The state of the BEE nation
By Peter van der MerweDon`t look now, but it seems black economic empowerment (BEE) in the South African IT industry is in a shambles. If the word on the street is to be believed, a handful of white-owned IT companies bestride the industry like colossi, staving off the ambitions of black entrepreneurs with a mixture of hot air and intransigence.Progress is seen to be so slow that a scant six months ago Andile Ngcaba, the outspoken director general of the Department of Communications, was calling the IT industry “lily-white” and “the least transformed in the country”.Dr Hasmukh Gajjar, the past head of the Black IT Forum (BIT4M), talks about the “just don`t get it” factor, and says most empowerment initiatives do not demonstrate the kind of understanding required to make a real change.It`s a vivid vision – but, with a few exceptions, the consensus seems to be that there is very little happening in real terms to transform the industry. A full ten years after the Rainbow Nation first lit up the southern tip of Africa, black players in the IT industry say they are still looking for the proverbial pot of gold.So what`s the real state of the BEE nation? Amidst all the hot air and mixed agendas, it`s hard to say. After years of endless debate over what constitutes legitimate BEE, and with no end in sight, the short answer is that it probably all depends on where you stand. The issues are certainly numerous, complex and extremely emotive.Most black commentators slam the lack of urgency – and lack of social conscience, for that matter – of white-owned business in supporting the transformation process. There`s lots of talk, they say, but meaningful black participation in the IT marketplace is about as rare as penguins in the Microsoft building.For their part, the traditional white-owned companies say they are being hobbled in their BEE efforts by skills shortages and a shaky economy. What`s more, they believe, many black players and organisations like BIT4M have yet to acknowledge the commitment shown by some traditionally white companies towards BEE.Who are the PDIs?Dig a little deeper into the BEE cauldron, though, and it becomes clear that this is not simply a black-white thing. There are murky undercurrents at play. One of the issues lurking beneath the surface is the recurring complaint that only an elite group of BEE companies is reaping the fruits of government`s empowerment drive. Another is the notion that there is an unspoken, unwritten charter which queries whether Indians, coloureds and even white women should be counted among the previously disadvantaged.“Yes, sure BEE is happening – at a snail`s pace,” retorts Zeth Malele, CEO at state-owned IT giant Arivia.kom, echoing a view held by other black luminaries like Simon White, joint MD at Forge Ahead BMI-T, Business Connexion CEO Benjamin Mophatlane and Makhuperetja Nyama, an executive director at CS Holdings.“If the progress we have made in the past ten years is anything to go by, it will take us another 15 years to get where we want to, even if we double our current rate of transformation,” says Malele.Nyama is similarly scathing, saying there are white-owned firms out there (no names, no pack drill) which are still pulling the wool over government`s eyes while laughing all the way to the bank.“Very few businesses are taking the opportunities to implement BEE as a moral and business imperative,” says Nyama. “There are still those who want to cling to the good old days and monopolise the markets.”That`s simply not the case, says Derek Wilcocks, executive director: strategy and technology at Dimension Data. “Of course BEE is happening. Most major players are looking at empowerment deals. Government`s recent announcement that it won`t pursue an IT industry charter shows that the industry is doing enough in the BEE arena.”Comparex Africa group executive Thabiso Tenyane says there have been no great BEE success stories yet, but believes the slumping fortunes of the IT sector put the brakes on transformation at a time when things were about to happen.“Let`s not forget that we still had to run a globally competitive business in a tough environment,” says Tenyane. “We were the first to go the black empowerment route, and we would have achieved our objectives if it weren`t for the economy.”CS Holdings CEO Annette van der Laan, who is heartily sick of her company being lumped in with the “lily-white” brigade, says there are plenty of companies in the industry doing the right thing, and would like nothing more than for companies to be recognised for the successes of their BEE programmes.“You don`t change by talk, you change by action,” says the feisty Van der Laan. “The fact is that you can change your behaviour overnight if you have to. The problem is that there is still the lingering perception that women and black people somehow don`t have the right levels of business acumen to succeed, and that`s just insulting.”Ten people, ten different opinions. It doesn`t take particularly searching analysis to see that the overall approach to black empowerment is fragmented, lacking both focus and an overarching strategic framework. There is little in the way of leadership, either in thought or deed, and opinions diverge wildly on who exactly should be driving the transformation process.Many feel the primary source of leadership should be coming from the government, where a judicious mixture of the carrot and the stick – legislation and incentives – would serve to galvanise recalcitrant companies into meeting their BEE obligations as a matter of business necessity.That`s not going to happen in the short term, with government clearly drawing back from active transformation and preferring to pitch the self-transformation line, despite calls to impose an industry-wide BEE charter on the IT sector.Whose job is it?This in itself is a matter of some debate. As with most aspects of BEE, opinion is sharply divided on the need for government to put enabling empowerment legislation in place, or at least to play a stronger role in providing direction.“We can either be led by government, or we as business can lead the process ourselves,” says Saths Moodley, MD at Webnet Network Solutions. “We don`t need charters. We must just get together to make this damn thing work. As business people, we have done it before. We can do it again.”Jimmy Morakile, divisional manager: transformation for Comparex Africa, disagrees, saying the lack of tangible progress in transforming the IT sector is reason in itself to introduce a charter.“The poor definition of BEE has contributed to the current crisis,” says Morakile. “The government approach is very procurement-driven. A charter would help the sector understand BEE more broadly. The fact is that white firms are still doing good business with government, which means they have no incentive to transform.”People like Gajjar and Forge Ahead BMI-T`s White are unabashed proponents of “a more interventionist approach”. White, for one, is on record as saying that it is not enough to leave the growth of black empowerment to market forces. Gajjar says policy and governance are key elements of any transformation, because white business won`t change by itself.Arivia.kom`s Malele agrees that a firmer hand is needed from government, but says the responsibilities go further than that. “Government has a very definite role in creating the environment in which people will do the right things to grow BEE,” he says. “That includes legislation in some cases, and incentives in others.“But there are other role players too. Business has an instrumental role to play, and I`m simply not convinced that white business has the conscience to do the right thing. I certainly don`t see it. This amplifies the need for government to put its foot down harder.”Good for businessIn the end, though, says Malele, black people themselves are the most important role players of all in making BEE work. “If we look at the way things are going, we certainly can`t wait for government and business to get their act together. We have to come to the party.“We have to have people who want to be empowered, who are dedicated to their own empowerment, who will do what is necessary to be successful, who will take advantage of the environment that government creates and the opportunities that business offers.”Webnet`s Moodley doesn`t see the need for the jackboot – and he`s been there, both as a trade unionist and a government official. “The incentives to transform are already there,” says Moodley. “Companies should simply understand that, first and foremost, if your BEE is right, you`ll win more business. You`ll also get the country moving in the right direction. It`s a question of changing mindsets, not legislating them.”One key issue in the empowerment debate is that of equity or, as Malele puts it, ownership of the means of wealth creation. CS Holdings, for instance, is more than 30 percent black-owned and counting, while both Didata`s South African arm and Comparex are known to be looking for black shareholders – or, in the jargon of our time, “empowerment partners”.Didata`s Wilcocks won`t be drawn on who his company is talking to, apart from repeating the company line that “we have made substantial progress, and the transaction will make sense to existing shareholders. We`re not just looking for a shareholder, but a partner who can help other aspects of the company, like employment equity and operational control.”Not just cricketQuite. Suffice to say that the J&J triumvirate of Jay Naidoo, Jayendra Naidoo and Gajjar himself have been seen meeting Wilcocks at Didata`s offices, and one imagines the topic of dicussion was not limited to cricket.Comparex is also not saying who is being sounded out, but CEO Peter Watt gives a few clues when he says his team is talking to a company that is operationally active in the ICT sector.