VZCZCXRO0653
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #2746/01 1871351
ZNR UUUUU ZZH
R 061351Z JUL 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4361
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHTN/AMCONSUL CAPE TOWN 3032
RUEHDU/AMCONSUL DURBAN 7925
RUEHJO/AMCONSUL JOHANNESBURG 4802
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 PRETORIA 002746 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/S (MTABLER-STONE) 
DEPT PLEASE PASS TO DEPT OF HUD (JGERAGHTY) 
DEPT PLEASE PASS TO OPIC (JSIMON AND DERB) 
 
E.O. 12958: N/A 
TAGS: EFIN EINV PGOV PREL EAID SF
SUBJECT: SOUTH AFRICA: POLITICS STALLING LOW-INCOME HOUSING 
FINANCE INITIATIVES 
 
REF: A. PRETORIA 2022 
     ¶B. PRETORIA 347 (NOTAL) 
     ¶C. 05 PRETORIA 2621 (NOTAL) 
     ¶D. 04 PRETORIA 4503 (NOTAL) 
 
PRETORIA 00002746  001.2 OF 002 
 
 
(U) This cable is Sensitive But Unclassified.  Not for 
Internet Distribution. 
 
¶1. (SBU) Summary.  The ANC's Tripartite Alliance with the 
Congress of South African Trade Unions (COSATU) and the South 
African Communist Party (SACP) has slowed down low-income 
housing finance initiatives, according to the Banking 
Association.  The Housing Ministry sidelined a bilateral MOU 
concluded last year with the Banking Association due to 
complaints from COSATU and SACP.  As members of the Black 
Economic Empowerment (BEE) Financial Sector Charter Council, 
COSATU and SACP would like any negotiations handled by the 
entire Council.  Frustrated by the stalled progress, banks 
issued R17 billion ($2.4 billion) in low-income loans on 
their own accord.  The Council must now decide if these loans 
will count towards the BEE-sanctioned target of R42 billion 
($6 billion) by 2008.  A Banking Association official 
criticized government for not offering incentives to 
contractors to assist with the short supply of low-income 
housing and encouraged U.S. partners to assist South Africa 
with financing through individual institutions. End Summary. 
 
Tripartite Alliance Slowing Housing Finance Reform 
--------------------------------------------- ----- 
 
¶2. (SBU) According to Banking Association official Jopie van 
Honschooten, the Tripartite Alliance effectively negated the 
MOU between the Housing Ministry and the Banking Association 
last year.  This MOU included areas to work on collectively 
to deliver on the Black Economic Empowerment (BEE) Financial 
Sector Charter target of delivering R42 billion ($6 billion) 
in low-income housing finance by 2008 (Refs A and D).  The 
five MOU areas involved:  (1) consumer education; (2) housing 
subsidy amounts; (3) fixed-rate mortgages; (4) risk 
underpinning; and (5) other impediments such as slow deed 
transfers.  Under this MOU, the South African Government 
(SAG) would have had to assist the banks with risk insurance 
and hedging of any fixed-rate mortgages.   Getting wind of 
the MOU, Tripartite Alliance members -- namely the Congress 
of South African Trade Unions (COSATU) and the South African 
Communist Party (SACP) -- balked at this bilateral agreement, 
saying that as members of the Financial Sector Charter 
Council, they should have been a part of the negotiations 
(Ref D). 
 
¶3. (SBU) Last year's uproar from its Tripartite Alliance 
members forced the Housing Ministry to back down and sideline 
the MOU.  The parties abandoned plans altogether for a 
government-backed mortgage insurance institution (similar to 
the U.S.'s Fannie Mae), but continued discussions on other 
matters.  Frustrated with the stalled progress of talks, 
banks started offering low-income home loans on their own 
accord, totaling nearly R17 billion ($2.4 billion) thus far. 
These loans, however, are currently "unsanctioned" by the 
Financial Charter Council and it is unknown if these loans 
will qualify under the BEE Charter.  Van Honschooten thought 
that these loans should qualify as the loans' average 
interest rates have been prime plus 2.5% or about 13%, less 
than the 20% maximum allowed under the Charter. 
 
