Microsoft’s half-billion rand deal

In one of the biggest equity equivalent deals seen in South Africa to date, Microsoft is to invest almost half a billion rand over the next seven years into the local software industry.

The deal, announced today by Trade and Industry Deputy Minister Maria Ntuli and Microsoft South Africa managing director Mteto Nyati, is part of the company’s broad-based black economic empowerment (BBBEE) programme.

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

Speaking at the launch event in Sandton, the DTI’s Ntuli said the deal was noteworthy for addressing indirect elements of BBBEE such as skills and enterprise development.

‚The country can only be transformed if empowerment plays its rightful role in business,‚ she said. ‚We need to ensure it is linked more effectively to the development of skills, and to growth of local businesses. The Microsoft programme covers both aspects well.‚

Microsoft’s Nyati said the investment would directly address some of the key challenges facing the government and South Africa as a whole ‚ namely creating jobs, developing enterprises, building the local software economy and developing scarce technology skills. It’s anticipated that the deal will take Microsoft from a Level 4 to a Level 2 BEE contributor, subject to the relevant audits.

‚This is not just another BBBEE deal that features familiar faces and just ticks the boxes,‚ he said.

‚We’re looking to take existing software development companies and transform them into companies that compete in South Africa and around the world in areas like cloud computing. We want to create a new model for entrepreneurship and set a new benchmark for developing talent in the local software industry. We want BBBEE to be associated with real development, job creation, business development and skills enhancement.‚

Arthur Goldstuck, the managing director of technology research house World Wide Worx, welcomed the deal as a significant step for BEE in the technology industry.

‚This is the first time a major multinational is willing to put both financial muscle and expertise behind the growth of the SME sector, as opposed to a generic offering of money that is not applied to a specific outcome,‚ said Goldstuck.

‚Research from our annual SME survey points clearly to the fact that small businesses that think like big businesses, and use so-called big business tools, are far more likely to be highly competitive in their given field. If this deal is able to give the chosen companies that business approach and tools, it has a good chance of achieving something different in the BEE environment.‚

There has been overwhelming support for the move from the highest levels of Microsoft. Ali Faramawy, Microsoft’s president for the Middle East and Africa, said at today’s launch that global CEO Steve Ballmer, president of Microsoft International Jean-Philippe Courtois and other senior leaders were completely behind the move.

‚In the conversations with our global leadership team in Seattle, they made it clear that this was South Africa’s moment, and this was the time to step up our commitment to the country,‚ said Faramawy.

‚The best way to do this was to ask the right questions within unique context of South Africa. So we asked what does the market need? What are the government’s priorities? And what is the greatest impact we can make? The result is the significant investment being made for economic development seen here today.‚

The process kicks off on 28 April 2010 with the issuing of the nationwide RFP, inviting black-owned software development companies to apply. After a rigorous vetting process by external consultants KPMG, the shortlist will be identified, interviewed and selected. Microsoft then hopes to select the finalists and start working with them as soon as July 2010.

Nyati said the company would focus ‚significant time, energy and resources‚ on growing the fledgling companies. This would build partners in new, potential high-growth areas and hopefully generate greater competition in the South African technology industry overall.

‚We anticipate these small companies will learn and collaborate with our existing partners, and in doing so create new software solutions and approaches for the unique challenges we have in South Africa ‚ and for those of international markets,‚ said Nyati.

Deputy Trade and Industry Minister, Maria Ntule, Microsoft MD, Mteto Nyati, and Deputy Communications Minister, Dina Pule, at the launch of Microsoft’s R500m equity equivalence deal at the Sandton Convention Centre this morning.