By: Martin Creamer
26th November 2004
The Dimension Data South Africa chairperson-designate branded his own name into the R380-million agreement in using Ngcaba Holdings as a BEE vehicle – and it is part of a deliberate strategy on his part.
No other BEE deal of note lends a person’s surname to the BEE-transaction company, but the Dimension Data BEE deal has Ngcaba written all over it, both literally and figuratively.
“You have to immerse yourself in a deal like this personally and completely,” the former South African Communications Department DG and one-time Umkhonto we Sizwe (MK) soldier tells Engineering News in an exclusive interview at Dimension Data’s spectacular Campus complex in Sloane Street, Bryanston, where soccer coaches from none other than the illustrious Manchester United were putting disadvantaged young children through their paces on the lush grassed oval when the Engineering News Deals of the Year team called.
But then again Ngcaba Holdings, Safika Holdings and what are official- ly termed broad-based BEE partici-pants have bought into the South African subsidiary of a London Stock Exchange-listed plc holding company that has a revenue of $2-billion and which also sponsors the world’s most famous British soccer club, ManU.
Ngcaba believes that lending one’s name to a transaction helps to focus the mind intensely towards its success. He sees it as putting his entire reputation on the line and it was, in fact, the personal Ngcaba stamp that swayed the Editor towards selecting the Dimension Data-Ngcaba transaction as an Engineering News Deal of the Year.
The second factor in our selection was its outreach to the people through a collective 10,2% participation of communities entirely outside of Ngcaba and Safika.
The third contributing factor was its sweat-equity- styled earn-in method of loan settlement. Brought into the deal with a 10,2% revenue stream are youth groups and women’s groups involved in many activities, ranging from recycling to pipe-laying and bead-making (see full list in accompanying story).
It is clearly apparent that the success of the Dimension Data BEE deal – a pioneering effort in South Africa’s ICT field – means everything to Ngcaba, an East London-born former Philips electronics technician who saw action for MK in Angola and did a nine-year stint as a government DG.
On the mechanics of BEE deals, he points out that there are many ways to skin a BEE cat. The most common is to obtain an accurate company valu-ation, borrow the required money, buy a meaningful percentage of equity and provide BEE status to a company that cannot operate without it.
But the debt build-up can be such that the dividends may prove too sparse to service even the interest on the debt, let alone the debt itself, and unfortunate BEE investors have had to reverse themselves out of lesser deals, which then unravelled and died.
Worse still, other BEE investors have found that having no real say in the running of the business frustrates the BEE to death.
Dimension Data, Ngcaba and Safika chose a different strategy altogether, and one that still has Ngcaba’s adrenalin pumping. This is the deal: he personally raised the R16,7-million he paid in cash into the transaction; Safika invested an additional R6,3-million, and Dimension Data chose to treat the remaining R357-million as a vendor-financed notional loan, which uses 23,5 % of the full headline earning of DDSA to pay down the national vendor finance amount.
The reward for the Ngcaba-Safika-broad-based BEE is ownership of a quarter of the shares of Dimension Data South Africa (Pty) Limited, which in turn gets a licence to bid for government work and to put BEE points on the procurement scorecards of its customers in the new South Africa.
Given that Dimension Data is a knowledge-based company whose main assets are its people and their intellects, Ngcaba and his BEE partners have been set the challenge of earning their stake by taking the company to new heights between 2009 and 2011.
The loan will not be static, but will have an 18%-a-year interest coupon, which the BEE team will have to service through their contribution to company growth – but their big plus is their position in the driver’s seat to see that it all happens as planned.
The BEE consortium is made up of Ngcaba Holdings with 12,71%, Saki Macozoma’s Safika with 5,00% and broad-based BEE participants with 7,30% and 2,9%.
Dimension Data plc owns the remaining 74,99% of Dimension Data South Africa.
The consortium gains a quarter of a company that is very much on the ascendancy after being a victim of the dot.bomb collapse that destroyed heaps of ICT-industry value. Any other way would have been a nonstarter: “We shopped around for good borrowing rates and discovered that we would be on a hiding to nothing if we raised funds and repaid the debt from dividend cashflow,” recalls Ngcaba, who is now eight months into the job, having assumed the position of executive chairperson designate of Dimension Data South Africa on April 1 this year.
The business is knowledge based, has intellectual property and is not predicated on fixed assets.
“The BEE model was thus adapted to reflect what we are,” Ngcaba tells Engineering News.
The five-year ICT-industry doldrums period also had to be taken into account in structuring the deal. “After looking at the different options, we realised that the best option involved us having to work very hard at growing the business and earning-in on the basis of overall contribution to new growth.” But this will be done on the basis that the time to achieve the targets will be extended should the growth target prove unattainable in the five- to seven-year period specified.
Meanwhile, shareholder rights to the BEE consortium have been in force from day one, which was April 1, 2004.
Ngcaba believes the planned February 1, 2005, deregulation of the South African telecommunications industry will spawn a slew of opportunities for Dimension Data.
For one, deregulation opens the door to voice, from which Dimension Data’s Internet Solutions was previously excluded.
