VZCZCXRO1177
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #0698/01 0481438
ZNR UUUUU ZZH
R 171438Z FEB 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1679
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHBU/AMEMBASSY BUENOS AIRES 0194
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 PRETORIA 000698 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/JDIEMOND 
TREASURY FOR OAISA/JRALYEA/BCUSHMAN 
USTR FOR PCOLEMAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN PGOV SF
SUBJECT: SOUTH AFRICA: MBEKI ANNOUNCES THE ACCELERATED AND 
SHARED GROWTH INITIATIVE, MLAMBO-NGCUKA ELABORATES 
 
REF: PRETORIA 00109 
 
Sensitive but Unclassified; Protect Accordingly.  Not For 
Internet Distribution. 
 
¶1. (U) Summary.  In his State of the Nation address on 
February 3, President Thabo Mbeki spent considerable time 
introducing what he termed the "Accelerated and Shared 
Growth Initiative of South Africa" (ASGISA), which he 
described as a limited set of interventions designed to 
halve unemployment and poverty by 2014.  He left it to 
Deputy President Phumzile Mlambo-Ngcuka to elaborate.  In 
subsequent speeches and presentations, Mlambo-Ngcuka 
identified constraints to economic growth and outlined a 
series of microeconomic policies and interventions to 
accelerate growth.  End Summary. 
 
ANNOUNCED SOUTH AFRICAN GROWTH STRATEGY 
--------------------------------------- 
 
¶2. (U) In his State of the Nation address on February 3, 
President Mbeki announced the Accelerated and Shared Growth 
Initiative of South Africa (ASGISA), which he described as a 
limited set of government interventions designed to halve 
unemployment and poverty by 2014.  On February 6, in her 
Parliamentary speech, briefing to the media, and an address 
to a Department of Home Affairs Conference on Foreign 
Operations, Deputy President Mlambo-Ngcuka, the chief 
architect of ASGISA, elaborated on the details.  She 
explained that ASGISA was not intended to replace the Growth 
and Employment and Reconstruction (GEAR) strategy or 
constitute a new industrial policy.  Rather, ASGISA was a 
set of specific microeconomic interventions designed to 
overcome specific "binding constraints," accelerate growth, 
and bridge the divide between the first and second 
economies. 
 
ASGISA Policies 
--------------- 
 
¶3. (U) Mlambo-Ngcuka explained that ASGISA policies would 
target six constraints on growth and employment: (1) 
volatility and level of the currency, (2) costs, efficiency, 
and capacity of the national logistics system; (3) shortage 
of skilled labor; (4) limited competition and new investment 
opportunities; (5) regulatory environment and its burden on 
small and medium businesses; and (6) deficiencies in state 
organization, capacity, and leadership.  To overcome these 
constraints, the government would intervene in six areas: 
(1) improving infrastructure; (2) implementing targeted 
sector strategies; (3) education and skills development; (4) 
creating opportunities in the second economy; (5) improving 
public administration; and (6) macroeconomic issues i.e., 
government budgeting and expenditure management. 
 
Infrastructure 
-------------- 
 
¶4. (U) ASGISA identifies R370 billion (approximately $62 
billion) in infrastructure spending over the current three- 
year Medium Term Expenditure Framework.  Parastatals account 
for 40% of this amount, which comes mostly from Eskom and 
Transnet at R84 billion ($14 billion) and R47 billion ($7.8 
billion), respectively.  Eskom's already declared focus is 
on increasing electricity generation and transmission. 
Transnet's already declared focus is on ports and railways. 
In addition, the Airports Corporation of South Africa will 
spend R5.2 billion on airport improvement and a trade port 
in the Durban area.  Government will spend another R19.7 
billion ($3.3 billion) on improving water and 
telecommunications infrastructure with a view to expanding 
reach and/or reducing costs.  In addition, the provinces 
have been asked to propose infrastructure projects that 
would create employment, reduce poverty, and grow their 
local economies. 
 
Targeted Sectors 
---------------- 
 
¶5. (U) ASGISA identifies two sectors for immediate action 
and nine sectors waiting for detailed business plans to be 
drawn up.  The two sectors for immediate action are tourism 
 
PRETORIA 00000698  002 OF 003 
 
 
and business process outsourcing (for example, call 
centers).  Mlambo-Ngcuka explained that these two service 
sectors offer the quickest returns.  She estimated that they 
could provide an additional 500,000 jobs by 2014.  Call 
centers could help boost employment by 100,000 jobs by 2009, 
and tourism's could employ an additional 400,000 as it grows 
from 8% to 12% of GDP by 2014.  Mlambo-Ngcuka left it to the 
Minister of Trade to elaborate on tailor-made incentives to 
support business process outsourcing, and the Minister of 
Environment and Tourism to do the same for tourism. 
 
