Minister Gayton Mckenzie ends funding for Downtown Music Hub

The Minister of Sport, Arts and Culture Gayton McKenzie has today taken a decision to halt further funding for the Downtown Music Hub, to allow for a full investigation to be finalised on funds that have already been disbursed since 2008, and to decide on what needs to be done with the asset going forward.

The Downtown Music Hub project was initiated in 2008 by former Minister of Arts and Culture Pallo Jordan. The intention was, inter alia, to lower barriers for accessing recording facilities following the purchase of Downtown Studios Johannesburg.

The site is indeed steeped in music tradition as the production site of many gold and platinum albums over the years.

Based on an agreement between the Department of Sport, Arts and Culture and the National Arts Council, the building and its assets were to be donated to a Special Purpose Entity (SPE) following its establishment.

The SPE was subsequently established in 2010 as a non-profit company known as Downtown Music Hub.

The Downtown Studios business was purchased as a going concern and this required that the employees be transferred from the seller to the buyer in accordance with Section 197 of the Labour Relations Act.

The employees were not transferred to the NAC, however, but were later absorbed by the SPE.

The NAC-led process of transferring and/or donating the assets to the SPE was never actioned due to a lack of common ground between the Department, the NAC and National Treasury (NT).

It was said that there would be no substantive and justifiable reasons for the Department to donate the assets to an institution that was not associated with government in terms of any applicable legislation. This divergence created delays in the finalisation of the transfer. A counter proposal emerged that the assets be transferred to the Department of Public Works instead, which also did not occur.

The NAC was ultimately compelled to incorporate the assets into its books, which caused accounting problems for the state-owned entity, particularly regarding how the property was purchased. This resulted in adverse audit findings, which was finally resolved when the then Minister of Arts and Culture, with the Minister of Finance, condoned the acquisition of the building.

In terms of section 6(3) of the NAC Act, however, the NAC is prohibited from acquiring and operating an income-generating business, in this case being the recording studios.

The NAC was therefore forced to allow the SPE to run the business independently.

The studio business has, however, been operating at a loss, placing a liability on the Department to cover its running and building maintenance costs. The SPE’s management made it clear that it was unable to approach private investors due to the matters connected to the ownership of the building and the studios. Health and safety hazards in the building have also had an adverse impact on opportunities for making additional income.

While media reports have suggested that funding for the project was unaccounted for, it is important to note that no adverse findings have been recorded regarding the funding of the Hub, other than the Auditor-General’s findings relating to the purchase of the building by the NAC, as well as the accounting process for the business of the studio.

The investigation will, however, bring to light the full facts around the finances of the Hub and how every cent has been spent.

DSAC records show that R93 308 001 has been provided over the years as a grant to support the project, divided up as follows: