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RR RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2860/01 1941301
ZNR UUUUU ZZH
R 131301Z JUL 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4533
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 PRETORIA 002860 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR OAISA/RALYEA/CUSHMAN 
USTR FOR COLEMAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER JULY 13 2006 
ISSUE 
 
¶1. (U) Summary.  Once every two weeks, Embassy 
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 of this week's newsletter are: 
 
-  Government to simplify BEE codes; 
-  Second telephone operator to start operations 
   before end of 2006; 
-  Business, consumer confidence falls in June; 
-  Land Claims Commission pledges to settle all 
   claims by 2008; 
-  Manufacturing boosted by weak rand; 
-  South Africa increases imports to avoid oil shocks; 
-  House-price growth slows further; 
-  Draft industrial policy targets poor provinces; 
-  South African Airways profits fall 90%; 
-  Labor Minister recognizes skills shortage, 
   reaffirms labor laws for poverty relief; 
-  Sasol explores Indian coal conversion plant 
-  Turkey considers major purchase of SA helicopter; 
   and; 
-  Ecological concerns nix methane gas project. 
End Summary. 
 
Government to simplify BEE codes 
-------------------------------- 
 
¶2. (U) Responding to criticism from business leaders, Minister of 
the Department of Trade and Industry (DTI) Mandisi Mpahlwa stated on 
July 11 that his department 
would seek to simplify its final Black Economic 
Empowerment (BEE) best-practice guidelines before 
their planned final presentation to Cabinet in August. 
In particular, Mpahlwa declared that DTI will reduce 
the number and complexity of constituent BEE 
indicators, drop many restrictive measures for small- 
to medium-sized businesses, not require foreign firms 
to sell equity if they meet other benchmarks, and 
craft regulations to avoid exacerbating the economy's 
skill shortage.  BEE codes, published by the DTI, set requirements 
for companies to augment the economic 
power of previously disadvantaged groups.  Codes 
include assessments of equity, employment, training, 
and authority for members of targeted groups. 
Sources: DTI press release, July 11; Business Day, 
Reuters, July 12. 
 
Second telephone operator to start operations before 
end of year 
--------------------------------------------- -------- 
 
¶3. (U) South Africa's SNO (Second National Operator) 
Telecommunications Ltd., whose shareholder's include 
Tata and state-owned logistics corporation Transnet, 
will challenge the fixed-line monopoly of former 
parastatal Telkom before the end of 2006, according 
to a recent press release.  Increased competition in 
the sector could lower South African communications 
prices, which are among the world's highest.  Source: Reuters, 
Finance 24, MarketWatch, June 5. 
 
Business, consumer confidence fall in June 
------------------------------------------ 
 
¶4. (U) The South African Chamber of Business (Sacob) Business 
Confidence Index declined from 101.4 in May 
to 99.4 in June, according to figures released on July 
¶4.  Sacob attributed the drop to South Africa's 
growing current account deficit, inflationary 
pressures, oil prices, and global investors' move away 
from emerging market assets in response to rising US interest rates. 
 Sacob also warned, in the wake of a 
spate of high-profile attacks on police, that South Africa's high 
rate of violent crime damaged its appeal 
to investors.  Consumer confidence remained near 
record high levels on the FNB/BER index released 
June 5, but it too declined from 21 in the first 
quarter of 2006 to 20 in the second quarter.  The 
reports' authors did not consider the decline serious. Source: Mail 
& Guardian, July 4; Business Day, SABC, iAfrica, July 5. 
 
Land Claims Commission pledges to settle all claims by 
2008 
 
PRETORIA 00002860  002 OF 004 
 
 
--------------------------------------------- --------- 
 
¶5. (U) South Africa's Land Claims Commission (LCC), a 
body formed in 1995 to adjudicate the claims of those displaced by 
apartheid, declared on July 5 that it had resolved 89% of the claims 
brought before it and would close all remaining cases by 2008.  The 
LCC has 
resolved 71,645 claims, most leading to financial compensation for 
the loss of urban properties.  Most outstanding cases involve 
poorly-documented claims or 
are rural properties, which are more complicated cases 
due to the government's concern for maintaining agricultural output. 
 Source: Business Day, SABC, 
July 5. 
 
