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Cablegate: Black Economic Empowerment - an Overview

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

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

© Scoop Media

 
 
 
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