CSSA supports generic BEE codes

Johannesburg, 15 Aug 2011

Computer Society South Africa (CSSA) has reviewed the Draft Charter as published in Government Gazette No 34359, and agrees with its colleagues in the Information Technology Association (ITA) that the generic codes will serve the industry and the country better.

CSSA makes the following observations about sections of the Draft Charter:

1. CSSA is committed to supporting the principles of the B-BBEE legislation and firmly believes that the Codes of Good Practice facilitate the transformation of our society.

2. It is a pity that the Preamble refers to: “We, the ICT Sector stakeholders...” but they are not defined. In a sector as complex as the “ICT” sector, it is important that the representatives of the groups and sub-sectors that compiled the Charter are identified, so that we can better understand the role-players and their responsibilities.

3. At the beginning of the B-BBEE process in the early 2000s, there appeared to be good reasons for sectoral “charters”, to accommodate the variations in different environments. However, the passage of time has shown that it has been difficult to achieve consensus in reasonable timeframes in many sectors (including ICT), leaving enterprises to rely on the generic codes. This has significantly diluted the justification for sectoral specific codes.

4. It is our opinion that the administrative costs of implementing sectoral codes outweigh any advantages to the participants thereof. We believe that the whole country should adopt the generic codes, without exception. We also believe that the ICT sector is so cross-cutting and transversal in nature that it should NOT be the subject of special treatment.

5. Section 3.1 of the Code Series 000 refers to the entities measurable under the Charter - the definition in Schedule 1 is broad enough that it will include any entity that (for example) manufactures software or installs a network. This would bring entities from other sectors that have their own in-house ICT services under the scope of the Charter (such as banks, insurance companies, mines, casinos...). This introduces the possibility of “sector hopping” for enterprises seeking the least onerous obligations.

6. Section 13 states the codes will be effective until 31 March 2026, with a mid-term review on 31 March 2016 (unless amended, substituted or repealed under Section 9 of the Act). Although this covers 15 years, the codes that set time-limited compliance targets do not go beyond 10 years. We would like the time periods clarified.

7. Under Code Series 100 - Ownership, the “ICT” compliance target for items 2.1.1 and 2.2.1 is set at 30%, instead of the generic 25% + 1 share. This disadvantages companies that have already concluded a “satisfactory” equity deal. Under the same heading (section 6.5) it is stated that a BEE stake exceeding R7.5 billion will be deemed compliant and it further states that the prescribed minimum free float of 20% be excluded from the calculation. It is worth noting that deals exceeding the “cap” of R7.5 billion have already been concluded by major enterprises in the ICT arena, so we ask if it remains relevant.

8. We also note that Microsoft South Africa has satisfied the Department of Trade and Industry that its Equity Equivalent programme meets their criteria and we believe it will act as a model for other companies needing to follow this process.

9. Under Code Series 500 - Preferential Procurement, the ICT sector ignores the generic codes' use of one set of compliance targets for the first five years and a higher set for years six to 10, and adopts the higher targets immediately. This raises the bar by a factor ranging from 33% to 50% above the generic targets for the first five years. There is also the introduction of three ways of earning bonus points, including a rather confusing item 2.1.6, which could attract 14 bonus points if the 70% target of item 2.1.1 is achieved by using the suppliers mentioned in 2.1.3.

10. Under Code Series 600 - Enterprise Development, the compliance target is raised from 3% of NPAT in the generic codes to 5% of NPAT (without the option of using 0.375% of turnover instead). However, the weighting points are reduced from the generic 15 to 11 for the ICT sector. This appears to be needless “tinkering” with the targets.

11. Similar to the above, in Code Series 700 - Socio-Economic Development, the ICT Codes set the compliance target at 1.5% of NPAT, rather than the generic 1% or 0.125% of turnover. However, the weighting points are significantly higher at 12, instead of the generic five.

12. The justification for the variances from the generic targets is “to accelerate the pace of transformation in the sector” (we are not convinced that higher targets will speed the process, rather they may encourage failure) and “also to recognise the uniqueness of the ICT sector and that it cannot be treated as any other sector”. We do not believe this to be the case. True, there are many different types of enterprise in the sector, from regulated “monoliths” to micro-enterprises, but the generic codes cater for that.

13. Our motivation is to make the administration and measurement of transformation as simple and straightforward as possible. If everyone plays on the same field to the same rules, it removes the possibility of confusion and makes the process of verification more credible.

CSSA wishes to make sure that the pervasive, enabling ICT sector fulfils its role as a core contributor to the South African socio-economic environment.

Computer Society South Africa (CSSA) has represented the interests of practitioners in the information technology field for over 50 years. It has a paid-up membership exceeding 2 000 people, more than half of whom are black. CSSA is a member of the International Federation for Information Processing (IFIP) and is represented at many official forums relevant to the ICT sector and has a seat on the Board of the MICT SETA.

CSSA provided secretariat facilities to the Working Group and Task Team during the development of the Draft Charter and was actively involved in the discussions and events throughout the whole process.


Editorial contacts

Adrian Schofield
(082) 5600 680