This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PRETORIA 005357 
 
SIPDIS 
 
DEPT OF TREASURY WASHDC 
 
SOUTHERN AFRICAN DEVELOPMENT COMMUNITY 
 
DEPT FOR AF/S; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR OAISA/BARBER/WALKER/JEWELL 
USTR FOR COLEMAN 
LONDON FOR GURNEY; PARIS FOR NEARY 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD SF
SUBJECT: SOUTH AFRICA: FINANCE MINISTER THINKS AHEAD 
 
REF: A. PRETORIA 5007 
     ¶B. PRETORIA 4879 
     ¶C. PRETORIA 4809 
 
¶1. (U) Summary. Minister of Finance Trevor Manuel was the 
guest of honor at the 60th anniversary conference of the 
Bureau for Economic Research (BER), a well respected South 
African think tank.  Manuel reflected on progress made since 
the Growth, Employment, and Reconstruction (GEAR) plan was 
launched.  While the economic policies of the 1990's were 
"distastefully Washingtonian," he said, "in retrospect, they 
were the right ones to pursue."  Today, he thought that 
fiscal and monetary policy was on a stable platform, foreign 
exchange management strong, the inflation trajectory under 
control, and the government was able to focus more on skills 
development and reversing past discriminatory social policy. 
Looking to the future, Manuel explained that while public 
sector debt and investment would account for an increasing 
share of the economy, public sector leadership would also 
foster more robust economic growth.  He said that now policy 
makers should start looking qualitatively at redesigning the 
country's rural and urban landscape.  End Summary. 
 
¶2. (U) Introduced as the longest serving Finance Minister in 
the world, Trevor Manuel was the guest of honor at the 60th 
anniversary conference of the Bureau for Economic Research 
(BER) held in Stellenbosch on November 18.  He took the 
opportunity to reflect on how far South Africa had come in 
the nine years that he had been finance minister, and where 
the country now needed to go.  The tone of the half-day 
conference was decidedly upbeat, as the four speakers who 
preceded Manuel acknowledged newly found stability in the 
economy and strong growth indicators, but decried the ill 
effects of an overvalued currency on job creation and the 
export sector.  Had South African Reserve Bank (SARB) 
Governor Tito Mboweni participated as planned, the conference 
might have focused more on the differences between National 
Treasury and the SARB when it came to the impact that 
interest rates had on the exchange rate.  Former Monetary 
Policy Committee member and now SARB Senior Consultant for 
Research Bernie de Jager replaced Mboweni at the last minute. 
 Other speakers included BER Director Ben Smit and Rand 
Merchant Bank Chief Economist Rudolph Gouws. 
 
The Road Traveled 
----------------- 
 
¶3. (U) Manuel began his talk by reflecting on progress made 
since the Growth, Employment, and Reconstruction (GEAR) plan 
was launched in 1996.  The fiscal challenges that the country 
faced then included modernizing the tax system and growing 
the tax base, stabilizing the fiscal budget, deepening the 
country's debt markets, controlling inflation, and investing 
in growth and development.  He paused to explain that right 
when the government was making some progress in 2001, it had 
to respond to a speculative attack on the rand.  Today, he 
mused, "A little less market confidence in the rand might be 
a welcome relief." 
 
¶4. (U) While the economic policies of the 1990's were 
"distastefully Washingtonian," he said, "in retrospect, they 
were the right ones to pursue."  Today, the country's fiscal 
and monetary policies were on a stable platform, foreign 
exchange management strong, the inflation trajectory under 
control, and the government is focused on skills development 
and reversing past discriminatory social policy.  He claimed 
that policy makers in OECD couldn't believe how quickly and 
successfully South Africa had taken decisions to open its 
market to trade and investment.  "The hold up in WTO was 
about the reality in South Africa." He stressed, "What we did 
in the 1990's is what is now so hard for others to accept" in 
WTO Doha Development Agenda negotiations. 
 
