DTI MINISTER ON BEE

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SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: EINV ETRD EFIN ECIN ECON SF
SUBJECT: DTI MINISTER ON BEE

(U) This cable is sensitive but unclassified. Not for
Internet distribution.


1. (SBU) SUMMARY. Minister of Trade and Industry Mandisi
Mpahlwa reviewed the economic and social rationale for BEE
and said that empowerment would contribute to economic
growth during a September 30 breakfast briefing. Mpahlwa
said that Codes of Good Practice regulating rating agencies
were imminent and that he was creating a new list of
proposed candidates for the BEE Advisory Council. The
Department of Trade and Industry (DTI) is updating the
Preferential Procurement Act and regulations to place more
emphasis on the achievement of social (BEE) goals. Mpahlwa
recognized the contribution of U.S. business in the 1970s
and 1980s to the development of black professionals through
implementation of the Sullivan Principles. END SUMMARY.


2. (U) In a September 30 breakfast briefing at the American
Chamber of Commerce in South Africa (AmCham),the Department
of Trade and Industry (DTI) Minister Mandisi Mpahlwa spoke
about Black Economic Empowerment (BEE). DTI is the lead
government agency on BEE policy and is statutorily
responsible for providing the government's seal of approval
to industry charters.

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MINISTER REVIEWS BEE RATIONALE
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3. (U) Mpahlwa pointed to the historical denial of economic
opportunity and "systematic oppression" of South Africa's
previous landless black majority as the economic and social
rationale for BEE. The Minister said that despite
significant progress over the past ten years in establishing
a strong macro-economic policy and legislative framework to
combat the legacy of apartheid, a lack of access to finance
through much of the 1990s stifled development of black
business.

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BEE WILL GENERATE GROWTH
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4. (SBU) Mpahlwa said that BEE was part of South Africa's
growth strategy and added that economic expansion will
sustain the implementation of BEE. Mpahlwa said that
industry empowerment charters and scorecards promote a
general approach to empowerment that is broad-based. He
acknowledged the corporate process that prevents local
representatives of foreign firms from making key decisions
and said that multinational companies should be recognized
for their work in other BEE criteria if the local entity
cannot sell equity. Mpahlwa pointed to the Financial
Services Charter as an example of this. (COMMENT: The
Minister's comment in this regard provides hope for the
Information and Communication Technology (ICT) sector where
the current version of the Charter indirectly penalizes
firms exempted from the sale of equity. END COMMENT).


5. (U) Mpahlwa told the audience that members of the
Presidential International Advisory Council (PIAC) raised
concerns about the ICT Charter process in a recent meeting
with President Mbeki. Mpahlwa said that the President
promised to look "seriously" at the issues causing concern
to business, which includes ICT Charter provisions on the
sale and scoring of equity.

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CODES OF GOOD PRACTICE
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6. (SBU) Responding to a question on accrediting agencies,
DTI Deputy Director-General Lionel October said that the
Government is concerned with the proliferation of rating
agencies and the high fees they charge to measure company
compliance with the sector scorecard. October said that the
Government does not think these high costs are appropriate
and that DTI is looking at an accreditation system and
evaluating a fee structure. (NOTE: DTI's Codes of Good
Practice will address these issues. Local business
companies expected the Codes to be released this summer, but
the Minister said he had not yet reviewed them. He said he
was scheduled to review them on October 3. END NOTE).

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BEE ADVISORY COUNCIL
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7. (SBU) Mpahlwa discussed the status of the National BEE
Advisory Council, which has yet to be formed. He said that
he was busy compiling a new list of proposed candidates for
the Advisory Council. Another DTI official had previously
told Econoff that Mbeki refused the first list of candidates
because it was dominated by the BEE "elite," politically
connected businesspeople who have won a majority of the
empowerment deals. The official said that Mbeki had called
for greater representation from the provinces and industry.

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PREFERENTIAL PROCUREMENT ACT AND BEE
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8. (SBU) Mpahlwa said that the DTI is in the process of
updating the Preferential Procurement Policy Framework Act
of 2000 to bring it more in line with BEE objectives. The
Preferential Procurement Act and its regulations govern the
tender process for state-owned entities. Currently, a bid
for a government tender valued at over R500,000 (about
$77,000) is judged 90 percent on its price and just 10
percent for the bidding company's achievement of specified
social development goals (e.g., (sub)contracting with
historically disadvantaged individuals (HDI),promoting
South African enterprises, promoting exports to create jobs,
promoting Small Micro and Medium Enterprises (SMMEs),
developing human resources and skills, uplifting
communities, etc.). Bids for government tenders valued at
less than R500,000 are judged 80 percent on price and 20
percent on achievement of social goals. A DTI official
involved in the process told Econoff that the 90/10, 80/20
gaps would be reduced, placing a stronger emphasis on a
bidder's achievement of BEE objectives. He said that a
review of the Preferential Procurement regulations is
currently underway, which will be followed by an amendment
to the Preferential Procurement Act.

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KUDOS TO U.S. FIRMS
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9. (U) The Minister concluded his remarks by thanking
American companies for providing economic opportunities to
black professionals in the 1970s and 1980s through their
implementation of the Sullivan Principles. He specifically
singled out IBM and SA Breweries for their contributions
during that time.

FRAZER