Onerous ICT charter slammed

ICT companies will have to sell an additional 5% to empowerment partners if the draft ICT charter goes through in its current form.

However, there is now confusion as to which firms will need to increase their empowerment levels.

The charter is finally on its way to being gazetted, and all it needs is trade and industry minister Rob Davies' sign-off before it is published for public comment, which is expected to happen at the end of the month.

The document requires companies to have 30% equity ownership, compared with the 25% plus one vote contained in the Department of Trade and Industry's (DTI's) BEE Codes of Good Practice. However, it's unclear whether this stipulation applies to all ICT companies, or only unlisted firms.

Companies that have already done deals to comply with the codes may have to spend more money to increase their empowerment stakes. In addition, the draft version will make it impossible for firms to measure themselves, because there will be an assortment of differing empowerment requirements.

The charter has been in the pipeline for at least the last seven years, and has been held up several times as numerous “final” iterations have been completed, but not gazetted. Work on the charter started in 2003, which was followed by the launch, two years later, of the first “final” version.

However, after the DTI gazetted the BEE Code of Good Practice in February 2007, the document had to be aligned with the codes, causing yet another delay.

In addition, the then Electronic Industry Federation would not sign off on the charter, arguing that its targets were unrealistic and would harm parts of the industry. Among its complaints was that the proposed 30% ownership target was too high.

Thabo Masombuka, former director of BEE partnerships at the Department of Trade and Industry, says the final iteration of the charter sets the bar higher than the codes, as equity ownership has been set at 30%. The codes only stipulate empowerment ownership of 25% plus one vote.

Without the 30% ownership, companies won't comply with the draft charter, which will presumably become a sector code once finally gazetted, says Masombuka, who is currently an independent empowerment consultant.

The charter has been sent for gazetting and should be published at the end of the month, confirms Masombuka. Companies and the public will then have 60 days to comment before the final charter comes into effect until 2026.

Masombuka expects objections to the charter in its current form, but argues this must be understood in terms of people “wanting to hold onto historical benefits”.

The charter can't just be a repetition of the codes; otherwise it would serve no purpose. He says the sector needs to set the bar higher. “Transformation and empowerment will always come at a cost.”

However, according to steering committee deputy chairman Andile Tlhoa'ele, the 30% requirement only applies to companies that are not listed on the JSE. The bourse's rules require a minimum free-float of 20%, and a 30% requirement would make it impossible for groups to keep a controlling stake, he explains.

Tlhoa'ele says the charter initially included listed companies in the 30% requirement, but this figure was lowered as a compromise. “It's not a perfect document for everyone.”

Masombuka disagrees, saying the draft doesn't make it clear that the 30% threshold only applies to unlisted companies. He says this is an issue that can be cleared up when the charter is published for comment.

However, listed firm Business Connexion recently entered into a new empowerment deal with the 30% ownership target in mind.

Reunert commercial director Gerrit Oosthuizen argues the charter will cause regulatory chaos if it goes through in its current form. He says it imposes a different set of rules on ICT companies than those that affect the rest of industry.

Oosthuizen explains Reunert's operations are not limited to the ICT sector, but span a variety of industries. As a result, the charter will only apply to some of its entities, such as Nashua Mobile.

However, the problem will be implementing the charter, with some group entities having to be more empowered than others, making it impossible to measure the company's empowerment status, says Oosthuizen. “How do I manage the group on this basis?”

Companies with a large asset base will battle to increase their equity ownership because of the amount of money involved, says Oosthuizen. “We need one set of rules that everybody can be measured against.”

Oosthuizen adds it's not feasible to empower each group subsidiary to meet the charter's requirements. He says empowerment is best done at the top level, but that raises the question of what level of empowerment is applicable across the group. “It's inconceivable.... It's regulatory chaos.”

MTN's group executive for human resources, Themba Nyathi, says the charter will be a challenge for future empowerment plans, and will have financial implications. “More information is needed to ascertain the full impact of the proposal on current ownership models.”

Adrian Schofield, president of the Computer Society of SA and a member of the steering committee, says should the charter be adopted in its current form, companies will have to go back to the drawing board if they have already done deals.

Even if the document exempts listed companies from meeting the 30% threshold, there are a large number of medium-sized unlisted companies that signed deals in accordance with the codes that will have to revise their plans, he notes.

Schofield says companies that don't increase empowerment stakes run the risk of not earning all the possible points. Empowerment ownership is important when it comes to tendering for government contracts, he adds.

Increasing equity ownership will be a costly exercise for larger companies, and the higher percentage requirement raises the barrier of entry for companies wanting to win tenders, says Schofield. “There will be fairly strong public comment... It should be a major issue.

“What is the justification for saying the percentage in the so-called ICT sector is higher than the national percentage?”