US embassy cable - 04PRETORIA4503

UNCLAS SECTION 01 OF 02 PRETORIA 004503 
 
SIPDIS 
 
DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWELL 
DEPT PASS USTR FOR PCOLEMAN, WJACKSON AND CHAMILTON 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: EINV, ETRD, EFIN, ECIN, ECON, SF 
SUBJECT:  UPDATE ON BEE CHARTER ISSUES 
 
 
(U) This cable is sensitive but unclassified.  Not for 
Internet distribution. 
 
1.  (SBU) SUMMARY. Finance Minister Trevor Manuel helped to 
resolve the deadlock over the composition of the Financial 
Services Black Economic Empowerment (BEE) Council in a 
September 20 meeting with industry stakeholders.  Banks are 
concerned, however, that community and labor groups, 
excluded from charter negotiations over the past two years, 
will leverage their seats on the BEE Council to review 
scorecard targets and introduce issues of importance to 
them.  The Council will consider whether to approve R122.5 
billion (approximately $18 billion) empowerment financing 
targets in its first meeting to be held the second week of 
October.  A DTI official said that companies will not be 
required to comply with multiple charters.  END SUMMARY. 
 
--------------------------------------------- - 
FINANCIAL SERVICES BEE COUNCIL SEATS ALLOCATED 
--------------------------------------------- - 
2.  (U) Banks, black business, labor unions and community 
groups failed to reach agreement on how to allocate seats on 
the Financial Services BEE Council after months of 
negotiations.  The primary obstacle preventing an agreement 
was charter language stipulating, "There will be equality 
between industry association representatives and all others 
on the Charter Council.  The Charter Council must fairly 
reflect the interests of the financial institutions."  Banks 
interpreted this to mean that they should hold 50 percent of 
the seats on the Council and were promoting a 16-seat 
council of which 8 would be allocated to financial 
associations. 
 
3.  (SBU) At the request of several banking CEOs, Finance 
Minister Trevor Manuel called a September 20 meeting with 
all industry stakeholders to resolve the deadlock. 
According to a U.S. banking official in South Africa, 
stakeholders were caught off-guard when Manuel presented his 
own plan for distributing 21 seats among the stakeholders. 
After little debate, Manuel's plan was accepted.  Of the 21 
seats, four will go to government, four to labor, four to 
community groups, six to the industry, and three to the 
black business body, the Association for Black Securities 
and Investment Professionals (ABSIP).  The government seats 
will include two officials from the National Treasury, one 
from the Department of Trade and Industry, and one from the 
Presidency. 
 
------------------------ 
COUNCIL CONCERNS PERSIST 
------------------------ 
 
4.  (SBU) Banking Council representative Derek Muller, a 
Nedcor bank executive, said publicly the 21-seat deal was 
not ideal, but a workable model.  He also stated that 
business wants the empowerment financing targets approved in 
the next few weeks.  However, a foreign banking executive 
told Econoff the council was unworkable and the industry has 
been left to fight among itself for its allocated six seats. 
The executive said that each bank is waiting for the others 
to step back and allow the remaining banks to fill the 
seats.  The members of the council should be decided prior 
to the October meeting. 
 
5.  (SBU) Banks are also concerned that community and labor 
groups, excluded from charter negotiations over the past two 
years, will now leverage their seats on the BEE Council to 
review scorecard targets and introduce issues of importance 
to them.  Community representative and South African 
Communist Party General Secretary Blade Nzimande said his 
organization was not happy with some of the proposed 
scorecard targets.  He said that their Council 
representatives would raise these concerns at the Council's 
October meeting.  This could lead to further delays in 
rolling out financial services to historically disadvantaged 
individuals (HDI). 
 
7.  (U) The BEE Council will oversee compliance with the 
financial sector charter, including verifying charter points 
for Black Economic Empowerment (BEE) deals and assessing the 
BEE progress of banks and finance companies.  The council 
will hold its first meeting in the second week of October 
and will meet four times a year thereafter.  The agenda for 
the Council's first meeting includes electing a chairperson, 
discussing how to provide banking services and increase 
lending to disadvantaged South Africans, and deciding on a 
conflict resolution mechanism when consensus is 
unachievable.  A Banking Council employee told Econoff that 
if the council is unable to decide on a mechanism, Manuel 
would. 
 
------------------------------------- 
EMPOWERMENT FINANCE TARGETS ANNOUNCED 
------------------------------------- 
 
8.  (SBU) The council will also review proposed empowerment 
financing targets of R122.5 billion (approximately $18.8 
billion).  In a September 15 meeting at the American Chamber 
of Commerce in South Africa (AmCham), Banking Council GM Cas 
Coovadia explained that nine task groups have been 
evaluating the scorecard's financing targets for nearly a 
year.  In June, the task groups presented their findings to 
industry stakeholders and recommended adding R47.5 billion 
to the original target of R75 billion in empowerment 
financing funds.  The money would be distributed over five 
years in the following manner:  (1) R50 billion for black 
empowerment deals; (2) R42 billion for low-cost housing; (3) 
R25 billion for infrastructure products; (4) R4.1 billion 
for small black business; and (5) R1.4 billion for black 
agriculture.  If this target is accepted, it will be the 
largest investment in BEE finance, overtaking the R100 
billion (approximately USD 15.4 billion) committed by the 
mining sector. 
 
---------------------------------------- 
DTI ON MULTI-CHARTER COMPLIANCE QUESTION 
---------------------------------------- 
 
9.  (SBU) Recent comments by Department of Public Works 
Deputy Director-General Lydia Bici fueled speculation that 
institutions may need to comply with multiple charters.  At 
a breakfast hosted by the South African Institute of Black 
Property Practitioners, Bici said that a property charter 
would apply to companies participating in other charters. 
However, Department of Trade and Industry (DTI) Director of 
BEE Partnerships Jeffrey Ndumo told Econoff that this is not 
the case.  As an example, Ndumo said that a subsidiary of a 
bank that manufactures goods for sale in the ICT sector 
would be required to comply with the ICT Charter.  Likewise, 
a subsidiary of a bank that primarily buys, sells, and 
manages real estate would comply with the Property Charter. 
However, the bank itself would abide with just the Financial 
Services Charter.  He also pointed out that a subsidiary or 
division that just procures goods or services for the parent 
business (e.g., the IT department at ABSA, which has the 
largest IT procurement in the country) would not be required 
to adhere to a different charter.  Ndumo also explained that 
if a business operates across many sectors, it would be 
required to identify its core business and comply with the 
corresponding charter.  Ndumo told Econoff he would be 
willing to answer these types of technical questions for 
U.S. businesses in a forum facilitated by the American 
Chamber of Commerce. 
 
FRAZER