Identifier
Created
Classification
Origin
04PRETORIA3726
2004-08-17 15:15:00
CONFIDENTIAL
Embassy Pretoria
Cable title:  

LOCAL REPS FOR U.S. ICT COMPANIES ENDORSE NEW

Tags:  ECPS EINV EFIN ETRD ECON SF 
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171515Z Aug 04
C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 003726 

SIPDIS

DEPT FOR AF/EPS DKRZYWDA AND AF/S/TCRAIG
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AJEWEL, AND BRESNICK
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON

E.O. 12958: DECL: 08/17/2014
TAGS: ECPS EINV EFIN ETRD ECON SF
SUBJECT: LOCAL REPS FOR U.S. ICT COMPANIES ENDORSE NEW
CHARTER TEXT ON EQUITY REQUIREMENTS

REF: A. PRETORIA 2651


B. PRETORIA 2164

C. PRETORIA 2092

Classified By: Econ MC Jeff Hartley. Reasons 1.5 (b,d).

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 003726

SIPDIS

DEPT FOR AF/EPS DKRZYWDA AND AF/S/TCRAIG
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AJEWEL, AND BRESNICK
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON

E.O. 12958: DECL: 08/17/2014
TAGS: ECPS EINV EFIN ETRD ECON SF
SUBJECT: LOCAL REPS FOR U.S. ICT COMPANIES ENDORSE NEW
CHARTER TEXT ON EQUITY REQUIREMENTS

REF: A. PRETORIA 2651


B. PRETORIA 2164

C. PRETORIA 2092

Classified By: Econ MC Jeff Hartley. Reasons 1.5 (b,d).


1. (SBU) SUMMARY. Representatives for U.S. information and
communication technology (ICT) companies operating in South
Africa endorsed new charter language on equity in an August
11 meeting. The new language outlines conditions that must
be met before companies may implement alternative equity
models or be exempted from the ICT Charter requirement to
sell equity to Black South African firms. Their endorsement
contradicts a two-month negotiating strategy and previous
mandate not to support the proposed language. The officials
are quick to point out that they have endorsed only the
equity language and did so in the spirit of moving the
negotiations forward. They say that only corporate
principals can give final approval to the 4th Draft ICT
Charter to be released on August 23. Legal experts
consulting with the American Chamber of Commerce in South
Africa (AmCham) fear U.S. companies may have undermined their
position and forfeited significant leverage in their requests
for greater clarity in the ICT Empowerment Charter. END
SUMMARY.


2. (U) In an unexpected move, a handful of local
representatives for U.S. businesses operating in South Africa
informed their negotiating spokesperson, AmCham Director
Luanne Grant, that they would endorse new ICT charter
language about the sale of equity to Black South African
firms. The development occurred August 11 during a
late-night meeting between AmCham, the ICT Charter Working
Group and officials from South African and U.S. ICT
businesses. This development comes after eight weeks of
negotiations between the Group of 10 ended in a stalemate.
The Group of 10 consists of AmCham and representatives from

U.S. ICT companies on one side and the ICT Working Group and
Black South African ICT businesses and associations on the
other side.


3. (SBU) The announcement came as a surprise to many U.S.
business reps who, for months, had been asking the Working
Group to provide greater clarity in the ICT Charter on key
issues. In particular, U.S. ICT companies sought
clarification on alternative models to selling equity, what
constitutes fronting, how would the ICT BEE Council be formed
and what would its mandate be, and the implementation of a
balanced scorecard approach versus required minimum scoring.
By the end of July, the Group of 10 was no closer to an
accommodation than when negotiations began in early June. On
July 29, ICT Working Group Chairperson Dali Mpofu emailed the
new charter language on equity to AmCham Executive Director
Luanne Grant for distribution to American ICT companies in
South Africa. Mpofu asserted that sufficient time had been
spent discussing the equity issue and that August 2 would be
the last meeting of the Group of 10.