From February 1 next year, a multiplicity of voice offerings will be possible in addition to its already-strong position in data.
It will also allow Dimension Data to render better operation support system (OSS) and broadband switching system (BSS) services to telecommunications companies. Ngcaba is confident that the BEE consortium will have little problem in paying off the outstanding loan if it goes all out and succeeds in seizing the many opportunities that deregulation is creating.
Another Ngcaba goal is to transform the enterprise by infusing into it the services of talented young black men and women and other capable people who will be able to achieve the ambitious growth levels that the consortium has set for itself.
Dimension Data currently has 25% black management They are incentivised and there is a portion of equity for those who shine.
“We have many highly-capable people and I am confident that their hard work will give us the rate of growth that we have set for ourselves,” says Ngcaba.
Dimension Data South Africa employs 2 562 people out of a total of 8 639 employees throughout the global group.
Dimension Data is in networking, building virtual private networks, local-area networks, wide-area networks and advanced infrastructure for financial institutions, retail enterprises and organisations with nationwide branch locations.
Two of its other offerings are the provision of information technology (IT) security to organisations with large IT infrastructure and the provision of storage services.
Dimension Data provides solutions in partnership and owns the largest Internet solutions company in Africa, which is also the largest provider of Internet access and bandwidth to corporate South Africa – the pioneering Internet Solutions.
Though the group is on five con-tinents and in 30 world cities, Ngcaba is proud that it is headquartered in South Africa, on the attractive Campus site, with the group CEO’s office only a couple of minutes away from Ngcaba’s own office.
Given that employment creation is a national priority, he believes the government should devise a call-centre growth strategy, as he sees the call-centre business as a prolific employment creator.
He sees a direct correlation between low telecommunications tariffs and the establishment of call-centres.
He expects the liberalisation of the telecommunications industry to foster lower telecommunications prices and anticipates a consequent increase in local call-centre activity.
Moreover, he sees South Africa as being well-placed geographically and accent-wise to grow its call-centre business exponentially.
North Americans and many others around the world accept the English-language accent of South Africans as being neutral and understandable and there is an advantage in being in a similar time zone to Europe.
The only factor letting South Africa down is its relatively-high telecommunications tariffs.
Ngcaba’s great ambition is for Dimension Data to serve Africa in general and its public sectors in particular, with far greater intensity.
The company enjoys strong contractual public sector and private sector business in South Africa and a similar pattern is now unfolding north of the Limpopo.
Dimension Data is building an Internet backbone for Ethiopia and infrastructure for mobile phone com-panies in Uganda; is active in Nigeria and Botswana and is bidding to become part of Africa’s East Coast undersea telecommunications initiative that will connect East Africa to the new fibre optic cabling network. “By 2010, Africa will have a billion people and 100-million with mobile phones; double the present number,” Ngcaba forecasts.
He sees that as presenting a significant business opportunity for his group to provide underlying OSS and BSS infrastructure through group company Plessey, which builds infrastructure for global systems mobile (GSM) service providers.
Dimension Data itself supplies GSM billing systems and the required GSM intelligence networks.
Andile Ngcaba is the executive chairperson designate of Dimension Data South Africa. In this role, he is responsible for developing growth strategies for the business, including pan-African expansion and growth through black economic empowerment.
Ngcaba served as the DG of the South African Department of Communications (DOC) for eight-and-a-half years until December 2003. At the DOC, he was responsible for policy formulation, conceptual development and implementation in the ICT sector. Further areas of responsibility included the promotion and management of information technology, telecommunications, broadcasting, postal services and e-commerce in South Africa. His leadership role contributed towards the restructuring of numerous communications organisations, such as Telkom, the South African Broadcasting Corporation, the SA Post Office and Sentech.
While in exile, Ngcaba rose through the ranks of Umkhonto we Sizwe, specialising in the field of military communications, excelling as both a communications specialist in radar and satellite technologies, rising to the rank of commander and trainer.
He holds a Master of Commerce, majoring in information systems, qualification from the University of the Witwatersrand. The University of Fort Hare honoured him with an honorary Doctorate in Commerce and he has also obtained a diploma in executive management programme jointly offered by Stanford and Singapore Universities. Ngcaba has served on the Council of the University of South Africa and is currently an adviser to the digital inclusion programme at Harvard University Law School. He is the founder of the Institute for Software and Satellite Applications and the Centre for Development of Information and Telecommunications Policy.
He is an active member of many international communications organisations and commissions, such as the International Telecommunications Union, Internet Corporation for the Assigned Names and Numbers, E-Africa Commission and G8-Dot Force. In 1993 he was awarded The Best Computer Person of the Year by the Computer Society of South Africa. In 1999 and 2000 he won the Black Information Technology Achiever’s award. In 2001 he won the Eastern Cape Information Technology award and, in 2002, the Computer Society again honoured Ngcaba, this time awarding him with the ICT Leadership Award. He also received the Lifetime Achievement Award from BMI-T at the African ICT Achievers Awards in 2003.
Edited by: Martin Creamer