ICT Charter

Posted by Trevor Tshabangu
Monday, 16 July 2012  |  Comments
Trevor is a director at Transcend Corporate Advisors.
Read all of Trevor Tshabangu's Posts

The recently-promulgated ICT charter will require companies to spend more – and put in more effort – to achieve less points than in the generic empowerment codes across most of the sectorial requirements.

Transcend Corporate Advisors director Trevor Tshabangu explains the ICT charter will be in effect the longest, until 2026, while the rest of the sectorial codes that have been gazetted are valid until 2017.

This means that transformation in the sector will be ongoing for longer, as there is no clarity yet as to whether the other charters will be revised to come into effect for longer, says Tshabangu.

The ICT charter hinges around the digital divide with the aim of narrowing the gap and increasing skills in the sector, explains Tshabangu. As a result, it may be the only code that extends until 2026.

Tshabangu explains that the 30% empowerment requirement in the charter – for non-listed companies – means that firms will have to do another deal to reach the target as most have worked towards the 25.1% in the codes. He explains this could come with a cost to companies as many deals are vendor-financed.

Skilling up

The requirements in terms of management control have been supplanted from the generic Codes of Good Practice, says Tshabangu. However, the targets for senior, middle and junior management – which excludes board level – have been increased, but offer less points.

Tshabangu says companies applying the charter need to get into real transformation. He explains that the points available have dropped from 15 in the generic codes to 10 in the charter. Companies will have to work harder to get the points and have to make sure they skill-up.

The lower amount of points encourages skills development, mentoring and coaching to promote as many black employees into management positions as possible, explains Tshabangu.

However, companies can earn more points through skills development if they apply the charter as the generic codes only offer 15, while the charter gives 17, says Tshabangu. For example, under the generic codes, spending 3% of payroll on skills development would equal six points, the same amount under the charter is equivalent to seven points, he explains.

Tshabangu says the charter is “enticing businesses to train people” so that they are employable higher up in more senior positions, which then assists with employment equity points.

Companies also benefit from an extra point if 5% of their staff complement is on apprenticeship, as this moves from six to seven points under the charter. The benefit of training disabled black people remains the same as in the generic codes.

More investment

Procurement also offers companies the opportunity to earn six bonus points in addition to general points.

Tshabangu explains that companies can earn 12 points for spending 70% of their procurement budget with organisations that have a level of empowerment, three points for spending 15% with firms that turnover less than R35 million a year, and five points for spending 20% with companies that are at least 50% black-owned.

However, spending on enterprise development has gone up, from 3% of net profit after tax in the codes to 5% in the charter, says Tshabangu. This means companies have to spend more to get less, as points have gone down to 11 from 15.

In socio-economic development, companies only have to spend 0.5% more of net profit to gain an additional seven points as the charter offers 12 points, compared with the generic codes' five.

Tshabangu says these aspects combined add up to 23 points, compared with the codes' 20 points. As a result, companies may do as little as possible on enterprise development to avoid trimming margins too much.

Companies need to consider serious strategies around enterprise development to earn points with the least amount of cost as the higher spending will eat into margins.

Tshabangu is also concerned that companies may try and find ways of getting out of being classified as ICT entities to avoid the stricter requirements.

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