ICT charter: comply yesterday

The empowerment charter for the information and communications technology sector was finally published last month after almost a decade of deliberation, but how is it likely to affect the industry? By Craig Wilson.

The department of trade & industry released its black economic empowerment (BEE) charter for the technology sector last month and it takes force with immediate effect. Although some companies in the sector already comply, others will have to move quickly if they’re to meet its stringent requirements.

The charter was released at the ICT Indaba in Cape Town on 6 June and is meant to bring the information and communications technology (ICT) sector in line with the broader empowerment aims of government. The charter is not only aimed at transforming ownership in the SA ICT sector, but also at promoting skills development and reducing unemployment.

Both listed and unlisted ICT companies are affected, with the former expected to demonstrate that 25,1% of their equity — up to a maximum of R7,5bn of the company’s value — is in the hands of empowerment partners. Unlisted companies, meanwhile, have to meet a higher equity level of 30%.

Nadia Buldeo, a senior reviewer at ratings agency Empowerdex, says previous charters from the department of trade & industry have included grace periods after they were gazetted — or a 60-day consultation period preceding publication — but that the department is increasingly moving towards making charters effective immediately.

Despite the lack of a grace period in the ICT charter, Buldeo says few companies are likely to have been caught wholly unaware as it has been under discussion for many years. Larger companies have been preparing for its publication for some time. “They knew it was coming,” she says.

Impact on companies
TechCentral attempted to solicit comment from a wide range of ICT companies, both private and listed, but many said they were still in the process of analysing the charter and were not yet able to comment on its implications.

Johan Klein, human resources and industrial relations executive for the Altech group, says the company’s SA operations are unaffected by the charter’s requirements because its effective ownership is above 30%, meaning that, as a listed company, it exceeds the necessary minimum in terms of equity.

Klein says Altech finds it “interesting” that with the ICT industry having been identified as one of SA’s economic growth areas, and as sector that can create jobs and transform equity ratios, there is a “reduction in the score of the employment equity pillar”.

“There should have been more focus on the employment equity and skills development pillars,” he says.

The charter will have implications for companies that comply when it comes to their future expansion plans. Klein says this is an aspect of the document of which Altech is particularly aware. “It may affect the growth of the business, particularly with respect to how ownership deals are structured.”

Meanwhile, Vis Naidoo, Microsoft SA’s citizenship leader, says the charter will not affect the software company’s equity equivalence programme, where instead of selling equity in the company, it is investing R475m in providing financial, technical and business support to black-led technology companies, helping to take their products and services to the global stage.

“The minister of trade & industry has already approved the [Microsoft] programme and the ICT charter targets will therefore only apply to new equivalence programmes,” Naidoo says.

“The charter does differ from the generic empowerment codes in that it gives prominence to skills development and socioeconomic investments and changes some of the targets to be achieved,” he says, adding that Microsoft will continue to ensure it “works within the framework of the charter”.

Cell C CEO Alan Knott-Craig says his company is 25% held by black firm CellSAF, with a further 60% held by Oger Telecom and Saudi Oger subsidiary Lanun holding 15%. This leaves the operator 5% shy of the requirement for unlisted companies.

But Knott-Craig says this shortfall isn’t, in fact, a problem as the charter is a “guideline to best practice”.

“We have satisfied and still continue to satisfy the requirements of the generic balanced scorecard elements. We do not currently meet the new 30% threshold referred to in the charter.”

Beyond the equity requirement, Knott-Craig says the charter does not otherwise affect Cell C. The former Vodacom Group CEO says the charter is a step in the right direction. However, he criticises the fact that listed companies are exempted from the 25,1% equity if R7,5bn worth of their shares are in black hands. “The exemption clause is not aligned to the aspirations of the broad-based black empowerment agenda,” he says. “Instead, it presents itself as an indirect and backdoor empowerment initiative defeating the purpose of empowering as many people as possible.”

Knott-Craig says it’s an “unusual coincidence that the R7,5bn threshold is also the exact value of Vodacom’s 2008 empowerment transaction”.

He says that, from the outset, there was “a need to realign the provisions of the charter to that of the Electronic Communications Act or vice versa. At present, there is a misalignment, as the standard set by the charter is that of broad-based black economic empowerment whereas the act refers to ownership of licensees by historically disadvantaged individuals who might include blacks, coloureds, Indians, women and persons who are disabled”.

“It is our business intention to meet the targets that have been set, but this cannot be achieved overnight. We are encouraged that the charter is not static and will be reviewed annually,” Knott-Craig adds.  — (c) 2012 NewsCentral Media