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

UNCLAS SECTION 01 OF 04 PRETORIA 000864 
 
SIPDIS 
 
DEPT FOR AF/S/JDIFFILY; 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 BEXP KTDB PGOV SF
SUBJECT:  SOUTH AFRICA ECONOMIC NEWSLETTER 
          February 18 2005 ISSUE 
 
 
¶1. SUMMARY.  Each week, AMEmbassy Pretoria publishes an 
economic newsletter based on South African press reports. 
Comments and analysis do not necessarily reflect the opinion 
of the U.S. Government.  Topics in the February 18 
newsletter include: 
 
- President Mbeki's State of the Nation address 
- South Africa's manufacturing capacity improves 
- South Africa's project value up 309 percent in 2004 
- Power station revamp will create 36,000 jobs 
- Unemployment is South Africa's biggest worry 
- South Africa's 2004 4Q real GDP grows 4 percent 
- SA and Angola sign trade and investment agreements 
- Final stake in South Africa's SNO awarded to India's VSNL 
END SUMMARY. 
 
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PRESIDENT MBEKI'S STATE OF THE NATION ADDRESS 
--------------------------------------------- 
 
¶2.  In his "State of the Nation" address to the South 
African Parliament, President Thabo Mbeki painted a picture 
of a country which "has never in its entire history enjoyed 
such a confluence of encouraging possibilities."  The 
president reiterated government's broad objectives to 
increase investment in the economy, lower the cost of doing 
business, improving economic inclusion and provide the 
required skills.  Mbeki said that 72 percent of the 
government's programs were being carried out more or less 
within the time frames set.  He singled out issues such as 
classroom-building and the provision of services by 
municipalities as areas which required improvement. 
Referring briefly to AIDS, he said "the government's 
comprehensive plan, which is among the best in the world, 
combining awareness, treatment and home-based care, is being 
implemented with greater vigor."  R180 billion ($31 billion) 
has been allocated to build or improve harbors, oil 
pipelines and power stations, and banks were commended for 
committing R85 billion ($14 billion) over three years for 
low-cost housing, infrastructure, small black businesses and 
new black farmers.  Government would allocate R21.9 billion 
($3.8 billion) for a five-year National Skills Development 
Strategy.  A simpler system for paying taxes and levies and 
registering businesses would be introduced by April 2006. 
More than R1.5 billion ($259 million) had been spent on an 
expanded public works program, he said, creating 76,000 
jobs.  Extra money would be allocated to pay for restoring 
land to those who had been deprived of it under white rule. 
Action would be taken to ensure that free basic electricity 
was provided "to all with minimum delay" and that 
municipalities could provide sanitation to 300,000 
households a year from 2007.  (BuaNews, February 11) 
 
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SOUTH AFRICA'S MANUFACTURING CAPACITY IMPROVES 
--------------------------------------------- - 
 
¶3.  Manufacturing capacity utilization by large enterprises 
rose to 86.3 percent in November 2004 from 83.1 percent in 
November 2003, Statistics South Africa (Stats SA) said 
today.  The under-utilization of 13.7 percent for November 
2004 was attributed mainly to insufficient demand (8.9 
percent of reported under-utilization), followed by `other' 
reasons (such as downtime due to maintenance, lower 
productivity and seasonal factors) (2.2 percent), a shortage 
of raw materials (1.8 percent) and a shortage of labor (0.8 
percent).  The capacity utilization rate is reported 
quarterly and has been rising since November 2003, when the 
new survey started.  The November 2004 survey covered ten 
sectors with the highest utilization rate recorded for large 
enterprises in furniture and `other' manufacturing 
industries (91.9 percent), followed by those in wood and 
wood products, paper, publishing and printing (91.5 
percent), glass and non-metallic mineral products (89.8 
percent), electrical machinery (87.8 percent) and basic iron 
and steel, nonferrous metal products, metal products and 
machinery (87.2 percent) divisions.  Large enterprises in 
the radio, television and communication apparatus division 
recorded the lowest utilization rate for November 2004 (82.7 
percent), followed by those in the division food and 
beverages (83.1 percent).  The economy has officially been 
in an "upward" phase since September 1999.  (I-Net, February 
17) 
 