“The successful partner would be willing and able to buy shares in Comparex, would have a strong management team, would employ competent technical staff and would have a good client base,” says Watt. That sounds awfully like Lechabile, which is what whispers in the industry also suggest.Comparex could certainly do with an injection of colour, if the figures – and the perceptions in the marketplace – are anything to go by. Senior black management comprises a mere seven percent, and total black staff accounts for 23 percent of the total workforce. The intention is to increase the percentage of black staff to 35 percent by 2006, across company levels, and bringing an empowerment partner on board would certainly take care of that.Tea boy to top dogIt also remains to be seen what a prospective partner would make of Comparex`s much-touted “bottom-up” approach to empowerment, which gets short shrift from most industry players of colour. “I make the tea today, and tomorrow you fast-track me so that I`m the MD? Rubbish,” snorts Moodley.Moodley points out that the companies where BEE is really working are companies where MDs and CEOs have taken personal responsibility. “Companies like Azis have taken it on as a personal mission,” he says. “When you have leadership from the top, empowerment will happen.”However, the more cautious approach being taken to empowerment deals certainly signals a move away from the bad old days when there were black businessmen (and women) whose idea of going into business meant demanding to be taken on as a senior partner or director of a white-owned company, with a share of the equity, but very little in the way of contribution.What it does not do is allay fears that most BEE initiatives are still simply enriching an already privileged black elite. Make no mistake, there`s nothing wrong with black people wanting to become filthy rich. But while a thin layer of super-rich black entrepreneurs make merry, the vast majority of the population remains deprived of their rights to education, a healthy life and employment – and that`s not empowerment by anyone`s terms.Telkom`s group executive for procurement, Essa Govender, makes no bones about the fact that empowerment should benefit the entire population. “We don`t want a few black fat cats; we can`t have that. We need to have more black people employed in this country. We think it would be irresponsible for any company to empower only a few.”Webnet`s Moodley agrees: “If we look at the ownership of the economy, it is absolutely distorted. We have obscene wealth and absolute poverty. We must share the cake. There is enough for all of us. There are far too many black entrepreneurs who have no insight into their broader role in our economy, and it speaks of a vast vacuum in thought leadership.”So who`s to blame for the slow pace of transformation? Business Connexion`s Mophatlane says black business should take some of the blame.“There have been too many marriages of convenience in this sector and we black business people are to blame. Some black-owned companies are in IT just to make a quick buck. Their attitude is ‘win a few tenders and get out`,” says Mophatlane.Poached or coached?Comparex`s Morakile lays the blame at the feet of the IT skills shortage, cultural issues and the poaching of technical and professional black talent by companies not prepared to invest in skills development programmes.“Poaching of scarce IT talent is damaging, especially if a company has invested significantly in training,” says Morakile. “Training and development should never be seen as a ‘nice to have`. It is a business imperative and companies will realise the benefits of consistent skills training, not just in the ICT sector but across all industries in South Africa.”Arivia.kom`s Malele has no time for people hiding behind the old excuse of skills shortages. “There are people out there who want to be trained. Train them. If you need skills in a certain area, do something about it. Nobody ever got anywhere by folding their arms and waiting for things to happen.“The most genuine empowerment is a product of economic growth and education. Jobs and, even more, the opportunity to open one`s own business, are the most empowering policy options that could possibly be advocated,” says Malele.Amen to that, says Webnet`s Moodley. “It`s not about hiring more blacks, it`s about about training more blacks. If a small company like us can do it, why can`t a large company do it? Our success will only be measured by the number of young blacks and women brought into the IT sector. But we prefer to define empowerment in terms of demography, and employ on an ethnic basis covering all the spectrums. Employing only blacks, or only Indians, would certainly not reflect change in this country.”Consilience Technologies MD Gajjar says the argument that there are no people available is a cop-out. “That`s a very convenient and selfish view. Transformation is all about skills and human resources development. Unless we develop the skills and capacity within all people, we have a lesser chance of transforming and growing the economy.”The issue of skills development ties in closely with the important role South Africa`s parastatals have to play in driving BEE in the sector. Both Telkom and Eskom are providing powerful pointers in this regard, embedding BEE practices into their core business and doing much to stimulate the growth of black suppliers.But where does this leave the state-owned Arivia.kom? Is it a parastatal? Should it even be state-owned? These are the questions being bandied about the industry – often, it must be said, by irked competitors who have lost business to the new giant.From a sheer size point of view, Arivia.kom is the first black-owned IT company to be able to challenge the traditional players head-on. And, indeed, it has made significant inroads into government contracts formerly held by the Comparexes of this world.However, it`s inevitable that questions will arise about the desirability of a publicly owned company competing with private companies for state business. Is this real empowerment, the critics ask?Malele`s having none of this talk. “I don`t see any organisation changing the face of BEE in South Africa more than Arivia does,” he says defiantly. “We have the will, we have the capacity and we have the consciousness that nobody else does. What`s more, we win our business in open tender processes based on our capability to do the job.”Longing for the dayMoodley`s not convinced. “It`s the state`s responsibility to make laws and police them. Government should probably have a stake in key areas like transport, electricity and telecommunications. But in the area of IT, we have SITA to protect the interests of the state. I see no reason why Arivia should not be privatised or sold off.”Ultimately, though, Malele longs for the day when the IT industry no longer has to rely on legislation or incentives. The way to get there, he says, is to create opportunities for ownership and influence of the industry to be transferred more equitably across the broad spectrum of the population – and that is the key to BEE.“For BEE, and the entire industry, to work, somebody has to take a stand,” says Moodley. “We need to change the thinking process. Right now that`s not happening.” Sketching summer in Indian inkBy Ivo VegterEverybody wants to be the next Dimension Data. Except Dimension Data. It is trying to convince the market how unlike Didata it will be when it grows up. Empowerment companies might want to take note of why.Boom time, and the living is easy. Cash is plenty, and the margins are high. Your client`s rich, your black salesman good looking. But eish, you`re a dealer, don`t you lie.Nostalgia for Janis Joplin, maybe, and a time when everyone was on acid.More recently it also seemed everyone was living easy. Making money by the bucket load, they luxuriated in grand delusions of an everlasting summer and the dawn of the Age of Aquarius.It was easy to believe that the sheer growth and expansion of the boom days would take care of the need for black economic empowerment (BEE) in the IT sector. And it was hard to muster the political will to interfere with what in so many respects was a winning free-market formula.But it proved to be an Indian summer, and a long, cold winter soon set in. Technology companies are on the ropes, consolidation is long overdue and IT empowerment businesses have taken an especially hard hit.Margins on product sales have grown razor thin, as competitors have muscled into the box moving business. After disillusioned cutbacks, customers may be spending again, but they`re exploiting hungry sales forces and a weak global economy to squeeze deep discounts out of their suppliers.In a business environment that was first illusory and then hostile, black companies worked hard to break into the market – the same market that now visibly suffers from an oversupply of poorly skilled staff and an undersupply of experience.Dimension Data remains the biggest company in the sector. Empowerment companies have long seen it as a standard bearer, and ambitiously talk of becoming the next Didata. But these days Didata is a case study in the prolonged and debilitating hangover of stressed balance sheets and overtraded markets that followed the excess.