For a group engaged in a highly technical business environment, Telkom's affirmative procurement record is extraordinary. Or is it just a matter of will?
A large portion of Telkom's procurement book consists of typical business areas in which black people were excluded during the apartheid era for lack of experience and technical skills. To this day those reasons continue to be used to exclude black people from the mainstream economy. So Telkom's significant advances in opening up its procurement book to black people is worth noting.
A claim by new chair Shirley Lue Arnold may sound like one of those throwaway PR statements, but this may be the real deal. "Telkom is a key instrument in the growth and transformation of the SA economy and believes that black economic empowerment (BEE) should deliver meaningful and broad-based empowerment to the majority of SA's people. Telkom's contribution to BBBEE is evidenced by spending R8,8bn on empowered or significantly empowered suppliers during the 2007 financial year."
The telecommunications giant takes the lead in the procurement ranking in the 2008 Top Empowerment Companies (TEC) survey. A constant top performer within the TEC rankings for the past four years, Telkom produced a total affirmative procurement score of 20, which represents a 100% record in this factor of the BBBEE scorecard. The group managed a total BEE score of 62; it also produced 100% in the management factor of the BEE scorecard.
Procurement is considered the most important pillar of BEE - even more important than the transfer of ownership to black groups. That was acknowledged when the drafters of BEE legislation decided to give procurement a weighting of 20% from 15% in the BBBEE scorecard.
That gives the procurement factor the heaviest weighting - only equal to ownership - in the BEE scorecard. It is in procurement that a sustainable path to black-controlled business will be created.
Telkom's affirmative procurement score is drawn from a record of 69% spend on qualifying BEE entities across a number of sectors and levels of the economy.
Adcorp Holdings, which took the second spot in the procurement ranking, managed to produce total BEE spend of 50%. Adcorp is crowned the most empowered company in the 2008 TEC survey with total BEE score of 81,69%.
The Top 10 list on this factor ranking also includes Phumelela Gaming, Santam, Barnard Jacobs Mellet Holdings, Kelly Group, Cadiz Holdings, Raubex Group, Metrofile Holdings and Pretoria Portland Cement (PPC).
The largest cement manufacturer in the country, PPC should be treated as another extraordinary feature in the top preferential procurement list.
The group managed to produce a procurement score of 16 out of a possible 20. That came from directing 47% of its total procurement book to black suppliers. That is no easy task for a group engaged in heavy industrial manufacturing.
What sets Telkom apart is not only the percentage of BEE spend to its total procurement but also the magnitude of its intervention in promoting black suppliers. In its 2007 sustainability report the group reported that its total BEE spend stood at R8,8bn, representing a 37,5% improvement from the R6,4bn reported in 2006.
Telkom provides one of the most comprehensive breakdowns of what makes its BEE spend. Firstly, it claims that a significant portion of its BEE spend is directed to suppliers that have "significant BEE programmes". The group says about R1,4bn of its 2007 BEE spend went to black small, medium and micro enterprises (SMMEs). About R5,7bn is accounted for by what the group calls "significant empowered suppliers".
Telkom has taken preferential procurement to a different level. Its programme does not end with its own procurement book but is extended to encouraging its general suppliers to support black-owned SMMEs and to comply with the general BEE principles. It would not be far-fetched to conclude that Telkom has taken an interventionist role in enforcing BEE where it can exercise its muscle.
"In order to create opportunities for small black businesses, Telkom also negotiates with traditional suppliers to subcontract portions of their major contracts to SMMEs," says the group.
Telkom's BEE procurement initiatives are linked to its extensive enterprise development programme. The group runs a supplier development programme. Its objective is to direct the company's efforts to identify, develop and support black SMME suppliers in the procurement process, says the group in its latest sustainability report.
The group also runs an in-house Centre For Learning, which selects and trains suppliers in areas deemed necessary for business management. In addition, the group also runs a special fund created under the direction of top management for SMME support initiatives, implementation of quality management systems and conferring the appropriate certifications.
Most significantly, Telkom has devised an early payment cycle for its SMME suppliers and also maintains "set aside" tenders.
There may be concern that the change of leadership at Telkom may have come with new priorities, which will disturb the group's BEE record.
But then new CEO Reuben September is not an exogenous factor. Having been with Telkom since 1977, he is very much part of the DNA that carved the prevailing BEE policy in the company.
