Thebe Mabanga (Guest Writer)
A failure to apply a key regulation and renew an empowerment compliance certificate by the Department of Trade, Industry and Competition (DTIC) has put a R 150 million localised syringe manufacturing programme at risk.
The non renewal was also not properly disclosed by the department or the subsidiary of a multinational pharmaceutical involved.
“We have been adversely affected by a series of events that have conspired to deny South Africa an opportunity to maintain local jobs in medical device manufacturing sector,” says Kgomotso Kobo-Lekola, the founder and CEO of BT Industrial Group, who adds “What we cannot ascertain is whether this is due to a failure by the DTIC to enforce BEE regulations or non disclosure by the department or a key partner and investor. We are extremely disappointed.”
BT Industrial Group, a South African company established in 2017, was chosen as an Enterprise Development partner for Pharma Dynamics, under the DTIC’s Equity Equivalent Investment Programme (EEIP).
According to Lekola, the partnership was facilitated by the DTIC and this allows Pharma Dynamics, a major generic medicine manufacturer and multinational subsidiary, to fulfill B-BBEE requirements by investing in black-owned businesses like BT Industrial through funding, skills development and other resources.
BT Industrial Group operates in the industrial and healthcare sectors, manufacturing HDPE pipes for residential, industrial, agricultural, and commercial use. BT Industrial develops and manufactures various medical products and devices from its manufacturing plant in Benoni, Ekurhuleni. It has a pipeline of close to 40 patents that can be developed and manufactured.
“What is more frustrating is that the partnership had a promising and highly successful start,” says Lekola. The period he is referring to is in 2021, when BT Industrial Group patented a syringe specifically designed to maximise vaccine dose dispensing, directly addressing the global vaccine dose wastage crisis that arose during the Covid-19 vaccination drive. Pharma Dynamics successfully invested R19, 2 million in the programme.
During the Covid-19 pandemic, BT Industrial Group developed an innovative inner lining for medical masks, designed to trap viruses and bacteria, significantly lowering production costs and reducing reliance on imports. The company has had manufacturing contracts with German and American companies and won numerous awards, including Black Industrialist and Exporter Award.
Lekola points out that the next phase of the syringe project was a three-year programme to manufacture prefilled saline syringes for hospital use. This phase was set to receive R60 million in funding from Pharma Dynamics, delivered in three annual tranches of R20 million each. Partly due to a failure to renew the EEIP by the DTIC in 2021, this funding never materialised.
Lekola says this was never communicated to BT industrial either by the DTIC or Pharma Dynamics. Lekola says he only became aware of Pharma Dynamics lapse in EEIP status through a chance, informal encounter with a senior DTIC official this year, three years after the funding was to be made available.
Approached for comment, Pharma Dynamics stated through their lawyers, Eversheds Sutherland, they will not comment on the matter "as it is sub judice in that BT Industrial is on record through their attorneys, Edward Nathan Sonnenberg." “The dtic did not renew our client’s EEIP, which expired in 2021.” The lawyers for Pharma Dynamics stated.
ENS Africa has sent letters of demand on behalf of BT Industrial and laid an official complaint with the BEE Commission at the DTIC. The latest letter of demand was sent in October this year. In it, ENS highlights pledges made at the South Africa Presidential Investment Conference in 2022 and 2023.
The pledges include the R 150 million Opti Flush syringe project, which is expected to reduce bloodstream infections, eliminate wastage and save the medical sector about R2, 5 billion. A large private hospital group, Netcare, is currently a key customer for the product.
Lekola says while awaiting Pharma Dynamics funding and to support BT Industrial Group overall expansion plans, BT Industrial Group secured loans from the Industrial Development Corporation (IDC).
During the due diligence process with the IDC, in September 2022, Pharma Dynamics confirmed their funding commitment to the syringe project in a letter to the IDC stating, “subject to finalisation of the EEIP ownership certificate to Pharma Dynamics from the dtic, BT industrial Group will receive a grant from Pharma Dynamics for three years.”
BT Industrial have since patented, developed and launched the Opti Flush syringe in South Africa, and provide certified training to medical professionals. Lekola says they had to outsource syringe manufacturing to Jiangsu province, China, due to delays in funding from Pharma Dynamics.
Lekola laments that the syringes are currently being manufactured abroad as "This reverses critical gains for Africa's industrialisation and deprives us of much-needed manufacturing jobs," He notes that temporary outsourcing is a necessary measure until local production can commence, but the delay places the project's full potential for local job creation and import independence in jeopardy.
BT Industrial Group has since lodged a formal complaint with the B-BBEE Commission, citing potential fraud, fronting, or abuse of the BEE Act. In the complaint, BT Industrial argues that it made substantial investment and financing decisions based on specific undertakings and commitments. The company claims that this alleged breach of trust has not only harmed its business but has also undermined confidence in a system designed to empower and uplift South African enterprises.
Tshediso Matona, the B-BBEE Commissioner at the DTIC, has acknowledged receipt of the complaint, and said it is under review and evaluation of its merits. Matona says the B-BBEE Act says the Commission has to conclude the investigation within a year of receiving the complaint, but this is merely a guideline and the investigations is expected to be completed well within that period.
Equity Equivalents are designed to accommodate companies whose ownership model does not allow for the sale of shares to local partners. They allow a company to invest more in other areas of the balanced empowerment scorecard to compensate for their inability to sell shares at ownership level.
Pharma Dynamics is the South African subsidiary of the Lupin group of companies, which is third largest pharmaceutical company in India and was established 56 years ago. The Lupin group operates in 10 other countries outside of India through independent local subsidiaries. The operations are in the United States, Canada, Mexico and Brazil, the United Kingdom, the Netherlands, Germany, Australia and the Philippines.
In an appearance before the portfolio committee in parliament in February 2022 the DTIC acknowledged Pharma Dynamics as an Equity Equivalent investor, and cited both the BT Industrial investment and an R 11 million investment in a digital hub in Limpopo. It is unclear if these projects are from before the cancellation of its EEIP certificate.
The DTIC, which has a BEE Unit separate from the B-BBEE Commission, which is the regulator, did not respond to questions at time of going to print.