A new regulation in South Africa has now been approved and it demands that black people must own at least 30% equity in every ICT company in the Southern African country. This is according to the Independent Communications Authority of South Africa (Icasa) which has released new Broad Based Black Economic Empowerment (B-BBEE) regulations for South Africa’s Information and communications technology (ICT) sector.
“The Authority has consistently required licensees to have 30% of their equity held by HDGs upon application for any kind of Individual Licence,” the new rules read, in part.
“The Authority has noted that not all Individual Licensees have been complying with the HDG Equity Requirement throughout the duration of their licence period. In order to ensure that Licensees comply with and maintain compliance with the HDG Equity Requirement throughout the licence period, this regulation introduces the HDG Equity Requirement as a condition which Licensees are required to comply with during the licence period,” it further reads.
Here Is What You Need To Know
Who Do The Rules Apply To?
- The rules apply to all individual license holders under the Independent Communications Authority of South Africa, in charge of the country’s IT industry. Individual licences are operated for commercial purposes on a provincial and/or national scope in South Africa.
- The rules are, however, not applicable to holders of Class Licenses issued by the authority as well as wholly owned state entities.
- Holders of class licenses are allowed to operate only in local or district municipal scope — that is, the holders can only provide commercial electronic communications services within a particular geographical area (for example, the City of Cape Town).
What Are Expected Of All ICT Companies Under The New Rules?
- Under the new rules, all ICT companies are expected to ensure that the percentage of equity ownership held by persons from Historically Disadvantaged Groups (HDG) in the companies are not less than 30%.
- Consequently, all license holders have been mandated to submit information on an annual basis to prove compliance with the Historically Disadvantaged Groups Equity Requirement (of 30%).
- For the purposes of determining who are historically disadvantaged groups, the rules provide that the 30% consists of either or combination of Black People; Women, who are citizens of South Africa; People with disabilities, who are citizens of South Africa; Youth, who are citizens of South Africa.
- However, given the diversity of people who make up the historically disadvantaged groups, as a general rule, the regulations state that:
“The Black Equity Requirement does not remove an Individual Licensee’s duty to comply with the HDG Equity Requirement, however given the overlap between the two requirements, the Authority will recognise compliance with the Black Equity Requirement as compliance with the HDG Equity Requirement.”
- The rules provide that where an individual license holder does not have individual persons holding ownership equity directly in the licensee, the individual persons may hold their ownership rights indirectly through some form of an entity such as a company, closed corporation, trust or any form of person recognised under South African law.
- The regulations further mandates individual licenses to ensure that there is no material dilution of HDG/Black equity in an Individual Licence in any given year.
Any Punishment For Not Complying With The New Rules?
- According to the regulations, if there is a violation of the HDG/B-BBEE or the minimum B- BBEE Contributor Status Level requirements, the license holders will pay up to R5 million or 10% of the licensees annual turnover in penalties, whichever is higher.
When Are South African ICT Companies Expected To Comply?
- The rules state that the transitional period for compliance for existing license holders shall be (a) for Class Licensees and SMMEs, 48 months of the promulgation of these Regulations; and (b) for Large Individual Licensees, 36 months of the promulgation of these Regulations.
- Nevertheless, the rules require licensees to submit progress reports and any necessary documents to the Authority during the transitional periods.
Read also: South Africa ’s New ICT Regulation To Expand Equity Ownership For Its Black People
The New Regulations Follow Reports Of Poor Inclusion Of Black People In The Ownership Of Businesses In South Africa
Data published by the South African Broad-Based Black Economic Empowerment (B-BBEE) Commission at the end of July indicates a slight change in the levels of transformation, with the overall black ownership reflecting a four percentage point increase from 25% black ownership in 2018 to 29%.
Only 3.3% of entities listed on the JSE are 100% black-owned, which was 1.2% in 2018 and 1% in 2017, the commission found.
The three worst-performing sectors on ownership in 2018 were AgriBEE (11.19%), media, advertising and communication (19.55%) and finance (21.64%).
The commission said that there are also worrying trends observed over the three-year period between 2017–2019.
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“Though black ownership indicates slight change, the black ownership percentage does not always correspond with the management control scores,” it said. “For instance, an entity is able to score full points for ownership and very low on management control, which gives the impression that despite black ownership recorded, black people are not involved in the control and core operations of the measured entity. Also, the saturation of management control points is still between junior and middle management, also noting the rotation of black executive from one measured entity to another, without utilising the skills development element to create a pipeline of new black executives.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer
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