“Didata`s problem is that it could not walk away from the box,” is the opinion of Derek Nareen, MD of ICT Distribution. “Whenever they saw the competition coming, they saw the competition taking away their margin. And small black companies are also stuck on the box,” he says.Wrong end of the food chainEstablished companies have put together far-reaching strategies for fixing this legacy; witness Didata`s ambitious DD Way programme. Some are trying to develop a solutions capability, where barriers to entry are higher and annuity revenue at a fair margin can still be found. Others have divested themselves of businesses that were sexy but unprofitable and have gone back to their roots, whether by specialising in distribution or focusing on vertical markets they know well.During the bull market, new black businesses almost always entered the market at a basic level – pushing boxes and fulfilling procurement contracts for government and companies with progressive procurement policies. Often this led to the opportunism of fronting and similar discredited practices. But these days it`s kind of hard for a white company to pay a black face 20 percent when it`s only making 10 percent itself. And creating an unproductive but wealthy black elite is not exactly what the ANC`s empowerment vision is about.“It is the easiest point of entry, but it`s not sustainable,” says Nareen of the box-moving business. He left Datatec`s distribution subsidiary Westcon to start his own company, and aims to help empowerment companies migrate to more sophisticated, solutions-based business models. “They need to be shepherded into technologies that lead to annuity revenue,” he believes.Danny Mackay is chairman of Tactical Software Systems (TSS), a company that recently entered into a significant 60/40 empowerment partnership with NDS. Mackay sits on the transformation board of Bytes Technology Group, which owns NDS and is itself owned by Altron.The new entity, called TSS Managed Services, counts among its businesses a rarity: a fully accredited, 60 percent black SAP practice that has delivered large-scale implementations and can name big corporates like South African Airways on its list of references. Its staff photograph is as good an advertisement for the rainbow nation as any.Mackay, like Nareen, knows the problem: “In the heyday,” he says, “96 percent of the industry was white, and four percent was black. And the four percent was at the low end of the food chain.”The easy answersAs with the ideals of the sixties, the practical hurdles to achieving empowerment goals aren`t always fully appreciated – even by those who espouse them.Simplistically, the noticeable lack of transformation in the IT sector is often put down to a racist resistance to change, a lack of legal force behind it, or a conscious effort by established companies to keep new competitors off their turf.There is undoubtedly a legacy of companies run by old-fashioned white businessmen who were dragged into the new South Africa by mere pragmatism rather than conviction. But it seems reasonable to expect that few among those who haven`t packed for Perth would be soft-headed enough to actively oppose transformation.Most IT businesses, moreover, were established in the last decade. Accusing them of deliberate racism is guaranteed to raise hackles. Andile Ngcaba, the director-general in the Department of Communications, made just this faux pas at a gathering discussing Internet issues last year.Although the conference-goers were indeed overwhelmingly white, they protested that the event was both widely advertised and free. Organisers had asked the management of the Black IT Forum to extend invitations to its members. The attendees felt understandably aggrieved at being painted by Ngcaba as elitists when they didn`t feel the lack of representation was their fault. Besides, the Internet community with its libertarian culture, where anyone can hide behind their e-mail address, is possibly the most naturally egalitarian business sector of all.A more likely reason why transformation in the IT sector has been slow is that in the absence of legislation enforcing change, companies succumb to the competitive nature of the free market. In today`s tough operating environment there is an acute and entirely rational fear of incurring unnecessary costs or giving up turf.Nareen claims one distributor told him that a generous government subsidy would be needed to convince him to “do empowerment”. He likewise recalls hearing from a vendor that until BEE is legislated, he`s happy with what he has.But delving a little deeper suggests that even these are exceptions, and just the ability of winning government business should be enough to negate the few who hide behind such fears. In fact, one interview after another with traditionally white companies confirms that empowerment is indeed top of the strategy agenda.So if the lack of transformation in the sector to date cannot be wholly attributed to a lack of intent, or to a lack of regulatory pressure, what lies at its root?Saths Moodley, the MD of Webnet Network Solutions, says it best: “The majority of BEE companies are ‘box droppers`, and unless that business model changes we will continue to witness high failure rates.”Channel fracturesThe structure of the technology distribution channel is a key cause of failures among small IT companies, and this hits empowerment companies especially hard.Vendors manufacture products and handle the primary marketing function, but typically leave importation, warehousing and transport logistics to distributors. These in turn sell to thousands of so-called resellers – the companies that have the ultimate customer relationship. It is among these that most black-owned and operated IT companies can be found.Several variations on this three-tier model exist – such as Dell`s direct-to-customer sales model or some vendors that allow bigger resellers to buy direct rather from distributors. Functions such as after-sales support and maintenance could sit anywhere along the chain.Moodley observes that companies are often limited to box dropping by vendor policies.“It is indeed unfortunate that the large vendors in this country are continuing to encourage this practice, by insisting that maintenance contracts on these boxes are owned by the vendors and by having huge IT solution divisions themselves. In both cases,” he says, “unless the international vendors change the business model, BEE IT companies will be left with little – not even the scraps.”Nareen explains that, in the past, the distributor has always acted as the bank, providing credit terms to resellers, who paid the distributor when their customers paid up. But the collapse of Siltek 18 months ago took a great deal of credit out of the market, and the downturn has made vendors far more conservative with their own debtors` management.Since the end user is the ultimate source of cash, and the distributor usually the financier, the thousands of technology dealers, big and small, are caught between the two with severe cash flow problems.Says Nareen: “Now here is where vendor, distributor, reseller and end customer have to sit together to get things lined up so that we agree to the process by which the money changes hands and in what time frames.”Complicating these cash flow challenges is the traditional lack of capital available to black-owned companies – especially in tough market conditions. Many are new businesses, with little by way of track record or collateral. This forces them to rely heavily on distributor finance or on established white companies to fund working capital. This situation continues, according to Mackay – and his claim is amply supported by the dearth of empowerment companies listed on the stock exchange.Growth isn`t deadThe prolonged slowdown in IT spending since 2000 raises concerns that the growth one feels is required to address black representation at all levels in the IT industry is absent. Not so, say players in the business.Kennedy Memani is the chairman of Nexus Connection, a large consortium of small and medium-sized businesses representing most of South Africa`s provinces. It was established to bid for a stake in the second network operator (SNO) that will compete with Telkom, and was recently confirmed as the successful applicant for a 19 percent share in the yet-to-be-finalised company.