South Africa: Empowerment law to be made compulsory for ICT companies

Mergers, Acquisitions and Financial Results

The government is considering legislation to compel information communications and technology (ICT) groups and broadcasters to sell minimum equity stakes to black investors, claiming the voluntary model is being flouted.

An amendment to the Electronic Communications Act would affect all local ICT companies and international groups. The first targets would be high-turnover, licensed groups such as MTN and Telkom.

Until now, the sector' s empowerment deals had to follow the yet-to-be promulgated ICT charter, which calls for 30% equity to be set aside for black investors, and the Department of Trade and Industry code of good practice.

Department of Communications director-general Mamodupi Mohlala said on Friday "encapsulating a clause for a BEE requirement in the legislation will have an immediate effect, be legally binding and be enforceable", more so than in the sector-driven charter.

Mohlala said voluntary charter compliance was insufficient. "Even the licensed entities are not meeting ... requirements, not only from shareholding but at operations level (black representatives at board and executive level) as well. It should be obligatory that there be compliance. We believe ... our strongest instrument is legislation."

The amendment would include minimum requirements for black representation at board and executive level. However, the amendment would exclude companies such as Microsoft, which do not require network or services licences to operate in SA.

MTN still plans to sell shares to black investors, including the public. Telkom's empowerment stake is about 7%, owned by the Elephant Consortium. According to Independent Communications Authority of SA (Icasa) documents on ownership and control regulations, Telkom is working on a broad-based empowerment ownership strategy.

The definition and the minimum requirements for empowerment shareholding and control to be included in the amended Electronic Communications Act would be aligned to the trade and industry codes, the ICT charter and Icasa's ownership and control regulations, published in November for public comments.

Icasa wants public input on what constitutes ownership and control, whether to limit foreign ownership and how the regulator can ensure empowerment stakes are not diluted in listed groups.

Icasa says that to realise the sector' s empowerment potential, regulations should be streamlined and harmonised. The focus should be on all elements of empowerment, ownership and control.

"This would create an effective, consistent, clear and coherent regulatory framework ... and coupled with a congruous (gazetted) ICT charter and balanced scorecard approach, the full BEE potential can be realised," it said.

The ICT charter, mooted six years ago, is expected to be gazetted next month. Norman Munzhelele, convenor of the charter's steering committee , said all issues delaying the process had been concluded, and the charter was with trade and industry.

The delays arose from global companies' refusal to sell shares in local groups and a claim by the Electronic Industry Federation that the targets were unrealistic. It wanted an economic impact analysis before signing the charter.

Trade and industry also objected to the ownership threshold of R7.5bn, in terms of which companies especially with huge market caps were allowed to sell shares worth R7.5bn despite the percentage. Vodacom took advantage of that exemption, selling 6.25% to black investors, including staff and the public, for R7.5bn.

Fujitsu Siemens, BT and T-Systems sold stock to black investors, but Hewlett-Packard opted for equity alternatives such as opening training institutions.

Business Day