UNCLAS SECTION 01 OF 02 PRETORIA 005316

SIPDIS

DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR BRESNICK, LSTURM, AND AJEWELL
DEPT PASS USTR FOR PCOLEMAN, WJACKSON AND CHAMILTON

SENSITIVE

E.O. 12958: N/A
TAGS: EINV ETRD EFIN ECON SF
SUBJECT: TRADE MINISTER RELEASES BEE CODES OF GOOD
PRACTICE

REF: PRETORIA 5063

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


1. (SBU) SUMMARY. South Africa's Minister of Trade
and Industry Mandisi Mpahlwa released three draft
Codes of Good Practice providing long-awaited
guidelines on the Black Economic Empowerment
Framework, Equity Ownership, and Management. The
Minister said these Codes come at a time of
"inconsistent application of Broad-Based Black
Economic Empowerment (BBBEE) both from the public and
private sector." The Black Economic Empowerment
Framework introduces a new generic scorecard
recommending that companies achieve 25.1 percent BEE
equity levels, 40 percent black management, 50
percent procurement from black-owned firms, and 50
percent equality in employment. Sector charters
should use these figures as a guide and limit
variations to 5 percent. Greater deviations might be
accepted if objectively "based on sound economic
principles." A DTI official told Econoff that the
Minister would eventually release a statement on
"Ownership for Multinationals" to address the issue
of exemptions for multinationals. Public comments on
these Codes will be accepted for the next 60 days.
END SUMMARY.


2. (U) South Africa's Minister of Trade and Industry
Mandisi Mpahlwa released three draft Codes of Good
Practice December 8. The Codes provide long-awaited
guidelines on the Black Economic Empowerment
Framework (Code 000), Equity Ownership (Code 100),
and Management (Code 200). Public comments on the
Codes will be accepted for the next 60 days. The
Minister said these Codes come at a time of
"inconsistent application of Broad-Based Black
Economic Empowerment (BBBEE) both from the public and
private sector" and that "there has been a lack of
full understanding and appreciation of the principles
of BBBEE." The Minister said that these Codes will
ensure harmonization among the various industry

charters and will bring about "predictability,
consistency, and sustainability in the marketplace."


3. (U) The Minister clarified that he is not
releasing these Codes as an approved Cabinet
document. He said that while Cabinet members
reviewed the draft Codes and gave a precursory go-
ahead, the BBBEE Act requires a 60-day public comment
period which may lead to modifications of the Codes.
The Department of Trade and Industry (DTI) plans to
review public comments and have these three Codes
gazetted in March. Another seven Codes will be
released in a "second phase."


4. (U) The Codes of Good Practice explain and
clarify issues pertaining to the various BEE
scorecard components and consist of one or more
"statements." A "statement" is a key principle
guiding the implementation of a particular BEE issue.
These Codes are not to be confused with industry
Charters that, once approved and gazetted by DTI,
will also be referred to as Codes of Good Practice.
The three Codes released December 8 are available at:
www.dti.gov.za.


5. (U) The Black Economic Empowerment Framework
(Code 000) includes a new generic scorecard
recommending clear targets. Among other things, the
scorecard recommends that companies achieve 25.1
percent BEE equity levels, 40 percent black
management, 50 percent procurement from black-owned
firms, and 50 percent equality in employment. The
Minister said that sector charters should use these
figures as a guide and that variations should, as far
as possible, be limited to 5 percent. He also said
that industries with existing Charters that are not
in line with the new generic scorecard would have
twelve months in which to adjust their targets.
Deviations greater than 5 percent might be accepted
if objectively "based on sound economic principles."
In response to a question, the Minister stated that,
ultimately, scorecard targets of gazetted charters,
that is, charters approved by DTI and the sector
department, would take precedence over DTI's generic
scorecard targets.


6. (U) Code 100 on Equity Ownership outlines the
various elements of ownership: economic interest and
voting rights. The Code recommends that ownership
points be divided between "facilitation points" and
points that will accrue as the BEE partner(s) achieve
unencumbered equity. The Minister said this
arrangement would ensure that companies are
separately rewarded for facilitating an empowerment
transaction as well as the sustainability of the
transaction.


7. (SBU) A DTI official told Econoff that the
Minister would release at an unspecified date an
Equity Ownership statement on "Ownership for
Multinationals." He said that this statement would
address the issue of exemptions for multinationals
and would likely generate a great deal of
controversy. FRAZER