“While there is little doubt that companies in the IT sector have been hard hit over the last year, to say that the IT sector has no room for growth is not true,” he says. He points out that much of the perceived growth of the stock market boom was illusory anyway.“There is still a substantial amount of business to be done in the IT sector in South Africa, but successful companies will focus on organic rather than acquisitive growth, and a return to the basic fundamentals of business. The number of enquiries we receive for funding from IT companies is a source of amazement for me, and points to growth in this area.”Memani adds: “The digital divide is particularly relevant in this country, where many of our poorer communities have no access to computers or training. It is in areas such as this, as well as the convergence between telecommunications and IT, that there are a number of opportunities for growth.”The technology sector`s slump is not unique, notes Gary Morolo, chairman of one of the most successful listed black IT companies, Datacentrix.“A few years ago, the resources sector was considered dead,” he recalls. “In the nineties the price of gold seemed impervious to economic and geopolitical developments. When the current BEE giants in resources, Armgold and Mvelaphanda, invested in this sector it was not fashionable to do so. In short, history is not linear; one cannot make a straight-line projection of the IT industry by extrapolating from the sectors` current woes.”He suggests that in terms of market share dominance and earnings profile, new IT giants may well emerge. “I would not bet that ‘there won`t be a next Didata`,” he says, explaining that, despite consolidation, the rand value of IT spend continues to grow, and it`s only changing spending priorities that are causing dislocation in specific areas.Moodley warns against focusing on size as a criterion for empowerment, however. “Let us focus on ownership, directorship, management structures and, most of all, using this opportunity that market conditions have created to build companies with unique value propositions.”Tough loveSome, including the government itself, believe it is time to enforce empowerment by law. “Love one another,” it will decree.Although he`s optimistic, and firmly believes those living in South Africa today are committed to its future, Moodley is essentially supportive of such a move. “Change either happens because you believe it is for the better or it is forced and accompanied with penalties. I am of the opinion that BEE is firmly on the agenda and all of us must take the opportunity to voluntarily transform the way we manage our work places, the way we award contracts and the way we promote our colleagues to executive positions in our companies. We have an opportunity to right the wrongs of our history, but whether we like it or not, there are amongst us an influential group who window dress and patronise. A penalty, viewed in this context, must be supported.”Mackay is not so sure, however. “With charters or laws, you force people and you create resistance.”Similarly reluctant is Morolo, who draws a clear distinction between the ICT sector and the mining industry. A BEE charter has recently been imposed on the latter – and not without controversy.“In a highly fragmented and unregulated industry such as the IT industry, the most effective BEE penalty is and will remain the loss of opportunity to compete for business from both private sector and state owned entities,” he explains. “Those industries that are highly concentrated, exploit scarce national resources, or require licensing to operate, should face penalties for failure to comply with stipulated BEE requirements. Only where companies by and large fail to display the requisite sense of urgency in this regard may it be considered necessary for government to impose BEE-related sanctions.”Mackay remembers working at Anglo American in Welkom in the seventies, and needing special dispensation to attend company functions in Bloemfontein. “I don`t need a BEE Commission to tell me what needs to be redressed,” he says.He wants to get beyond distinguishing between black and white, however. He scoffs at the idea of charging more in tenders, or paying more for staff that fit the right profile. “In the past, it was the other way – white males would always earn more – but reversing the imbalance doesn`t solve the problem. I`d rather invest that in skills development or skills transfer.”He says that TSS Managed Services shares its view of empowerment with the ANC. “My aim is to create the means, ensure we have the ability, and can accept accountability. None of this has to do with black and white. It`s merely development of human resources. If I take an unskilled white man and develop him, that`s empowerment too.”A legacy of rightsWhile many focus on the legacy of apartheid wrongs, Mackay points out a few rights.After his stint at Anglo American, he worked for IBM South Africa. Brainstorm once called IBM “the big blue talent machine” in honour of its reputation for developing black technical and managerial skills in South Africa.It might be facing a showbiz-scale reparation lawsuit in the US, for allegedly supporting the apartheid regime by doing business here, but it has probably done more than any other IT company over the decades to counter racist employment practices. As a result, it has seeded the local industry with a great number of excellent people.“Companies like Anglo and IBM,” says Mackay, “had the foresight back then [in the seventies] that in 20 years we wouldn`t have sufficient depth in management and technical skills. As a result, there is a large percentage of black people that have been trained – primarily through those multinationals. In particular, I`d like to publicly thank IBM who did that during the apartheid years.”The legacy of this foresight is a case study of the solution to the box-pushing problems faced by empowerment companies in IT.“TSS is a group of people,” says Mackay, “who didn`t just come together to exploit empowerment as a springboard. We had skills that worked well together. The initial four or five people had 40 or 50 years of experience with large conglomerates. So we had a delivery capability, and just happened to be black.”Morolo confirms this view of history. “Many of the black entrepreneurs that have ventured out on their own come from the industry as high level, technically skilled employees. Many of them are not traders by inclination or even experience. They therefore enter as technically proficient services-focused or consulting businesses.”He says that many of these businesses regard box pushing with disdain. But, he explains, “Very often cash flow and business viability considerations compel these businesses to enter the arena of IT infrastructure pushing boxes. Those black companies that enter the industry as passive investors would more than likely have been induced to invest by those hardware vendors who required BEE in order to tender for procurement contracts.”But, emphatically, he adds: “On the whole, new black entrants abhor being regarded as ‘tin pushers` and ‘box droppers`.”Mackay also warns: “Unless companies like ourselves get long-term contracts, the ongoing training of new people is compromised. Likewise, the economy can`t sustain large IT projects driven by inexperienced people. Empowerment can`t be driven at the expense of quality and service.”The keys to empowermentIt remains a fact that few black companies have succeeded in developing services and solutions capabilities the way Mackay and Morolo describe.Morolo readily admits it`s both difficult and expensive to create such deep, high margin offerings. But, he adds: “Even more difficult is selling these high margin service and solutions capabilities. The selling cycles are that much longer and complex, and ultimately involve a relationship of trust from the client. Companies that do not have the balance sheet or deep cash resources to fund the costs associated with long sales cycles, skills development and accreditation, will find it extremely difficult to develop and maintain these capabilities.”Moodley too, considers it difficult. “It`s a chicken and egg situation, but not insurmountable. For the last year, Webnet has been involved in [developing such capabilities]. The secret? Simple. Develop partnerships that transfer skills and make sure you are in control.”While stressing the role innovation plays in building high-margin solutions, Kennedy Memani is proposing a similar kind of partnership with Nexus Connexion. “What we are trying to build is a wide range of shareholder entities in the ICT environment which, over time, will add value as the SNO comes on line. We have checked these companies in terms of their value-add and to ensure they are profitable and sustainable entities in their own right.”Mackay says tapping into the intellectual capital of white companies is essential to prevent box dropping and fronting. But he also explains that black companies can – and should – work together, rather than wait for white companies to give up ground.