In the State of the Nation address, President Jacob Zuma highlighted that radical economic transformation remains at the core of South Africa’s economic strategy and the new BEE ICT sector codes, effective from November 2016, reflect this.
Soria Hay of independent investment bank and advisory firm Bravura says that the impact is certainly being felt as major IT and telecommunications companies respond to the business imperative to meet the new targets. These new target set by the ICT sector codes require a BEE ownership target of 30%, with at least 10% to be held by Black Women.
“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. Whilst the auction was blocked, for now, by the Communications Minister, the regulator’s message around compliance is clear. There is however still a disconnect between ICASA ownership targets and the ICT sector codes with requirements essentially in flux.”
New broad-based and women-owned specifications within the black ownership requirement are driving telecommunications companies such as Vodacom and MTN Group to pursue further black empowerment ownership options with the primary objective of broad-based inclusivity.
MTN has replaced the MTN Zakhele scheme that unwound in November last year with a new R9.9 billion MTN Zahele Futhi empowerment scheme. Through the scheme, MTN Group will retain broad-based black investors over 8 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 program in line with the new ICT codes policy and is reportedly exploring the sale of a $1.1bn stake to black investors in one of the country’s biggest-ever deals aimed at boosting black participation in the economy. Vodacom’s new empowerment program would be double the size of the current R7.5 billion plan.
“Businesses must ensure that they get the maximum bang for their buck in terms of meeting the broad-based requirements of the Codes, including the required Black Women, Black Designated Groups and other broad-based participants to ensure that they get the points recognition that is only awarded for these participants. At the same time, it is important to ensure that the funding structure is sustainable, and that the Realisation Points will be earned.”
“In addition to listed BEE schemes, share ownership plans for broad based groups and/or staff, where a percentage of issued share capital is held in a trust for broader based participation, can further boost the required black ownership within a business,” says Hay.
“While there are a number of ways to structure deals, the bottom line is that decisive steps must be taken to conform to BEE targets as set out in the ICT Codes and the B-BBEE Act as a key component of success for both local and international firms in the South African ICT environment,” says Hay. “With IT and Telecommunications firms dependant on licencing and regulators, compliance is essentially not voluntary and the business impetus to transform cannot afford to be ignored.”