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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC PRIORITY 0441
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 3574
RUEHDU/AMCONSUL DURBAN 7265
RUEHTN/AMCONSUL CAPE TOWN 2138

UNCLAS SECTION 01 OF 03 PRETORIA 004854 
 
SIPDIS 
 
DEPT FOR AF/S; AF/EPS; EB/TPP/MTA 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
DEPT PASS USTR FOR PCOLEMAN, FLISER AND WJACKSON 
TREASURY FOR BCUSHMAN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ETRD EFIN ECON USTR SF
SUBJECT: SOUTH AFRICA: BEE CODES OF GOOD PRACTICE 
         FRAMEWORK FOR MEASUREMENT 
 
 
¶1. (U) Summary. On November 1, the Department of Trade 
and Industry released the final version of the first two 
Codes of Good Practice for Broad-based Black Economic 
Empowerment (BEE) along with the "Framework for 
Measurement."  The codes, once promulgated, will set 
forth the criteria and methodology for scoring compliance 
with BEE objectives.  The Framework identifies seven 
criteria to be measured by means of a generic scorecard 
with specific targets and rules for compliance.  Firms 
will be assigned BEE status based on their overall 
scorecard performance, which will determine the BEE 
procurement recognition its will be entitled to.  To 
establish a BEE status, all firms must have their BEE 
compliance audited by an accredited verification agency 
annually. End Summary. 
 
Codes of Good Practice and Framework for Measurement 
--------------------------------------------- ------- 
 
¶2. (U) On November 1 2005, the South African Department 
of Trade and Industry (DTI) released the final version of 
its "Framework for Measurement of Broad Based Black 
Economic Empowerment" (the Framework) along with the 
first two Codes of Good Practice.  The Framework sets 
forth a generic scorecard along with a number of 
measurement principles.  Code 100 details how firms 
should comply with targets for BEE equity (septel).  Code 
200 details how firms should comply with targets for BEE 
management and control (septel).  The subject of this 
cable is the Framework, the centerpiece of which is the 
generic scorecard.  All BEE Codes of Good Practice, 
including the Framework, may be found at the following 
Internet website: 
 
   http://www.dti.gov.za/bee/CODESOFGOODPRACTICE 2005.htm 
 
¶3. (U) Since the government released drafts of the 
Framework and the first two codes for comment in December 
of 2004, the South African business community has eagerly 
awaited the final version.  During the comment period 
that was extended to March 7 2005, DTI received more than 
350 submissions from both large and small firms, as well 
as individuals.  In June of 2005, the Minister of Trade 
and Industry met with selected stakeholders to consider 
modifications to the second draft.  The Cabinet approved 
the final draft on October 31 2005.  DTI released it on 
November 1. 
 
¶4. (U) A draft of the remaining seven codes is scheduled 
to be released in December of 2005 or early 2006.  Codes 
300 - 700 and 1000 will deal with employment equity, 
skills development, enterprise development, preferential 
procurement, and small and medium sized enterprises. 
Code 800 will incorporate industry sector codes (based on 
industry charters) as they are approved by the Minister 
of Trade and Industry.  Draft guidelines on BEE equity 
for multinationals, which form a subpart of Code 100, 
will be released for public comment along with the 
others.  Only after all the codes are in final will the 
Minister of Trade and Industry promulgate them together 
in the Government Gazette according to Section 9(1) of 
the BEE Act 53 of 2003 ("the Act).  Thereafter, the codes 
will carry the force of law.  All organs of state and 
public entities must take into consideration the level of 
BEE contribution of all firms seeking to qualify and/or 
compete for government business, licenses and 
concessions, public-private partnerships, and/or the 
purchase of state-owned assets.  The Act states that the 
Minister shall review the Codes of Good Practice after 10 
years, but does not indicate to what end. 
 
Generic Scorecard 
----------------- 
 
¶5. (U) The Framework identifies BEE criteria to be 
measured by means of a generic scorecard.  Each of seven 
criterion contain specific targets and rules for BEE 
compliance to be detailed in specific codes, only two of 
which at this time are in final form (Code 100 on BEE 
ownership and Code 200 on BEE management).  The criteria 
include BEE ownership, BEE management, BEE employment, 
BEE skills development, BEE procurement, BEE enterprise 
development, and a residual element that takes into 
 
PRETORIA 00004854  002 OF 003 
 
 
account sector specific elements and the extent to which 
a firm contributes to BEE social development.  The 
weights assigned to each of seven criterion sum to 100 
points.  The specific weight and operative code for each 
criterion is as follows: 
 
Criteria                  Weight      Operative Code 
--------                  ------      -------------- 
Ownership                 20 points      Code 100 
Management Control        10 points      Code 200 
Employment Equity         10 points      Code 300 
Skills Development        20 points      Code 400 
Preferential Procurement  20 points      Code 500 
Enterprise Development    10 points      Code 600 
Residual                  10 points      Code 700 
 
