The Empowerdex research on economic empowerment in the ICT sector, released in November 2002, highlighted the substantial effort still needed to transform the ICT sector and empower historically disadvantaged South Africans within the sector. With the looming pressure arising from the ICT charter and the adoption of affirmative procurement by both public and private sector entities, industry players are warning of the onset of a 'chaotic scramble` to meet economic empowerment guidelines.
As a result of these pressures, the sector needs to find the answers to two key questions.
* Can the ICT sector transform successfully and efficiently?
* How much impact will economic empowerment and transformation have on the sector?
Both of these questions depend on the expected rate of transformation in the sector, that is, how fast the companies in the ICT sector can transform to comply with the requirements of the broad-based economic empowerment strategy and the ICT charter.
Based on the recent economic empowerment initiatives of Paracon Holdings Limited ('Paracon`), whose economic empowerment status and contribution was assessed and rated by Empowerdex, this study aims to determine the expected rate of transformation of the companies in the ICT charter.
As per Empowerdex`s research in November 2002, Paracon did not qualify either as a black-owned, black-empowered or a black-influenced entity. In response to the draft economic empowerment strategy of the Department of Trade and Industry and in anticipation of the ICT sector charter on economic empowerment, Paracon has introduced and implemented various initiatives in order to enhance its economic empowerment status across all seven pillars of economic empowerment. Significant progress has already been made since the introduction of these initiatives in the first half of 2003. The highlights of some of its initiatives are discussed below.
In the introduction of black ownership, Paracon has struck a deal with WDB Investment Holdings ('WDBIH`), a black empowerment group formed to promote the development of rural women, in June 2003. WDBIH acquires 25%+1 share in the company, in a transaction was funded by the Industrial Development Corporation ('IDC`). WDBIH has previously worked in partnership with Paracon through WDB Technologies and also hold investments in both BP and Bidvest.
The benefits of this transaction to Paracon shareholders will be enhanced once WDBIH has fulfilled its obligations to the IDC over the funding period, as it will confirm Paracon`s status not only as a BEE company but also as a black engendered company. The effective BEE shareholding, including indirect BEE shareholding, stands at 31 percent as at 30 June 2003.
The transaction also introduced BEE management representation. Sonia Sebotsa from WDBIH was appointed a non-executive director onto the board of Paracon in June 2003. The appointment provide Paracon with a 6 percent BEE control, which qualifies the company as a Black Influenced Company together with the relatively higher level of its BEE ownership.
The management of Paracon is currently in the process of identifying and recruiting qualified black executives onto its board, which is likely to result in the promotion of the company into a Black Empowered Company once 25 percent board representation by black executives has been achieved.
Furthermore, the initiatives are not only limited to the introduction of black ownership and management. The employment equity profile (See Table 1) of the company illustrates a familiar trend in the ICT sector. The black and women representation currently stands at 28.8% and 58.3% respectively, but most still hold positions at the lower echelons of the organization structure. In order to transform the organization, the management is currently identifying and implementing skills development initiatives to fast-track the development of black professionals both within and outside of the organization and expect significant transformation of its employment equity in the short to medium term.
The linkage between economic growth and economic empowerment is evident as tough market condition in the ICT industry limits the sector`s capacity to train and recruit black professionals who can facilitate the transformation of the employment equity profile of the industry.
Based on the assessment of Paracon`s current BEE status and progress, Empowerdex has awarded Paracon an Empowerdex-BBB rating and placed Paracon on a positive ratings watch, as the outcome of various initiatives can further improve the assessment of its empowerment status and contributions.
Despite the concerns over the lack of financing, insufficient black IT professionals and the tough market conditions facing the ICT industry, the progress made by Paracon provide us with a valuable lesson in understanding the expected rate of transformation in the ICT sector. That is, significant transformation progress can be made by the industry players in less than one year.
Although significant determination and innovation is required from the ICT companies to implement transformation initiatives and overcome various obstacles and challenges, the examples of BEE progress made by Paracon in the short-term, together with the expressed intention by Didata and other market leaders to fast-track economic empowerment, can dispel some of the fear that the scrambling for compliance to the ICT charter will result in significant adverse impact to the ICT sector. With the setting and implementation of practical targets through the ICT charter, the market can expect significant progress in the economic empowerment of the ICT sector over the next two years.
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