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SOUTH AFRICA'S PROJECT VALUE UP 309 percent IN 2004 
--------------------------------------------- ------ 
 
¶4.  The value of announced capital projects with a value in 
excess of R20 million ($3.4 billion) more than quadrupled to 
a record R174 billion ($30 billion) in 2004 from R42 billion 
($7.2 billion) in 2003, according to Nedbank's (NED) capital 
expenditure project listing.  The quadrupling in value in 
2004 represented government's plans to accelerate spending 
on infrastructure in order to upgrade a badly outdated and 
inefficient transport network and expand capacity in both 
the transport and power systems to meet future demand.  The 
South African Treasury in its Medium Term Budget Policy 
Statement (MTBPS) in October 2004 said that the public 
sector, including non-financial public enterprises such as 
Eskom and Transnet, would spend R301 billion ($51.9 billion) 
on capital expenditure over the next three fiscal years 
(2005/6 to 2007/8) compared with only R188 billion ($32 
billion) spent in the past three fiscal years of 2001/2 to 
2003/4.  The government aims to increase fixed capital 
formation from 16.3 percent of GDP currently to 25 percent 
by 2014.  In 2004, the private sector announced 46 new 
projects worth R38.4 billion ($6.6 billion) compared with 41 
projects of R25.4 billion ($4.4 billion) in 2003.  (I-Net, 
February 18) 
 
-------------------------------------------- 
POWER STATION REVAMP WILL CREATE 36,000 JOBS 
-------------------------------------------- 
 
¶5.  Eskom's recommissioning of mothballed power stations 
would create 36,000 jobs and contribute R5.8 billion ($1 
billion) in GDP by 2007, according to a study undertaken by 
Econometrix on behalf of the power utility.  Eskom has 
commissioned the return to service of three mothballed 
stations to provide 3,800MW: Camden in Ermelo, Grootvlei 
near Balfour and Komati in Middleburg at a cost of R12 
billion ($2 billion), which is about 40 percent of the cost 
of a new station.  About 26,000 of the jobs would be in 
Mpumalanga were the Camden station is located. Camden is 
expected to be operational in June this year and the rest by 
¶2008.  Econometrix said the jobs were expected to 
subsequently decline when constructions activities decrease. 
Alec Erwin, the minister of public enterprises, announced a 
R107 billion ($18 billion) investment over five years for 
electricity in which Eskom would spend R87 billion ($15 
billion).  The investments are part of the government 
strategy to strengthen power capacity to supplement the 
excess capacity which was expected to run out in 2007. 
South Africa would need at least a power station that can 
produce 3,600MW at a cost of R30 billion ($5 billion) every 
three years.  (Business Report, February 15) 
 
-------------------------------------------- 
UNEMPLOYMENT IS SOUTH AFRICA'S BIGGEST WORRY 
-------------------------------------------- 
 
¶6.  Nine out of 10 South Africans are worried about the high 
unemployment levels in the country, according to the latest 
South African Broadcasting Corporation-Markinor survey on 
governance.  The survey identified crime as the second most 
important issue affecting South Africans. The third greatest 
concern that required urgent government attention was 
poverty and then HIV/AIDS.  The survey also found out that 
perceptions among South Africans of corruption involving 
government officials had decreased - although it was still 
fifth on the respondents' list of priorities.  Following 
this was concern about government's slow delivery in the 
education sector. Respondents were worried about both poor 
education facilities and the education department's ability 
to provide the same standard of education for South Africans 
of all backgrounds.  The development of infrastructure such 
as water, electricity, roads and bridges took seventh place 
in the respondents' list of priorities.  The poll was 
conducted in October last year and about 3500 South Africans 
were interviewed, representing a demographic sample of the 
entire country.  (Business Day, February 14) 
 
--------------------------------------------- -- 
SOUTH AFRICA'S 2004 4Q REAL GDP GROWS 4 PERCENT 
--------------------------------------------- -- 
 
