Demands for BEE clarity

Johannesburg, 11 Jan 2008

International ICT vendors may withhold decisions on meeting SA's broad-based black economic empowerment (BBBEE) requirements until certainty is established on recognition.

That's according to CA Africa country manager Gary Lawrence.

Lawrence's comments follow last year's furore around Telkom's decision to not recognise the equity replacement initiatives of several ICT vendors.

In July, media reports revealed Telkom had told several large players - including HP, SAP, Cisco, IBM, Oracle and Microsoft - to beef up their empowerment credentials, or lose out on multimillion-rand contracts.

These demands included a stipulation that multinationals sell shares to black shareholders. This is in direct conflict with government's equity replacement programme, which allows international organisations to seek alternative routes to the equity requirements of its BEE policies.

'Snubbing govt'

A market watcher, who requested anonymity, says Telkom is not the only guilty party in this strategy.

"Some of the banks, Eskom and several other companies are on similar strategies. Unfortunately for Telkom, its practices have hit the media. The result is a growing number of businesses snubbing government and its BEE policies," she notes.

As nothing has been done to pull these companies into line with government's policies, Lawrence says some of the smaller vendors would rather adopt a wait-and-see approach before making investments.

"A precedent has been set that says equity replacement will not be accepted by all companies. It's one thing if it's just a single customer that you lose due to this, but quite another if you lose your top 10 clients. So international organisations have to go back to the drawing board," he explains.

No way out

Adding to the confusion is that international companies have no legal recourse to these situations, says legal expert Mike Silber.

When news of Telkom's BEE position first hit headlines last year, the telecommunications giant issued a statement saying it was acting within existing legislative frameworks - a view Silber says is accurate.

"There is nothing stopping organisations from setting their own procurement practices. It's also exceptionally difficult to go back and have private purchasing decisions audited. Unless you can find a way to prove that international companies are deliberately being excluded, or that there is collusion among some players, then there is not much - if anything - that companies can do."

Viola Manuel, executive director of the Cape IT Initiative, adds the lack of clarity is frustrating the organisation's drive to attract and grow international investment in the Western Cape and SA.

"Attracting global companies means so much more than increased revenue for the country. They create jobs, boost regional confidence and, most importantly, facilitate real skills transfer. This is too important to allow this confusion to continue," she says.

The only remedy for this situation is for government to take a stand on the matter, says Silber.

"It would help if government made a statement to the effect that equity replacement initiatives sanctioned by itself had to be recognised by the market. If government made such a statement it would give competition authorities a platform to investigate complaints. However, finding the proof would still remain a problem," he says.

Not all bad

Despite market consternation, outgoing regional director of Sun Microsystems Vito Bonafede agrees with the moves Telkom is making.

"The fact is we need to get company ownership in black hands so that strategy can be influenced and then monitored. People of colour will, on the whole, drive BEE initiatives a lot harder than their white counterparts because it is personal," he explains.

Equity equivalents are also difficult to measure, which leaves them open to manipulation, he adds.

"Companies need to step up to the plate and part with the equity. Financially it is far less onerous than equity replacement and, therefore, should result in a better business plan anyway. Of course, there is a chance that those companies that have already invested significantly in equity replacement programmes could find that money wasted."