VZCZCXRO1016
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2994 2391550
ZNR UUUUU ZZH
R 271550Z AUG 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1388
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDC/DEPT OF COMMERCE WASHDC
UNCLAS PRETORIA 002994
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT PASS USTR FOR PATRICK COLEMAN
TREASURY FOR TRINA RAND
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
AF/S FOR RMARBURG
E.O. 12958: N/A
TAGS: ECON EINV SF
SUBJECT: HEWLETT PACKARD WINS APPROVAL OF FIRST "EQUITY
EQUIVALENT" PROGRAM
REF: 06 PRETORIA 5067
1. (U) Summary: Hewlett Packard has won SAG approval to
implement the first "equity equivalent" plan under South
Africa's black economic empowerment (BEE) codes. Under the
plan, HP will accrue BEE "points" by promoting information
technology skills in the small and medium enterprise sectors,
instead of by selling equity to black South Africans. The
BEE codes have an "equity equivalent" exception for
multinationals unable to comply with strict BEE requirements.
End Summary
----------------------------
Hewlett Packard Gets the Nod
----------------------------
2. (SBU) Hewlett Packard has become the first multinational
company to win SAG approval to go ahead with an "equity
equivalent" plan under the country's black economic
empowerment (BEE) codes, according to Benni North, an HP
official in Johannesburg. He recently told Deputy Econ
Counselor that HP will establish an HP Business Institute
(HPBI) to develop information technology skills in South
Africa's small- and medium-enterprise sectors. HPBI plans to
train 1,800 students and apprentices over the next 6-7 years.
The first tranche of learners will enter the program in
February 2008. HP announced the HPBI plan on August 27.
3. (SBU) North said that it took "quite a long time -- at
least a year" for the HPBI proposal to win approval from the
Department of Trade and Industry (DTI). Officials in DTI's
BEE division were "very reasonable," he said, but they lacked
knowledge of business models and eventually had to call on
expertise from other DTI departments. Turnover at DTI also
delayed approval. North stressed that "HP has a good working
relationship with DTI" and he predicted that future "equity
equivalent" proposals would win speedier approval as DTI
acquired more experience. He noted, however, that some DTI
officials still dislike the concept of "equity equivalent"
schemes, even though they know they must comply with the law.
----
Note
----
4. (U) Under the BEE Codes of Good Practice, companies are
awarded BEE "points" according to their performance on seven
separate dimensions of black empowerment, including black
ownership of equity (reftel). High-scoring companies then
receive an advantage on bids for SAG contracts. However, the
Codes make an exception for multinational corporations, which
can earn equity points through the use of customized BEE
programs not actually involving black equity ownership.
These "equity equivalent" schemes must have prior approval
from DTI.
5. (SBU) The concession to multinationals was granted after
foreign business lobbies (including the American Chamber of
Commerce) argued that many multinationals have a strict
global policy of owning 100 percent of their subsidiaries'
equity, making it impossible for them to comply with the BEE
equity mandates. Although "equity equivalent" schemes were
controversial when they were first proposed by the business
community, they came to be seen by the SAG as a way to
accommodate foreign investors without undermining racial
transformation. Multinationals are not exempt from other BEE
requirements.
Teitelbaum