SOUTH AFRICA: DRAFT BEE CODE 300: EMPLOYMENT

UNCLAS SECTION 01 OF 03 PRETORIA 000575 SIPDIS SENSITIVE 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 E.O. 12958: N/A TAGS: EINV ETRD EFIN ECON USTR SF SUBJECT: SOUTH AFRICA: DRAFT BEE CODE 300: EMPLOYMENT EQUITY REF: (A) 05 PRETORIA 4854 (B) 05 PRETORIA 4855 (C) 05 PRETORIA 4856 (D) 06 PRETORIA 337 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. Included in the second phase is Code 300. This code sets forth the scoring criteria for firms striving to comply with BEE objectives as they relate to general employment. The employment equity portion accounts for 10% of the BEE scorecard. In each instance, the actual number of points awarded is calculated by multiplying the fraction of a compliance target (there are six) achieved by the number of possible points allotted for each target. In a recent meeting of their BEE Committee, members of the local American Chamber of Commerce voiced a number of concerns about this draft statement. 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) as well as 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 Code 300, which sets forth the scoring criteria for firms striving to comply with BEE objectives as they relate to general employment. Subsequent cables will address issues of import that the other draft codes present. CODE 300 -------------- ¶5. (U) Code 300 sets forth six compliance targets pertaining to employment equity. Total points account for 10% of the BEE scorecard. In each instance, the actual number of points awarded is calculated by multiplying the fraction of a compliance target achieved by the number of possible points allotted for each target. Excess scoring for exceeding any of the employment equity targets is not possible. For a more complete understanding as to how this portion of the generic scorecard factors into the rest of the scorecard, PRETORIA 00000575 002 OF 003 please refer to Ref A. ¶6. (U) Under draft Code 300, a firm can earn a maximum of two points if black people with disabilities represent 4% of the total full-time employees. A firm can earn a maximum of two points if 60% of senior management is black and an additional two points if black women comprise 30% of senior management. A firm can earn a maximum of two percentage points if 75% of its professionals, experienced specialists, and middle managers are black and one percentage point if 40% are black women. A firm can earn a maximum of one point if 80% of its qualified workers, junior management, supervisors, foremen, and superintendents are black. The following table spells out the maximum possible points and employment targets, as percentage of a firm's general work force, for employment equity in the BEE scorecard: BEE Points Target -------------- -------------- Black people with disabilities 2 4% Black people at senior management level 2 60% Black women at senior management level 2 30% Black people as professionals, 2 75% specialists and middle management Black women as professionals, 1 40% specialists and middle management Black people employed as qualified 1 80% workers, junior management, supervisors, foreman, and superintendents Concerns -------------- ¶6. (SBU) On February 1 2006, members of the BEE Committee of the local American Chamber of Commerce met to discuss draft Code 300. Committee members agreed that the employment equity targets were onerous. A human resources consultant pointed out that an average firm with an 8% attrition rate would have to hire only blacks for six to eight years running to comply with the target for hiring blacks. A large automobile manufacturer added that its attrition rate was considerably lower so it would take much longer. The target of 4% for disabled blacks suggested that there were as many as 600 thousand disabled blacks able to work and with evenly distributed skills. The target for learnerships (i.e., one-year paid internships) would make one out of every five employees an intern. This seemed to assume that industry was the only source of training. ¶7. (SBU) Moreover, the paradigm was rather strict, setting forth specific categories within employment equity for companies to score points, but with little flexibility for overscoring in one area to compensate for difficulties with another. Several committee members thought that such high compliance targets should be phased in over time and with recognition that not all categories of employees were immediately available. The committee noted that while these targets would be difficult for existing companies, they would be even more difficult for companies starting without a base of operations in South Africa. This could hamper future investment. Pertinent Definitions -------------- ¶8. (U) "Senior management" means those occupational levels as determined through the use of selected grading systems as employed in South Africa. ¶9. (U) "Top management" means those occupational levels as determined through the use of selected grading systems as employed in South Africa ¶10. (U) "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 00000575 003 OF 003 apartheid regime. ¶11. (U) According to the Employment Equity act 55 of 1998, "people with disabilities" means people who have a long-term or recurring physical or mental impairment which substantially limits their prospects for advancement or entry into employment. ¶12. (U) The "Economically Active Population" is defined by Statistics South Africa as the total working population aged 15 to 65 less the non economically active population. This excludes full-time scholars and students, full-time homemakers, retirees, and those unable or unwilling (have not taken active steps to look for work in the four weeks prior to the survey) to work. In September 2005, Statistics South Africa estimated that the Economically Active Population was 16.788 million. TEITELBAUM