Cablegate: Update On Bee Charter Issues

This record is a partial extract of the original cable. The full text of the original cable is not available.

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.

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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.

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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.

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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.

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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

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