US embassy cable - 05PRETORIA922

UNCLAS SECTION 01 OF 02 PRETORIA 000922 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
DEPT FOR AF/S KGAITHER; AF/EPS CAKUETTEH AND MFLEMING 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
COMMERCE ALSO FOR HVINEYARD 
TREASURY FOR OWHYCHE-SHAW 
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, EFIN, EMIN, SF, AGOA, USTR 
SUBJECT: DTI DISCUSSES BEE WITH COMMERCE DAS VINEYARD 
 
REF:   Pretoria 847 
 
(U) This cable is sensitive but unclassified.  Not for 
Internet Distribution. 
 
1.  (SBU) Summary.  At a meeting on February 18 with Ms. 
Polo Radebe, Director of Black Economic Empowerment in the 
Department of Trade and Industry, Commerce DAS Holly 
Vineyard expressed U.S. support for the goals of BEE but 
underlined the need for flexibility in implementing its 
provisions, particularly with respect to the issue of 
equity.  Ms. Radebe acknowledged the concerns of U.S. 
companies.  She discussed the recently released draft Codes 
of Good Practice and the implications for all sectors, 
including those already covered by other charters and 
legislation.  She said there is still a lot of debating 
going on and many possibilities of how BEE will apply to 
foreign investors.  DTI needs to find a balance and some 
level of flexibility given that South Africa wants to 
increase FDI and cannot afford to lose the FDI it has.  End 
summary. 
 
2.  (SBU) Commerce DAS Holly Vineyard met Ms. Polo Radebe, 
Director of Black Economic Empowerment (BEE), and Ms. 
Rashmee Ragaven, Deputy Director of the same office, on 
February 18 at the Department of Trade and Industry (DTI). 
Economic officer and commercial officer accompanied her. 
DAS Vineyard reiterated U.S. support for the goals of BEE 
but underlined the need for flexibility in implementing its 
provisions, particularly with respect to the issue of 
equity.  She stressed the difficulty that U.S. firms would 
face in meeting rigid requirements on equity.  She noted 
that companies have expressed frustration with trying to 
comply with different scorecards. 
 
3.  (SBU) Ms. Radebe replied that the South African 
government was well aware of these concerns.  She explained 
that DTI issued the "Codes of Good Practice on Black 
Economic Empowerment" in order to deal with questions about 
interpretation.  For example, there were different 
scorecards in different charters.  The idea of the Codes is 
to bring these issues together.  She provided DAS Vineyard 
with a BEE strategy document and a 130-page draft on the 
Codes that are out for comment due by March 7.  "All will be 
required to use the Codes," said Radebe, adding that there 
would be a twelve-month grace period provided in order to 
align the various codes currently issued. 
 
4. (SBU) Of the comments DTI has received so far, one of the 
most frequent questions has been what are the implications 
for other BEE initiatives where the standards are different, 
for example in the financial services charter (FSC) and the 
mining charter.  Radebe said there is a need for 
standardization.  For example, she noted there are different 
definitions of a "black" person.  She suggested that sectors 
might have to go back with a "re-think" of their charters 
because there are a lot of fundamental differences.  There 
are major concerns by the financial services people about 
what the Codes may imply for the FSC. The mining sector is 
also unhappy about elements in the Codes that are not in the 
mining charter.  "Most likely they will have to comply with 
the Codes," she said, adding there "will be convergence over 
time."  Radebe said there would be discussions with the 
Department of Minerals and Energy (DME).  One of the 
difficulties is that the mining charter came as result of a 
different piece of legislation, the mining act.  There are 
questions about whether the mining charter complies with the 
Codes and with the BEE Act. 
 
5. (SBU) Radebe indicated that DTI would need to find a 
balance in implementing BEE.  "We appreciate the concerns 
that companies have. and are also looking at ways to bring 
certainty."  She said there is still a lot of debating going 
on and many possibilities of how BEE will apply to foreign 
investors.  One option would be generally to provide no 
exemption from equity for foreign firms.  There is some 
support for this view given that some companies have been 
able to comply in other emerging developing countries with 
similar local requirements.  While multinationals have to be 
part of the process, there is also the issue of how local 
firms would feel if multinationals got an exemption that did 
not apply to local firms.  At the same time, she 
acknowledged that some foreign companies might have a policy 
on global equity restrictions.  Still, she suggested that 
all companies needed to think about how they could make a 
contribution to BEE and not see it as a penalty.  They 
should also see how BEE might benefit the company in 10 
years even if there were costs today.  In any event, DTI did 
want some level of flexibility given that South Africa wants 
to increase FDI and cannot afford to lose the FDI it has. 
6. (SBU) DAS Vineyard noted that U.S. companies operating in 
South Africa have difficulty in explaining BEE to their 
headquarters.  U.S. companies that are looking to invest in 
South Africa have a similar problem.  Radebe responded that 
part of the problem is the way South Africa has "marketed" 
it.  She suggested they ought to speak better in business 
terms, in rands and cents.  After it reaches a decision 
regarding BEE policy for multinationals, one possibility 
would be for DTI to conduct an international road show to 
explain what South Africa is doing.  In closing, Vineyard 
encouraged DTI to continue the dialog with the United States 
on BEE. 
 
7. (U) Commerce DAS Holly Vineyard cleared this cable. 
 
FRAZER