“In our office block, which we call ‘The Township`, we have nine small black companies, sharing reception, board rooms, and market intelligence,” he says.His company also works with young black companies to prepare them for hurdles and common problems. Likewise, he stresses the valuable role structures like the Black IT Forum play in doing the same for others. “Such structures should take preference over big sticks,” he says.Summer is comingSome may remember Janis Joplin`s immortal version of Summertime, belted out with great abandon in a gravelly Jack Daniels voice. But nostalgia doesn`t undo the fact that it was the bourbon that killed her, like excess struck down so many of the folk heroes of the day. Today`s stars can`t just emulate the icons of the time to match their greatness. The business has changed.The metaphor is strained, admittedly: today`s pop stars are the ones guilty of box moving, in this writer`s not so humble opinion. But as the recognition grows that the technology business has fundamentally changed since the boom days, empowerment companies are looking past the initial failures.Says Moodley: “A student of history will inform us that should any of us not understand or take seriously events and experiences of the past and of others, we do so at our peril. There are a number of positive experiences that come out of the Didata history, and those of us [black or white companies] that understand them will benefit in growing the businesses that we are involved in. My personal belief is that empowerment will come in all forms, to create companies as big as, if not bigger than, Didata.”And Morolo: “There are no effective short-term, painless measures to achieve societal transformation. Changing the political economy of a society involves significant initial costs – in time, efficiency, resource allocation and, of course, monetary terms. If done in a planned, deliberate way instead of an externally imposed, resented initiative, this ‘cost` is in fact an investment in the sustainability of the business and of society as a whole.”While it`s admirably ambitious to aim at matching the past successes of icons like Dimension Data, merely trying to emulate the model that got them to the top is proving to be a mistake. New-wave empowerment companies that build on deep experience, extensive skills building and creative partnerships will grow the pie, and grow the share of black participation in it. BEE for dummiesBy Jason Norwood-YoungYou need a black empowerment strategy in your company, but don`t know where to start? You`re not alone.While the IT industry is being prompted into black economic empowerment (BEE) action through both economic and legislative pressure from government, there certainly is no handbook on how to implement black economic empowerment successfully. Various strategies from IT companies are meeting almost random success and failure – making BEE a high-risk investment.The main driver for black economic empowerment is government work and, given government`s substantial IT budget, the carrot is pretty appealing to most during this industry famine. But government also has a big legislative stick, and the disappointing rate of transformation so far could prompt its use. It`s a case of transform or be transformed. Yet if black empowerment strategies are not handled correctly, they can end up hurting a business more than helping it. And one of the most common mistakes IT companies make is in so-called “fronting”.Increasingly, government, state-owned entities (SOEs) and customers that specifically want to do business with IT companies with the correct tone of skin are wising up to the smoke-and-mirror tricks that have tarnished BEE initiatives. Black ownership without involvement and black management without decision-making power is starting to be screened in tender processes.There are three possible strategies for a company wishing to embark on a black economic empowerment campaign. The first, and most obvious, is black ownership. Then comes partnership with black companies – typically suppliers or consortiums for specific projects. Finally, internal black empowerment strategies take the form of creating a black management structure and uplifting previously disadvantaged staff.Black ownershipObtaining black ownership has been seen a quick route to BEE for many local companies, with Datacentrix leading the pack of JSE-listed companies with a 49 percent BEE ownership (EmpowerDex IT sector report, November 2002, which excludes the telecommunications sector and shell company Crux). But locally listed companies still lag in this sector, with only 9.55 percent of ownership on the JSE IT sector being black – a long way from the 25 percent targeted by government for the end of the decade.The weakness of the markets hasn`t helped attract black investment either. According to the Black Economic Empowerment Commission, the healthy investment of black business between 1996 and 1998 dried up when the markets went south.The majority of IT companies listed on the bourse (26 out of 42 companies) have less than five percent black ownership – the minimum amount required for these companies to be considered “black influenced” (see How black is your company?).Of greater concern is the real involvement the black investors have in these IT companies. There is a perturbing lack of directors on the IT companies` boards, with the majority of the 29 previously disadvantaged directors on the boards acting as non-executives. Out of 201 South African executive directors, only three are previously disadvantaged.While local IT companies certainly aren`t doing much in the way of black ownership or executive involvement, international companies with local subsidiaries have even less options. With the likes of HP and Dell unlikely to sell five percent to black South African concerns, international companies are forced to look at other strategies to change the tones of their skins.Despite the abysmal record so far, there are companies that have made an effort to try and change their stripes. KPMG Consulting is currently changing its status from a locally owned operation to an internationally owned subsidiary. But before the change of ownership, it managed to divest its local ownership from its partners to black ownership, to the tune of 26 percent. This 26 percent will stay in black hands when the partners sell to Atos Origin.Datacentrix has also been singled out for real black ownership and executive control, with Gary Morolo, the executive chairman, having real decision-making power within his company.“Control is not about majority or minority shareholding,” says Morolo, “ it`s about insiders and outsiders. The insiders – typically management – normally control the company. If you`re not running the organisation or you haven`t selected your own management to run the organisation, ownership won`t give you control.”According to research by EmpowerDex, there is a distinct correlation between black-owned and black-controlled companies. One example is IST (30.1 percent PD owned, with 15.1 percent BEE control), which borders on being considered a black empowered company by black influence, should it appoint two black directors.The Black Economic Empowerment Commission agrees that black ownership is essential but notes that, historically, black ownership has not necessarily translated into control. “BEE companies were seldom given the opportunity and the support to effect meaningful ownership and use that position to drive empowerment,” says the commission`s report. “The responsibility for the lack of proper control being exercised must also lie with the other parties who have engaged in the transaction. Partnerships tended to be superficially defined, with unarticulated expectations quickly disappointed.”The telecommunications industry should be viewed separately as it is miles ahead of its IT brethren, thanks to government involvement in this sector and less historical white ownership. MCell and Johnnic both post impressive figures when compared to the IT sector, with Johnnic boasting a 54.9 percent black ownership and 63.6 percent black control. MCell has a lower ownership – 38.1 percent – but has a higher control figure of 76.9 percent. Both show that black ownership translates frequently into black control.Most of the black ownership so far has focused on the larger capitalisation listed companies, with the small companies typically still in the hands of whites. Very few small cap companies claim more than five percent black ownership. Yet black investment in smaller companies is more likely to result in black executives, and that, in turn, translates into more black decision-making power and control.However, despite the majority of black investment coming from government pension funds (46 percent of total investment) and SOE pensions (25 percent), it is doubtful whether the black investment through these organisations can result in black control. In most cases, black control is effected by consortia or individuals with clear leadership serving on the boards of the listed companies.