AMCHAM COMMENTS ON CODES OF GOOD PRACTICE

UNCLAS SECTION 01 OF 03 PRETORIA 000937

SIPDIS

DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER
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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: AMCHAM COMMENTS ON CODES OF GOOD PRACTICE

REFTEL: A) PRETORIA 922

B) PRETORIA 425
C) 04 PRETORIA 5063

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


1. (SBU) SUMMARY. The American Chamber of Commerce in
South Africa (AmCham) submitted comments to the Department
of Trade and Industry (DTI) this week on three draft Codes
of Good Practice released by Minister of Trade and Industry
Mandisi Mpahlwa in December 2004. AmCham's comments focus
on corporate practices and requirements that preclude the
sale of equity as envisioned in BEE charters, transparency
in the creation and implementation of the BEE Advisory
Council, and minimizing the risks inherent in the rating
process. In addition, AmCham's submission includes
questions surrounding the scoring process and calls for
greater clarification on a number of smaller issues. The
deadline for public comments is March 7. Another seven
codes will be released later this year. END SUMMARY.

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BACKGROUND ON THE CODES OF GOOD PRACTICE
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2. (U) Released in accordance with the Broad-Based BEE
(BBBEE) Act of 2003, the Codes of Good Practice explain and
clarify issues pertaining to the various black economic
empowerment (BEE) scorecard components and consist of one or
more "statements." A "statement" is a key principle guiding
the implementation of a particular BEE issue. The three
Codes released in December provide guidelines on the BEE
Framework (Code 000) as well as the equity ownership (Code
100) and management (Code 200) components of BEE.

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CODE 000 - BEE FRAMEWORK
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3. (SBU) Statement 000, titled "Principles and Definition
of Broad-based Black Economic Empowerment," introduced DTI's
new generic scorecard with targets. Paragraphs 46-55
provide in-depth descriptions of the seven scorecard
elements.

AMCHAM RESPONSE: AmCham's argues that language in this
statement could be interpreted in such a way that exempts
organs of state and public entities from complying with the
Codes. AmCham calls for a maximum skills development target
of 3 percent of payroll, which should include the existing 1
percent skills development levy. In the area of enterprise
development, AmCham calls for emphasis on mentorship and
training rather than just direct investment. AmCham also
raised concerns with language in the ICT Charter that may
prevent foreign-owned firms from accumulating bonus points
or achieving minimum scores.


4. (SBU) Statement 10, titled "Sector Transformation
Charters," distinguishes between charters published as
"Transformation Charters" versus "Codes of Good Practice."
In accordance with section 12 of the BBBEE Act, the Minister
must publish a charter as a "Transformation Charter," if it
was developed by major stakeholders in that sector and
advances the objectives of the BBBEE Act. In addition, if
requested by the sector, the Minister may also publish the
charter as a "Code of Good Practice" if it meets the above
criteria AND complies with all the principles and
requirements in the Codes of Good Practice. The differences
in the practical effects of these two documents on
businesses are significant. Firms belonging to an industry
with just a "Transformation Charter" will have their BEE
compliance measured against DTI's generic scorecard. Firms
belonging to an industry with a charter published as a "Code
of Good Practice" will have their BEE compliance measured
against that industry's charter scorecard.

AMCHAM RESPONSE: AmCham calls for clarification of
terminology in this statement. In addition, AmCham argues
that the views of all stakeholders must be taken into
account and reconciled before the industry charter is
published by the Minister. This statement makes a
distinction between "consultation" with stakeholders and
"engagement." "Consultation" is merely a process where
relevant stakeholders are interacted with and informed.
"Engagement" involves a "substantive and intense involvement
in the formulating and drafting of the transformation
charter's principles and measurement criteria."

5. (SBU) Statement 20, titled "BEE Advisory Council,"
outlines the qualification criteria, selection process and
disqualification criteria for those serving on the BEE
Advisory Council. This is the national advisory body
envisioned in sections 4-8 of the BBBEE Act.

AMCHAM RESPONSE: AmCham calls for clarification of
terminology and proposes that council members be
representative of industry and that rules of procedure for
the council be published in the Codes. AmCham asks that
invitations for nominations to the council be sent to all
industry associations and major stakeholders.


6. (SBU) Statement 30, titled "Qualification, Measurement
and Reporting Criteria for Broad-based BEE," identifies
policy instruments assisting in the implementation of BEE
and distinguishes between narrow-based and broad-based BEE
evaluation. Narrow-based BEE evaluation relates to the use
of enterprise definitions (i.e., "black owned company,"
"black empowered company," etc.) in accrediting suppliers
for the purpose of procurement. Broad-based BEE evaluation
accredits suppliers based on their overall performance
against a BEE scorecard.

AMCHAM RESPONSE: AmCham calls for all organs of state and
public entities to be held accountable to these criteria.


7. (U) Statement 40, titled "Glossary," contains all terms
and definitions used throughout the Codes of Good Practice.

AMCHAM RESPONSE: AmCham calls for clarification of
terminology.


8. (SBU) Statement 50, titled "Accreditation of BEE Rating
Agencies," relates to the recognition and accreditation of
BEE Rating Agencies.

AMCHAM RESPONSE: This is a major issue to AmCham members.
Due to confidentiality concerns and potential conflicts of
interest, AmCham proposes that the existing auditing
industry fill the role of rating agencies. AmCham argues
that the auditing profession is already highly regulated and
has well-established quality control procedures that lower
the risk of incorrect assessments.

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CODE 100 - EQUITY OWNERSHIP
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9. (SBU) Statement 100, titled "The Role of Equity
Ownership in Broad-based Economic Empowerment," deals
largely with how to measure black ownership. Twenty-five
percent of the issued share capital of a company must be
owned by "black" people (Blacks, Coloreds, and Indians who
are South African citizens). Ownership is measured by three
separate criteria: voting rights, economic interest, and non-
encumbrance. The targets for all three criteria are at
least 25 percent. A separate statement on multinational
ownership issues will be released later in 2005.

AMCHAM RESPONSE: AmCham argues that multinational companies
have difficulty selling equity for a variety of reasons:
global structure and policy, costs, legal restrictions,
governance issues, and other risks. AmCham argues that
companies should be allowed not to sell equity if they
compensate through over-performance in other areas of the
scorecard. AmCham acknowledges that some multinationals
have sold equity in countries such as India and China, but
says the circumstances are not comparable with S.A. because
the size of their markets can justify the cost of
accommodating a local partner.

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CODE 200 - MANAGEMENT
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10. (SBU) Statement 200, titled "Recognition and
Measurement of Management," deals with measuring the number
of black people that manage and control the company.

AMCHAM RESPONSE: AmCham points out that many foreign-owned
companies do not have local boards of directors and the
emphasis should accordingly be on the executive management
of the firm. AmCham also believes that targets for youth
and disabled are impractical and that gender targets should
be realistic and reflect the dynamics of each industry.


11. (U) Post is sending the complete text of AmCham's
submission to AF/S.

FRAZER