily operates
through the US.
And that suggests something, somewhere, is wrong.
Recently, Coca-Cola disclosed a $3.3 billion tax-related dispute
concerning transfer pricing with the US's Internal Revenue Service
(IRS). The IRS alleged that Coca-Cola underreported income related
to intangibles. The company maintains it does what it always does,
pursuant to "the same transfer pricing methodology for these
licenses since the methodology was agreed with the IRS."
...
It is clear from the way Coca-Cola does business that a hefty
portion of the $33 billion in Coca-Cola's offshore cash comes from
selling the rights of intangible capital use to its subsidiaries in
tax havens. (The company declined to comment on the source of
income.) The barrier to formal repatriation of the funds is the US
tax code triggering tax in the US. Companies can choose when to
repatriate. But whatever the linguistic framing, the cash is already
deposited in US banks and being used by the companies -- onshore in
the most real sense of the word.
"This is the general practice," said Rudolf Elmer, a whistleblower
and former Cayman Islands-based CEO of Swiss mega-bank Julius Baer.
"Companies hold their bank accounts in critical financial centers
such as London, New York, Zurich to continue operations. The use of
tax havens, he explained, is simple: "Tax-free income is generated
in tax havens to ensure that taxable profits are minimised in
countries where the tax rates are high." Previously an auditor with
KPMG and Credit Suisse, Elmer emailed us various tax structures
outlining the practices of major multinationals, particularly where
it related to intangible capital.
...
In 2004, in a bid to capture the offshore pile, and taking the
multinationals and Republican Party at their word -- with promises
of creating 660,000 jobs, increased intangible capital development
and much else, the US Congress passed the Job Creation Act, allowing
for an 85 percent deduction of taxes from repatriated assets. The
new tax rate? 5.25 percent.
The 15 companies that accounted for half the total sum repatriated,
-- $155 billion -- ended up slashing over 20,000 jobs. ... Coca-Cola
listed a maximum of $6.1 billion available for repatriation and has,
since then, continued to amass offshore. ... The tax-free Caymans
was the source of almost all of Coke's repatriated cash -- three
times the Cayman Islands' own GDP in 2004, via an entity --
allegedly Atlantic Industries -- whose role the company described as
"legal insulation."
...
That the value of a brand so ubiquitous that it straddles both the
in and outside of society is kept off its books is one of the
wonders of the accounting world. Yet when Coke and other large
multinationals involved in pharmaceutical, consumer and technology
services are allowed to withhold, or hold in secrecy, the value of
core business intangibles while charging confidential expenses
against these assets, it not only distorts the market. It
facilitates gross transfer pricing manipulation, and drastically
undermines taxes owed, and paid, to governments. Ultimately, it is
the citizen taxpayer, the Coca-Cola consumer, who suffers the
outcome. The secrecy of intra-company trading between subsidiaries
of the same parent company facilitates this particularly where it
relates to intangibles, developed by companies, and kept off their
books.
To claim rightful revenues, governments must make country-by-country
reporting mandatory, disclosing the substance of corporate form and
function involving both subsidiaries and transactions. Internally
developed intangible capital must be located on financial statements
not simply as expenses but also, as assets, where the value really
inheres -- such as sales lists; and geographically, where the
patents, trademarks, formulas, and the like, were really developed
-- both financially articulated at fair value rate. Finally, the use
of legal and financial secrecy jurisdictions where economic activity
does not occur must be disallowed. Failure to do this, under the
guise of trade secrets, violates the goodwill that gives Coca-Cola's
the billions behind its brand.
Casualties of Cola: Outsourced
By Richard Poplak, Diana Neille, Sumeya Gasa and Shaun Swingler.
Daily Maverick, December 6, 2015
[Brief excerpts only. For full feature story, with illustrations by
Moses Mkhondo, visit http://casualties-of-cola.com/]
Beverage behemoth SABMiller and its subsidiary, Amalgamated Beverage
Industries (ABI), one of the African continent's leading bottlers of
Coca-Cola products, are being sued for over R6 billion in damages by
150 owner-drivers (ODs) whose contracts were axed by the company
over the last five years.
These ex-entrepreneurs, many of them former long-time employees of
ABI, have accused the company of duping them into signing onerous
contracts, squeezing their profits and unfairly terminating the
relationship over a variety of unfounded allegations, in order to
minimise its exposure to the risks associated with distribution and
stringent labour regulations in South Africa.
The investigation,Casualties of Cola, which has been four months in
the making and includes the testimonies of over 40 former ODs and
their families, as well as dozens of industry experts and
commentators, makes a compelling case for the assertion that this BBEE
-aligned owner-driver scheme is a modern day iteration of slavery
that is eroding South Africa's black middle class. In this, the
piece is a larger meditation on the future of work in South Africa.
Casualties of Cola is presented by Daily Maverick Chronicle, an
editorial partnership between the multiple award-winning South
African news and opinion publication and its newly-formed production
agency, Chronicle. It is written and produced by acclaimed writer
Richard Poplak, along with Chronicle's Sumeya Gasa, Shaun Swingler
and Diana Neille.
