Paul Janisch

More on the MS equity equivalent

Further to my post last night, I found an article (written by Duncan McLeod) that goes into a little more detail on the machinations of the equity project.

• The R472m will be spent in roughly equal portions of nearly R70m/year over the seven-year investment period.
• MS plans to spend the R472m helping between five and 10 black-led and black-owned software development houses, providing them with technical, business and marketing support.
• They’ll also be given access to Microsoft resources internationally and offered support in selling their products in markets worldwide.
• It is not interested in pure start-ups, wanting to work only with software development companies with a track record.
• They estimate each of the companies they invest in will have 300-400 people at the end of the seven years.

Worth noting is that

Microsoft’s early research suggests it will get about 200 applications from interested companies. The will probably end up with about 50 that meet the criteria

I find this last paragraph the most interesting.  This tells us that there are at least 200 black-owned software development houses.  This is wonderful news and something that the ICT sector should be proud of (that's when they stop bitching at each other over their BEE Charter).

Two other points and then I go

1. McLeod writes that the company will not take an equity stake in any of the businesses it works with and does not expect any payments in return. It also does not expect a return on its investment, though it expects the initiative will benefit it indirectly later.  I suspect that this last line was something annouced at the press conference.  Brilliant!!!!!!!!!!!!!!!!! It's the WIIFM principle and they are patently obvious about it.
2. And MS SA's BEE rating will be boosted, probably taking it from a level-four contributor to level two

I cannot say enough about this.  If it isn't text book stuff then the text book be should be written around this case study.

MS equity equivalent big deal

This is a big deal and a fantastic one at that.  Microsoft SA has announced their R472m equity equivalent project. 

The project will see Microsoft spending R472 million into helping small, black-owned software development companies grow into global companies by 2017. Participants will be chosen from responses to a nationwide request for proposal, slated for issue in early May. It is expected that between five and ten companies will be part of the initial programme.

This is the real deal, the big cheese, the main man - the mega pantsula.  Build up global companies and they will become huge users of MS products. 

I love this, it uses the WIIFM principle which goes like this

MS has a problem - it needs more BEE points. 

I would imagine that it's got the other seven elements covered.

Solution - equity equivalent

But not any old equity equivalent project.  One that focuses on their products and services and develops a project that does exactly that.  Just like HP did.

Phenomenal.  And this is what BEE is about.  If you have a vested interest in any BEE related activity then it stands a greater chance of success.  And this works across the board.  Don't do it because it is the right thing to do. do it because it works for you. 

Well done Microsoft......... oh and,   Lester were you involved in this at all?

Oh yes another mantra

ASK NOT WHAT YOU CAN DO FOR BLACK ECONOMIC EMPOWERMENT, BUT WHAT BLACK ECONOMIC EMPOWERMENT CAN DO FOR YOU

Changes in the mining charter are still not clear

Duma Gqubule is a highly respected analyst in the business world.  I know that Kevin Lester has a great deal of respect for him.  He wrote a recent article in the Business Day on the mining charter.  It's the last two paragraphs that are the most interesting.

There are two solutions for Shabangu, according to one industry insider. She can cancel the new-order mining rights and start a process of re-issuing them with strict conditions. Or she can renegotiate terms with existing new-order mining rights holders. The latter option would require the government to establish the infrastructure to conduct a deal-by-deal analysis of funding instruments to determine net value currently in the hands of black shareholders and persuade companies to renegotiate terms and commit to new vesting targets and dates.

But a focus on “narrow BEE” will not fly this year.  We need a new model of BEE that is linked to broader economic development objectives. If we are to have such a debate, we will realise that high interest rates, an appreciating currency and a timid approach to industrial policy prevented the country from reaping its own “Norwegian dividend”.

