MUCH IMPROVED ICT CHARTER DELIVERED TO SAG

UNCLAS SECTION 01 OF 02 PRETORIA 001904

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 ECIN ECON SF
SUBJECT: MUCH IMPROVED ICT CHARTER DELIVERED TO SAG

REFTEL: A) PRETORIA 1166

B) PRETORIA 937
B) PRETORIA 922
B) PRETORIA 425
C) 04 PRETORIA 5063

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


1. (SBU) SUMMARY. The information and communications
technology (ICT) Charter Steering Committee delivered its
final draft of the ICT empowerment Charter to Minister of
Communications Ivy Matsepe-Casaburri May 5. This draft has
been reduced from ninety to thirty pages and is a
significant improvement in both form and substance from
earlier drafts. The draft elaborates on equity exemptions,
overscoring, bonus points, as well as the roles and
composition of the Charter Council. Initial responses from
U.S. multinational firms operating in South Africa are
positive although some say that additional clarification is
needed on equity exemptions and approved equity equivalents.
Additional changes may be made to the Charter as the
Department of Trade and Industry (DTI) releases additional
empowerment guidelines (aka Codes of Good Practice). The
ICT Charter Steering Committee has requested that the
Charter be published as a Code of Good Practice for the ICT
industry, which means that efforts by ICT firms to comply
with scorecard targets will be measured according to the ICT
Charter scorecard as opposed to DTI's generic scorecard. A
copy of the ICT Charter has been sent to AF/S. END SUMMARY.


2. (SBU) Following substantive April consultations with
U.S. multinationals and other industry stakeholders, the
information and communications technology (ICT) Charter
Steering Committee delivered its final draft of the ICT
empowerment Charter to Minister of Communications Ivy
Matsepe-Casaburri May 5. Executive Director of the American
Chamber of Commerce in South Africa (AmCham) Luanne Grant
and representatives of U.S. multinationals operating in
South Africa told Econoff that overall they are pleased with
the new draft Charter., although implementation will present
new challenges. Equally important, the new draft Charter
represents acceptance of the principle of equity offsets.
They also said that the Charter appears to be more in line
with their recommendations.

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NEW ICT CHARTER SCORECARD TARGETS
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3. (U) This draft was trimmed from ninety to thirty pages
and is a significant improvement in both form and substance
from earlier versions. ICT Charter scorecard targets are in
line with the Department of Trade and Industry's generic
scorecard published with the Codes of Good Practice in
December 2004. ICT Charter targets are as follows:

Access to ICTs and Corporate Social Investment: 1.5 percent
of profit before tax.

Enterprise Development: Quantifiable support equal to 5
percent of eligible procurement for black small businesses.

Preferential Procurement: 70 percent of eligible
procurement should be conducted with empowered companies.

Skills Development: 2 percent of payroll for investment in
skills development programs. Companies should also provide
learnerships (i.e., internships) equivalent to 5 percent of
its number of employees.

Employment Equity: 50 percent of senior management should
be historically disadvantaged individuals (HDIs). 65
percent of other management positions should be held by
HDIs.

Management and Control: 60 percent of a company's governing
body should be comprised of HDIs. Of this number, half
should be women.

Equity Ownership: 30 percent.

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SIGNIFICANT CHARTER CHANGES
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4. (SBU) U.S. multinational firms are pleased with a
number of changes that were made in the Charter. For
instance, a company's BEE status is no longer tied to
minimum requirements in each of the seven scorecard
components. Instead, BEE status is based on the cumulative
score. With the opportunity to earn bonus points, this
effectively allows companies to overscore in certain
scorecard areas to compensate for low scores in others. The
role and composition of the ICT Charter Council were also
clarified. In addition, companies were concerned that the
name of the certificate to be given to companies exempted
from the equity ownership target carried negative
connotations. The certificate will now be called a
"Certificate of Approval" rather than a "Certificate of
Permitted Non-Compliance."


5. (SBU) Finally, while no blanket exemptions will be
granted in the area of equity ownership, exemption
conditions were clarified. Companies seeking a Certificate
of Approval will apply to the Charter Council and disclose
their total revenues accrued directly or indirectly from
South Africa. The companies will propose equity
alternatives such as establishing partnerships with black
companies to increase research and development activities,
expand manufacturing or assembling plants, or identify new
investments. Equity exempt companies will be allocated
points for these equity equivalents based on the ratio of
the cost of investment to total revenue generated in South
Africa. IBM Director of BEE and Corporate Planning Jimmy
Manyi told Econoff that this additional detail is a "step in
the right direction," but that further refinement and
clarification is needed on these points.

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IS THIS REALLY THE FINAL ICT CHARTER?
--------------


6. (U) While ICT Charter Steering Committee Chairperson
Joe Mjwara described this as the final draft Charter, he
acknowledged that it may be updated as the remaining
unpublished Codes of Good Practice become available. After
the Minister of Communications signs off on the Charter it
will undergo a 2-3 week Cabinet review before being
published by DTI for a 60-day public comment period. It is
possible that changes could be proposed during any one of
these subsequent phases.


7. (U) The ICT Charter Steering Committee is asking
government to publish this Charter as a Code of Good
Practice for the ICT industry as opposed to a Transformation
Charter. Redundancy in the use of the term "Code of Good
Practice" has been confusing to industry. DTI's Codes of
Good Practice are government's general BEE guidelines. In
addition, an industry charter may also become a Code of Good
Practice for that sector. Transformation Charters have been
developed by major stakeholders and advance the objectives
of the Broad-Based BEE Act, but fall short of complying with
the requirements of the Codes of Good Practice. This
deficiency prevents the Charter from being published as an
industry Code of Good Practice. The difference between the
two is significant. DTI's generic scorecard will be used to
measure empowerment progress where industries are governed
by a Transformation Charter whereas the Charter scorecard
will be used to measure empowerment compliance only when the
industry Charter has been published as a Code of Good
Practice.


8. (U) A copy of the latest draft of the ICT Charter has
been sent to AF/S.

FRAZER