DTI DISCUSSES BEE WITH COMMERCE DAS VINEYARD

UNCLAS SECTION 01 OF 02 PRETORIA 000922

SIPDIS

SENSITIVE BUT UNCLASSIFIED

DEPT FOR AF/S KGAITHER; AF/EPS CAKUETTEH AND MFLEMING
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
COMMERCE ALSO FOR HVINEYARD
TREASURY FOR OWHYCHE-SHAW
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON

E.O. 12958: N/A
TAGS: ETRD EINV EFIN EMIN SF AGOA USTR
SUBJECT: DTI DISCUSSES BEE WITH COMMERCE DAS VINEYARD

REF: Pretoria 847

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


1. (SBU) Summary. At a meeting on February 18 with Ms.
Polo Radebe, Director of Black Economic Empowerment in the
Department of Trade and Industry, Commerce DAS Holly
Vineyard expressed U.S. support for the goals of BEE but
underlined the need for flexibility in implementing its
provisions, particularly with respect to the issue of
equity. Ms. Radebe acknowledged the concerns of U.S.
companies. She discussed the recently released draft Codes
of Good Practice and the implications for all sectors,
including those already covered by other charters and
legislation. She said there is still a lot of debating
going on and many possibilities of how BEE will apply to
foreign investors. DTI needs to find a balance and some
level of flexibility given that South Africa wants to
increase FDI and cannot afford to lose the FDI it has. End
summary.


2. (SBU) Commerce DAS Holly Vineyard met Ms. Polo Radebe,
Director of Black Economic Empowerment (BEE),and Ms.
Rashmee Ragaven, Deputy Director of the same office, on
February 18 at the Department of Trade and Industry (DTI).
Economic officer and commercial officer accompanied her.
DAS Vineyard reiterated U.S. support for the goals of BEE
but underlined the need for flexibility in implementing its
provisions, particularly with respect to the issue of
equity. She stressed the difficulty that U.S. firms would
face in meeting rigid requirements on equity. She noted
that companies have expressed frustration with trying to
comply with different scorecards.


3. (SBU) Ms. Radebe replied that the South African
government was well aware of these concerns. She explained
that DTI issued the "Codes of Good Practice on Black
Economic Empowerment" in order to deal with questions about
interpretation. For example, there were different
scorecards in different charters. The idea of the Codes is
to bring these issues together. She provided DAS Vineyard
with a BEE strategy document and a 130-page draft on the
Codes that are out for comment due by March 7. "All will be
required to use the Codes," said Radebe, adding that there
would be a twelve-month grace period provided in order to
align the various codes currently issued.


4. (SBU) Of the comments DTI has received so far, one of the
most frequent questions has been what are the implications
for other BEE initiatives where the standards are different,
for example in the financial services charter (FSC) and the
mining charter. Radebe said there is a need for
standardization. For example, she noted there are different
definitions of a "black" person. She suggested that sectors
might have to go back with a "re-think" of their charters
because there are a lot of fundamental differences. There
are major concerns by the financial services people about
what the Codes may imply for the FSC. The mining sector is
also unhappy about elements in the Codes that are not in the
mining charter. "Most likely they will have to comply with
the Codes," she said, adding there "will be convergence over
time." Radebe said there would be discussions with the
Department of Minerals and Energy (DME). One of the
difficulties is that the mining charter came as result of a
different piece of legislation, the mining act. There are
questions about whether the mining charter complies with the
Codes and with the BEE Act.


5. (SBU) Radebe indicated that DTI would need to find a
balance in implementing BEE. "We appreciate the concerns
that companies have. and are also looking at ways to bring
certainty." She said there is still a lot of debating going
on and many possibilities of how BEE will apply to foreign
investors. One option would be generally to provide no
exemption from equity for foreign firms. There is some
support for this view given that some companies have been
able to comply in other emerging developing countries with
similar local requirements. While multinationals have to be
part of the process, there is also the issue of how local
firms would feel if multinationals got an exemption that did
not apply to local firms. At the same time, she
acknowledged that some foreign companies might have a policy
on global equity restrictions. Still, she suggested that
all companies needed to think about how they could make a
contribution to BEE and not see it as a penalty. They
should also see how BEE might benefit the company in 10
years even if there were costs today. In any event, DTI did
want some level of flexibility given that South Africa wants
to increase FDI and cannot afford to lose the FDI it has.

6. (SBU) DAS Vineyard noted that U.S. companies operating in
South Africa have difficulty in explaining BEE to their
headquarters. U.S. companies that are looking to invest in
South Africa have a similar problem. Radebe responded that
part of the problem is the way South Africa has "marketed"
it. She suggested they ought to speak better in business
terms, in rands and cents. After it reaches a decision
regarding BEE policy for multinationals, one possibility
would be for DTI to conduct an international road show to
explain what South Africa is doing. In closing, Vineyard
encouraged DTI to continue the dialog with the United States
on BEE.


7. (U) Commerce DAS Holly Vineyard cleared this cable.

FRAZER