¶6. (U) Other priority sectors under consideration include 
biofuels, chemicals, metals and metallurgy, agriculture and 
agro-processing, creative industries, wood pulp and paper, 
clothing and textiles, and durable consumer goods.  In 
addition, Mlambo-Ngcuka said that ASGISA will consider cross 
cutting industrial policies in the areas of competition 
policy and "import parity pricing" (a reference to local 
steel prices that are set at just below the cost of 
importing foreign steel), improving trade negotiating 
capacity, providing incentives for research and development, 
and transforming industry through broad-based black economic 
empowerment (i.e., affirmative action). 
 
Education and Skills Development 
-------------------------------- 
 
¶7. (U) To raise the education and skill levels of South 
Africa's workforce, Mlambo-Ngcuka announced the 
establishment of a new institution in March 2006, called the 
Joint Initiative for Priority Skills Acquisition (JIPSA). 
JIPSA will be led by a committee of Ministers, business 
leaders, trade unionists, and education experts.  Their 
mission will be to find quick solutions to shortages of 
urgently needed skills.  Meanwhile, the government will 
continue to work on improving the quality of public 
education, and to improve adult basic education programs and 
vocational training in the skilled trades.  Mlambo-Ngcuka 
left it to the Minister of Education to later elaborate on 
these programs. 
 
Growing the Second Economy 
-------------------------- 
 
¶8. (U) Mlambo-Ngcuka spent quite a bit of time discussing 
ASGISA plans to foster the growth and development of what 
President Mbeki has termed South Africa's "second economy." 
She estimated that the Expanded Public Works Program, 
spending R4.5 billion ($200 million) over the next three 
years, would create 163,000 road maintenance and 
construction jobs and produce an additional 1,000 black- 
owned contractors.  More government funds would be channeled 
into small business loans in the amounts between R10,000 to 
R250,000 ($1700 to $42,000) and into venture capital funds, 
such as the R1 billion fund recently created by the 
Industrial Development Corporation, that would solely invest 
in SMMEs.  In addition, affirmative action would generate 
opportunities along the supply chain across industries and 
throughout the country.  Black SMMEs would be the sole 
suppliers to government of 10 designated products.  Mlambo 
added that the Minister of Labor would review labor 
legislation with an eye to reducing the regulatory burden on 
SMMEs.  [Comment: This review may be related to a Department 
of Labor report on the impact of regulation on small 
business that has been in the works since July. End 
Comment.]  Mlambo-Ngcuka left it to the Minister of Labor to 
elaborate further.  [Note: On February 16, COSATU President 
Vavi publicly blasted this part of ASGISA, saying that 
relaxing labor standards would do nothing to improve the 
standard of living in South Africa. End Note.] 
 
¶9. (U) Addressing related areas, Mlambo-Ngcuka said that 
ASGISA would give "special attention" to increasing the 
stock of houses with prices ranging between R50,000 and 
R150,000, but did not elaborate how.  She also talked about 
establishing youth advisory centers, cooperatives, and 
creating a national youth service for unemployed blacks. 
 
Public Administration 
--------------------- 
 
¶10. (U) Mlambo-Ngcuka acknowledged the need for government 
 
PRETORIA 00000698  003 OF 003 
 
 
to improve implementation of policies and programs, and said 
that all spheres of government and state owned enterprises 
were expected to contribute to ASGISA.  However, the only 
concrete action that she provided was that the Development 
Bank of Southern Africa (DBSA) was constructing a database 
of retired experts willing to help municipal governments 
with project management and maintenance.  DBSA had 
identified 90 retirees out of an estimated pool of 150. 
[Note: In his State of the Nation speech, President Mbeki 
said that these 90 were offered by the Freedom Front Plus, a 
conservative, largely Afrikaans political party.] 
 
Macroeconomic Issues 
-------------------- 
 
¶11. (U) In the macroeconomic arena, Mlambo-Ngcuka noted that 
SAG had consistently underestimated its revenues and 
overestimated its expenditures, resulting in expansionary 
fiscal policy at the beginning of the year and a contractive 
fiscal policy at the end.  She said that National Treasury 
planned to introduce a new capital expenditure management 
information system in 2006 that would help in this regard. 
Beyond this, the National Treasury and the South African 
Reserve Bank would "engage" on overcoming the constraints 
listed in Paragraph 3. 
 
Comment 
------- 
 
¶12. (SBU) ASGISA does not present a new direction for South 
African economic policy, but rather is a mixture of 
microeconomic policies, programs, and expenditures, many of 
which have already been detailed in past budget statements, 
announcements by state-owned enterprises or ANC policy 
documents.  ASGISA groups these, and a few initiatives, such 
as targeted sectors, in an overarching framework that could, 
if well implemented, contribute to higher growth.  This 
framework may help government middle managers to focus on 
specific actions that their leaders want them to implement. 
However, as noted in reftel, labor reform is the key 
political issue for the success of ASGISA. 
 
TEITELBAUM