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UNCLAS SECTION 01 OF 04 PRETORIA 000640 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR CODEL PELOSI FROM CHARGE D'AFFAIRES DON TEITELBAUM 
 
E.O. 12958: N/A 
TAGS: OREP PGOV PREL ECON MARR KHIV SF
SUBJECT: SOUTH AFRICA SCENESETTER FOR CODEL PELOSI VISIT 
 
REF: STATE 18241 
 
PRETORIA 00000640  001.2 OF 004 
 
 
¶1. (SBU)  Welcome to South Africa, an anchor country in our 
Africa policy.  Since the end of apartheid in 1994, the 
African National Congress (ANC)-led South African Government 
(SAG) has made major progress toward establishing a vibrant 
democracy and market-based economy.  The SAG has focused on 
political and economic transformation: closing the gap 
between the historically privileged and disadvantaged 
communities, primarily through government-provided housing, 
electricity, and water to the poor and creating employment 
and business opportunities.  South Africa continues to face 
serious problems, including income inequality between blacks 
and whites, massive unemployment, entrenched poverty, violent 
crime, and a severe HIV/AIDS pandemic.  Taken together, these 
problems are intensifying political tensions within the 
ANC-led ruling coalition and resulting in social unrest in 
some poor, black African communities.  Your visit coincides 
with the SAG's preparations for March 1 municipal elections. 
It also coincides with the thorny political issue of the 
firing of former SAG Deputy President (and still ANC Vice 
President) Jacob Zuma related to corruption and fraud 
charges.  Zuma also faces criminal charges for rape, which 
arose after his dismissal.  The rape trial began February 13. 
 
¶2. (SBU) Despite its problems, South Africa remains the 
continent's best prospect for establishing a successful 
democratic society with widespread prosperity as the SAG 
moves from political to - the second phase - economic 
transformation.  South Africa plays a key role in promoting 
peace and stability in Africa, and is an important voice on 
global trade and nonproliferation issues.  U.S.-South African 
relations are positive, as reflected by President Bush's July 
2003 visit to South Africa and President Mbeki's reciprocal 
June 2005 trip to Washington.  We share objectives on the 
African continent and work together closely on those issues. 
 
------------------ 
POLITICAL OVERVIEW 
------------------ 
 
¶3. (SBU) The African National Congress (ANC) dominates the 
political scene in South Africa.  President Thabo Mbeki began 
his current five-year term on April 27, 2004.  The ANC won 70 
percent of the vote and 279 of 400 seats in the National 
Assembly at the April 14, 2004 poll.  A subsequent "floor 
crossing" period in September 2005, in which parliamentarians 
were allowed to switch parties, boosted the ANC's total to 
¶293.  The Democratic Alliance (DA) is the largest of several 
small opposition parties in parliament, with 47 seats.  The 
ANC leads the administrations in all 9 of South Africa's 
provinces.  The ANC is part of a tripartite alliance whose 
other members are the South African Communist Party (SACP) 
and the Congress of South African Trade Unions (COSATU). 
 
¶4. (U) The ANC-led alliance is a broad-based political 
movement in which schisms have appeared in recent years, 
largely based on the SACP's and COSATU's opposition to the 
government's economic, HIV/AIDS, and Zimbabwe policies. 
However, the alliance is likely to hold together, at least in 
the short term.  President Mbeki remains securely at the 
ANC's helm, although he is currently embroiled in managing 
internal tensions and domestic repercussions over the former 
Deputy President's firing related to corruption and fraud 
charges.  Progress toward the ANC's goal of bringing economic 
power to the black majority has been slow, although there is 
an emerging black middle class.  Mbeki's popularity, affected 
by continued high levels of crime, unemployment, a delayed 
response to the HIV/AIDS crisis, and the slow delivery of 
services to South Africa's majority population, fluctuated 
throughout his first five-year term.  Recently, there have 
been scattered protests and riots among grassroots ANC 
supporters over service delivery and political jockeying. 
Nonetheless, the April 2004 election and subsequent "floor 
crossings" demonstrated that there remains no viable 
alternative to an ANC government, and the ANC is expected to 
win an overwhelming majority in upcoming March municipal 
elections. 
 
