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					     Black Economic

For Telkom, it is a business imperative to enable the diverse majority of South Africans to
participate meaningfully in the mainstream economy, and particularly in the ICT sector. Our
long-term objective is to help create greater buying power among South Africans, in turn
expanding the marketplace in which we trade.

Background                                                     in support of the development of a viable regulatory
                                                               framework for BEE.
Since the advent of democracy in 1994,
addressing apartheid’s legacy of imbalance through             A BEE Charter for the ICT sector is being finalised at the
systematic socio-economic transformation has been a            time of writing.
national priority.
                                                               Developing a regulatory framework
Over the past decade, a policy framework has
                                                               for BEE
been evolved to prompt transformation and take it
from the realm of theory into practice. The introduction
                                                               The broad-based Black Economic Empowerment Act
of legislation to advance, inter alia, Employment Equity
                                                               of 2003 (the Act) provides the definitive legislative
(EE) and Black Economic Empowerment (BEE) has
                                                               framework for the promotion of BEE. The preamble to
progressively ratcheted up the impetus and urgency of
                                                               the Act indicates that BEE is a crucial component of
the transformation agenda.
                                                               sustainable development in South Africa and makes
In the last two years, the adoption of sector-specific         reference to the following:
BEE charters, formulated on a voluntary and consultative       • The South African economy still excludes the vast
basis by industry stakeholders in line with national policy,       majority of its people from ownership of productive
has resulted in agreed targets and timelines being set for         assets and possession of advanced skills.
BEE in key sectors, such as liquid fuels, mining and           • The economy performs below its potential because of
financial services. The object of these charters is to             the low level of income earned and generated by the
provide a framework for action and measurement of                  majority of its people.
a company’s BEE efforts versus its peers, according            • Unless further steps are taken to increase the effective
to a balanced scorecard of BEE indicators.                         participation of the majority of South Africans in the
                                                                   economy, the stability and prosperity of the economy
Telkom has responded proactively to BEE over the past              in the future may be undermined.
decade. Internally, as its policies in this regard have
evolved and refined, they have remained grounded in            As such, the Act undertakes to:
sound economic and business realities. Externally, Telkom      • Increase broad-based and effective participation of
has assisted a range of organisations in the development          black people in the economy and promote a higher
of workable BEE strategies, shared its experience at              economic growth rate, increased employment and
conferences and worked constructively with Government             more equitable income distribution.

36    Te l ko m A n n ua l R e p ort 2 0 04
• Establish a national policy on broad-based BEE to          of the ICT Empowerment Charter Working Group.
   promote economic unity, protect the common market         Telkom represents the interests of a number of
   and promote equal opportunity and equal access to         other communication services providers at the
   Government services.                                      working group.

Broad-based BEE is defined by the Act as the economic        The ICT Charter is being developed by way of
empowerment of all black people including women,             an inclusive, negotiated process in search of the
workers, youth, people with disabilities and people in       most positive outcome for all stakeholders. The ICT
rural areas, through diverse but integrated socio-economic   Charter will define a scorecard for the sector, with
strategies that include:                                     appropriate weightings, and set targets and timelines in
• increasing the number of black people who                  respect of each BEE indicator. The Charter will also
    manage, own and control enterprises and                  address constraints in the industry that are likely to
    productive assets;                                       hamper the achievement of BEE objectives, for instance,
• facilitating ownership and management of enterprises       accessing finance to advance BEE ownership
    and productive assets by communities, workers,           in the sector.
    cooperatives and other collective enterprises;
• human resource and skills development;                     Telkom’s strategy for broad-based BEE
• achieving equitable representation in all occupational
    categories and levels in the workforce; and              BEE as a business imperative
• investment in enterprises that are owned or managed
    by black people.                                         Given that transformation is crucial to the stability and
                                                             vibrancy of its marketplace and its ability to create
The BEE Act calls for the establishment of sector            shareholder value into the future, Telkom views BEE as
charters that are representative of the major                imperative for long-term growth. As such, Telkom is
stakeholders in the sector and advance the objectives        committed to going beyond compliance with statutory
of the Act. Government has put the onus on industry          requirements in its BEE efforts.
to lead the process of developing these charters,
which must establish explicit targets and timelines to       Telkom was one of the first companies in South Africa
advance BEE in the particular sector. The adoption of        to develop and implement an economic empowerment
BEE charters intends to support a transformation             programme aimed at ensuring constructive
process underpinned by certainty, cooperation,               participation of black, female and disabled South
measurability and a consensus-driven model for broad-        Africans in the economy.
based and relevant BEE.
                                                             Since April 1, 1997, Telkom has spent close on
The Department of Trade and Industry’s (DTI) basic           R24 billion to meet its BEE objectives.
template for a balanced BEE scorecard, with associated
weightings, is as follows:                                   A sustainable model for BEE
• Equity ownership                                  20%
• Management (control)                              10%      Telkom’s BEE strategy is designed around the following:
• Employment equity                                 10%      • the sustainability of the strategy;
• Skills development                                20%      • the ongoing development of processes to achieve its
• Preferential procurement                          20%          aims;
• Enterprise development                            10%      • optimising the linkages between the organisation and
• Residual (sector specific)                        10%          its environment;
                                                             • achieving competitive advantage; and
The development of the ICT Charter                           • supporting the Company’s vision of being a world-
                                                                 class competitor.
The ICT sector is viewed by Government as a key
driver of the economy, warranting the establishment of       The strategy is rooted in a broad-based approach to
a BEE Charter for the sector. The Group’s commitment         BEE underpinned by critical self-measurement against an
to this process has resulted in Telkom and Vodacom           internally developed scorecard, which is also used to
taking leading roles in this development, as members         evaluate Telkom’s suppliers.

