EconoBEE Comments on the recently gazetted ICT Charter

Recently Gazetted ICT Charter Appears to be a Step Backwards

By Keith Levenstein, CEO of EconoBEE, a B-BBEE advisory firm

The dti minister Dr Rob Davies has gazetted  the final ICT Charter in terms of section 9(1) of the B-BBEE act. This means that as from the date of the gazette, all businesses in the ICT sector must use the ICT charter is for calculating their B-BBEE scorecard, instead of the Codes of Good Practice.

After many iterations, the ICT charter was originally gazetted as a draft in June 2011, with the initial expectation that it would be gazetted shortly thereafter. Various factors contributed to it being delayed to the extent that every couple of months the dti and the ICT council would state that gazetting was imminent, and nothing would happen.

Codes of Good Practice

When the original codes were gazetted in 2007, we were impressed with the concept. We excused the then minister of many errors, misspellings, and other inconsistencies in the document. We fully expected that the dti would solve these “little” issues as time went on. Eventually the dti did indeed make some minor adjustments and issue some comments.

The Sector Codes

As each sector code was issued, we expected that the sector code would provide additional explanations about how it should be interpreted. We had hoped that some interpretations would assist us in looking at the original codes. To a small extent, this indeed did happen.

Some examples of the errors in the codes related to an adjustment for gender, which was handled in a better way in the transport sector code. The construction sector code gave more details around enterprise development and road freight about early payment of invoices.

ICT Sector

In the case of the newly released ICT sector code,we believe it has taken a huge step backwards. The ICT codes are riddled with spelling mistakes and grammatical errors. They perpetuate many errors in the codes without making any effort to explain or improve them. We could live with the original codes having errors – on the understanding that over time the dti would issue additional announcements.  We cannot accept that the ICT charter, issued more than five years after the codes, still has these problems. This is not purely an academic exercise, it has huge ramifications.

For example the ICT Charter still contains section 10 of code 000, statement 000. Section 10 states that “verification is encouraged and to this end the dti will issue clear guidelines on the verification process”.  The dti has already issued those guidelines for all other codes and the sector codes. Those guidelines state that certificates are only valid if produced by an accredited verification agency. The guidelines also state that there are now two accreditation bodies, SANAS and IRBA. The ICT charter, issued after the minister’s guidelines and gazette must take precedence, if no error has been made.

This implies that for the purposes of the ICT charter, verification is only encouraged, and not mandatory, until the dti issues the exact guidelines that it has issued prior to the ICT charter. Does this mean that verification is not mandatory? That self-assessment is acceptable? Surely the ICT charter committee could not have been so lazy as to not bother to update the charter? Surely the minister must have been advised not to sign a document that was a cut and paste of the original flawed codes?

There are other problems: The target for enterprise development is to spend 5% of net profit after tax, to earn 11 points. This compares to the generic codes where the target is 3% to earn 15 points. There is no transitional period meaning that businesses that only spent 3% of their NPAT in the past year will earn 60% of the available points (or only 44% of what they would have on the Codes of Good Practice).

The argument could be made that businesses knew that the ICT charter would be gazetted and they should have planned better. As mentioned previously, the ICT charter had been delayed many times to the extent that businesses in the ICT sector could be excused for expecting that the charter would be gazette with more warning, or the offer of a transitional period. They had been warned so many times, and the minister had failed to gazette the ICT charter so many times, it was a case of “cry wolf”. Another issue related to ED is that both the codes and now this charter use the concept of cumulative spend.

However the minister has indicated in a gazette he wishes to stop using cumulative spend in favour of reaching annual targets. By consensus, though not by law, the verification industry (which may or may not be required to verify ICT certificates) has been following the spend-per-year method of calculating points. The ICT charter now uses the cumulative method. We have no idea if the verification industry will, again by consensus, use the yearly spend method for the ICT industry or if this is what the ICT sector code intends.

Other issues that continue to plague the B-BBEE sphere have not been addressed:

  • Early payment of invoices for ED
  • The measurement period.
  • The adjustment for gender – mentioned previously

Irrespective of the poor spelling and grammar like Employee Ownership Scheme’s – should be Employee Ownership Schemes, there are bigger problems:

25,1% plus 1 – should be 25% plus 1 vote.  1% of your equity is not a lot if you only have 100xshares in issue. If you have a market capitalisation of R7-billion, then 1% is R70-million.

It only talks of SANAS and never mentions IRBA the latter being appointed to be an accreditation body in October 2011. This was eight months ago.

The charter retyped many pages of the original codes, and also mentions the annexures, e.g annexure 100(a) and annexure 100(b). It even has a heading for the annexures but the authorities did not bother to include them in the charter.

The ICT Charter states that it will be reviewed in five years time, on 31st April 2017 – unlikely since April has only 30 days.

We wonder if the ICT charter committee was so lazy that they did not even bother to fix the problems around the increased targets for years 0-5 and 6-10. The codes talk of years 0-5 and years 6-10 for employment equity and preferential procurement. The employment equity in the ICT charter still uses the words Years 6-10, but does not have any other targets.

EE Targets

Can one assume that employment equity targets only come into operation from years 6 -10? i.e in 2017? Since we cannot assume that the ICT charter council are lazy and incompetent, we must follow their exact wording, ie. employment equity is not measured until the sixth year of the ICT charter.

The ICT charter has been in development for many years. It looks like someone used the original codes, did a “find and replace” to include the words ICT sector, and added in a couple of paragraphs to suit some people.  All else they did was to change the targets without looking at the consequences. For example enterprise development now costs 5% of NPAT to earn 11 points, compared to 3% to earn 15 points.

Did the ICT sector council consider that ED is now twice as expensive as before and that many companies will choose to ignore ED? If jobs and developing enterprises are top of the minister’s list, why make it so much more onerous to comply? Once again the word “incompetence” springs to mind when describing how poor this new sector code is. We have to wonder how an intelligent minister like Dr Rob Davies could put his signature onto it.

Regardless of errors all companies operating in the ICT sector will need to follow this to create a scorecard using the ICT sector code. To be successful you should begin by gaining knowledge of how the ICT sector scorecard is going to affect your business. Then you will need to do a comparison scorecard calculation to avoid any weakness while simultaneously trying to quickly implement the activities that vastly affect your score.

About EconoBEE

BEE is a complex business task which consumes a considerable amount of time and resources. It needs a strategy planned with commercial logic, which is then properly implemented and monitored in a way that makes complete business sense.

Choosing the appropriate competitive B-BBEE strategy is a sophisticated endeavor requiring knowledge and familiarity with the minute intricacies of the B-BBEE Act and Codes of Good practice. The lack of expertise in many companies countrywide hampers the successful implementation of the B-BBEE Codes in their operations.

EconoBEE’s managed services offers a high-quality streamlined step-by-step approach to becoming BEE compliant.

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