¶7.  Real gross domestic product (GDP) at market prices on a 
quarter-on-quarter basis rose by 4 percent in the fourth 
quarter 2004 from a revised eight-year high of 5.7 percent 
in the third quarter 2004, (previously estimated at 5.6), 
according to Statistics SA.  On a year-on-year (y/y) basis 
fourth quarter 2004 GDP was up 4.7 percent from the third 
quarter's 3.8 percent. This is the highest y/y growth rate 
since the third quarter 2000, when growth was 5.2 percent 
y/y.  The annual average for 2004 was 3.7 percent compared 
with 2.8 percent in 2003. This was the highest annual 
average since 4.2 percent in 2000.  According to a survey of 
economists, fourth quarter 2004 gross domestic product (GDP) 
growth was expected to have risen to a median forecast of 
4.4 percent on a q/q saa basis.  The range of forecasts was 
from 3.6 to 5.4 percent. The growth rate on a y/y basis was 
expected to be in a range of 4.4 percent to 4.8 percent with 
a median of 4.6 percent.  The median forecast for the annual 
average for 2004 is 3.7 percent with a range of 3.5 percent 
to 3.8 percent.  The main drivers of GDP growth in 2004 were 
internal trade, financial services, transport and 
communications, and manufacturing.  The main drivers in the 
fourth quarter of 2004 were financial services, internal 
trade, transport and communications and manufacturing.  (I- 
Net, February 15) 
 
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SA AND ANGOLA SIGN TRADE AND INVESTMENT AGREEMENTS 
--------------------------------------------- ----- 
 
¶8.  South Africa and Angola signed four agreements aimed at 
strengthening economic and bilateral relations during an 
official visit by Angolan Prime Minister Fernando dos 
Santos.  Angola has considerable reserves of oil, gas, 
diamonds and other minerals.  This week's visit indicates a 
major thaw in the relationship between SA and Angola. Both 
governments appear keen to forge closer ties after their 
relationship was damaged when Angola and SA supported 
opposite sides in the war in the Democratic Republic of 
Congo.  An investment agreement, signed by Trade and 
Industry Minister Mandisi Mpahlwa and Angolan Transport 
Minister Andre Brandao, commits the countries to facilitate 
the granting of permits and licensing agreements necessary 
for investment.  An agreement on electricity commits both 
countries to engaging in joint projects in urban and rural 
electrification and secures Eskom's position in Angola to 
assist with the development of the country's power 
generation and national grid.  Agreements were also signed 
to set up a defense committee to extend co-operation in 
peace support missions and disasters; and on co-operation in 
social development programs.  Deputy President Jacob Zuma, 
who hosted the three-day talks, says pacts in "other areas" 
will be concluded soon.  SA's exports to Angola were worth 
R2,5 billion ($417 million) last year, a decline on the 
previous three years, and SA imports R1,3 billion ($217 
million) in goods from Angola, a major increase on 2003. 
(Business Day, February 18) 
 
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FINAL STAKE IN SOUTH AFRICA'S SNO AWARDED TO INDIA'S VSNL 
--------------------------------------------- ------------ 
 
¶9.  The Communications Minister approved the bid by Indian 
Telecoms group VSNL for a 26 percent equity stake in the 
second national operator.  Minister Ivy Matsepe-Casaburri 
said, "The stakeholders must (now) finalize the shareholder 
agreements and business plan as a matter of urgency."  She 
called on ICASA, the telecommunications regulator, to issue 
a license for the second national operator (SNO) "at the 
earliest opportunity."  VSNL is part of the Tata Group, 
which already has business interests in South Africa.  VSNL 
was allocated the 26 percent equity stake in the second 
national operator after a long and contentious bidding 
process that saw one shareholder, Nexus, threaten a judicial 
review.  The Tata-group is one of India's business giants, 
with international interests in sectors ranging from 
communications to motor vehicles.  Analysts believe its long 
experience in telecommunications will benefit the future 
SNO.  The private sector has been impatiently waiting the 
licensing of a second national operator, hoping that 
competition will result in cheaper rates.  Other 
shareholders in the SNO include Nexus (19 percent), Eskom's 
Esitel (15 percent), Transnet's Transtel (15 percent), 
Communitel (12.5 percent), and TwoConsortium (12.5 percent). 
(SAPA, February 14) 
 
FRAZER