“Pension funds act as trustees for the beneficiaries and members, so they have to act prudently to make sure they get a return for the investment. Issues of transformation, however important, are secondary in this context. It doesn`t necessarily translate into black control, but I can see how it would put pressure on the organisations,” suggests Morolo.Black managementBlack executive control should theoretically lead to more black management and, if you truly want a demographically representative company, management has been singled out as a good place to start. The theory is that black management is more likely to spur further black upliftment within a company. According to the experiences of one company we spoke to, white managers will still tend to protect the interests of their race, despite the knowledge that black empowerment is important.Shoden Data Systems MD Fanie van Rensburg believes control is more important than ownership, echoing a concern voiced by many that ownership just lets the rich get richer.“If I was government I would insist that it`s not the equity stake that`s the most important, but the management, culture and make-up of the rest of the company. Equity stake is just the rich getting richer. You need to enable PDIs to be managers, to run the business – that`s where the focus should be. If you have five black shareholders, you have to have ten black managers. The development is needed in the acquiring of skills.”HP South Africa`s HR director Nolan Lambert counters this by saying, “There is a positive spin on making the black rich richer. If you have more black companies, they would be more prone to advance black people. The more black managers we get, the faster we would be able to achieve improvement in getting black people through the ranks. I do believe we need to see a lot more black senior managers in place.”“I have no problem with independent individuals making it,” says Datacentrix`s Morolo. “so long as they are making money by honest economic effort and means. It should be a result of entrepreneurship and effort.” Morolo does condemn wealth creation without effort or risk, and says prudent economic foresight and application should be encouraged.Isett Seta 2001 figures show that the IT industry claimed only 14.6 percent black top management and 13.5 percent black senior management two years ago, whilst unskilled and semi-skilled workers were minority white – less than six percent of the unskilled and 35 percent of the semi-skilled.The good news is that the middle-of-career ladder climbers – mid-management and technically skilled workers – are 19.3 and 31.8 percent black respectively. This means there is a reasonable pool of experienced black workers that can be trained up for management.There is some debate about how to go about this. There are two options – throw them in the deep end and hope they swim, or develop black staff slowly for management positions. Providing there is a strong team in place already, the sink-or-swim method can work, but it is still advisable to promote the employees with both the experience and maturity for management.The usual protocol is to send potential management candidates on intense training and skills development – even overseas for a year or so – and then develop them within the company until a position opens up and they are ready. There are also various internship programmes and university bursaries floating around to try and get some blacks into the IT industry, although these are less likely to guarantee the employees will continue working for the sponsor when they`re done.Once you have a handful of black managers in place, the BEE programme is likely to be accelerated. But it is a long process, so many companies look to hire experienced black managers, often at a high cost (black management usually carries a 15 percent premium) and involving some serious searching.HP uses a mixture of these two strategies, but tends to bring people up internally. It also separates black from white women, both of whom technically fall under the previously disadvantaged banner. Currently HP management is 17 percent black (which includes coloured and Indian) and 20 percent previously disadvantaged.“Firstly, we do embrace the law,” says HP`s Lambert. “Secondly, we look at our own internal demographics. We try to aspire to the demographics of the country in our employment equity plan. At the moment the focus is on black, coloured and Asian; and it`s more black than coloured or Asian.”Getting international holding companies to understand BEE can be difficult, but explaining the difference between blacks and PDIs is even more challenging, especially considering that legislation isn`t too concerned with the difference.Black partnershipsThe final option for BEE is the use of partners. This has proved very popular, particularly amongst local subsidiaries. It is the fastest and – at first glance – the easiest path to BEE. But don`t be fooled – it isn`t a sure bet at all.The first problem with partnerships is the distressing amount of fronting going on in the sector. We have heard that there are lists available of so-called black businesses with just a name and a cell number. Call the number, agree to pay a certain amount, and get permission to put the black company`s name on your tender documents. Government and SOEs are very aware of this practice, and it isn`t going to get you very far nowadays. But, sadly, is has managed to bring all partnerships into question.Shoden Data Systems` Van Rensburg says: “A complementary partnership would be a very strong base to start from. You must both benefit from the partnership, and that would form your bond going forward.“The partnership should definitely not be formed where the company benefits purely from the fact that it is black, and the vendor benefits only because it has another opportunity to market. You must benefit from complementary services.”Van Rensburg believes the vast majority of government business won by IT companies is the result of fronting. “You`ll probably find that more than 90 percent of all business done with government is based on window-dressing relationships.”Another mistake companies have made is to partner without going through stringent investigation of the partner company. This leads to various problems: one being that while the white company believes it is dealing with a legitimate black IT firm, the firm is actually a fronting company. And even if the company is legitimate, the state of management or the books are often overlooked. In Shoden Data Systems` case, its black partner went bust overnight, leaving Shoden back at the drawing board.“With a partner, you can usually identify their strengths, the weaknesses can be hidden,” warns Van Rensburg.The outcome of a rushed partnership is a lack of cohesion between the partners. Culture, company goals and philosophy play as much a part in a successful partnership as they do in a merger.The “race barrier” is likely to be present in most black/white partnerships, so early and honest communication is essential in the linkage process. Both parties need to be in no doubt as to what to expect from one another, and communication channels have to be open to an even greater degree than with other partnerships.Shoden`s experience has prompted it to form a new company from the ground up. Although this Hitachi subsidiary typically deals directly with customers with its high-end products, it is bringing in lower-end storage systems primarily for its BEE strategy.It is involving black SME resellers in the formation of the new company, with Shoden maintaining a small share. The new company will be completely black-run, with the SMEs controlling the management of the reseller. Shoden will be responsible for skills transfer to the new organisation and hopes it will eventually divest all interest in the BEE company and let it fly by itself.It is still too early to know whether this strategy will pay off for Shoden, but at least it is an innovative way of dealing with the problem.Just how wrong a partnership can go was demonstrated by MGX and Motswedi, with the two coming to blows over lack of skills in Motswedi and lack of commitment from MGX. The breakdown in the partnership was an contributing factor in MGX`s fall from grace, and highlighted the stumbling blocks black partnerships could face.New MGX CEO Peter Flack refused to comment on what happened between Motswedi and MGX – he was fortunate enough to have not been at MGX at the time – but did speak to us about black partnerships.“You should apply the same lessons to a black partnership as you would with any type of partnership. You try to find people that are as similar to you as possible. They should have the same morality, ethics, sense of humour and the like. Certainly the more similar you are in terms of beliefs and value systems, the more likely you are to succeed.”Flack likens a partnership to a marriage. “All partnerships go through good times and bad times. Communication is essential – you need to be speaking to one another all the time. There is a difference between black and white culture, so you should communicate even more.