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

UNCLAS SECTION 01 OF 03 PRETORIA 000937 
 
SIPDIS 
 
DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
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. 
 
---------------------------------------- 
BACKGROUND ON THE CODES OF GOOD PRACTICE 
---------------------------------------- 
 
¶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. 
 
----------------------- 
CODE 000 - BEE FRAMEWORK 
----------------------- 
 
¶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. 
 
--------------------------- 
CODE 100 - EQUITY OWNERSHIP 
--------------------------- 
 
¶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. 
 
--------------------- 
CODE 200 - MANAGEMENT 
--------------------- 
 
¶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