PRETORIA 00000640  002.2 OF 004 
 
 
 
------------------------------------------ 
FOREIGN POLICY - FOCUS ON PROMOTING AFRICA 
------------------------------------------ 
 
¶5. (U) South Africa has taken a high-profile role in 
promoting Africa's development.  South Africa served as the 
first chair of the African Union until July 2003 and helped 
to establish continental institutions such as the Pan-African 
Parliament (which sits in South Africa), and the AU Peace and 
Security Council.  President Mbeki is the driving force 
behind the New Partnership for Africa's Development (NEPAD), 
an African-developed program to strengthen economic and 
political governance across the continent and a framework for 
productive partnership with the international community. 
South Africa led the negotiations which ended the conflicts 
in Burundi and the Democratic Republic of the Congo, and it 
is playing a leading role in the AU mediation in Cote 
d'Ivoire. 
 
¶6. (SBU) South Africa recognizes that, by virtue of its 
regional political, economic, and military clout, it has a 
responsibility to participate in peace support operations. 
Approximately 2,500 troops currently are deployed in UN and 
AU Missions in Burundi, DRC, Sudan, Cote d'Ivoire, and 
Ethiopia/Eritrea.  While the U.S. has a strong policy 
interest in seeing South Africa expand and enhance its peace 
support capabilities, our ability to support these efforts 
has been limited by the 2004 suspension of FMF and IMET 
(about $7 million per annum) military assistance because of 
the lack of an Article 98 agreement with South Africa.  One 
positive development is South Africa's decision to 
participate in the African Contingency Operations Training 
and Assistance program (ACOTA) through which we can work 
together to enhance SANDF capacity for robust participation 
in multilateral peace support operations.  The first ACOTA 
annual planning meeting will conclude immediately prior to 
your arrival. 
 
¶7. (SBU) Zimbabwe remains a continuing, and often 
frustrating, challenge for President Mbeki.  While it is 
clear that South Africa wants political and economic reform 
in Zimbabwe, its "quiet diplomacy" policy of 
behind-the-scenes talks has failed to produce results.  SAG 
officials argue that additional pressure, such as sanctions, 
would have little effect on President Mugabe and could 
destabilize Zimbabwe (with spillover effects in South 
Africa).  In recent months, South Africa appears increasingly 
concerned about the deteriorating economic situation in 
Zimbabwe. 
 
¶8. (SBU) While overall U.S.-South African relations are 
positive, South Africa sometimes takes positions on global 
issues that run counter to U.S. interests.  For example, 
South Africa recently abstained on the IAEA Board of 
Governor's resolution to refer the dossier on Iran's nuclear 
program to the UN Security Council.  As current chair of the 
G-77 and former head of the Non-Aligned Movement (NAM), South 
Africa has taken up the cause of a greater "South" voice in 
international institutions, increased development assistance, 
an expanded UN Security Council, and lower trade barriers. 
 
----------------------------------------- 
THE ECONOMY AND THE STRUGGLE TO TRANSFORM 
----------------------------------------- 
 
¶9.  (SBU) As the dominant and most developed economy in 
sub-Saharan Africa, South Africa has little in common with 
the other countries of the region.  It is a middle income, 
emerging market economy with GDP per capita of $4,613 (2004), 
akin to Chile, Malaysia, or Thailand.  The South African 
government's fiscal and monetary policies are excellent.  The 
ANC government steadily reduced the fiscal deficit from 
nearly 6 percent of GDP in 1994-95 to a nearly balanced 
budget in 2005-06.  The forecast for the 2006-07 fiscal 
deficit is 2.2 percent as a result of expansionary policies. 
The South African Reserve Bank (SARB) is independent and 
committed to low inflation.  CPIX (CPI minus mortgage cost) 
 
PRETORIA 00000640  003.2 OF 004 
 
 
inflation has fallen from 12.4 percent at the beginning of 
2003 to 4.0 percent (December 2005), within the SARB's 
official 3 to 6 percent target.  Real GDP growth in 2004 
climbed to 4.5 percent from 3.0 percent in 2003 as a result 
of strong consumer spending.  Analysts believe that growth 
reached 5.0 percent in 2005. 
 