“Unless it is a push-and-pull relationship, you have a very one-sided deal. There are situations where the empowerment partner has nothing to lose. Would you bring someone into the business on that basis? Where the partners agree on what to do and when, and on the consequences of achieving and not achieving those goals, then you have more of a chance of succeeding.”An option that is a little less risky than forming a business partnership is procurement through black companies. Although not as recognised a BEE strategy as straight partnership, it is a good jumping-off point for companies wanting to wet their feet.“I think the starting point should be to look at procurement,” agrees HP`s Lambert. “I really believe there are many companies now that are able to supply services to the company. When I look at facilities-type requirements – cleaning services, canteen, furniture, consumables, that`s where I think companies can start to apportion a percentage of budget to BEE companies, even outside of the IT industry.”HP currently puts about half of its discretionary spend through black partners, which roughly translates to about R7.5 million going through BEE companies a year. It also has partnered with Ikwezi, part of the Matomo Group, to build a range of entry-level desktop machines in South Africa. Ikwezi also has a contract for desktop service and support with HP. Lambert says that the decision to partner with Ikwezi took about three months of investigation into the partner`s business, following HP`s international partnership methodologies and criteria. He refers to the methodology as “quite conservative”, but this conservative attitude appears to be paying dividends in this case.There really is no rule-book for BEE.“I don`t have a huge amount of experience in the black economic empowerment field, but then again no one does,” admits Flack, which is the problem this vital part of our economic development is facing. We are still figuring out what works, and what doesn`t. But while this is a new way of doing business, the old rules still apply. Concerning consortsBy Jason Norwood-YoungIt`s business, captain, but not as we know it. Consortia exist for socio-political rather than economic reasons, and would make an interesting MBA thesis.A consortium is a strange beast. It falls short of a merger; it is often stronger than a partnership, but without the longevity; and it defies the rules as we know them.There is a unique situation in South Africa where the social and political pressures of transformation on a broad scale have forced consortia to the fore of business. The problem is simple: as a single previously disadvantaged entity, you are unlikely to have the cash to buy half of a billion rand company by yourself. Furthermore, consortia lead to more people benefiting from the same investment, which is what black economic empowerment is all about – the upliftment of the masses, rather than the enrichment of the individual.“Consortiums are largely ineffective and inefficient in my view,” declares Gary Morolo, executive chairman of Datacentrix. “Black economic empowerment is a socio-political imperative. Therefore it requires ownership to be broad-based, which often finds expression as consortia; but it doesn`t need to be so. While consortia are understandable and perhaps even desirable from a social policy point of view, in practice they have proven unwieldy and not ideal for the leadership and management of business opportunities and assets. You end up bringing in people whose primary reasons for existence have little to do with business, and getting them to be interested in the business or sufficiently equipped to add the requisite value is difficult.”Good business doesn`t happen in committee. As the saying goes, committees only reach decisions when there are no more than three people in the quorum … and two of them are absent.Continues Morolo: “Two companies coming together as key shareholders in a business or venture typically will have different visions and agendas. The same holds for empowerment companies coming together as a consortium. You find that their aspirations don`t necessarily meet. At best you have an unworkable situation, at worst you have a major conflict in a consortium. The alliance is imposed by the socio-political imperatives. There is no inherent business requirement or logic for a consortium, and in fact it is at odds with the requirements of entrepreneurship. It is also a sharing of a lot of risk, and that is often not taken into consideration.”Morolo`s view is that, for all the social benefits a consortium may seem to bring to the table, unless there is good business practice behind it, it is not an effective model. And good business needs strong, entrepreneurial leadership.“It fulfils a desirable socio-political goal,” says Morolo. “It facilitates the spread of economic rewards, but doesn`t take into account that those economic rewards are best achieved through entrepreneurship. You can`t exercise entrepreneurship in a committee.”But despite Morolo`s pessimism, consortia are simply a fact of business in South Africa today. And not all are floundering, leaderless mismatches (although some are).Other side of the coin“We have seen a number of successful black consortia in mining, for example, where Patrice Motsepe`s Armgold and Tokyo Sexwale`s Mvelephanda are doing great things for BEE in that sector,” counters Kennedy Memani, chairman of Nexus Connexion, the black economic empowerment partner in the second network operator deal. “The reason I believe they are so successful has a lot to do with focusing on the various opportunities and exploiting them while having the skills and support of the people behind you.”Memani believes the failures have more to do with market conditions than a basic fault in the consortium concept. “In terms of so-called failures, the JSE board is littered with the fallout of some earlier attempts at BEE. Through no fault of their own, but largely as a result of stock market crashes, many of these initial ventures, such as Nail, are still battling to make a success of their operations.”A carefully constructed consortium should be able to offer more value than independent companies, thanks to greater resources at its disposal. While consortia typically represent a motley crew of social programmes (typically women`s leagues, political interests, a youth league or two, underprivileged communities, pensions and some disabled folk), the leading organisations should be real companies with real skills at their disposal.“One major benefit a consortium has is as an excellent source of pooled resources. Since our SME consortium partners have added value, we have no need to go outside of the consortium to attract the right sort of skills; they are already available,” says Memani. Real business valueMvelaphanda – most noted for its mining interests – has partnered Sifikile Investment Holdings in what is, in effect, quite a powerful consortium. The team has invested “a couple of hundred million” in Siemens Business Services (with funding provided courtesy of Absa), giving SBS a serious 30 percent black empowerment stake from the consortium, which goes by the Sifikile Technology Services brand. Siemens Africa`s black empowerment ownership also adds another 7.5 percent to SBS`s total black ownership stakes.According to Craig Lyons, Mvelaphanda Strategic Investments CEO, Sifikile and Mvelaphanda do bring real value to the table. Mvelaphanda uses its connections in other market segments to negotiate deals with SBS and concerns itself with long-term SBS strategy, while Sifikile brings its experience to the boardroom table and everyday operations.“We often get involved in a consortium of appropriate empowerment groups. Each empowerment partner has a specific role to play, and brings a complementary service and opportunity to the consortium. With respect to SBS we have a consortium of three partners – Mvelaphanda Strategic Investments, Sifikile Investment Holdings and Ukwande Investments. Mvelaphanda leads the consortium, and our role is to leverage off other Mvelaphanda investments that require SBS services. For example, our mines and our engineering interests require technology services on a commercial, non-transfer project basis. We introduce Siemens as a preferred supplier. It`s got to be commercial.