Outsourced
Above a faded couch in Moses Mkhondo's makeshift home hangs a framed
tableau of the perfect South African village. The collage was
assembled by Mkhondo himself, back when he made a living driving
trucks filled with Coca-Cola to spaza shops and taverns and corner
cafes throughout Johannesburg's East Rand. The collage is meant to
represent Mkhondo's ideal world: a bustling middle-class town,
centred around a Coca-Cola depot from which great trucks ply the
roads, dispensing bottled joy to a booming country.
For 30 years, Mkhondo could pretend to himself that he lived in this
world. In early 2014 he was forced to stop pretending.
Long before he understood that he'd been outsourced, Moses Mkhondo
was one of Coca-Cola's star drivers, a model employee who won prizes
and was sent on an international trip for exceeding his performance
targets. Born in Alexandra in 1959, he began his career in 1984 as a
crewman at Amalgamated Beverage Industries (ABI) (
http://www.abi.co.za), South Africa's largest bottler of Coca-Cola
and other major soft drink brands.
Twenty years later, Mkhondo became an exemplar of an affirmative
action policy that made local and international headlines--a black
economic empowerment (BEE) initiative that would, for better or for
worse, come to define the future of work in the New South Africa.
ABI, along with the company that would come to fully own it, the
beer giant SABMiller plc (http://www.sabmiller.com/), dubbed the
programme "owner-driver" (OD), and its intention was to transform
one-time employees into prosperous, independent businessmen. OD
helped earn the companies a host of social responsibility awards,
and burnished their ironclad reputations as the Rainbow Nation's
most upstanding corporate citizens.
Today, however, Moses Mkhondo lives in a hastily built home on the
fringes of Heidelberg, not merely broke but catastrophically in
debt. He, his family, and the thousands of South Africans caught in
the OD scheme's steady implosion are trying to make sense of what
went so wrong. Andries Nkome, the attorney that represented Lonmin
miners after the 2012 Marikana Massacre, is now assisting 150 former
owner-drivers in their bid to sue ABI and SABMiller for losses
amounting to over R6 billion
They are facing off against a vast corporate entity that is soon to
become even bigger--if the single largest acquisition in the history
of the London Stock Exchange passes regulatory muster, in 2016
SABMiller will join Anheuser-Busch InBev at their headquarters in
Belgium, as part of a $350 billion multinational with a 29 percent
market share of the planet's beer consumption
On trial is not just SABMiller's local record as an engine of
empowerment, but the very concept of outsourcing and casualisation
in a country with enormous and unsustainable divisions between rich
and poor. Those pursuing the matter intend it to be a landmark case,
a precedent-setter that helps redefine the nature of work in South
Africa. And this may only be the beginning-- Nkome has initiated
proceedings that, if successful, will prove that SABMiller's vaunted
BEE brainchild was, in the words of Shaun Dlanjwa, an Economic
Freedom Fighters (EFF) ward secretary and the liaison between former
drivers and their legal representatives, "less a scheme than a
scam." ...
It wasn't always this way. In the 1980s, Moses Mkhondo loved working
at ABI, and ABI appeared to love him back. "It was a good place," he
told Daily Maverick Chronicle during a series of interviews in his
cramped Heidelberg home. ABI, in order to ensure that Coca-Cola was
as lightly tarred by apartheid's brush as possible, adopted a number
of progressive employment measures at their bottling plants. Mkhondo
was paid R100 a week, almost R40 more than the wage at comparable
companies. ...
In 1994, shortly after the euphoria of the first general elections
had subsided, Mkhondo was sent to Chamdor, Roodepoort, to earn his
truck driver's licence. During apartheid, long haul driving had
typically been the preserve of white males. Like many big companies,
ABI understood that they would need to change the racial metrics of
their workforce if they hoped to stay ahead of looming affirmative
action regulation.
Mkhondo quickly earned his Code 14 licence and was promoted to fulltime
driver. After winning an intra-company driving competition in
1998, he was handed the keys to a brand new truck with chrome
finishing and a CB radio; he christened the truck "Bozzo." According
to Mkhondo, the managers were polite and solicitous. The pay, which
amounted to R7000 a month, came with benefits and sick leave and
paid time off, but was not quite enough to afford the home he'd
bought for his wife and three children in Tembisa. In 2003, Mkhondo
and dozens of his colleagues were introduced to a new initiative,
passed down from minority shareholder South African Breweries. "They
told us that OD was a good thing and then it will make our lives
easier," Mkhondo said. "They explained that there's more money in
it. So then I got attracted to it, because I needed enough to pay my
bond and take my kids to school."
AB had borrowed the OD concept from American companies like
Arkansas-based Tyson Foods, which had developed "team driving"
programmes in order to shift what would traditionally be the most
expensive and burdensome item on the budget--labour costs--into the
more manageable "services" category. By transforming employees into
standalone business contractors, these programmes had the added
benefit of chipping away at union power and eliminating the strikes
that had traditionally disrupted delivery schedules.
