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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. 
 
¶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