Microsoft in R500m BEE spend

Johannesburg, 23 Apr 2010

Global software giant Microsoft will spend almost half a billion rand on its broad-based empowerment plan over the next seven years.

The US-based company will not be selling local equity in order to meet SA's empowerment targets, but has rather entered into an equivalency deal, which has been approved by the Department of Trade and Industry.

Analysts have welcomed the move as it will put funding into small companies, and does not just empower “the usual suspects”. The deal has also been structured in a completely new way to any other empowerment plan seen before in SA.

Kethan Parbhoo, Microsoft SA's equity equivalence manager, says the company has set aside R472 million to fund small black-owned software development companies for the next seven years. In return, Microsoft does not want any of the financing back, and is not taking a stake in the start-ups either, he says.

He says Microsoft wants to “create a new model of entrepreneurship and develop a new economy for software”. The software giant will issue requests for proposals next week, and will then examine the replies to choose a limited number of companies that can benefit from the funding.

No strings

Partner companies will be aided to grow from backyard operations to multi-nationally competitive firms, Parbhoo explains. A limited number of companies will qualify for the funding and assistance so that Microsoft can be sure of aiding them to succeed.

Once companies have been identified, Microsoft will analyse their business plans to identify gaps that could be filled to aid growth. However, the start-ups must also invest in their own infrastructure, says Parbhoo.

“This is part of our strategy to become a locally relevant company in SA,” he says. However, while partners will leverage off Microsoft's funding and expertise to grow, the company is “not looking to make mini Microsofts”, says Parbhoo.

It is expected that between five and 10 companies will be part of the initial programme, which will run until 2017. Once confirmed by a ratings agency, the plan should take Microsoft two steps up the ladder to a level two contributor, the second highest level.


Microsoft SA MD Mteto Nyati says: “This is not just another broad-based black economic-empowerment deal that features familiar faces and just ticks the boxes.”

Nyati says Microsoft wants to take existing software development companies and transform them into companies that compete in SA and around the world in areas like cloud computing. “We want to create a new model for entrepreneurship and set a new benchmark for developing talent in the local software industry.”

Microsoft expects to build partners in new, potential high-growth areas and hopefully generate greater competition in the South African technology industry overall.

“We anticipate these small companies will learn and collaborate with our existing partners and, in doing so, create new software solutions and approaches for the unique challenges we have in SA - and for those of international markets,” says Nyati.

Trade and industry deputy minister Maria Ntuli says the deal is noteworthy as it addresses indirect elements of empowerment, such as skills and enterprise development.

“The country can only be transformed if empowerment plays its rightful role in business,” she says. “We need to ensure it is linked more effectively to the development of skills, and to growth of local businesses. The Microsoft programme covers both aspects well.”

Give away

Chris Gilmour, an analyst with Absa Investments, says he has never heard of an empowerment deal being structured in this manner. “It's highly philanthropic and very much in line with Bill Gates' philosophy of giving money away.”

Gilmour does not expect the plan to be replicated by many other companies, although it will cement relationships with Microsoft in the small and medium enterprise sector.

Arthur Goldstuck, MD of World Wide Worx, says this “is the first time a major multinational is willing to put both financial muscle and expertise behind the growth of the SME sector, as opposed to a generic offering of money that is not applied to a specific outcome”.

He says the deal has a “good chance of achieving something different in the BEE environment”.

Global CEO Steve Ballmer, president of Microsoft International Jean-Philippe Courtois, and other senior leaders are behind the deal.

The process kicks off on 28 April 2010 with the issuing of a nationwide invitation to black-owned software development companies to apply. After a rigorous vetting process by external consultants KPMG, the shortlist will be identified, interviewed and selected. Microsoft then hopes to select the finalists and start working with them as soon as July 2010.

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