                                                                             Te l kom A n n ua l R e p ort 2 0 04        37
Black Economic Empowerment continued

   Telkom’s BEE scorecard exceeds most of the DTI’s               • developing black SMMEs and enabling empowerment
   recommended empowerment weightings. Whereas the                    companies to participate in local manufacturing.
   DTI applies a 20% weighting to equity ownership for
   tender consideration, Telkom’s weighting is 30% – a            Telkom has taken its capacity building initiative further
   deliberate strategy to encourage black ownership in the        by introducing courses that assist suppliers in
   ICT sector. Telkom’s weighting of 45% on management,           reading, understanding and reacting to market dynamics.
   employment equity and skills development exceeds               During the year ended March 31, 2004 Telkom trained
   DTI criteria by 5%, and on enterprise development              905 suppliers in categories ranging from tender courses
   Telkom matches the DTI’s 10% weighting.                        to basic business management. A special fund for
                                                                  capacity-building initiatives has been created under the
                                                                  direction of the Chief Executive Officer.
   Telkom has developed a clear model to further
   BEE, largely based on leveraging its buying power to
                                                                  Other mechanisms to support capacity-building include:
   empower black, small and medium businesses. Telkom’s
                                                                  • Price preference – this is used as a means to build
   model encourages its traditional suppliers to support
                                                                      capacity in black SMMEs, giving these suppliers a
   black business through capacity-building initiatives
                                                                      competitive edge when bidding.
   such as joint ventures, strategic alliances, skills transfer
                                                                  •   Price matching – this compels black suppliers to match
   programmes and the disaggregating of contracts.
                                                                      the budgeted amount or most preferred price before
                                                                      they can be awarded a contract, on condition that
   Given Telkom’s total annual procurement spending                   they meet all other evaluation criteria.
   of around R7.9 billion versus its employee expenses of         •   Short-term payment cycles – a payment cycle of not
   R6.6 billion and social investment of R40.5 million, it            more than 15 calender days is awarded to selected
   follows that procurement and enterprise development are            black SMME suppliers.
   the areas in which Telkom can contribute the most to           •   Set asides – where appropriate, some tenders are set
   advancing BEE. In the 2004 financial year, Telkom                  aside for the exclusive participation of black SMME
   directed R4.6 billion to BEE suppliers, including suppliers        suppliers.
   with significant BEE programmes, making up 57.8% of            •   Performance guarantees – the capacity-building fund
   total procurement spend.                                           is used to provide performance guarantee certificates
                                                                      on behalf of black SMME suppliers who are unable to
   Telkom requires its suppliers to comply with all relevant          provide or raise guarantees themselves.
   policy, including the Employment Equity Act, the BEE Act,
   the DTI’s Industrial Participation programme, and the          Independent endorsement of Telkom’s broad-
   forthcoming ICT Charter. With respect to collaboration,        based achievements
   the Company encourages suppliers to embrace and
   support emerging small, medium and micro enterprises           In an influential ranking of the empowerment credentials
                                                                  of the top 200 listed companies in South Africa,
   (SMMEs) in view of their importance in the growth of
                                                                  conducted by the respected publication Financial Mail
   the national economy.
                                                                  and its research partner Empowerdex, Telkom achieved
                                                                  top honours as the country’s most empowered company.
   Telkom has initiated a capacity-building drive targeted
                                                                  Telkom scored highly across a broad-base of BEE
   specifically at SMMEs in the ICT sector. The programme
                                                                  indicators, including capacity-building, training and
   focuses on the following key objectives:
                                                                  development, employment equity, preferential procurement
   • escalating the procurement of goods and services             and economic upliftment initiatives.
       from black-owned ICT companies;
   • building a strategic supplier base and ensuring its          Telkom was ranked ninth in employment equity, with 86%
       long-term sustainability;                                  of its top management being historically disadvantaged,
   • developing a job creation programme to secure                fourth in skills development and sixth in the combined
       opportunities for former employees and unemployed          affirmative procurement and enterprise development
       people, and to ensure black equity participation in        analysis. Despite the Company’s commitment to
       outsourced contracts;                                      diversifying its middle management cadre, it was placed
   • ongoing initiatives to ensure appropriate skills levels      twentieth in the individual management analysis. It came
        among staff; and                                          nineteenth in the ownership analysis.

