The new Broad-Based Black Economic Empowerment Codes, which kick in from May, are a touchy subject for ICT companies, with few willing to talk about what their plans are to fit in with the new requirements.
This comes as no surprise, because the new codes – also known as the generic codes – place a bigger burden on ICT companies, and will cause many to lose their current empowerment status. This is because the new codes don’t quite jell with the ICT Charter, which prescribes how ICT companies should empower, and where their empowerment bucks need to go.
As a result, pundits in the sector expect ICT companies to be hit hard if they haven’t planned ahead. Andile Tlhoaele, CEO of Inforcomm, notes that many ICT companies will have to balance being seen as anti-transformation with the cost of compliance.
Under the new codes, skills development, equity ownership and enterprise development have been prioritised. As a result, companies that turn over more than R50 million a year need to achieve at least 40 percent of the points available under each of these categories, or they will fall at least one empowerment level.
Transcend Corporate Advisors director Trevor Tshabangu says ICT companies will be ‘hard hit’ when the new codes come into effect because their current scorecards will be translated into points under the codes, and will be found wanting.
Tshabangu adds that IT companies will suffer most under the priority element of ownership which, under the new codes, must be at 25 percent – but this is based on net bene ts to black shareholders. He says this requirement is likely to see companies drop about three levels on average when the new codes come into effect, because the ICT Charter has yet to be revised.
Tlhoaele says the Charter, almost a decade in the making, was finally gazetted with immediate effect by Trade and Industry Minister Rob Davies, in June 2012, and cannot be amended until an ICT Charter council is elected. Last November, Telecoms and Postal Services Minister Siyabonga Cwele issued another notice for nominations to the council, but this process has yet to be wrapped up.
In addition, says Tshabangu, all companies in the sector will be affected because the new codes will have a ripple effect through the value chain because suppliers will be downgraded, which will affect organisations that buy from them. Tlhoaele says: “The entire sector might just average at level four or five status. This means you might not easily find a large level three, two or one company in the sector for the next three to four years.”
Tshabangu says the unintended consequences of the new codes include an increase in fronting, and some companies will simply be out of the running for key government tenders. Companies will split into multiple entities in a bid to become qualifying small enterprises and avoid the onerous requirements of the codes, which brings with it the cost of dealing with more red tape, he says.
Tlhoaele adds that companies will endeavour to stay under the R50 million turn-over level, and may sandbag deals into the next financial year to achieve this aim.
In addition, says Tshabangu, IT companies are likely to front through arbitrarily hiring people of a specific demographic just to meet the economic active population targets of the province in which they operate. Tlhoaele notes, however, that the new codes make fronting a criminal offence, and government entities – such as the Independent Communications Authority of SA – now need to ensure the codes are adhered to.
Furthermore, says Tlhoaele, the amount of money that needs to be spent on training black people, to achieve the available points, doubles. ICT companies can also no longer claim for all training of black people – a category that includes African, Coloured and Indian races – without taking demographic populations into account. From May, spending needs to be spread out so that it matches the economic active population (EAP) of the province in which the company operates, or the national profile, if that’s the case, notes Tlhoaele. EAP refers to the percentage of each demographic within a province or region.
Wait and see
Tlhoaele, who has been intricately involved with the ICT Charter and with empowerment rating, says most companies are aware of the changes to empowerment requirements, ‘but haven’t yet calculated the impact on the bottom line’. This includes the impact of the amount of money that will need to be invested because of the higher targets, or the ‘almost impossible new compliance requirements’, which, he says, includes companies becoming less competitive because they could have a lower empowerment status.
Most ICT companies, says Tlhoaele, are ‘playing the wait and see game’, while some only started implementing new policies recently. Yet others are hanging on in the hope that only a few companies will comply, so that a lower BEE status becomes the norm in the sector.
Work in progress
SAP Africa’s CFO Deena Pillay is confident the new codes will not adversely affect the business as it has put empowerment funds in place to train youth. SAP SA will issue another 19.5 percent of its share, at nominal value, to an empowerment trust that will invest all dividends in the local BBBEE-compliant education organisation, the Maharishi Institute. These measures, he says, will result in SAP being 30 percent black-owned.
Another of the few companies willing to discuss its empowerment plans is Blue Label Telecoms, a JSE-listed telecoms entity. Joint CEO Mark Levy says the company is continuously adapting and modifying its policies and practices to meet ‘prevailing criteria’. He acknowledges that workplace transformation ‘is a work in progress’. He stresses that the company already meets the ownership sub-minimum, and surpasses the skills development sub-minimum, as it has invested ‘significantly’ in resources for the development and upskilling of its staff, in particular those from the ‘designated grouping’.
He admits, however, that the new codes are ‘indeed more onerous’, which has meant that Blue Label needed to adjust its budgeted spend on these elements. “This will ultimately have financial implications for the group. We consider this spend as a ‘licence to do business in South Africa’.”
Margaret Sibiya, MD of ICT-Works, notes that the company has been working on each of the priority elements. “This has changed the roles and responsibilities of staff that now need to dedicate time to rolling out the strategy,” she says. “The fact that the ICT subsector code is not available yet makes it extremely difficult to plan properly. It certainly poses a risk to current planning activities and BEE projects…This is the biggest threat to our status, as we’re planning for the generic code and if the ICT code is very different, our strategy will not only have to be changed mid-implementation, but could result in us losing the status we are working towards.” Click year to view the original article
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