VZCZCXYZ0000
RR RUEHWEB

DE RUEHSA #0955/01 0671107
ZNR UUUUU ZZH
R 081107Z MAR 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2059
INFO RUEHBU/AMEMBASSY BUENOS AIRES 0212
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC

UNCLAS PRETORIA 000955 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD; EB/TPP 
USDOC FOR 4510/ITA/MAC/AME/OA/JDIEMOND 
TREASURY FOR OAISA/BCUSHMAN 
USTR FOR PCOLEMAN 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAIR ELAB ECPS ENRG EINV EIND SF
SUBJECT: SOUTH AFRICA: PRESIDENTIAL ADVISOR DISCUSSES 
BILATERAL ECONOMIC RELATIONS 
 
REF: PRETORIA 698 
 
¶1. (SBU) Summary and Introduction. Econ M/C met March 2 with 
Alan Hirsch, Chief Director for Economic Policy Coordination 
in the Presidency, to discuss bilateral economic relations. 
The discussion included the status of U.S.-SACU free trade 
negotiations, the launch of the Accelerated and Shared Growth 
Initiative, the potential for labor reform, and upcoming 
visits to South Africa of important U.S. officials.  Also 
participating from the Presidency was Senior Economist for 
Economic Policy Coordination Ashraf Kariem.  Econ Deputy 
Chief and PASoff also attended.  End Summary and Introduction. 
 
TRADE 
----- 
 
¶2. (SBU) ECON M/C began the meeting by noting that U.S.-SACU 
free trade negotiations had shifted directions over the past 
few weeks.  In particular, the letter from U.S. Trade 
Representative Robert Portman to Trade and Industry Minister 
Mandisi Mpahlwa and other SACU trade ministers stated that 
there had not been much progress on the negotiations during 
the past two and half years.  This made it difficult to meet 
our negotiating deadlines.  In his letter, Portman proposed 
that our trade deputies meet to discuss what might be a 
realistic next step and to look at alternatives.  Hirsch 
acknowledged that there seemed to be little prospect of 
concluding an agreement on time.  Notwithstanding, he assured 
us that South Africa continued to view commercial relations 
with the United States as "extremely important." 
 
ASGISA 
------ 
 
¶3. (SBU) Hirsch then spent some time talking about Deputy 
President Phumzile Mlambo-Ngcuka's effort to stimulate 
economic growth and employment, called the "Accelerated and 
Shared Growth Initiative for South Africa" (ASGISA, see 
reftel).  He stated that a shortage of skills was the main 
constraint to growth for South Africa, not a shortage of 
capital.  ASGISA contained a number of strategies to address 
the skills shortage, in particular the Joint Initiative for 
Priority Skills Acquisition (JIPSA).  As outlined by the 
Deputy President, JIPSA would be a new institution led by a 
committee of Ministers, business leaders, trade unionists, 
educators, and expert trainers who would find ways to supply 
the skills that the market demanded. 
 
¶4. (SBU) Beyond skills, Hirsch agreed that labor reform had 
to be a central element of any growth plan.  Because ASGISA 
did not fully address this topic, he offered some background. 
 Late last year, he said, the government embarked in an 
"interesting and exciting discussion around labor law, 
similar to the discussion that surrounded small business 
today," but it was a broader, informed discussion.  The sense 
was that the key problem in labor law related primarily to 
contracts, dismissals, etc.  This came with the 
acknowledgement that current practices had introduced 
significant rigidities into the labor market that went beyond 
what was written in law.  Many of these rigidities affected 
small businesses and could reasonably be addressed within the 
context of the existing regulatory environment.  Changes 
along these lines constituted most of the labor proposals 
outlined in ASGISA.  However, some reforms would require 
changes in law.  Here, the Minister of Labor would take the 
lead.  By law, legislative changes had to be vetted with the 
National Economic and Development and Labor Council (NEDLAC) 
and its stakeholder groups.  Hirsch said that at the moment 
he was reasonably confident of forward movement on labor 
reform, though not sure what the final result would be. 
 
¶5. (SBU) In consulting with stakeholders on labor reform to 
facilitate the growth and development of small business, 
Hirsch noted that big business in South Africa was far more 
involved in the dialogue than it would be in another country. 
 This was because South Africa's apartheid past had forced 
large companies into conglomerates that wound up occupying 
prominent positions sectors normally populated by small 
business.  He added, however, that sector associations were 
increasingly representing the views of small and medium 
 
business in an effective manner. 
 
¶6. (SBU) Hirsch admitted that there was more ASGISA could 
have conceivably addressed, such as trade reform and turning 
around "a rather xenophobic immigration policy."  On this 
latter point, he noted that xenophobia cut across the 
black/white divide in South Africa, "with the two sides 
reinforcing each other in a strange way." 
 