Manufacturing boosted by weak rand 
---------------------------------- 
 
¶6. (U) The Purchasing Managers Index (PMI) released by Stellenbosch 
University's Bureau for Economic Research (BER) showed that the 
manufacturing sector continued 
to expand in June.  The PMI stood at 59.8 for June, an increase from 
May's 57.6, showing healthy growth in manufacturing, the 
second-largest sector of the South African economy. The PMI measures 
new orders, 
inventory, production, deliveries, and employment 
through a nationwide survey of purchasing managers. 
An index number of over 50 implies expansion; less 
than 50 shows contraction.  Manufacturing growth 
quickened to 5.1% year-on-year in May from .1% in 
April according to a July 12 Statistics SA report.  Seasonally 
adjusted, the output rose by 2%.  Many 
analysts, however, expect this growth to recede 
through the rest of the year, as the SA Reserve Bank 
raised interest rates by 50 basis points on June 8 
and is likely to impose 1-2 similar increases during 
¶2006.  Source: Business Day, July 4, 13. 
 
South Africa increases imports to avoid fuel shocks 
--------------------------------------------- ------ 
 
¶7. (U) Several major South African refineries will be 
taken offline over the next several months for routine maintenance, 
leading to a sharp increase in petroleum imports to avoid a 
shortage.  Natural gas customers in Gauteng are already experiencing 
shortages, due to transportation bottlenecks between refineries and 
the inland population centers.  The Sapref refinery in 
Durban, the county's largest refinery with a capacity 
of 180,000 barrels per day, is already offline for two months, with 
refineries operated by Sasol, Caltex, and Petrol SA to perform 
similar shutdowns in 2006.  Oil imports are already a major part of 
South Africa's 
growing current account deficit.  Source: Business Day, July 4. 
 
House-price growth slows further 
-------------------------------- 
 
¶8. (U) House prices continue to rise in South Africa, 
but the market growth should slow into 2007 according 
to the June Absa House Price Index.  Nominal house- 
price growth is at a 4.5 year low after it cooled in 
June to an average 13.6% year-on-year from an average 
14.3% in May.  A report released by Standard Bank on 
July 12 further predicts that house-price growth will 
slow to zero by the end of 2006, though picking up 
again mid-2007.  The South African Reserve Bank (SARB) raised 
interest rates by 50 basis points on June 8, 
the primary factor behind slower growth in the sector.  Consumer 
debt and rising inflation are also 
significant contributors.  Source: Business Day, 
June 6, 13. 
 
Draft industrial policy targets poor provinces 
--------------------------------------------- - 
 
¶9. (U) Minister Mpahlwa of the Department of Trade and Industry 
(DTI) released a draft of his department's 
new Regional Industrial Development Strategy (RIDS) 
on July 10.  The document outlines a national 
industrial development strategy for South Africa. 
RIDS includes a greater focus on integrating national development 
with local and regional growth strategies 
based on pre-existing industries and advantages 
instead of attempting to build sectors from scratch. 
 
PRETORIA 00002860  003 OF 004 
 
 
DTI hopes to bring development to citizens outside of Johannesburg, 
Cape Town, and Durban, the three major metropolitan areas that 
account for more than 65% of 
GDP.  Mpahlwa cited an opportunity for the industrialization of 
former mining towns, which have 
a high concentration of unemployed people and well-developed 
industrial transportation infrastructQe.  Source: BuaNews, 
Engineering News, July 11. 
 
