Amended ICT Charter – Changes and impact on businesses

Posted by Trevor Tshabangu
Tuesday, 25 April 2017  |  Comments
Trevor is a director at Transcend Corporate Advisors.
Read all of Trevor Tshabangu's Posts

On 7 November 2016, the Department of Trade and Industry (DTI) released the Amended ICT sector gazetted codes, Gazette no: 40407 in line with the requirements of the B-BBEE act.
This release was interesting in that the ICT sector was one of the last sectors to publish their sector code for public comment, but were able to finalise their sector ahead of the other sectors, well done.

As expected, the ICT gazetted sector code made several changes some of which may or may not influence other sectors to follow suit. As one of the key sectors in the South African economy, the sector has been seen to be lagging in terms of transformation. According to an interview with the Director General (DG) of the DTI, Mr Lionel October on Power FM 8 November 2016, the DG mentioned that transformation in the sector was moving at a snail pace and therefore required steep changes to be made to the scorecard and compliance targets. Earlier, in his address at the launch of the Amended ICT sector codes, Siyabonga Cwele, the Telecommunications and Postal Services minister, further echoed the DG’s sentiments by pointing to the recently released report on the poor B-BBEE performance by the ICT sector.

Probably, the most significant change in the scorecard is the new recognition levels which have been increased with Level 4, for example being between 100 and 110 points. This is a big shift especially considering that this change was not anticipated and was neither indicated in the draft ICT codes. The motivation behind the increased recognition levels, in our view, was necessitated by the total available points in the ICT sector code.
The impact of this change is that companies would have to review their B-BBEE strategies and compliance targets and communicate effectively with the business and any other stakeholders. In addition, businesses need to re-look at their agreements with both their clients and vendors to see if these are in line. There might be certain commitments based on B-BBEE levels which the measured entity may not honour and therefore be found to conflict with the agreement/s.
As per the gazette, the ICT sector codes are applicable immediately. In other words, businesses are expected to comply and adjust to the new principles and guidelines. The impact of this move dictates that companies need to change their plans, strategies, spend patterns etc. For businesses that are close to financial year end, it is rather urgent to make swift adjustments to their plans. Our advice as Transcend Corporate Advisors is for those affected to either contact us or seek clarity from your verification agency.

The code has provided some clarity on the skills development pillar in terms of spend on disability training. All training for people with disabilities, employed or unemployed will count as skills development spend in the spend table (see Section 2.1.1.2 under skills development). This provision encourages businesses to train and develop people with disabilities unlike in the generic codes where it specifies that this should be employees with disabilities. The code further requires disability spend to be aligned to EAP targets. This is not in line with the generic codes and could make life difficult for ICT firms to comply with section 2.1.1.2 in the code.
The targets for skills development have now been split between spend and learnerships. A firm must score a minimum of 40% in each area, namely, spend and number of learnerships. Non-compliance with these targets will result in the firm dropping by a level.
To claim the absorption points under the generic codes, learners must be absorbed strictly in the measured entity or the industry. The ICT charter has provided clarity for the sector in that absorption counts in both the measured entity and the economy at large. It is not limited to the industry.

The charter has strengthened the Enterprise & Supplier Development (ESD) pillar by keeping the small business development target at 5% Net Profit After Tax (NPAT) whilst increasing the weighting to 25 points from 11 points in the previous charter. This has been a major change and breather for ICT companies in terms of an additional 14 points on the scorecard whilst maintaining the same target of 5% NPAT. Unlike all other sectors who spend 3% NPAT on developing small businesses and 6% of payroll on skills development, the DTI has called on the sector to show transformation by keeping the 5% for small business development but also adjusting to the 6% Skills payroll target.
The ICT sector code has allocated targets for bonus points under job creation. A measured entity will earn 1 bonus point when their supplier development/enterprise development beneficiary creates jobs up to 10% of the workforce. 11% job creation will earn the measured entity 2 points. The total available points under job creation is 2.

The Socio-economic Development scorecard has always accepted two-thirds spend in ICT related activities and one third in non-ICT to earn the 12 points. The amended ICT code requires companies to spend their 1.5% NPAT on ICT related interventions only. What this means is that three-thirds or 100% of the target spend needs to be ICT related. The impact of this change is that companies that have been spending their one-third on non-ICT should now find other ICT related activities and spend on them

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