¶10. (SBU) South Africa's single greatest economic challenge 
is to accelerate growth.  South Africa's moderate growth 
since 1994, averaging 3.1 percent a year, has not been 
sufficient to address widespread unemployment and reduce 
poverty.  The official unemployment rate, currently 26.5 
percent, has only recently begun to decline, and is 
significantly higher among black South Africans than among 
whites.  The economy has created few new formal sector jobs. 
Income inequality between white and black South Africans has 
increased slightly.  Poverty is widespread.  Fifty-six 
percent of black South Africans, but only four percent of 
whites, live in poverty.  Nevertheless, the government has 
made strides in the areas of transfer payments and public 
services to close the gap.  Nearly 1.8 million low-cost homes 
have been built, four million households provided with 
electricity, and ten million people connected to clean water. 
 The Government's broad-based Black Economic Empowerment 
(BEE) program provides ownership and employment opportunities 
to blacks and has helped the black middle class double in 
size since 1994. 
 
¶11. (SBU) Since 1994, the United States Government has 
contributed approximately $1.217 billion toward South 
Africa's development, plus $201 million in credit guarantees. 
 Nineteen U.S. agencies, including the FBI, CDC, Customs, and 
USAID, are represented at our Mission in South Africa: 
Embassy Pretoria and the three consulates in Durban, Cape 
Town and Johannesburg.  The Mission has 281 U.S. employees, 
and 564 local employees.  More than 40 percent of the Mission 
staff provide regional services to other U.S. embassies in 
Africa.  The Mission has embarked on an ambitious program to 
build safe office facilities.  In FY05 we completed the New 
Consulate Compound in Cape Town, and in FY06 we will award 
the design/build contract for the New Consulate in 
Johannesburg.  A wide range of U.S. foundations and NGOs are 
also at work in South Africa.  Among them are the Gates 
Foundation (HIV/AIDS), the Ford Foundation (higher 
education), and the Rockefeller Foundation (adult education). 
 
------------------------------ 
U.S.-S.A. TRADE AND INVESTMENT 
------------------------------ 
 
¶12. (SBU) During 2003 and 2004, the U.S. and the Southern 
African Customs Union (SACU: South Africa, Botswana, Lesotho, 
Namibia, and Swaziland) held six rounds of negotiations on a 
free trade agreement (FTA).  After progress stalled in the 
fall of 2004, former U.S. Trade Representative Robert 
Zoellick and his SACU counterparts met and reaffirmed their 
commitment to a comprehensive free trade agreement.  In 
September 2005, negotiations resumed in Gaborone, where the 
two sides agreed to continue with smaller negotiating rounds 
while expert-to-expert consultations on issues new to SACU 
were conducted.  The U.S. and SACU are currently discussing a 
date for the next round of negotiations. 
 
¶13. (SBU) U.S.-South Africa trade grew 8 percent in the first 
11 months of 2005, totaling $8.7 billion.  U.S. exports were 
up 24 percent at $3.4 billion, while South African exports to 
the United States declined 1 percent at $5.3 billion.  In 
2004, South Africa was the 32nd largest trading partner of 
the United States, equivalent to Norway or Chile.  It is the 
largest U.S. export market in sub-Saharan Africa, twice the 
size of Nigeria and equal to Russia or Argentina.  South 
Africa is the fourth largest beneficiary of AGOA.  Its AGOA 
exports grew strongly in 2003 and 2004 (7 percent and 24 
percent respectively), but declined in 2005 due largely to 
the expiration of the Agreement on Textiles and Clothing. 
Over 700 U.S. firms have a presence in South Africa with 85 
percent using South Africa as a regional or continental 
center.  South Africa's stable government, sound fiscal and 
 
