ICT Sector: Don’t rely on the grace time to comply with ICASA’s new ownership requirements

Don’t rely on the grace time to comply with ICASA’s new ownership requirements

Companies in the Information, Communications and Technology (ICT) sector have steep Broad Based Black Economic Empowerment (B-BBEE) requirements and tight deadlines to meet if they want to keep their license to operate from the Independent Communications Authority of South Africa (ICASA). In March this year, ICASA gazetted new regulations obliging companies requiring a license to have a minimum B-BBEE Contributor Status Level of four and demonstrate 30% B-BBEE ownership.

Though companies have a grace period to achieve a Level 4 B-BBEE rating, Deon Oberholzer, CEO at Gestalt Growth Strategies, says that the new ownership requirement is likely to have caught many licensees off guard, including existing licensees that comply with the 30% Historically Disadvantaged Groups (HGD) ownership requirement.

“Ownership is an aspect of B-BBEE that companies in the ICT sector may have neglected and many have relied on their compliance with the 30% HDG ownership requirement. Now, licensees must have HDG participation at 30% as well as 30% black participation in order to comply with the new regulations and qualify for a license,” says Oberholzer.

HDG includes black people as defined in the BEE Act but the definition also includes all women, people with disabilities, and youths who are citizens of South Africa, irrespective of their race or date of citizenship.

However, according to the new regulations around the Limitations of Control and Equity Ownership by HDG and the application of the ICT Sector Code, a licensee must have a minimum of 30% of its ownership equity held by HDGs, and 30% of its equity held by black people, determined using the Flow Through Principle. In a nutshell, the Flow Through Principle means that this 30% ownership must be 100% black and may not have any white or non-qualifying black participation.  The new ICASA requirements effectively void the requirements on HDG as it only focus on the Black component of the definition.

 “We anticipate that ICASA will stand firm on the ownership requirement, even if it does allow progression of companies from Level 7 to Level 4 by other means. Simply having 30% of ownership held by HDGs is not going to suffice anymore. Licensees are going to have to urgently relook at their B-BBEE strategies and start taking steps in the right direction to comply if they want to retain their licenses,” Oberholzer reiterates.

Exempted micro enterprise (EME), being companies with an annual total revenue of R10-million or less, and qualifying small enterprises (QSE), being those with an annual total revenue of between R10-million and R50-million, also need to comply with the 30% BEE ownership and have 48 months to comply. Generic licensees have only 36 months to show compliance.

Licensees have to submit the necessary documents confirming their B-BBEE Contributor Status Level on an annual basis during the transitional periods. This annual reporting requirement confirms that they will have to ensure the retention of their ownership and BEE levels during a licence period.

Oberholzer warns that relying on the grace period is short-sighted and could turn out to be very risky.

“Companies that don’t currently comply will be under pressure when it comes time to submit their annual reports to ICASA, which may frustrate or delay the process if licensees are not compliant from the onset. 

“We recommend that current and prospective licensees start looking at their B-BBEE compliance now.  By meeting the 30% black ownership and Level 4 requirements in their current financial year, they can protect their companies from this.”

Oberholzer concludes saying that an essential first step is to have a strategy.

“Don’t panic. With a properly structured 30% black equity ownership plan, achieving Level 4 is possible, even for small businesses. Focus on setting your strategy. Following that, you can start implementing and preparing for verification before the grace period ends.”

Established in 1998, Gestalt uses original and proven business transformation models to help companies unlock business growth and shareholder value through B-BBEE.