US embassy cable - 04PRETORIA4576

UNCLAS SECTION 01 OF 03 PRETORIA 004576 
 
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:  BLACK ECONOMIC EMPOWERMENT - AN OVERVIEW 
 
 
(U) This cable is sensitive but unclassified.  Not for 
Internet distribution. 
 
1.  (SBU)  SUMMARY.  The Broad-Based Black Economic 
Empowerment (BEE) Act, signed in January 2004, specifies 
that the Department of Trade and Industry will oversee the 
BEE process.  DTI still has to create a critical advisory 
council and issue important guidelines.  In the meantime, 
industry charters are proliferating without the benefit of 
these DTI resources.  Post has faxed a current list of 
charters to the Desk.  Adherence to empowerment objectives 
and targets is voluntary, but government procurement 
contracts provide preferential treatment to empowered 
companies and targets in sectoral charters encourage 
companies to purchase from empowered suppliers.  U.S. firms 
broadly support BEE, but generally oppose a requirement to 
transfer equity.  In some cases, American businesses feel 
that respective industry associations do not properly 
represent their interests.  European chambers of commerce 
have politely rejected AmCham efforts to collaborate in the 
ICT Charter process, although the Europeans seem to share 
many of the same concerns that American companies have. 
Union leaders and senior politicians have recently 
criticized the implementation of BEE, claiming it is 
enriching the lives of a small black elite.  END SUMMARY. 
 
2.  (U) President Mbeki signed the Broad Based Black 
Economic Empowerment Act of 2003 into law in January 2004. 
The Act creates an institutional mechanism for fulfilling 
social objectives outlined in the ANC's Reconstruction and 
Development Program (RDP).  Adherence to empowerment 
objectives and targets is voluntary, but government 
procurement contracts provide preferential treatment to 
empowered companies.  In addition, procurement targets in 
sectoral charters provide incentive for companies to 
purchase from empowered suppliers. 
 
----------------------- 
THE BROAD-BASED BEE ACT 
----------------------- 
 
3.  (U) In general terms, the Act empowers the Minister of 
Trade & Industry (DTI) with overseeing the national policy 
on broad-based black economic empowerment.  More 
specifically, it authorizes the Minister to form a BEE 
Advisory Council, issue Codes of Good Practice and publish 
transformation (industry) charters.  The Advisory Council 
will advise government and industry on empowerment policy 
and the development of industry charters.  In addition to 
publishing approved industry charters as Codes of Good 
Practice, the Department of Trade & Industry can also issue 
additional BEE guidelines as Codes.  To date, the DTI has 
not yet formed the Advisory Council or issued Codes of Good 
Practice. 
 
---------------------------------- 
PROLIFERATION OF INDUSTRY CHARTERS 
---------------------------------- 
 
4.  (SBU) The Government has actively encouraged the 
creation of charters in industries identified in the RDP as 
priority growth sectors - agriculture, tourism, culture, 
ICT, mining and metals, clothing and textiles, chemicals and 
biotech, and auto and transport services.  Industry charters 
where U.S. business interests could be most affected 
include:  ICT, Pharmaceutical, Automotive, and Agriculture. 
While industry charters are proliferating, there are still 
many sectors that have yet to initiate an empowerment 
discussion.  Post has faxed to State's South Africa desk a 
list of industries that have initiated an empowerment 
discussion and the status of their respective charters. 
 
------------- 
THE SCORECARD 
------------- 
 
5.  (U) In developing its strategy on BEE, the DTI issued a 
generic scorecard that, to date, has served as a model for 
subsequent scorecards.  The scorecard measures three "core 
elements" of BEE - direct empowerment, human resource 
development and employment equity, and indirect empowerment 
- plus a "residual" element, which typically measures 
corporate social investment programs.  The scorecard breaks 
down the measurement into the following components: 
Direct Empowerment       Equity Ownership 
                         Management 
 
HR Development           Employment Equity 
                         Skills Development 
 
Indirect Empowerment     Preferential Procurement 
                         Enterprise Development 
 
Residual                 TBD (e.g., CSI) 
 
Each industry's respective scorecard is the basis for 
measuring business compliance with charter targets. 
 
