A few years ago EOH was once a company that filled many South Africans in tech and business with pride for its spectacular growth. Recent revelations show a dark picture of how this South African tech giant rose to prominence.
EOH featured prominently at the Zondo Commission during testimony by Deputy Minister of Intelligence, Zizi Kodwa. This South African tech company which was once the darling of the Johannesburg Stock Exchange fell from grace due to a series of questionable contracts with the state.
This has also been revealed at the Zondo Commission during the appearance by the company CEO, Stephen van Coller. How did a company with a market cap close to R 1,18 billion ends up where it is today?
This company suffered what can now be described as “The EOH Problem” which is cancer facing other tech companies that do business with the state in South Africa.
Most of the SA tech companies that do business with the South African government do not have their own technology systems.
These companies tend to be resellers of technologies by multinational technology companies. In essence, they become middlemen between government and the multinational tech companies. This is how Jehan Mackay came into the picture at EOH. His company was acquired by EOH to lead the Public sector division at EOH. One such company was TSS, which EOH acquired in 2011 as part of its bid to increase its presence in the public sector. According to evidence in front of the Zondo Commission, the public sector division at EOH paid millions to politicians to secure its government contracts. This explains one of the reasons why EOH grew so quickly in the ICT sector to be one of the leading companies.
This is a picture from just one tech company in South Africa. The “The EOH Problem” is an issue for many tech companies that conduct business with the state. One, most of them do not own what they sell to the state and this leads to a situation where they try to get an added advantage by bribing a politician with an influence in government.
Revelations at the Zondo Commission should serve as a lesson for the South African government and SA tech companies on how to avoid corruption in the technology space.
To avoid “The EOH Problem” in the future, firstly, there’s a need for SA technology companies to develop their own technology solutions. The competitive advantage of a local technology company should be its own innovations. This would enable local innovation and allow companies to compete based on what they do.
Secondly, the South African government should prioritise local technology solutions and use this as criteria for choosing companies that can do business with the state.
This approach in the initial stages and in the short run will require a sacrifice of some advanced systems for the government. In the long run, it will enable the development of local solutions and the development of the local tech industry.
The State Information Technology Agency should be proactive about preventing “The EOH Problem” in the future. Part of that process should be about revamping how South Africa procures technology products and services. “The EOH Problem” is not just an EOH challenge, it is a South African public sector tech challenge.
While focusing on how local tech companies conduct business with the State, there’s also a need to focus on multinational tech companies that partner and hide behind local tech companies to conduct dodgy dealings. Some of the tech companies that were involved in wrongdoing are multinationals.
According to evidence presented by Paul Holden, the second-biggest recipient of Gupta-related State Capture contracts was T-Systems. T-Systems is an enormous multinational conglomerate with headquarters in Frankfurt, Germany. It is a subsidiary of German giant Deutsche Telekom, which is part-owned by the German government. Deutsche Telekom reported total revenue of €101-billion in 2020.
T-Systems was awarded two huge contracts (referred to as Master Services Agreements or MSAs) to supply IT services and equipment rental to Transnet and Eskom; their connections to the Guptas. In total, T-Systems was paid R12.3-billion. That’s 21% of the total amount paid by the state in capture contracts linked to the Guptas.
The evidence presented at the Zondo Commission is enough to trigger a review of South African government technology contracts. “The EOH Problem” may exist in other tech contracts with the state and the sooner these issues are addressed the sooner South Africa will improve its technology industry in order to compete globally.
SA Tech companies that conduct business with the state should learn from the EOH experience and avoid “The EOH Problem”.