This is not the first time I have read this sentiment - but this is the first time I have read this from this man.  Shabangu should consider this carefully

http://bit.ly/d4P2zR We can be sure that the equity targets under the mining charter are at least remaining. This is from a statement by mining minister Shabangu on the mining summit.
"The summit recognised that one of the key shortcomings of the "Mining Charter is lack of definitions and clarity that has led to different interpretations of what is expected. There was further recognition of the need to ensure that future Black Economic Empowerment (BEE) transactions will be adequately facilitated to enhance the achievement of the 26 percent ownership target. The importance of ownership for workers and communities was highlighted. There was agreement that transactions should include provision for an element of dividend flow to BEE partners.

http://bit.ly/a0vg96 - I can't not talk about this. Console is suggesting that when minority rights are being eroded we shouldn't go to the courts. What else is there for us to do? You have the government implementing an unfair EE system and Malema going out of his way to entrench racial hatred amongst numerous other things. The ANC won't listen to us so we go to the courts. The reality is that we want to get on with living in this country, without feeling threatened. We like it here and we want to make it work. Don't chase us away from our own country, look at yourselves and figure out what you can do to fix this country and stop looking to minorities as the cause of your own failure.

Minimum targets for a minor(ity)

The Mining Charter is coming out in June I think. I found numerous articles on this subject. As an aside a MiningMX article highlights the biggest challenges that the industry faces and empowerment is not one of them.

One of the key deterrents to investment in South Africa has been the energy crisis, which culminated in the mines being shut for a week in January 2008 when there just wasn't enough power to go round. There is an accelerated build programme that will start delivering power in 2013, but there are major price hikes in the offing to pay for it and a lack of certainty about the time line. "A shortage of energy generation capacity has already stalled further investment in mining and beneficiation capacity, losing with it the potential for thousands of jobs and the associated revenue and foreign exchange this production would earn for the country," Mick Davis, CEO, Xstrata said.

Back to the Mining conference last week. Moneyweb published a statement by Sandile Nogxina, director general of the Department of Mineral Resources

The requirement that South African mines be at least 26% black-owned by 2014 is a "base" and the proportion will need to be higher to "deracialise" the industry, the director general of the national mining department said. "That 26% was not the maximum, it was the minimum, that was the base."

Now there is a thought. I was asked whether the BEE targets in the codes are a minimum yesterday. They can't be a minimum because no maximum is stated – these targets are the minimum, medium and maximum. How Sandile is going to incentivise any mining company to part with a greater shareholding when they need 26% to get the licence I have no idea.

Allow me to put you at rest dear reader – these targets are all you'll ever need to achieve. There is no commercial, tax or other reason to exceed them.

Now Sandile, if you go and speak to Pravin and tell him to give us tax breaks then we will exceed them.

Davies and the empowerment goliath

Rob Davies has been doing some reading and is now talking about empowerment (after a year's silence). The good news is that he is most concerned important things like ownership – which the mining sector is most concerned about. Rob is worried about things like enterprise development and skills development. It shouldn't be such a surprise – he's just launched the IPAP which is very dependent on both. I had to laugh at a quote from Engineering News Online

Speaking at a media conference in Pretoria, Davies said that even though most share transactions included a BEE component, 75% of companies in the private sector were still not fully compliant. Davies told Engineering News Online that this was mainly owing to companies using BEE scorecards as "tick-boxes", and not as a "dynamic tool" to empower and train people from ground level upwards.

 

Why the hell is he so surprised by this? When you look at the scorecard all you see is something that says you need to shell out a bunch of cash for points. After all the codes are all about quantity and not quality. When you tell a company that they have to spend money on the following each year, they are never going to "embrace it".

An empowerment shopping list

Description	Annual contribution	Once off
Sale of shares (likely financed by the company)		√
Black independent non-executive directors' fees	√
Skills development spend on black people (3%)	√
Procurement analysis (id est begging for scorecards)	√
Enterprise development (3% of NPAT)	√
Enterprise development (1% of NPAT)	√
Verification	√

 

In order to get what he wants, Rob reckons he's going to use Section 10 of the BEE Act

"Government will be looking at article 10, where we, as organs of the State, will assist with the broader implementation of BEE codes. We may consider forming partnerships with companies within the private sector to promote further enterprise and skills development in accordance with the codes."

Does this mean that the DTI is going to start making it a requirement to get a licence to conduct any form of business activity? I sincerely hope not.

Give us tax breaks

Rob, it is the private sector that has made the biggest strides in empowerment. They've been doing it for years and they are starting to get good at it. The government and especially the parastatals have been dismal at it – take a look at the mess with the Captain Barnard case and ESKOM's procurement policies. Stop using the stick – it's hard enough doing business in this country as it is. Give us tax breaks, especially for effective skills development, enterprise development and SED projects.