By Richard Poplak, Diana Neille, Sumeya Gasa and Shaun Swingler. Illustrations by Moses Mkhondo

4 The Advisor

Mike Melnick’s offices inhabit a botched Tuscan structure on the outskirts of Alberton, Johannesburg. Melnick is a large man, and on a Friday in October he was installed behind an oceanic desk, dressed in a Jeep-branded button-up and slacks. M. Melnick Financial Services is an accountancy firm that focuses on owner-drivers, a number of whom are contracted to ABI. In industry terms, Melnick is a “business advisor”—the intermediary between corporates and their independent drivers, a middleman who opens bank accounts, pays bills, and is generally meant to function as the brains behind the ODs’ brawn.

Melnick has seen many successes and many failures, precisely how many of each he would not say. He did allow that 95 percent of the 200 ODs currently on his roster were “doing well.” The business advisor role was designed to insulate the corporate from having to consider the gory financial details, and to offload the responsibility of developing empowered businessmen onto a third party wielding a calculator and a spreadsheet.

In the looming ABI court case, and in the social and political movements fermenting around the OD programme’s fallout, Mike Melnick has been cast as an arch villain. He’s worked with most of the ODs interviewed for this investigation, and he is so poorly regarded that his name has been emblazoned on protest banners. Fairly or unfairly, M. Melnick Financial Services has been characterised as a keystone in the OD scheme, one that keeps the entire ungainly edifice standing.

Photo A cartoon depicting Mike Melnick of M. Melnick Financial Services, drawn by Thabo Tsolo Jnr AKA Plingo (18), an aspiring animator and son of Thabo and Seipati Tsolo. Image supplied

Mike Melnick was not the OD programme’s Dr Frankenstein, but he was present to examine the monster when it awoke. We were approached originally when ABI started OD to assist with the business advising side of it,” he said. “That very first weekend I remember vividly. It was in April 1993, and [South African Communist Party leader] Chris Hani was assassinated. The townships went up in smoke. And they couldn’t actually deliver their product, which kind of put the whole thing on a little bit of a poor start footing.”

Perhaps unsurprisingly, Melnick was enormously bullish regarding OD’s inherent possibilities. “We don’t find this to be a difficult programme at all,” he said. “If we pull our weight and we make sure that the guy’s financials are done properly, he complies with legislation, he does things correctly, disciplines himself with his spending, and doesn’t abuse the money. It’s so easy to spend money. You’re getting R50,000 when you were earning R5,000 as an employee. Wow, I mean, it’s like Christmas has come early.”

As far as Melnick was concerned, an individual owner-driver’s aptitude and work ethic were the main factor in his chances for success. “Possibly the thing that needs to be looked at closely is does the OD himself take responsibility?” asked Melnick. “He’s made the conscious decision to actually become an OD.” A second advisor, who spoke with Daily Maverick Chronicle on condition of anonymity, agreed. “The biggest single reason why it doesn’t work is the OD himself. Because, unfortunately, they develop an entitlement, which is common throughout this country.”

There are certainly good ODs and bad ODs, although the law of averages suggests that most land somewhere in the middle. At issue, however, is whether ABI made it impossible for even the best to succeed. M. Melnick Financial Services appears to have firewalled itself from having to consider this question, which would at the very least demand a close—or perhaps even a cursory—examination of the contract. “I haven’t seen an ABI contract for years,” Melnick said. “I think if they wanted me to have it, and if I wanted it, I could go to ABI and say so. But probably why I’m not worrying too much is—what impact do I have? All I’m looking at is what the guys are earning and trying to do the best with it. I’m not for a minute saying that the guys are getting enough money, or getting too much money. I mean, it’s not my call. I’m just doing my part of it.”

***

The conception of the OD business advisor was the result of an ugly piece of logic: the majority of the men SABMiller and ABI hoped to transform into independent entrepreneurs had emerged from the Bantu education system with almost no financial literacy whatsoever. The advisor’s job was to neatly and quietly bridge this knowledge gap. In practice, however, the arrangement was excessively paternalistic, and nor was it voluntary: from day one, ABI proffered a list of 10 approved business advisors, and an OD had to pick one.

But perhaps “business advisor” is something of a misnomer. Mike Melnick, by his own admission, doesn’t examine the contracts, knows nothing about B-BBEE legislation, and knows even less about trucks. Others are more forthright about their roles. “Short of wiping his arse, we do it all,” said a KZN-based advisor named Derek Moe. “And in some cases, we take the wives to Pick n Pay on Christmas and help them with the Christmas shopping. He needs only to drive his truck.”

Regardless, the business advisor holds the power over almost every aspect of the OD’s financials. At the start of the contractual period, an OD is compelled to sign a service level agreement. The advisors examine the tariffs, open a book, open banks accounts, and secure loans for vehicles. They ensure that the ODs are registered for the right statutory requirements: income tax, VAT, PAYE, and workman’s compensation. ABI pays into an account controlled not by the driver, but by the business advisor. Every month, the ODs are meant to meet with a driver and go over the financials, a task at M. Melnick Financials that is undertaken by Mike Melnick’s son, Warren. “We set up a meeting, and we say, ‘We’re going to be at your premises on this particular day. Please make yourself available to us so that we can actually go through your latest financial statements,’” explained Melnick.