¶7. (SBU) Hirsch asked if the Embassy had had any contact with 
a group of largely U.S. based economists who were to be 
contracted by the South African Government to consult on 
ASGISA.  The Mail & Guardian newspaper recently reported that 
Ricardo Hausmann, Professor of Economic Development at the 
John F. Kennedy School of Government, was the leader of this 
group.  Other Kennedy School and/or Harvard professors 
included Dani Rodrik (political economy), Robert Z. Lawrence 
(international trade and investment), James Robinson 
(government), Philippe Aghion (economics), Frederico 
Sturzenegger (a visiting professor of public affairs), and 
Bailey Klinger (a teaching fellow).  Non Harvard professors 
included Jonathan Leape of the London School of Economics 
(economics), Laurence Harris of the University of London 
(economics), and Roberto Rigobon from MIT's Sloan School of 
Business Management (monetary and development economics). 
Hirsch said that the group had already met with President 
Mbeki and a number of ministers.  He understood that a 
consulting contract was in the process of being finalized. 
 
Developments in Bilateral Economic Relations 
-------------------------------------------- 
 
¶8. (SBU) In the context of infrastructure investment planned 
under ASGISA, ECON M/C mentioned the successful reverse trade 
mission that the Commercial Service organized for ESKOM 
purchasing managers last fall, and Westinghouse' growing role 
in the Pebble Bed Modular Reactor (PBMR) project.  Econ M/C 
added that the Embassy was working to create a bilateral 
committee on nuclear energy to foster technology exchange, 
something that should be of great benefit to PBMR.  Hirsch 
appreciated the potentially important role that Westinghouse 
might play in commercializing PBMR in the world market. 
 
¶9. (SBU) ECON M/C pointed out the good working relationship 
that had developed between the Independent Communications 
Authority of South Africa and the Federal Communications 
Commission.  The two just finished their second 
regulator-to-regulator exchange, which included, among other 
things, a discussion of ways in which South Africa might 
reduce high telecom prices.  He added that he had recently 
met with TYCO executives about their bid on the East Africa 
Submarine Cable System (EASSy) Project.  TYCO was one of two 
leading bidders for EASSy, in which the major players were 
South Africa's Telkom and the Kenyans. 
 
¶10. (SBU) On the negative side, ECON M/C noted that bilateral 
negotiations on Open Skies had "not gotten off the ground." 
Hirsch responded that South African Airways had been going 
through difficult times, and that the government was 
reluctant to open the South African civil aviation market, 
partly because it was trying to keep the British at bay. 
Hirsch added that the British were pressuring South Africa to 
open both internationally and domestically.  The downside to 
a closed market, admitted Hirsch, was that it hurt tourism. 
Tourism was a key sector for growth identified under ASGISA. 
He concluded that if South Africa did not get Open Skies 
right, then "the other things did not matter." 
 
¶11. (SBU) Econ M/C stated that the local American Chamber of 
Commerce had been reviewing the new Black Economic 
Empowerment (BEE) Codes of Good Practice.  Issues involved 
more than providing clarity and consistency.  Hirsch asked to 
see AmCham's comments when they were ready.  "We would not 
want (BEE) to be major inhibitor to green field investment," 
he said.  Hirsch added that investment fund managers had 
calculated that, given South Africa's current growth rate, 
BEE would cost companies already incorporated in South Africa 
only about 1-2% of their investment.  He would be interested 
to see if that were true. 
 
Upcoming Visits 
--------------- 
 
¶12. (SBU) ECON M/C closed by stating that Secretary of 
Treasury John Snow would visit South Africa on March 22-23. 
On behalf of the Treasury, the Embassy had requested a 
meeting with President Mbeki.  Econ M/C also noted that 
Secretary Snow would deliver a speech at an American Chamber 
 
SIPDIS 
of Commerce function, organized in cooperation with local 
business groups Business Unity South Africa and Business 
Leaders South Africa. 
 
¶13. (SBU) ECON M/C added that the Overseas Private Investment 
Corporation (OPIC) would sponsor an Africa-wide housing 
conference in Cape Town on May 2-4.  OPIC President Robert 
Mosbacher, Deputy U.S. Trade Representative Karan Bhatia, and 
African Development Bank President Donald Kaberuka would 
attend.  An invitation to the event had been extended to 
President Mbeki.  Econ M/C suggested that since DUSTR Bhatia 
was planning to attend, it might be a good opportunity to 
organize a trade deputies meeting for Deputy Minister for 
Trade and Industry Rob Davies and his SACU colleagues. 
Hirsch took note of the event and the opportunity. 
TEITELBAUM