   38    Te l ko m A n n ua l R e p ort 2 0 04
Telkom was ranked as South Africa’s
most black empowered company in the
Empowerdex/Financial Mail 2004 survey,
scoring highly across a broad-base of
BEE indicators.

Telkom and Vodacom have created meaningful value for             • sustaining emerging black businesses and SMMEs;
BEE shareholders. Over 100,000 retail investors                  • meeting employment equity targets;
subscribed during Telkom’s IPO, specifically targeted at         • ongoing evaluation of potential BEE shareholders;
historically disadvantaged individuals. In its first year as a   • enforcing supplier commitments to BEE and
listed company, the estimated value created for retail             avoiding the enrichment of few versus the
shareholders amounted to approximately R560 million.               empowerment of many; and
                                                                 • development of courses in collaboration with suitable
Vodacom has realised significant value for its previous BEE        institutions, to contribute to business competencies in
shareholder, HCI. In October 1996, a 5% stake was sold             support of long-term sustainability.
to HCI for R118 million. Six years later, the BEE company
sold their stake for R1.5 billion, making it one of the most     Telkom believes that the stability and vibrancy of South
successful BEE deals ever effected in South Africa.              Africa’s economy into the future is contingent on a more
                                                                 equitable spread of wealth and economic means. The
Looking forward                                                  previously marginalised sectors of South African society
                                                                 must be actively empowered to move in – and contribute
Telkom is in the process of enlisting the services of a          to – the economic mainstream if the country is to realise
research company to conduct an independent impact                the full economic potential of its diverse society over the
study of the Company’s BEE initiatives. The findings of          long term.
the survey will assist the Company to advance all the
components of BEE most effectively going forward.                As such, the Group will continue to invest resources in
                                                                 advancing our broad-based BEE strategy in the most
Although the year ahead will see Telkom continuing to            meaningful and sustainable way possible.
effect its BEE strategy, the following areas will receive
specific focus:
• continued education and engagement of traditional
    and emerging suppliers with regard to its BEE
• ongoing communication with all stakeholders in this

                                                                                 Te l kom A n n ua l R e p ort 2 0 04      39
Black Economic Empowerment continued

   Review of progress
   In the year to March 31, 2004, Telkom made strong progress in most aspects of BEE, and largely met its targets in
   this regard.

   The following table sets out these achievements.

   Category                     Achievements in 2004                                 Reference
   Equity value created and     • Approximately 100,000 retail shareholders.         Refer “Shareholder Information”,
   broad-based ownership          Estimated value creation of R560 million at        page 232
                                  March 31, 2004.
                                • 11.14 million share options from Government
                                  granted to current and qualifying ex-Telkom
                                • 3.1 million shares granted to more than
                                  30 000 employees in terms of Conditional
                                  Share Plan
                                • R1.4 billion equity value created in 6 years by
                                  Vodacom’s previous BEE shareholder, HCI

   Board of Directors           • 45% of Board from HDI groups, compared             Refer “Board of Directors”, page 7
                                  to zero in 1994

   Top management               • 81% of top management from HDI groups,             Refer “Human Capital Management”
                                  excluding Thintana employees and white females     report, page 24

   Employment equity            • 56% of Telkom employees from HDI groups            Refer “Human Capital Management”
                                  (excluding white females)                          report, page 24
                                • 65% of Vodacom employees from HDI groups
                                  (excluding white females)

   Skills development           • R390 million, 5.9% of employee costs, spend        Refer “Human Capital Management”
                                  on training at Telkom                              report, page 24
                                • R15 million, 3.1% of employee costs, spend
                                  on training at Vodacom

   Procurement                  • R4.6 billion, 57.8% of procurement spend,          Refer “Black Economic Empowerment”
                                  spend on BEE companies, including companies        report, page 36
                                  with significant BEE programmes
                                • R1.3 billion, 60% of procurement spend,
                                  Vodacom spend on BEE

   Enterprise development       • Telkom’s well established Enterprise Development   Refer “Black Economic Empowerment”
                                  Programme resulted in 905 suppliers                report, page 36
                                  (2003: 724) receiving training from Telkom.
                                  BEE companies benefit from various
                                  capacity-building initiatives such as price
                                  preference and short-term payment cycles
                                • Vodacom has established a preferential
                                  procurement programme

   Corporate social investment • R40.5 million (2003: R37.7 million)                 Refer “Corporate Social Investment”
                                  CSI spend at Telkom                                report, page 45
                                • R30.6 million (2003: R20.3 million)
                                  CSI spend at Vodacom

   40   Te l ko m A n n ua l R e p ort 2 0 04