“He must be joking,” said Moses Mkhondo, when asked whether this happened with any regularity. Whether or not the meetings are sloughed off by the business advisor or the OD, the gaps in consultation have been problematic. The family of an ex-OD named Raymond Pilane, now going blind as the result of diabetes, has shown Daily Maverick Chronicle evidence of the fact that Melnick kept paying insurance premiums on a truck for eight months after it was sold in January 2015. And even when M. Melinick Financials was performing perfectly, the ODs consulted for this investigation considered him an adjunct of ABI, and routinely mistrusted his counsel.

***

The business advisors’ bible is the tangle of numbers that form the rate card. Daily Maverick Chronicle has obtained a copy of the 2015 version, and it makes clear that OD remuneration is essentially a tale of two warring spreadsheets: costs vs compensation.

Costs Photo
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Labour Photo

The math can be dizzying, but here’s an example of how it works: a lone owner-driver with a 4×2-wheel truck and forklift, termed a “mechanical”, burns through fixed expenses of R15,248.23 a month, towards which ABI gives him an allowance of R2,906.75 (out of which he must pay his business advisor R2,154.83). In order to break even, he must earn at least R12,341.48 before diesel and other floating expenses are factored in. According to the most recent tariffs, he receives a variable rate for mileage, diesel, lube and tyres, amounting to R13.81/km. The card does not state that he is docked for shortages, nor does it state that, if the destination is either closed or refuses the order, he does not get paid for a delivery.

His first load earns him R596, his second R774.80, and any thereafter R894. If he delivers two loads a day, he earns R1,370, which amount to R32,880 per month, leaving him with R20,538.52 before tax—not exactly Patrice Motsepe money, but enough to qualify him for membership in South Africa’s amorphous middle-class.

But it doesn’t quite work out this way. If second loads are a rarity, third loads never happen. The hidden costs are numberless. Most egregiously, in phase 2 the payment plan for the truck—the amount listed at the top of his fixed expenses—turns out to be a deal with the devil.

The way the advisor who spoke with Daily Maverick Chronicle on condition of anonymity explained it, if an OD were to buy a truck off the shelf and get financed over five years, the instalments would be sizeable—so much so that, if the driver were to financially survive his first week on the job, ABI would be required to proffer either much more generous tariffs or a much bigger allowance.

“That said, at the end of the five years that truck is yours, paid for,” said the advisor. “If you are a sharp, corporate smart-ass from ABI, you say, ‘how can we do this deal better?’ A sharp, corporate smart-ass dealer would say, ‘You take the deal over seven years and you put a 40 percent residual on it.’ How much will that cost a month?” According to the advisor, either R9157.90 for a 4×2, or R11,043.60 for a 6×2—again, those figures that appear at the top of the fixed expenses spreadsheet. “Now they say to the guy, ‘You’ve been in phase 1 and you’re okay and it’s all going well. Now you must go to phase 2. You will buy a Nissan. You will fund it through this method, at seven years with a 40 percent residual.”

At the end of the payment period, said the advisor, the OD is left with a massive balloon payment for a truck that is worth less than nothing. And he’s completely wiped out.

***

What went so terribly wrong?

It’s the question that almost everyone in the industry is asking. “In the beginning, the guys got paid per case delivered, which was lovely, because he knew what his budget would be,” said Derek Moe. Even better, when SABMiller bought ABI, they instituted a billing system called PODS, which turned out to massively privilege soft drink drivers because their volumes were smaller and lighter. “They were earning more money than they could count,” said Moe—a statement that lines up with what many drivers have said about the 2005 period.

But then something changed. After PODS was replaced by a more conventional system, the squeezing began. And it’s never really stopped. The gargantuan Zenzele B-BBEE share scheme sucked up a lot of marketing air, and OD was no longer the black entrepreneurial initiative PR gurus loved to love. The tariff cards became increasingly draconian while the programme was ramped up. As SABMiller slurped up more and more beer companies; as they came through the nightmare of the Great Recession and into a meaner, cash-hoarding corporate era; as they tried to ward off activist shareholders while appeasing weary regulators; and as they headed blindly towards the Death Star of the AB InBev merger, their attitude towards those they had outsourced in the name of empowerment morphed into something that resembled cruelty.

“ABI are a nightmare,” the business advisor said. “And so are SABMiller.”

As a result, the programme is being crushed under the weight of its absurdities. “Ninety-nine percent of all ODs are in trouble with SARS,” continued the advisor. “That’s because the tariffs haven’t been enough and you’re taking from Peter to pay Paul. The drivers came to me and they said, ‘Should we do this?’ I said, ‘Well, go get a job if you can. If you can’t, this is as good a job as you’re going to get. You’re going to take home about 7, 8, 9,000 Rand a month. ABI said they would earn R18,000. Well, they haven’t.”

In the final analysis, ABI’s compensation has barely increased a cent since Moses Mkhondo resigned in order to become an owner-driver in 2003.