VZCZCXRO6270
PP RUEHDU RUEHJO
DE RUEHSA #0879/01 0620725
ZNR UUUUU ZZH
P 030725Z MAR 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC PRIORITY 1951
INFO RUEHJO/AMCONSUL JOHANNESBURG 4025
RUEHTN/AMCONSUL CAPE TOWN 2473
RUEHDU/AMCONSUL DURBAN 7531
RUEHBU/AMEMBASSY BUENOS AIRES 0204
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 PRETORIA 000879 
 
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: DRAFT BEE CODE 600: ENTERPRISE 
DEVELOPMENT 
 
REF: (A) PRETORIA 05 4854 
     (B) PRETORIA 05 4855 
     (C) PRETORIA 05 4856 
     (D) PRETORIA 06 337 
     (E) PRETORIA 06 575 
     (F) PRETORIA 06 646 
     (G) PRETORIA 06 700 
 
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.  Included in the 
second phase is Code 600.  This code accounts for 10% of 
the BEE scorecard and sets forth the scoring criteria 
for firms striving to comply with BEE objectives as they 
relate to enterprise development.  In each instance, the 
actual number of points awarded is calculated by 
multiplying the fraction of a compliance target (Code 
600 has two) 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 600, which sets forth 
the scoring criteria for firms striving to comply with 
BEE objectives as they relate to enterprise development. 
Septel and reftels report on the other codes. 
 
CODE 600 
-------- 
 
¶5. (U) Draft Code 600 establishes two compliance targets 
for BEE enterprise development along with one bonus 
target.  The idea behind BEE enterprise development is 
to expand the financial and/or operational capacity of 
BEE firms.  Such firms fall into three categories: micro 
 
PRETORIA 00000879  002 OF 003 
 
 
enterprises, black owned firms, and firms that score 
more than 74 points on the BEE scorecard. 
 
¶6. (U) Total points for achieving the two compliance 
targets under draft Code 600 account for 10% of the BEE 
scorecard.  In each instance, 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.  Excess 
scoring for exceeding any Code 600 targets is not 
possible.  However, firms may score a bonus point.  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. 
 
¶7. (U) As set forth in draft Code 600, a firm can score 
six points if it spends 2% of its earnings before income 
tax, depreciation, and amortization (EBITDA) on a "non- 
recoverable contribution" towards the development of a 
"beneficiary entity" (as defined in Paragraphs 14 and 
16).  A firm can score four points if it contributes 3% 
of its EBITDA as a "recoverable contribution" (as 
defined in Paragraph 13) towards the development of a 
"beneficiary entity".  A firm may score a bonus point if 
it creates at least one job per year by contributing to 
BEE enterprise development.  Firms would be measured 
annually and not allowed to carry forward a bonus point 
from one year to the next. 
 
¶8. (U) The following contributions towards enterprise 
development would qualify for recognition at a multiple 
of 1.5: 
 
-- contributions that create employment opportunities in 
   rural communities or areas the government identifies 
   as belong to rural development and urban renewal 
   programs; 
 
-- contributions that assist and accelerate the 
   development of firms which manufacture, produce, or 
   sell goods and/or services not previously produced in 
   South Africa. 
 
Similarly, the following contributions towards 
enterprise development would qualify for recognition at 
a multiple of 1.25: 
 
-- monetary and non-monetary contributions that assist 
   and accelerate the development of micro enterprises; 
 
-- monetary contributions to the funding of warehousing 
   funds. 
 
¶9. (U) The following table lists criteria, points, and. 
targets for deriving an enterprise development score: 
 
Criteria                             Points   Target 
--------                             ------   ------ 
                                               % of 
                                              EBITDA 
 
Non-Recoverable Contribution            6       2% 
 
Recoverable Contribution                4       3% 
 
Bonus point                             1      1 Job 
 
CONCERNS 
-------- 
 
¶10. (SBU) On February 8, members of the BEE Committee at 
the local American Chamber of Commerce met to discuss 
draft Code 600.  Members felt that the targets of 2% for 
non-recoverable contributions and 3% for recoverable 
contributions were onerous.  They wanted clarity on 
whether they could claim points for enterprise 
development and purchasing from BEE suppliers who had 
benefited from enterprise development.  Members 
suggested that the cost of time spent on enterprise 
development be calculated as a fixed cost, as it might 
 
PRETORIA 00000879  003 OF 003 
 
 
be inappropriate to disclose individual salaries.  In a 
subsequent BEE Committee meeting on February 15, DTI 
Director for BEE Jeffrey Ndumo clarified that a firm 
would score a bonus point even if it created just one 
job.  Members thought this needed to be clearly stated 
within the text of the code. 
 
Pertinent Definitions 
--------------------- 
 
¶11. (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. 
 
¶12. (U) "EBITDA" or earnings before income tax, 
depreciation, and amortization should be interpreted in 
accordance with South African Generally Accepted 
Accounting Practice. 
 
¶13. (U) A "recoverable contribution" includes 
investments, loans, guarantees, or any monetary 
contribution that has to be repaid or returned to the 
firm. 
 
¶14. (U) A "non-recoverable contribution" includes 
grants, donations, discounts, and other similar 
quantifiable benefits which are not recoverable by the 
firm. 
 
15.(U) "Small enterprise" is defined as employing fewer 
than 50 employees and, depending on the sector in which 
it operates, an annual turnover of less than R25 
million. 
 
¶16. (U) A "beneficiary entity" includes the following 
type of firms: 
 
-- Any micro enterprise, defined as having a turnover 
   Of less than R300 000. 
 
-- A firm in which in excess of 50% is owned by black 
   people and which is a Level One to Level Six 
   contributor to BEE.  For a clear understanding as to 
   how a firm's "BEE Status" is determined, please refer 
   to Ref A. 
 
-- A firm which is a level One to Three BEE contributor 
   to BEE, regardless of the black ownership status of 
   the firm. 
 
-- A small enterprise in which in excess of 50% is owned 
   by black people and which is a Level One to Level Six 
   contributors to BEE. 
 
-- A small enterprise which is a Level One to Level 
   Three BEE contributor to BEE regardless of the black 
   ownership status of the small enterprise 
 
¶17. (U) "Enterprise development contributions" may be 
recoverable or non-recoverable (as defined in Paragraphs 
13 and 14) initiated and implemented in favor of a 
"beneficiary entity" (as defined in Paragraph 16) by a 
measured firm to assist in the development and the 
expansion of the financial and/or operational capacity 
of the beneficiary entity. 
 
TEITELBAUM