--------------------- 
U.S. COMPANIES ON BEE 
--------------------- 
 
6.  (U) American companies operating in South Africa support 
BEE objectives.  This commitment can be traced back as far 
as the 1970s when U.S. firms in South Africa embraced the 
Sullivan Principles and established workplace equality 
practices and corporate social responsibility programs. 
Today, most American businesses in South Africa already 
comply with many empowerment criteria. 
 
7.  (SBU) The major sticking point for U.S. companies has 
been the component that requires the transfer of equity. 
U.S. firms generally oppose this requirement as a matter of 
corporate policy.  Nevertheless, ChevronTexaco's CaltexSA 
subsidiary signed an agreement in 2002 to sell 25% of its 
South African operations to an empowerment consortium. 
Additionally, several American ICT companies in South Africa 
are considering employee shareholding schemes as a way to 
comply with the ICT Charter equity ownership component. 
 
--------------------------------------------- - 
DO AMERICAN FIRMS HAVE A VOICE IN THE PROCESS? 
--------------------------------------------- - 
 
8.  (SBU) Industry charters are generally drafted by charter 
working groups led by steering committees, which are 
typically comprised of industry associations representing 
South African, foreign and black business, government, 
labor, and civic groups.  Charter working groups frequently 
lack big business experience and do not understand the 
corporate complexities of a multi-national company.  This 
underscores the need for businesses to work with and to 
educate the working groups and steering committees.  For 
example, American ICT companies provide valuable feedback to 
the ICT charter working group by applying the draft 
scorecard to their companies and explaining the financial 
implications for them.  While there has been no thorough 
analysis of the business costs of implementing empowerment 
targets, the financial services sector is committed to 
spending over R120 billion on funding BEE.  At the company 
level, an accountant for an American ICT firm in South 
Africa recently told AmCham members that targets in the 
fourth draft of the ICT Charter would erase his profits. 
 
9.  (SBU) Some charter steering committees and working 
groups seem to have an agenda of their own that is 
antagonistic towards U.S. firms.  Moreover, business 
association representatives sitting on the working group do 
not always accurately represent American (or foreign) 
business views.  U.S. companies were particularly frustrated 
by the working group's rejection of their reasonable 
proposals in the ICT Charter process.  Representatives of 
American firms in South Africa have discussed the 
possibility of creating their own Industry Association as a 
mechanism to increase their influence in the charter 
process.  Company reps voted down the idea, however, due to 
fears of alienating the existing political process and 
players and antagonizing existing associations.  European 
Chambers of Commerce have politely rejected AmCham efforts 
to collaborate in the ICT industry, although the Europeans 
seem to share many of the same concerns that American 
companies have. 
 
--------- 
BEE ELITE 
--------- 
 
10.  (U) BEE is a reasonable effort by the government to 
address the legacy of apartheid.  Its implementation, 
however, is creating controversy with black economic 
stakeholders who question its impact on most of the 
population.  For example, ANC Secretary General Kgalema 
Motlanthe recently raised concerns about the concentration 
of empowerment equity in the hands of a few mega-rich black 
business people.  His remarks came shortly after Finance 
Minister Trevor Manuel berated black professionals for 
undermining the economy with increasingly excessive salary 
demands.  COSATU General Secretary Zwelinzima Vavi and 
Deputy Finance Minister Jabu Moleketi have also weighed in 
against perceived enrichment of a small black elite.  The 
media cites the following individuals in this category: 
Tokyo Sexwale, Cyril Ramaphosa, Saki Macozoma, Sandile 
Zungu, Fani Titi and Patrice Motsepe. 
 
FRAZER