South African Airways profits fall 90% 
-------------------------------------- 
 
¶10. (U) South African Airways (SAA), the country's 
state-owned flag carrier and the employer of 11,000, reported on 
July 6 that its net profits fell to R65 
million ($9.2 million) in the year ending March 2006 
from R648 million ($91.4 million) the year before.  Although many of 
its troubles sprang from a week-long strike, higher oil prices, and 
a one-time R100 million 
($14 million) penalty for anticompetitive practices, 
SAA also fared poorly in competition with low-cost airlines.  It 
lost 20% of its domestic market share to 
low-cost carriers last year.  In response, the company announced 
several dramatic changes to its business 
plan.  In the next 18 months, SAA hopes to cut R1.6 
billion ($226 million) from its budget, obtain 
government loans for a R3-4 billion ($430-$570 
million) recapitalization project, and plans to launch 
its own no-frills brand.  Sources: Business Day, 
Sunday Times, July 7; AirWise News, July 10. 
 
Labor Minister recognizes skills shortages, reaffirms 
labor laws for poverty relief 
--------------------------------------------- -------- 
 
¶11. (U) Labor Minister Membathizi Mdladlana declared 
at a July 6 conference that government must focus on building the 
skills of workers as well as growing the economy, preparing citizens 
to take up jobs that will 
lift them out of poverty.  Recently, the government 
granted energy giant Sasol permission to import 
thousands of skilled workers unavailable in South 
Africa, an incident Mdladlana used to illustrate that 
the country's 27% (official) unemployment coexists 
with a shortage of qualified workers in many key 
sectors.  He further dismissed claims by some 
businesses that relatively rigid South African labor 
laws limit employment, saying that the government will maintain its 
commitment to a living wage and fair 
labor practices.  Sources: Finance24, Mail & Guardian, 
July 7. 
 
Sasol explores Indian coal conversion plant 
------------------------------------------- 
 
¶12. (U) The Indian government is working with South 
African energy giant Sasol to examine the feasibility 
of a $6 billion coal-to-liquid (CTL) fuel plant in 
that country.  The facility would produce roughly 
80,000 barrels per day (bpd) from India's abundant 
coal reserves.  Although India contains 7% of the 
world's coal reserves, it must import 70% of its 
petroleum.  Even if Sasol and India ultimately proceed 
with the plant, it will not be operational for about 
10 years.  Sasol is a world leader in synthetic fuels, providing 40% 
of South Africa's liquid fuels with its 
CTL and proprietary gas-to liquid technology.  The 
company recently opened a major new plant in Qatar 
and plans to expand into Nigeria and China.  Sources: Business 
Standard, India, July 9; Business Day, 
July 11. 
 
Turkey considers major purchase of SA helicopter 
--------------------------------------------- --- 
 
¶13. (U) Turkey named Denel Aviation's CSH-2 Rooivalk 
armed reconnaissance helicopter as one of twoQraft 
under consideration for a major contract to equip its 
armed forces.  The deal, worth about $2 billion, could 
lead to the production of up to 91 helicopters and 
would be a major breakthrough for the South African aviation 
industry.  Apart from a 12-helicopter 
purchase from the South African Air Force, the 
Rooivalk has not sold any craft since its mid-1990s introduction. 
 
PRETORIA 00002860  004 OF 004 
 
 
Last year, Denel lost R1.6 billion 
($226 million) and has asked the government for a 
R5.1 billion ($719 million) recapitalization package. 
The other competitor for the Turkish contract is 
Italy's Mangusta A129 International.  Source: Business 
Day, July 3; IOL, Herald Eastern Cape, July 4. 
 
Ecological concerns nix methane gas project 
------------------------------------------- 
 
¶14. (U) Badimo Gas withdrew its application to 
nationalQil company PetroSA for the exploitation 
of the Tuli coal bed methane project.  Coal bed exploitation 
threatened Mapungubwe National Park, 
a world heritage site and a significant draw for 
tourists.  The proposal had drawn denunciation from 
local stakeholders and environmentalists.  Badimo 
declared that it had been unaware of the potential 
effects on the park and withdrew its application on ecological 
grounds.  Source: Financial Mail, June 23, 
July 14. 
 
 
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