US embassy cable - 04PRETORIA3726

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 003726 
 
SIPDIS 
 
DEPT FOR AF/EPS DKRZYWDA AND AF/S/TCRAIG 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR GCHRISTOPULOS, LSTURM, AJEWEL, AND BRESNICK 
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON 
 
E.O. 12958: DECL: 08/17/2014 
TAGS: ECPS, EINV, EFIN, ETRD, ECON, SF 
SUBJECT: LOCAL REPS FOR U.S. ICT COMPANIES ENDORSE NEW 
CHARTER TEXT ON EQUITY REQUIREMENTS 
 
REF: A. PRETORIA 2651 
 
     B. PRETORIA 2164 
     C. PRETORIA 2092 
 
Classified By: Econ MC Jeff Hartley. Reasons 1.5 (b,d). 
 
1.  (SBU) SUMMARY.  Representatives for U.S. information and 
communication technology (ICT) companies operating in South 
Africa endorsed new charter language on equity in an August 
11 meeting.  The new language outlines conditions that must 
be met before companies may implement alternative equity 
models or be exempted from the ICT Charter requirement to 
sell equity to Black South African firms.  Their endorsement 
contradicts a two-month negotiating strategy and previous 
mandate not to support the proposed language.  The officials 
are quick to point out that they have endorsed only the 
equity language and did so in the spirit of moving the 
negotiations forward.  They say that only corporate 
principals can give final approval to the 4th Draft ICT 
Charter to be released on August 23.  Legal experts 
consulting with the American Chamber of Commerce in South 
Africa (AmCham) fear U.S. companies may have undermined their 
position and forfeited significant leverage in their requests 
for greater clarity in the ICT Empowerment Charter.  END 
SUMMARY. 
 
2.  (U) In an unexpected move, a handful of local 
representatives for U.S. businesses operating in South Africa 
informed their negotiating spokesperson, AmCham Director 
Luanne Grant, that they would endorse new ICT charter 
language about the sale of equity to Black South African 
firms.  The development occurred August 11 during a 
late-night meeting between AmCham, the ICT Charter Working 
Group and officials from South African and U.S. ICT 
businesses.  This development comes after eight weeks of 
negotiations between the Group of 10 ended in a stalemate. 
The Group of 10 consists of AmCham and representatives from 
U.S. ICT companies on one side and the ICT Working Group and 
Black South African ICT businesses and associations on the 
other side. 
 
3.  (SBU) The announcement came as a surprise to many U.S. 
business reps who, for months, had been asking the Working 
Group to provide greater clarity in the ICT Charter on key 
issues.  In particular, U.S. ICT companies sought 
clarification on alternative models to selling equity, what 
constitutes fronting, how would the ICT BEE Council be formed 
and what would its mandate be, and the implementation of a 
balanced scorecard approach versus required minimum scoring. 
By the end of July, the Group of 10 was no closer to an 
accommodation than when negotiations began in early June.  On 
July 29, ICT Working Group Chairperson Dali Mpofu emailed the 
new charter language on equity to AmCham Executive Director 
Luanne Grant for distribution to American ICT companies in 
South Africa.  Mpofu asserted that sufficient time had been 
spent discussing the equity issue and that August 2 would be 
the last meeting of the Group of 10. 
 
4.  (C) Mpofu proposed that ten paragraphs be added to the 
ICT Charter outlining how companies that are unable to sell 
equity to meet black economic empowerment (BEE) objectives 
could propose alternative equity models.  If the legal, 
technological or policy barriers of a firm do not allow for 
any type of alternative equity model, companies can be issued 
a Certificate of Permitted Non-Compliance exempting the firm 
from the equity ownership requirement.  Companies receiving a 
Certificate of Non-Compliance would score zero in the equity 
component and add up remaining points from their empowerment 
criteria to achieve either a bronze, silver or gold 
empowerment rating.  Upon review, U.S. business officials 
agreed that the language still failed to address the balanced 
scorecard concept where overscoring in one component would 
compensate for underscoring in another.  They also said that 
the language did not provide sufficient clarity on what 
barriers would be considered legitimate and which of the 
proposed alternative equity models might be accepted. 
Lastly, the officials were concerned that the proposed 
process would be left to a yet-to-be-created ICT BEE Council 
without clarifying how the ICT BEE Council would be created, 
who would serve on it and how it would review equity cases. 
As a result, U.S. ICT business reps agreed not to endorse the 
proposed text on equity at the August 2 meeting. 
 
5.  (C) Mpofu then contacted IBM Country GM Mark Harris, 
spokesperson for the U.S. ICT companies, on August 6 and 
again on August 9.  According to Harris, Mpofu offered to 
draft a "Letter of Comfort" to provide greater clarity on 
overscoring and the scorecard.  Mpofu also said that he would 
facilitate the creation of an independent legal entity to 
evaluate the legitimacy of barriers identified by the 
American companies and whether proposed alternative equity 
models would be acceptable.  On the issue of the Council, 
Mpofu said that it was beyond his mandate and, as such, he 
was unable to answer questions on the composition and scope 
of the ICT BEE Council. 
 
6.  (C) In a meeting attended by Econoff on August 11, 
multinationals discussed the Working Group's proposed text on 
equity.  In consultation with ICT attorneys, AmCham concluded 
that a Letter of Comfort would not be legally binding and, 
therefore, would not provide the assurances that AmCham and 
U.S. businesses sought from the ICT Charter.  U.S. business 
officials joined AmCham at a 6 p.m. meeting with the Working 
Group.  AmCham presented the view that a Letter of Comfort 
did not provide sufficient legal assurances and, furthermore, 
only after corporate legal departments had reviewed the 
complete Charter would the principals be prepared to 
determine whether or not to sign the Charter.  After hours of 
fruitless discussion, Microsoft Country GM Gordon Frazer 
broke ranks with the American companies and said that, in his 
opinion, local general managers of U.S. ICT companies had the 
authority to decide whether or not to endorse the proposed 
Charter language on equity.  Frazer continued that "in the 
spirit of moving the process forward" he would endorse the 
language.  According to Grant, all but one of the remaining 
nine multinational representatives appeared satisfied with 
Frazer's suggestion, calling on Grant to endorse the proposed 
language on behalf of the multinationals.  Despite a previous 
survey where 22 of 25 multinationals voted not to accept the 
proposed language, Grant yielded to the majority at hand and 
agreed to a signing ceremony at a Press Conference scheduled 
for the following day. 
 
7.  (C) Representatives from the U.S. companies are quick to 
point out that they have endorsed only the specific text on 
equity and did so in the spirit of moving the negotiations 
forward.  They say that only corporate principals can give 
final approval to the 4th Draft ICT Charter to be released to 
the public on August 23.  They say that without clarity on 
the key issues, corporate principals are not likely to sign 
the Charter. 
 
8.  (C) Legal experts consulting with AmCham fear that the 
American companies may have undermined their position and 
forfeited significant leverage in the run up t a meeting of 
President Mbeki's International IT Advisory Council.  Harris, 
however, said that despite strong pressure to prevent the 
inclusion of equity and the ICT Charter on the agenda, they 
would be discussed at the meeting.  In addition, AmCham is 
following up on an offer made by Minister of Communications 
Ivy Matsepe-Casaburri at the August 12 press conference to 
meet with the U.S. businesses to resolve their remaining 
concerns. 
 
9.  (U) The full text of the language on equity endorsed by 
AmCham on behalf of the American ICT companies was released 
to journalists at the August 12 press conference and the text 
will be faxed to AF/S. 
FRAZER