PRETORIA 00000640  004.2 OF 004 
 
 
monetary policy management and, by African standards, its 
large market are the primary attractions for U.S. businesses. 
 U.S. foreign direct investment in South Africa grew sharply 
after 1994 but has slowed recently.  The slowdown in direct 
investment is due to numerous factors including crime, 
uncertainty about Black Economic Empowerment (affirmative 
action) policies, labor regulations, HIV/AIDS and the slow 
process of privatization.  Still, the U.S. is the second 
largest foreign direct investor in South Africa 
($4.9 billion at year-end 2004). 
 
-------------------------------------- 
HIV/AIDS: A CRISIS OF EPIC PROPORTIONS 
-------------------------------------- 
 
¶14. (U) South Africa remains the epicenter of the HIV/AIDS 
pandemic with the largest number of HIV infections in the 
world.  HIV/AIDS is now the country's leading cause of death. 
 Five to six million South Africans are now HIV-positive, 
including 2.9 million women.  In 2005, an estimated 800,000 
more citizens became infected and over 300,000 died from 
AIDS.  AIDS-related deaths will create millions of orphans 
and generate additional social and economic disruption.  The 
number of AIDS-related deaths and AIDS orphans is expected to 
climb by 2010 to 5.2 million and 1.5 million respectively. 
South African public health facilities suffer from an acute 
shortage of skilled personnel and laboratory and clinical 
infrastructure.  Considerable investment in human resources 
and infrastructure is necessary to expand the national 
antiretroviral treatment program. 
 
¶15. (SBU) About 120,000 of the five to six million 
HIV-positive South Africans are receiving antiretroviral 
(ARV) treatment.  At the end of 2003 the SAG prepared and 
endorsed an operational plan to treat AIDS using ARVs in 
public facilities.  Implementation of the plan has been slow 
in all provinces except Gauteng and Western Cape.  While the 
pace is picking up in KwaZulu-Natal (KZN), it is likely that 
ARV drugs will not be widely available through government 
programs until late 2006 or 2007.  South Africa has been a 
major recipient of Global Fund resources with major grants 
awarded to the Western Cape Health Department and a 
public-private consortium in KZN.  Both provide some 
treatment funding. 
 
¶16. (SBU) The President's Emergency Plan for AIDS Relief 
(PEPFAR) is beginning its third year of implementation 
working with public and private sector prevention, treatment, 
and care programs.  To date, the U.S. has provided almost 
$239 million through PEPFAR to support HIV/AIDS programs in 
South Africa, making it the largest recipient of Emergency 
Plan resources.  The FY 2006 PEPFAR budget in South Africa is 
$221 million.  After two years of funding, the Emergency Plan 
supports nearly 50,000 people in ARV treatment through 
programs in all provinces.  In addition, the South African 
military has expanded prevention programs and publicly 
collaborates with the U.S. military and NIH on ARV-based AIDS 
treatment research.  The Cabinet has endorsed a comprehensive 
public sector HIV/AIDS treatment plan. 
 
¶17. (U) South Africa has the strongest research and training 
capacity of any country in the region, making it an important 
partner in the fight against HIV/AIDS.  USG agencies 
(including USAID, DHHS, DOD, and the Peace Corps) have worked 
with national and provincial health departments, the 
military, universities and NGOs to strengthen primary health 
care, prevention, disease surveillance and research. 
President Bush and President Mbeki confirmed last July a 
mutual commitment to expand HIV/AIDS collaboration, 
particularly through the Emergency Plan.  The mission has 
prepared, in coordination with the government, a five-year 
strategic plan focused on treatment, prevention, palliative 
care, and the provision of care for orphans and other 
vulnerable children. 
TEITELBAUM