¶4. (SBU) In May, COSATU and the SACP stalled progress once 
again with complaints about negotiations between the Banking 
Association and Housing Minister Lindiwe Sisulu.  In her 
budget speech to Parliament, Sisulu announced that the 
Housing Ministry, the Banking Association, and the Financial 
Charter Council had finally agreed to move forward in terms 
of the 2005 MOU.  She went on to say, however, that the 
Banking Association and the Housing Ministry were having 
ongoing discussions on the size and risk sharing of a second 
tranche of low-income home loans beyond the original R42 
billion. (Note: Banks will assume all the first tranche's 
risk, but are looking to government to shoulder some of the 
risk for those who earn R1,500 to R5,500 ($200 to $800) per 
month in the second tranche. End Note.)  COSATU's and SACP's 
complaints about these discussions have stopped these 
negotiations dead in their tracks.  The parties have since 
 
PRETORIA 00002746  002.2 OF 002 
 
 
shifted their focus on working through the Financial Charter 
Council to establish defined financial standards for BEE 
Charter "sanctioned" loans.  Only time will tell if the 
banks' R17 billion in loans outstanding will be "sanctioned" 
by the Council and count towards the R42 billion.  (Note: 
Van Honschooten also pointed out that the original target 
loan issuing amount was R50 billion, which would amortize to 
the R42 billion target.  The new goal, however, has been 
revised to R40 billion issued, to amortize to R30 billion. 
End Note.) 
 
SAG Housing Policy Critiques 
---------------------------- 
 
¶5. (SBU) While supportive of the SAG's housing policy, van 
Honschooten offered critiques on its focus on the eradication 
of informal settlements, its economic viability, and the need 
to engage residential contractors (Refs B and C).  According 
to van Honschooten, the Housing Minister is too focused on 
the goal of eradicating informal settlements by 2014.  He 
said that this goal is a simplistic one that ignores the 
ongoing urbanization phenomenon and condemns the communities 
that exist.  Allocating local government the budgets they 
need to gradually enhance informal settlements would be a 
better approach, said van Honschooten. 
 
¶6. (SBU) Van Honschooten believes that the current housing 
policy contains socially desirable goals, but does not offer 
financial incentives that make business sense to engage the 
private sector.  If this policy continues, contractors will 
continue to focus on the high-end and commercial markets, 
ignoring the short supply of low-income housing.  Currently, 
South Africa is only building 15,000 houses per year to 
accommodate those that do not qualify for the full government 
subsidy, but do not make over R7,500 per month ($1,100). 
Contractors need to build 135,000 units per year to meet the 
current demand for 600,000 units for this segment.  One 
incentive that government could offer would be to speed up 
the pace of the building approval process.  (Note: About 4 
million households earn the "middle" range of income from 
R1,500 to R7,500 per month ($200 to $1,100), another 4 
million comprise the "high-end" market while about 7 million 
households require fully-subsidized housing.  Of the 7 
million, a housing backlog of 2 million exists.  In total, 
South Africa's housing backlog is about 2.5 million (Ref C). 
End Note.) 
 
How the USG Can Help 
-------------------- 
 
¶7. (SBU) According to van Honschooten, U.S. partners could 
best assist South Africa with additional low-income housing 
finance guarantees through individual institutions, whether 
it would be the banks or residential contractors.  In his 
opinion, while the SAG and the Banking Association have not 
resolved the risk sharing issue on the second tranche of 
financing, this should not hold up outside assistance with 
the first tranche (Ref A).  U.S. partners -- such as USAID, 
OPIC, or a private sector entity -- could approach 
associations such as the Banking Association 
(www.banking.org.za) or the South African Property Owners 
Association (www.sapoa.org.za), which includes the 
Residential Property Owners Association (RESPOA).  U.S. 
agencies could also expand upon existing relationships with 
South African financial institutions. 
TEITELBAUM