¶6. (U) All firms will be assigned a BEE status based on 
their overall performance on the scorecard.  The highest 
status is "Level One Contributor," for those firms that 
score 100 points or more (Note: There are a few bonus 
points available).  The lowest possible status is "Non 
Complaint Contributor," for those firms that score fewer 
than 30 points.  A firm's status determines how much BEE 
weight the firm and its customers can claim when 
tendering for government business, applying for licenses 
and concessions, entering into public-private 
partnerships, or purchasing state-owned assets.  The 
chart below sets forth the BEE procurement recognition 
level afforded to transactions with Level 1 to Level 8 
Contributors: 
 
                                        BEE Procurement 
BEE Status             Qualification       Recognition 
----------             -------------    --------------- 
Level 1 Contributor      100+ points         135% 
Level 2 Contributor     85-99 points         125% 
Level 3 Contributor     75-84 points         110% 
Level 4 Contributor     65-74 points         100% 
Level 5 Contributor     55-64 points          80% 
Level 6 Contributor     45-54 points          60% 
Level 7 Contributor     40-44 points          50% 
Level 8 Contributor     30-39 points          10% 
Non Compliant            0-29 points          0% 
 
¶7. (U) For example, if a firm purchases goods or services 
from a Level One Contributor, it may multiply the value 
of its purchase by 135% to arrive a figure representing 
the BEE value of that transaction.  It then adds this 
figure to the BEE value of all of its other purchases 
from all other suppliers to calculate one the 
preferential procurement component of the generic score 
card.  In this way, preferential procurement is factored 
throughout the supply chain, from first tier suppliers to 
government as the ultimate customer.  The practical 
effect is that all firms will have to take BEE into 
account in all of their transactions with other firms if 
they want to stay competitive for most nongovernment 
business, too.  The objective is to create immediate 
access to the mainstream economy for increasing numbers 
of "previously disadvantaged individuals." 
 
VERIFICATION OF COMPLIANCE 
-------------------------- 
 
¶8. (U) All firms must have their level of BEE 
contribution assigned through an annual audit by an 
accredited verification agency, e.g., a qualified big 
four accounting firm or other capable auditing group. 
Compliance will be assessed as of a snapshot on the date 
of measurement.  A firm must be able to furnish evidence 
to support all claims.  Should a firm misrepresent 
itself, its entire scorecard may be disqualified. 
Verification agencies must report misrepresentations or 
circumventions of the BEE Act to the Minister of Trade 
and Industry.  Verification certificates will be valid 
for one year.  A 12-month transitional period from the 
promulgation date of the codes has been allotted to allow 
time for the accreditation of a sufficient number of 
verification agencies. 
 
¶9. (U) Government has appointed the South African 
National Accreditation System (SANAS) as the 
accreditation body for verification agencies.  Any 
 
PRETORIA 00004854  003 OF 003 
 
 
enterprise, organ of state, or public entity may apply 
for such accreditation.  To qualify, an agency must 
itself maintain superior BEE status, be a member of an 
industry body, have sufficiently qualified personnel, 
comply with verification standards, maintain sufficient 
internal controls; and have appropriate levels of 
professional indemnity and insurance.  The details of how 
accreditation will work are still being formulated. 
 
¶10. (U) During the 12-month transitional period following 
the promulgation of all BEE Codes and while accreditation 
of verification agencies is taking place, the Framework 
provides two alternatives for firms to assess the level 
of their BEE contribution.  One is to assess BEE 
contribution via the generic scorecard as set forth in 
the Framework.  The other is to assess BEE contribution 
based solely upon on BEE ownership and BEE management. 
This alternative allows a firm to use an audit for which 
it has already prepared and/or paid.  To calculate its 
total BEE score, the firm will multiply the sum of its 
scores on BEE ownership and BEE management by 1.92. 
Taking this route means that a firm can score no higher 
than 57.6, i.e., a "Level Five Contributor" (see 
Paragraph 6).  In this way, the prospect of scoring more 
than 57.6 encourages firms to switch to the generic 
scorecard even during the transitional period. 
 
The Status of Industry Charters 
------------------------------- 
 
¶11. (U) The Framework clearly explains that until the 
Minister of Trade and Industry has accepted an individual 
industry charter and promulgated it as a "Sector Code" 
under the Act, the charter is a voluntary arrangement 
that does not carry the force of law.  Therefore, it 
cannot be used to calculate the level of a firm's BEE 
contribution.  DTI intends to review all industry 
charters to assure that they conform to the principles 
set forth in the Framework and Codes of Good Practice. 
The process will give each industry the chance to argue 
for exceptions based on the special characteristics of 
its particular sector.  The Minister will decide whether 
to promulgate the charters as individual Sector Codes, 
each of which will become legally binding under Code 800. 
Firms always have the option of using the generic 
scorecard in place of a Sector Code. 
 
¶12. (U) One industry charter, the mining charter, already 
carries the force of law because it is specifically 
referred to in the Mineral and Petroleum Development Act 
of 2003.  For this reason, the mining industry does not 
have to align itself with the Framework or the Codes of 
Good Practice at this juncture. 
 
Definitions 
----------- 
 
¶13. (U) Black is defined as black (i.e., African), 
"coloured," and Indian South Africa citizens (or those 
who could have applied for South African citizenship, if 
permitted) who suffered discrimination under the 
apartheid regime, and their descendents. 
 
TEITELBAUM