Identifier
Created
Classification
Origin
06PRETORIA337
2006-01-27 14:42:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Pretoria
Cable title:  

SOUTH AFRICA: GOVERNMENT RELEASES THE SECOND

Tags:  EINV ETRD EFIN ECON USTR SF 
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VZCZCXRO4391
PP RUEHDU RUEHJO
DE RUEHSA #0337/01 0271442
ZNR UUUUU ZZH
P 271442Z JAN 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC PRIORITY 1180
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEHTN/AMCONSUL CAPE TOWN 2290
RUEHDU/AMCONSUL DURBAN 7402
RUEHJO/AMCONSUL JOHANNESBURG 3758
UNCLAS SECTION 01 OF 03 PRETORIA 000337 

SIPDIS

DEPT FOR AF/S; AF/EPS; EB/TPP/MTA
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
DEPT PASS USTR FOR FLISER
TREASURY FOR BCUSHMAN

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EINV ETRD EFIN ECON USTR SF
SUBJECT: SOUTH AFRICA: GOVERNMENT RELEASES THE SECOND
PHASE OF BEE CODES OF GOOD PRACTICE FOR COMMENT,
INCLUDING AN ALTERNATIVE ON EQUITY FOR MULTINATIONALS

REF: (A) PRETORIA 4854

(B) PRETORIA 4855
(C) PRETORIA 4856

Sensitive but Unclassified; Protect Accordingly. Not
For Internet Distribution.

UNCLAS SECTION 01 OF 03 PRETORIA 000337

SIPDIS

DEPT FOR AF/S; AF/EPS; EB/TPP/MTA
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
DEPT PASS USTR FOR FLISER
TREASURY FOR BCUSHMAN

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EINV ETRD EFIN ECON USTR SF
SUBJECT: SOUTH AFRICA: GOVERNMENT RELEASES THE SECOND
PHASE OF BEE CODES OF GOOD PRACTICE FOR COMMENT,
INCLUDING AN ALTERNATIVE ON EQUITY FOR MULTINATIONALS

REF: (A) PRETORIA 4854

(B) PRETORIA 4855
(C) PRETORIA 4856

Sensitive but Unclassified; Protect Accordingly. Not
For Internet Distribution.


1. (U) Summary. The South African Department of
Trade and Industry (DTI) released for public comment
drafts of Broad-based Black Economic Empowerment
(BEE) Codes of Good Practice belonging to the second
and final phase on December 20, 2005. The Minister
of Trade and Industry plans to promulgate both the
first (which have been finalized) and the second
phases of the BEE Codes of Good Practice before the
end of 2006. Of particular importance to the foreign
investment community is draft Statement 103, which
introduces the concept of "equity equivalents" as a
means for multinational corporations to satisfy BEE
equity ownership requirements (Ref B). In a recent
meeting of their BEE Committee, members of the local
American Chamber of Commerce (AmCham) voiced a number
of concerns about this draft statement. Members of
the U.S.-South African Business Council voiced
similar concerns. Comments on all BEE codes of good
practice belonging to the second phase must be
submitted to DTI by March 31 2006. End Summary.


2. (U) On December 20 2005, the South African
Department of Trade and Industry (DTI) released for
public comment drafts of BEE Codes of Good Practice
belonging to the second and final phase. Comments
on these draft codes must be submitted to DTI by
March 31 2006. While the BEE Codes of Good
Practice belonging to the first phase have been
finalized (Refs A, B, and C),the Minister of Trade
and Industry will not promulgate them until the
codes belonging to the second phase have also been
finalized. DTI wants this to occur before the end
of 2006.


3. (U) Codes belonging to the second phase deal
with employment equity (Code 300),skills
development (Code 400),preferential procurement
(Code 500),enterprise development (Code 600),
residual contributions (Code 700),and small and
medium sized enterprises (code 1000 - 1700). Also
included in the second phase are subsections to
Codes 000 (the BEE Framework for Measurement) and
100 (BEE Equity). The two subsections for Code 000
deal with misrepresenting BEE status (Statement
001) and verification issues relating to complex
structures (Statement 002). The four subsections

for Code 100 deal with guidelines for the
recognition of BEE ownership by BEE targeted
warehouse funds (Statement 102),multinational
companies (Statement 103),public entities and
organs of the state (Statement 104),and companies
limited by guarantee and Section 21 (i.e.
nonprofit) companies (Statement 105). All may be
sourced from DTI's website: www.thedti.gov.za.