4. (C) Mpofu proposed that ten paragraphs be added to the
ICT Charter outlining how companies that are unable to sell
equity to meet black economic empowerment (BEE) objectives
could propose alternative equity models. If the legal,
technological or policy barriers of a firm do not allow for
any type of alternative equity model, companies can be issued
a Certificate of Permitted Non-Compliance exempting the firm
from the equity ownership requirement. Companies receiving a
Certificate of Non-Compliance would score zero in the equity
component and add up remaining points from their empowerment
criteria to achieve either a bronze, silver or gold
empowerment rating. Upon review, U.S. business officials
agreed that the language still failed to address the balanced
scorecard concept where overscoring in one component would
compensate for underscoring in another. They also said that
the language did not provide sufficient clarity on what
barriers would be considered legitimate and which of the
proposed alternative equity models might be accepted.
Lastly, the officials were concerned that the proposed
process would be left to a yet-to-be-created ICT BEE Council
without clarifying how the ICT BEE Council would be created,
who would serve on it and how it would review equity cases.
As a result, U.S. ICT business reps agreed not to endorse the
proposed text on equity at the August 2 meeting.


5. (C) Mpofu then contacted IBM Country GM Mark Harris,
spokesperson for the U.S. ICT companies, on August 6 and
again on August 9. According to Harris, Mpofu offered to
draft a "Letter of Comfort" to provide greater clarity on
overscoring and the scorecard. Mpofu also said that he would
facilitate the creation of an independent legal entity to
evaluate the legitimacy of barriers identified by the
American companies and whether proposed alternative equity
models would be acceptable. On the issue of the Council,
Mpofu said that it was beyond his mandate and, as such, he
was unable to answer questions on the composition and scope
of the ICT BEE Council.


6. (C) In a meeting attended by Econoff on August 11,
multinationals discussed the Working Group's proposed text on
equity. In consultation with ICT attorneys, AmCham concluded
that a Letter of Comfort would not be legally binding and,
therefore, would not provide the assurances that AmCham and
U.S. businesses sought from the ICT Charter. U.S. business
officials joined AmCham at a 6 p.m. meeting with the Working
Group. AmCham presented the view that a Letter of Comfort
did not provide sufficient legal assurances and, furthermore,
only after corporate legal departments had reviewed the
complete Charter would the principals be prepared to
determine whether or not to sign the Charter. After hours of
fruitless discussion, Microsoft Country GM Gordon Frazer
broke ranks with the American companies and said that, in his
opinion, local general managers of U.S. ICT companies had the
authority to decide whether or not to endorse the proposed
Charter language on equity. Frazer continued that "in the
spirit of moving the process forward" he would endorse the
language. According to Grant, all but one of the remaining
nine multinational representatives appeared satisfied with
Frazer's suggestion, calling on Grant to endorse the proposed
language on behalf of the multinationals. Despite a previous
survey where 22 of 25 multinationals voted not to accept the
proposed language, Grant yielded to the majority at hand and
agreed to a signing ceremony at a Press Conference scheduled
for the following day.


7. (C) Representatives from the U.S. companies are quick to
point out that they have endorsed only the specific text on
equity and did so in the spirit of moving the negotiations
forward. They say that only corporate principals can give
final approval to the 4th Draft ICT Charter to be released to
the public on August 23. They say that without clarity on
the key issues, corporate principals are not likely to sign
the Charter.


8. (C) Legal experts consulting with AmCham fear that the
American companies may have undermined their position and
forfeited significant leverage in the run up t a meeting of
President Mbeki's International IT Advisory Council. Harris,
however, said that despite strong pressure to prevent the
inclusion of equity and the ICT Charter on the agenda, they
would be discussed at the meeting. In addition, AmCham is
following up on an offer made by Minister of Communications
Ivy Matsepe-Casaburri at the August 12 press conference to
meet with the U.S. businesses to resolve their remaining
concerns.


9. (U) The full text of the language on equity endorsed by
AmCham on behalf of the American ICT companies was released
to journalists at the August 12 press conference and the text
will be faxed to AF/S.
FRAZER