In South Africa, OD schemes had a third and vital function: black
economic empowerment.
It was the perfect gambit: the new programme would not only appease
regulators, but would also function as a comprehensive public
relations campaign. OD would allow ABI to calve off a portion of its
distribution network to hundreds of BEE-rated companies, while CocaCola,
once the apartheid regime's mixer of choice, would surf a wave
of good cheer into the new dispensation, with the Department of
Trade and Industry (DTI) jumping in and giving them points for
complying with the laws of the land. ABI's acting managing director,
Velaphi Ratshefola, grew up homeless in Soweto, and he made a strong
case for ABI's commitment to black upward mobility.
According to De Wet Schutte, a SABMiller analyst at the equity
research and trading firm Avior Capital Markets, the scheme proved
immensely successful for both ABI and its parent company. "Apart
from the public relations aspect of it, OD is very important because
it essentially outsources a core function of the beverage market--
distribution. They have to be able to transport a quantity of heavy
stuff across the country on a daily basis with extreme efficiency,"
said Schutte. "And the clincher is that you get your own people to
buy into that strategy, because they own their own business, they
share in the profits of the business, and you get to keep the
government and the politicians happy as well." and other high end
causes, while deputy president Cyril Ramaphosa once sat on a board
that has long provided a comfortable sinecure for African National
Congress (ANC) bigwigs. In 2013 alone, the company contributed R9
million to the six largest political parties in accordance to their
representation in the National Assembly--part of an "on-going
commitment to encourage the development of the South African
democratic political system" that, by its nature, favours the ANC.
...
For Moses Mkhondo, it began rather badly. He remembers how, in April
2003, he and more than a dozen other employees were summoned to the
ABI training room, asked to resign, and handed a 66-page contract
with seven appendices. "We were not given enough time to take the
contract home, or to get lawyers," claimed Mkhondo, an assertion
backed up by 40 current and former ODs interviewed over the course
of this investigation. The respect that had once been a hallmark of
employer/employee relations had curdled. "The managers were rude to
us," said Mkhondo. "They insisted we must sign right away. When they
talked to us, they didn't beg. They told us 'sign, or else you lose
your contract.'"
In an instant, Mkhondo and his colleagues had lost their benefits
and, unwittingly, their collective bargaining rights. "We became
enemies of the people," said a former driver named Thomas Mashitwa.
"We were now just ex-members of the union, siding with management."
Mkhondo's fellow newly-minted entrepreneurs were given a R25,000
start-up lump sum (which would later become a monthly stipend of
about R2,100), and leased company trucks for phase one of their
contractual obligations. They were assigned a business advisor--in
Mkhondo's case, Mike Melnick of M Melnick Financial Services --paid
for out of their stipend, who opened business bank accounts and ran
the books on their behalf.
At first, the programme appeared to function as promised. "My
husband would come home carrying R180,000 every month," said Moipone
Mantshu, whose husband Samuel Ramokongoane worked for ABI as an OD
for 17 years before his death. This was an astonishing sum by any
measure, but there were numerous hidden expenses embedded in the
contract, along with clauses that allowed ABI to move the
compensation goalposts without outside vetting or consultation.
"The money we were getting was much better than I was earning as a
company driver," Mkhondo explained. "But then I must pay my crews.
And then the fuel, and also maintenance on the truck, because ABI
wanted us to maintain their trailers."
After SABMiller acquired 100 percent of ABI in late 2004, the
company's culture darkened even further. ... "We were just working
to pay the diesel," said Mkhondo.
As the OD scheme became institutionalised, ABI began to outsource
other elements of its delivery and distribution infrastructure. In
2011, Mkhondo was approached by a manager and asked to run what ABI
termed a "Marketing and Logistics Partner", or MLP--a small
warehouse plugged into the supply chain. ... According to Mkhondo
and others who were offered similar opportunities, the process was
booby-trapped with inconsistencies. For one thing, the MLP was
little more than a garage. For another, the billing system did not
line up with ABI's accounting software. "The MLP system was not the
same as the ABI system," Mkhondo explained, "and we as ODs could pay
huge money for this problem." After month-end stock-taking in June
2013, Mkhondo complained to his ABI representative that he had not
been paid for 2000 cases, a shortfall amounting to roughly R60,000.
His manager told him that because the systems didn't line up, stock
was bound to go errant, and that the MLP operator was ultimately
responsible for the shortfall.
...
On January 7, 2014, without warning, Mkhondo received a termination
letter, effective immediately.
...
"OD was not empowerment, it was de-empowerment," said Moses Mkhondo.
The way he sees it, the scheme has destroyed his life. He lost his
house in Tembisa and was forced to sell his trucks in order to build
a new place on the edges of a highway in Heidelberg. There is no
money for school fees, and no money for food. ... The only mementos
that remain after a 30-year career are his awards, his termination
papers, and the painting of an ideal world that hangs above his
couch.
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