4. (U) This cable focuses on Statement 103, which
is designed to provide alternatives to BEE equity
requirements for multinational corporations.
Subsequent cables will address issues of import
that the other draft codes present.

Statement 103
--------------


5. (U) Draft Statement 103 introduces the concept
of "equity equivalents" as an alternative for
multinational corporations to satisfy BEE equity
ownership requirements as set forth in Code 100
(Ref B). Equity equivalents are defined as
contributions made by local multinational
corporations to a public program or scheme of any
government department, provincial government, or
local government that has been approved by the

PRETORIA 00000337 002 OF 003


Minister of Trade and Industry. Equity equivalents
would be measured against the value of a particular
local business, but at this time it is unclear as
to how they would be scored. Equity equivalents
will only be available to multinational
corporations that do not and never have located
their head offices in South Africa. To qualify for
equity equivalents, multinational corporations must
demonstrate that they:

-- own and control 100% of their local enterprise;

-- maintain a global policy that uniformly applies
restrictions on sharing ownership; and

-- would suffer "substantial commercial harm" if they
transferred equity as prescribed in Code 100.

Concerns
--------------


6. (SBU) In a recent meeting of their BEE Committee,
members of the local American Chamber of Commerce and
members of the U.S.-South Africa Business Council
voiced a number of initial concerns about the way
draft Statement 103 now reads. They noted that the
requirement for multinationals to demonstrate the
existence of a "global policy" was unrealistic, since
few have actually drafted a policy document stating
that they would never sell equity, though it was
clearly their practice. Often there are historical
or idiosyncratic reasons why a small percentage of
multinational businesses are jointly owned. AmCham
members questioned whether the government should
treat equity equivalents as if they were an
operational expense. Raising the cost of doing
business would only reduce investment returns and
hinder investment - hardly in line with the
government's stated objective of raising the growth
rate to 6% by 2014. They questioned the notion that
corporations should donate to undefined government
programs without having the ability to exercise some
control over how those funds might be spent. In
addition, many felt that draft Statement 103 seemed
to penalize foreign investors rather than provide a
reasonable alternative to the sale of equity. This
last sentiment was acknowledged by Acting Chief
Director for BEE Polo Radebe in a January 20 article
in the Mail & Guardian, "People must be careful not
to assume that the equity equivalents are the easier
alternative. An argument can be made that it is
quite an onerous requirement," Radebe was quoted as
saying.

Pertinent Definitions
--------------


7. (U) Draft Statement 103 defined Global Policy as
a globally and uniformly applied restriction upon
the alienation of equity in or the sale of
businesses of the multinational affiliates of a
multinational business imposed by that
multinational business or by any law of application
to the multinational business. Where the global
policy is imposed by a regulator or by the law,
such global policy must substantially have been in
existence prior to the date of promulgation of the
Act.


8. (U) Draft Statement 103 defined an acceptable
valuation standard as the valuation of an asset, an
economic interest, a local multinational
enterprise, or any other instrument or right which
is relevant for measurement.


9. (U) Code 000 defines "black" as black,
"coloured," and Indian South Africa citizens (or
those who could have applied for South African
citizenship, if permitted) who suffered or whose
descendants suffered discrimination under the

PRETORIA 00000337 003 OF 003


apartheid regime.

Next Steps
--------------


10. (SBU) The BEE committee of the American Chamber
of Commerce will analyze the draft BEE codes
belonging to the second phase and submit comments
to DTI on the draft codes on or before March 31

2006. On March 9 2006, AmCham will host a seminar
to discuss the draft BEE codes belonging to the
second phase. Slated to participate are DTI Deputy
Director General for Enterprise and Industry
Development Lionel October, Acting Chief Director
for BEE Polo Radebe, and Director for BEE Jeffery
Ndumo, and Partner at Cliffe Dekker (a local law
firm) Kevin Lester. AmCham and the Washington-
based U.S.-South Africa Business Council have
agreed to exchange views, but to submit separate
submissions to DTI. TEITELBAUM

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