Big BEE deals expected as ICT sector code kicks in

The new ICT sector code requires 30% BEE ownership.
The new ICT sector code requires 30% BEE ownership.

Industry players believe big black economic empowerment (BEE) deals are in the pipeline as businesses start feeling the impact of the new ICT sector code.

The new ICT sector code requires BEE ownership of 30%, with at least 10% to be held by black women.

According to Ellipsis, a provider of legal advice and services to the telecommunications, broadcasting and related industries, the B-BBEE ICT Sector Council presented on its progress in implementing the ICT Sector Code to the Portfolio Committee for Telecommunications and Postal Services on 24 January.

The council noted that since it was established in September 2015, it has consulted with the ICT industry as part of the process to amend the sector code.

The council also subsequently finalised the amended sector code which was published in the Government Gazette on 7 November 2016; completed the interim sector monitoring report; and interacted with various stakeholders to provide guidance on the implementation of the amended sector code which took effect from the date of publication.

Radical transformation

Soria Hay, head of corporate finance at independent investment bank and advisory firm Bravura, says as emphasised in the State of the Nation Address, radical economic transformation remains at the core of SA's economic strategy and the new B-BBEE ICT sector codes, effective from November 2016, reflect this.

She adds the impact of the codes is certainly being felt as major IT and telecommunications companies respond to the business imperative to meet the new targets.

"While implementation of the sector codes remains voluntary, business implications are clear for non-compliance," says Hay. "For example, a 30% black-ownership minimum was listed as a requirement by industry regulator ICASA in a planned auction of the broadband spectrum so vital to telecommunications companies last year.

"While the auction was blocked, for now, by the communications minister, the regulator's message around compliance is clear."

Soria Hay, head of corporate finance at Bravura.
Soria Hay, head of corporate finance at Bravura.

She explains that new broad-based and women-owned specifications within the black ownership requirement are driving telecommunications companies such as Vodacom and MTN to pursue further black empowerment ownership options with the primary objective of broad-based inclusivity.

MTN has replaced its Zakhele scheme that unwound in November with a new R9.9 billion Zakhele Futhi empowerment scheme. Through the scheme, MTN will retain broad-based black investors over eight years, contributing to its overall 39% black ownership.

Vodacom's black ownership is currently at 18.7% with its existing black empowerment scheme, Yebo Yethu, coming to an end in 2018. The company plans to put together a replacement programme in line with the new ICT codes policy and is reportedly exploring the sale of a $1.1 billion stake to black investors in one of the country's biggest deals aimed at boosting black participation in the economy. Vodacom's new empowerment programme would be double the size of the current R7.5 billion plan.

New impetus

ICT veteran Adrian Schofield says although the previous sector code was in force from 2012, "there is no doubt that the new attention to the amended code generated by the formation of the sector council and the implementation of the new code from November 2016 will provide new impetus to the transformation activity in the ICT sector".

He explains the code applies to all enterprises operating in the ICT sector, large or small, state-owned, listed or privately held.

"Although BEE compliance is voluntary, there is no doubt that achieving and verifying a reasonable level of BEE compliance opens doors to more business opportunities, enabling enterprises to grow, expand the economy and create more employment."

According to Schofield, the current series of stakeholder engagements being conducted by the council in all provinces will highlight the council's role in promoting the widespread implementation of the Amended ICT Sector Code, and will open channels of communication for decision-makers seeking how to make transformation work for their enterprises.

Tim Parle, BMI-TechKnowledge telecoms sector specialist, believes some initial deals will be struck this year, but likely more in the coming years.

He notes the new codes are complex and go a long way beyond ownership and there are many aspects to consider. "Also, companies will not want to leap into new relationships without appropriate due diligence, negotiations, etc."

Read time 3min 50sec
Admire Moyo
ITWeb's business editor.

Admire Moyo is ITWeb's business editor. He has been a tech journalist at ITWeb since 2010. Before joining ITWeb, Admire worked for The Herald newspaper based in Zimbabwe. He holds a BA degree (English and History) from Africa University.

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