There are attempts to revive the information & communication technology (ICT) charter. But this sector-focused transformation document appears to be dead in the water.
In the early 2000s, ICT industry stakeholders joined the frenzy that resulted in the creation of sector-focused black economic empowerment (BEE) charters. In 2005 the industry published a draft charter, which had two main points of distinction from the generic broad-based BEE scorecard. The one was an industry pledge to bridge the ICT gap in previously disadvantaged communities.
The draft ICT charter also featured what has come to be known as the R7,5bn clause. This was designed to recognise certain deals falling above the R7,5bn mark as fully compliant, irrespective of the level of equity acquired. The clause was introduced due to concern that large ICT players would find it difficult to hit the 10-year black ownership target of 30% set by the charter.
Local mobile phone network giant Vodacom seems to have been guided by this clause in designing its R7,5bn BEE deal, concluded last year. The transaction transferred about 5% of the group's equity to a consortium of black investors. If the R7,5bn clause survives, Vodacom will be treated as a company that has 30% black equity within the ICT sector. But the future of the whole ICT charter hangs in the balance.
Firstly, the ICT charter has been made redundant by the BEE section of the Electronic Communications Act (ECA), which demands a minimum of 30% black ownership and does not recognise the R7,5bn clause in the charter. Though it is not clear how the ECA will relate to the codes and the charter, the Independent Communications Authority of SA has suggested that the ECA will reign supreme.
As it stands, the ICT charter has no legal status. BEE credentials in the ICT sector are measured against the generic scorecard carried in the BEE codes of good practice. The ICT charter must be approved by the department of trade & industry (DTI) to earn legally binding status under section 9 of the codes. It was featured in the list of eight charters that applied for section 9 status.
It is possible that certain charters may not get the department's approval, says DTI chief director of BEE Nomonde Mesatywa. " Requirements for section 9 are rigorous and we have indicated to some stakeholders to consider their options carefully," she says. They must carefully consider whether section 9 is the route to go as the codes may sufficiently address all aspects of transformation in that particular sector, she says.
Insiders say the ICT charter is not strong enough to make it through this process. If it does, the R7,5bn clause is unlikely to survive. That is because there have been a number of major BEE deals that have been concluded since the R7,5bn clause was devised. Sasol concluded a R29bn BEE deal last year, which suggests that no mark is too high where there is a will.
The latest BEE proposal announced by MTN has also punched holes in the R7,5bn clause. MTN has announced plans to unwind its old BEE structure, which benefits staff through a vehicle called Newshelf 664. The new proposal is designed to transfer about 6% of the mobile phone network operator to black hands. The deal is expected to top the R10bn mark.
The DTI has already sent the first draft of the ICT charter back to the drawing board. The department is said to have raised questions about the R7,5bn clause and demanded that the industry must provide concrete reasoning around the clause as it appears to be a thumb suck.
Sector charters must be in line with the codes, says Mesatywa. "If there are any deviations, such deviations must be justifiable based on sound economic principles or empirical research," she says. The ICT charter was analysed last year and was found to be falling short of the set-out requirements and it was referred back, she says.
The million dollar question is who is expected to benefit practically from the R7,5bn clause of the ICT charter. Theoretically the clause is designed to help gigantic IT operators with market caps or net asset values of hundreds of billions of rand. A few companies come to mind. These include MTN, Vodacom and to a certain extent Telkom. Telkom's market cap was quoted at about R60bn at the time of going to press. MTN, whose market cap topped R300bn early last year, seems to have no qualms about crossing the R7,5bn mark. Multinationals should be excluded from the list of those who could benefit from the R7,5bn clause. Multinationals have their own escape clause from the ownership element of the BEE scorecard.
A glance at the ICT sector of the JSE reveals no giants who could benefit from this clause. Quoted around the 550c/share mark in February this year, Dimension Data is a shadow of its former self with market cap of about R9,1bn. Altron's market cap was about R2,4bn, while that of its subsidiary Altech stood at about R5,3bn. Datacentrix was at R2,5bn. As things stand only one company stands to reap most of the benefits from the R7,5bn clause, Vodacom. Should the clause survive to cater for one company?
