This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 004532 
 
SIPDIS 
 
DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWELL 
DEPT PASS USTR FOR PCOLEMAN, WJACKSON AND CHAMILTON 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: EINV ETRD EFIN ECIN ECON SF
SUBJECT:  DTI MINISTER ON BEE 
 
(U) This cable is sensitive but unclassified.  Not for 
Internet distribution. 
 
¶1.  (SBU) SUMMARY. Minister of Trade and Industry Mandisi 
Mpahlwa reviewed the economic and social rationale for BEE 
and said that empowerment would contribute to economic 
growth during a September 30 breakfast briefing.  Mpahlwa 
said that Codes of Good Practice regulating rating agencies 
were imminent and that he was creating a new list of 
proposed candidates for the BEE Advisory Council.  The 
Department of Trade and Industry (DTI) is updating the 
Preferential Procurement Act and regulations to place more 
emphasis on the achievement of social (BEE) goals.  Mpahlwa 
recognized the contribution of U.S. business in the 1970s 
and 1980s to the development of black professionals through 
implementation of the Sullivan Principles.  END SUMMARY. 
 
¶2.  (U) In a September 30 breakfast briefing at the American 
Chamber of Commerce in South Africa (AmCham), the Department 
of Trade and Industry (DTI) Minister Mandisi Mpahlwa spoke 
about Black Economic Empowerment (BEE).  DTI is the lead 
government agency on BEE policy and is statutorily 
responsible for providing the government's seal of approval 
to industry charters. 
 
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MINISTER REVIEWS BEE RATIONALE 
------------------------------ 
 
¶3.  (U) Mpahlwa pointed to the historical denial of economic 
opportunity and "systematic oppression" of South Africa's 
previous landless black majority as the economic and social 
rationale for BEE.  The Minister said that despite 
significant progress over the past ten years in establishing 
a strong macro-economic policy and legislative framework to 
combat the legacy of apartheid, a lack of access to finance 
through much of the 1990s stifled development of black 
business. 
 
------------------------ 
BEE WILL GENERATE GROWTH 
------------------------ 
 
¶4.  (SBU) Mpahlwa said that BEE was part of South Africa's 
growth strategy and added that economic expansion will 
sustain the implementation of BEE.  Mpahlwa said that 
industry empowerment charters and scorecards promote a 
general approach to empowerment that is broad-based.  He 
acknowledged the corporate process that prevents local 
representatives of foreign firms from making key decisions 
and said that multinational companies should be recognized 
for their work in other BEE criteria if the local entity 
cannot sell equity.  Mpahlwa pointed to the Financial 
Services Charter as an example of this.  (COMMENT: The 
Minister's comment in this regard provides hope for the 
Information and Communication Technology (ICT) sector where 
the current version of the Charter indirectly penalizes 
firms exempted from the sale of equity. END COMMENT). 
 
¶5.  (U) Mpahlwa told the audience that members of the 
Presidential International Advisory Council (PIAC) raised 
concerns about the ICT Charter process in a recent meeting 
with President Mbeki.  Mpahlwa said that the President 
promised to look "seriously" at the issues causing concern 
to business, which includes ICT Charter provisions on the 
sale and scoring of equity. 
 
---------------------- 
CODES OF GOOD PRACTICE 
---------------------- 
 
¶6.  (SBU) Responding to a question on accrediting agencies, 
DTI Deputy Director-General Lionel October said that the 
Government is concerned with the proliferation of rating 
agencies and the high fees they charge to measure company 
compliance with the sector scorecard.  October said that the 
Government does not think these high costs are appropriate 
and that DTI is looking at an accreditation system and 
evaluating a fee structure.  (NOTE: DTI's Codes of Good 
Practice will address these issues.  Local business 
companies expected the Codes to be released this summer, but 
the Minister said he had not yet reviewed them.  He said he 
was scheduled to review them on October 3. END NOTE). 
 
-------------------- 
BEE ADVISORY COUNCIL 
-------------------- 
 
¶7.  (SBU) Mpahlwa discussed the status of the National BEE 
Advisory Council, which has yet to be formed.  He said that 
he was busy compiling a new list of proposed candidates for 
the Advisory Council.  Another DTI official had previously 
told Econoff that Mbeki refused the first list of candidates 
because it was dominated by the BEE "elite," politically 
connected businesspeople who have won a majority of the 
empowerment deals.  The official said that Mbeki had called 
for greater representation from the provinces and industry. 
 
------------------------------------ 
PREFERENTIAL PROCUREMENT ACT AND BEE 
------------------------------------ 
 
¶8.  (SBU) Mpahlwa said that the DTI is in the process of 
updating the Preferential Procurement Policy Framework Act 
of 2000 to bring it more in line with BEE objectives.  The 
Preferential Procurement Act and its regulations govern the 
tender process for state-owned entities.  Currently, a bid 
for a government tender valued at over R500,000 (about 
$77,000) is judged 90 percent on its price and just 10 
percent for the bidding company's achievement of specified 
social development goals (e.g., (sub)contracting with 
historically disadvantaged individuals (HDI), promoting 
South African enterprises, promoting exports to create jobs, 
promoting Small Micro and Medium Enterprises (SMMEs), 
developing human resources and skills, uplifting 
communities, etc.).  Bids for government tenders valued at 
less than R500,000 are judged 80 percent on price and 20 
percent on achievement of social goals.  A DTI official 
involved in the process told Econoff that the 90/10, 80/20 
gaps would be reduced, placing a stronger emphasis on a 
bidder's achievement of BEE objectives.  He said that a 
review of the Preferential Procurement regulations is 
currently underway, which will be followed by an amendment 
to the Preferential Procurement Act. 
 
--------------------------- 
KUDOS TO U.S. FIRMS 
--------------------------- 
 
¶9.  (U) The Minister concluded his remarks by thanking 
American companies for providing economic opportunities to 
black professionals in the 1970s and 1980s through their 
implementation of the Sullivan Principles.  He specifically 
singled out IBM and SA Breweries for their contributions 
during that time. 
 
FRAZER