“In addition, our credibility and reputation with the parastatals and large corporates assists them in being favoured for new business. We are on the new business development side. Our partner, Sifikile, is more on the operations side.”CEO of Sifikile Technology Investments, Dumisani Khoza, says SBS was selected as it showed a real commitment to transformation, which could as well be construed as preaching to the converted. “What really is lacking is to identify suitable people that can operate at senior level. Those positions take at least ten years in terms of training and experience required. That`s where we are capable of going into the market and identifying [candidates].”Khoza describes the approach as top-down, addressing middle management once it has put black executives into the top positions. “In ten to 15 years we will be looking at putting the black middle management into the senior management level, so it is a long-term strategy.”While Khoza is black and Lyons white, and both represent completely separate companies that typically operate in different vertical markets, they speak with one voice throughout. Apart from a business relationship, the teams come across as having a strong cultural relationship too. “We are coming from a historic background where, for a long time, some members of Sifikile have been a part of the Mvelaphanda structure,” says Khoza. “I represent the Veteran`s Investment, in which we are partners in a number of deals; so there is that natural flow of synergies whereby, in negotiations, we come up with some business deals and Mvelaphanda says: ‘This looks good. Let`s go for it,` and then we constitute a consortium.”The like minded coming together“A consortium is normally not made of strange bedfellows. It is normally people who have some form of synergy that has been created and tested over time. So you know exactly who you are bringing to the table. They have a track record. If you look at your empowerment consortiums, it`s usually like-minded people that come together.”Adds Lyons: “We`ve taken the view that there are a number empowerment groups out there that we work well with, that share the same values and ideals that we do, and we would like to continue working with them. They bring us into some of their deals, we bring them into some of our deals, on commercial grounds. Everything is commercial.”While the Sifikile/Mvelaphanda/SBS consortium represents 70 000 beneficiaries, it seems pretty focused on the commercial aspect. Lyons, an investment banker by trade who was hand picked by Sexwale nine months ago for the post, says the company distributed R80 million to its investors last year, “just to demonstrate that we have generated some cash flow”.Sifikile, it must be said, is more successful than many other consortia out there (as mentioned by Memani). “I think other empowerment groups are a little less active than we are,” says Lyons. “We tend to be more active as investors,” mirrors Khoza, as a concerned consort should. Empowerment that does what it saysBy Carel AlbertsRecycler Sizamile is helping clients to save on both the environmental and economy fronts – but, more importantly, it`s not wasting any energy on politically correct empowerment clichés.Empowerment commentators have long agonised over what “real” empowerment would entail. (I use the subjunctive because the concept only benefits a few.) One thing critics are more or less agreed on is that empowerment efforts to date have enriched a small elite, while the status of the rest of the previously disadvantaged has changed only to “still disadvantaged”. The latter can be forgiven for asking: where`s the ubuntu in that?In today`s climate of – quite frankly inappropriate – touchiness about empowerment, it is a welcome change to meet someone who doesn`t invoke the wrath of the gods of PC at the merest whiff of the word.Nceba Mazamisa, MD of Sizamile, the “first black empowerment company in the (local) remanufactured printer cartridge industry”, calls a spade a spade. In fact, a compulsion to call it far worse things is probably quite strong. My tip-off is the man`s clear frustration in trying to overcome prejudice both from conservative detractors of empowerment, on liberalist principles more or less unsullied by reality, and from uncritical supporters of a “flavour” of empowerment that is, these days, deemed acceptable so long as ownership passes along.Things are never as easy as they are made out to be. That is the lesson Mazamisa is learning in trying to make a business out of selling remanufactured consumables. It is one that both blanket detractors and eager praise singers have yet to learn: It`s never easy to attain true empowerment; it`s not easy to admit entire generations of business owners were wrong; and it`s not at all easy to admit that one`s idea for changing things needs work.Sizamile was formed just over a year ago as an empowerment venture for black IT professionals, servicing, in addition, a potentially lucrative market populated by parastatals, government institutions and multinationals. In his quest to enter a variety of industries, among them IT, Mazamisa, in his role as chairman of Phaphamani Sizwe Investments, turned to toptronics, a Cape-based company active in remanufacturing. He gave it 48 percent ownership of the new venture in exchange for toptronics` industry expertise and infrastructure. The nature of this deal, according to Mazamisa, has been a source of frustration in Sizamile`s efforts to bring value to toptronics.“Aside from the normal frustrations of trying to secure business as an empowerment company, the peculiar difficulties here lie in prospective customers` reluctance to accept our brand of empowerment.”The frustrationsMazamisa explains that, in exchange for an introduction by Sizamile to new sectors and the benefit of its marketing expertise, toptronics has given his (two-person) staff access to its infrastructure, knowledge and systems, including training. “This doesn`t always sit well with companies we try to do business with, who see it as window dressing for a white company. By empowerment, they understand only one thing, and that is that I should get a stake in the business in exchange for the new markets we (will) bring them.”If that sounds like a reasonable thing to expect of empowerment, Mazamisa forthwith dispels any comfortable notions one might have had of having an adequate understanding of the issue. “After a year of operation, we are not yet making the sort of profit I expect us to be capable of,” he says. “Until such time as I bring value to Sizamile, I cannot even pay myself the kind of salary that would befit someone of my status. And I will definitely not demand a beautiful car, a house in a leafy suburb, for my kids to be sent to a new school or any kind of stake in the company until that happens.”The US market for remanufactured cartridges amounts to some 35 percent of the total office printing consumables market, says Mazamisa. In recognition of the importance of good quality refilled cartridges, in a market where originals are notoriously expensive, he believes there is a dire need for legislation governing the local industry – to bring South Africa in line with US and European regulations protecting consumers.“There is nothing like that locally,” he adds. “It is very easy for a manufacturer to hold customers ransom with service and maintenance contracts that sideline generics.” This has spurred Mazamisa to lobby government to change things, a welcome initiative, especially as far as inkjet users are concerned. (The Departments of Minerals & Energy and Environmental Affairs & Tourism have received a profile of the company and the causes it wishes to promote.)Although inkjet technology makes for particularly expensive consumables, and home users favour remanufacture technology with their low-volume printing environment and small budgets, corporate users can also benefit from refurbished laser toner cartridges.“There will always be a market for originals,” says Mazamisa. “But generic cartridges should not be disallowed. If you take the angle of skills transfer to empowerment companies, it`s not possible when you only import, and if you consider the environmental impact of piles of spent cartridges, it`s clear we should recycle and remanufacture. Plus, we can save customers 30 to 40 percent on laser and 20 percent on inkjet cartridges.”The quality control regime at toptronics is stringent, using approved components from US manufacturer Static Control (now awaiting US court decisions on its differences with Lexmark) and testing components and finished product exhaustively.Taking a leaf from the venerable printing manufacturer`s income source handbook, Mazamisa says the services on top of hardware (and consumables) are key to Sizamile`s growth. It is closing maintenance deals and, for the moment, uses servicing and distribution partners to cover an ever more bustling market.Benefits, but not entitlementThe company is keen to make a difference. “I think one should create a belief system that benefits more than just a few, in a trickle-down effect,” says Mazamisa. Phapamani, the investment company that owns 52 percent of Sizamile will, on turning profitable, benefit several charities, including the Nelson Mandela Children`s Fund, the National Movement of Rural Women of South Africa, Disabled People SA and the Business Skills and Development Centre.“People equate black empowerment with entitlement, but I don`t think I can demand that I be given your business. However,” adds the man who says he won`t give up trying to secure it, “if I don`t get it, the least you can do is tell me why.”
