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UNCLAS SECTION 01 OF 04 PRETORIA 000676 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
C O R R E C T E D  C O P Y 
 
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 400: SKILLS 
DEVELOPMENT 
 
REF: (A) PRETORIA 4854 
 
     (B) PRETORIA 4855 
     (C) PRETORIA 4856 
     (D) PRETORIA  337 
     (E) PRETORIA  575 
 
Sensitive but Unclassified; Protect accordingly. Not 
For Internet Distribution.  This is a Corrected Copy 
of PRETORIA 646 
 
¶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 
¶400.  This code sets forth the scoring criteria for 
firms striving to comply with BEE objectives as they 
relate to skills development.  The Skills development 
portion accounts for 20% of the BEE scorecard.  In 
most instances, the actual number of points awarded 
is calculated by multiplying the fraction of a 
compliance target (Code 400 has thirteen) 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 Code. 
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 400, which sets 
forth the scoring criteria for firms striving to 
comply with BEE objectives as they relate to skills 
development.  Subsequent cables will address issues 
of import that the other draft codes present. 
 
CODE 400 
-------- 
 
 
PRETORIA 00000676  002 OF 004 
 
 
¶5. (U) Code 400 identifies thirteen compliance 
targets pertaining to skills development which 
together comprise 20% of the BEE scorecard.   For 
most targets, 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.  However, some 
targets simply require the existence of a plan or an 
officer in charge.  Excess scoring for exceeding any 
of the skills development targets is not possible. 
For a complete understanding as to how this portion 
of the generic scorecard is factored into the rest of 
the scorecard, please refer to Ref A. 
 
¶6. (U) Under Code 400, a firm can score four points 
if it spends 3% of payroll on skills development for 
black employees.  A firm can score two points if it 
spends 2.6% of payroll on the development of critical 
and core skills for black employees.  A firm can 
score two points if it spends 1.4% of payroll on the 
development of critical and core skills for black 
women employees.  A firm can score another point if 
it spends 0.3% of payroll on the skills development 
of black employees with disabilities. 
 
¶7. (U) Code 400 allows any skills development 
expenses related to an Adult Basic Education and 
Training (ABET) program to be recognized at a 
multiple of 1.25.  This means $100,000 would be 
recognized as $125,000 for the purposes of the BEE 
scorecard.  ABET programs range from basic literacy 
and numeracy to business and entrepreneurship.  They 
are targeted toward those who were denied educational 
opportunities during apartheid. 
 
¶8. (U) A firm can score two points if Black South 
Africans participating in Sector Education and 
Training Authority (SETA) internship programs number 
5% of the total employees.  A firm can score two 
points if half these Black interns are women.  A firm 
can score another point if a fifth of these Black 
interns are formerly unemployed and/or from rural 
areas. 
 
¶9. (U) In addition, a firm can score one point for 
each of the following: 
-- Implementing a comprehensive, board approved, BEE 
   strategy that integrates all the elements of the 
   BEE scorecard; 
-- Employing a skills development facilitator; 
-- Implementing a policy on non-discrimination that 
   is widely published within the firm and which 
   emphasizes the promotion of racial, gender, 
   religious and cultural diversity.  Regular and 
   ongoing facilitation of external diversity 
   management training should be a part of 
   implementation. 
-- Complying with all relevant employment related 
   legislation. 
-- Implementing an effective human resource 
   Management plan, with measurable performance 
   targets, with the emphasis on retention, career 
   development and long-term career planning of all 
   employees including learners. 
-- Publishing the outcome of routine organizational, 
   social, and environmental audits designed to give 
   practical effect to the BEE strategy and the human 
   resource plan. 
 
¶10. (U) The following table lists criteria, points, 
and targets for deriving a score on skills 
development: 
 
Criteria                               Points  Target 
--------                               ------  ------ 
                                                % of 
Skills Development:                           Payroll 
 
PRETORIA 00000676  003 OF 004 
 
 
Black employees                          4      3.0% 
Critical/core skills of black employees  2      2.6% 
Critical/core skills of black women emp. 2      1.4% 
Black employees with disabilities        1      0.3% 
 
                                                % of 
Learnerships:                               employees 
Black employees on SETA learnerships     2      5.0% 
Black women on SETA learnerships         2      2.5% 
Black people formerly unemployed and/or  1      1.0% 
from rural areas 
 
Organizational Transformation Index: 
BEE strategy                             1      Yes 
Skills development Facilitator           1      Yes 
Policy on non-discrimination             1      Yes 
Compliance with employment legislation   1      Yes 
Human resource management plan           1      Yes 
Progamme to give effect to policies      1      Yes 
 
CONCERNS 
-------- 
 
¶11. (SBU) On February 1, members of the BEE Committee 
of the local American Chamber of Commerce met to 
discuss draft Code 400. Some members regarded the 
skills development targets for black women, black 
people with disabilities, and learnerships as beyond 
the reach of most labour intensive industries, (e.g., 
mining, manufacturing, and construction).  The 5% 
target for one-year paid internships was high for 
some firms, but achievable for others.  In 
particular, the productivity of new employees or 
interns in manufacturing was considerably lower than 
an experienced employee, for whom companies would 
like to keep on the production line.  Some noted that 
expenditure on training was in addition to training 
funded by the current 1% skills development tax.  One 
participant proposed that the term "black people 
formerly residing in rural areas" be clarified as it 
might be difficult to prove that a person was from a 
rural area.  Noting that the increased cost of doing 
business in South Africa would change the incentive 
to invest in the country, members of the committee 
agreed to model the cost of compliance of various 
targets and codes for the government. 
 
Pertinent Definitions 
--------------------- 
 
¶12. (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 
apartheid regime. 
 
¶13. (U) The Sector Education and Training Authority 
(SETA) was established to ensure that the skill needs 
for every sector of the South African economy are 
identified and that training is available to provide 
for these skill needs.  The implementation of SETA 
programs has been subject to considerable criticism 
from different political circles. 
 
¶14. (U) According to the Employment Equity Act 55 of 
1998, "black people with disabilities" means black 
people who have a long-term or recurring physical or 
mental impairment which substantially limits their 
prospects of entry into, or advancement in, 
employment. 
 
¶15. (U) "Core skills" means skills that are related 
to any of the following: 
 
-- value-adding activities in line with the core 
   business; 
 
PRETORIA 00000676  004 OF 004 
 
 
-- areas of business that cannot be outsourced; or 
-- activities within the production/operational 
   component of the value-chain. 
 
¶16. (U) "Critical skills" are those skills to be 
identified by each SETA in accordance with the 
National Skills Development Strategy. 
 
¶17. (U) "National Skills Development Strategy" means 
the national skills development strategy referred to 
in Section 5(1) (a) (ii) of the Skills Development 
Act as further qualified in the strategy released by 
the Department of Labour in March 2005, covering the 
period April 1 2005 to March 31 2010. 
 
¶18. (U) According to the BEE Codes, "learnerships", 
or as we term them in this cable "internships," refer 
to the skills development programs approved by the 
relevant SETA having jurisdiction over each of the 
entities areas of operation and which are fully 
certified in accordance with the National 
Qualifications Framework maintained in terms of South 
African Qualifications Authority Act. 
 
TEITELBAUM