Looking Toward The Future: Growth and Development 
--------------------------------------------- ---- 
 
¶5. (U) Manuel said that there was encouraging evidence of an 
increase in pace of economic growth and along with it job 
creation.  Alluding to 5.6% annualized GDP growth in Q3, 
Manuel said that "the economy was really pumping at the 
moment" and that finally unemployment had begun to fall. 
Referring to objectives outlined in the Mid Term Budget 
Policy Review (Ref A), Manuel declared that the government 
could now turn more of its attention toward accelerating the 
growth rate of investment in productive activities, improving 
economic participation of the marginalized population, 
raising the level of human development (e.g., skills 
training), improving the effectiveness of government, and 
entering into regional and international partnerships that 
supported South African growth and development. 
 
The Role of Public Sector Investment 
------------------------------------ 
 
¶6. (U) Noting with pleasure that public sector investment had 
grown 19% in 2003 and another 21% so far in 2004, Manuel 
reaffirmed that the government intended to increase this 
further as it pursued major infrastructure projects, 
including the port, rail, power, telecommunications, and 
water projects.  Much would be funded from the bond markets 
-- good news for bond traders, said Manuel.  While public 
sector debt would grow under this scenario, so would the 
economy, and this should mitigate any rise in the debt to GDP 
ratio.  Manuel explained that while public sector debt and 
investment would account for an increasing share of the 
economy, public sector leadership should also foster robust 
economic growth. 
 
Redesigning the Urban Landscape 
------------------------------- 
 
¶7. (U) "Still a Cape housing activist at heart," Manuel said 
that he had started asking questions about in which types of 
cities did South Africa want its children to live, work, and 
play.  While roads, electricity, water, sewage, and housing 
had kept pace with a changing society, he confessed that the 
quality of life in low income and poor areas was bleak -- 
littered with townships of the apartheid variety and 
formalized squatter communities that warehoused human beings 
to labor in nearby first world cities.  Manuel believed that 
South Africa had to redevelop its urban landscape, to 
reconnect these communities with commercial and industrial 
areas that surrounded them, or develop growing commercial 
zones and recreational areas where there were none to bring 
jobs closer to living areas.  Moreover, cities needed to 
provide affordable and efficient services -- such as power, 
water, transport, and banking.  The country suffered from the 
distorted spatial planning of the past, and now Manuel felt 
policy makers could start thinking more qualitatively than 
quantitatively. 
 
¶8. (U) Manuel confessed that the situation was not helped by 
the fact that the country had reorganized itself into 284 
wall-to-wall municipalities, sometimes creating a tremendous 
mismatch between revenue capability and budget needs.  This, 
he said, was the starting point for a new fiscal policy, but 
he did not elaborate.  He only said that the National 
Treasury was looking at ways to deepen municipal financing 
going forward. 
 
Redesigning the Rural Landscape 
------------------------------- 
 
¶9. (U) Manuel said that South Africans also had to start 
thinking about their rural landscape, one that had also been 
distorted and fragmented by apartheid.  He reiterated a point 
that he made in his October budget policy statement, that the 
first order of business would be to resolve outstanding land 
restitution claims (i.e., claims by citizens who had their 
land confiscated by the state after June 19, 1913).  This 
would free up budget and bureaucratic resources to start on 
land redistribution -- "which had broad implications," he 
said, "but need not loom large."  Manuel said that land 
restitution and redistribution would continue for a long 
time, and new land coming into agricultural production might 
even become an important area for economic growth.  In the 
years ahead, he said that there would be a shift in both 
public and private financing of rural agriculture.  He 
thought that land redistribution needed to be more 
self-financing, but that once land had changed hands, the 
state had a crucial role to provide support through programs 
such as the Comprehensive Agriculture Support Program.  He 
also suggested that the Land Bank should diversify its client 
base and extend more credit to rural farmers for things like 
water management and irrigation, and international trade. 
 
Why not Mzansi Life and Health Insurance? 
----------------------------------------- 
 
¶10. (U) Manuel commented that he was very pleased with the 
launch of the Mzansi bank accounts to make banking more 
affordable and more available to the poor.  He confessed that 
sometimes he did not understand how capitalists worked.  "Why 
did it take so long for the banking community to come up with 
the idea of bringing new, low-income customers into the 
market?" he asked, after recounting how he had just heard on 
the radio that the newly created Mzansi account had already 
attracted 100,000 new customers to the formal banking sector. 
 The government welcomed private sector contributions that 
had a social purpose, he said.  Now, he challenged, "Why not 
Mzansi life and health insurance?" 
 
FRAZER