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Viewing cable 07PRETORIA1274, SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 13, 2007

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Reference ID Created Released Classification Origin
07PRETORIA1274 2007-04-13 12:52 2011-08-24 01:00 UNCLASSIFIED Embassy Pretoria
VZCZCXRO4108
RR RUEHDU RUEHJO
DE RUEHSA #1274/01 1031252
ZNR UUUUU ZZH
R 131252Z APR 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 9155
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 6512
RUEHTN/AMCONSUL CAPE TOWN 4181
RUEHDU/AMCONSUL DURBAN 8733
UNCLAS SECTION 01 OF 03 PRETORIA 001274 
 
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 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 13, 2007 
ISSUE 
 
1. (U) Summary.  This is Volume 7, issue 15 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- SARB Holds Interest Rate Steady 
- Treasury Provides Bail-Out for SAA 
- SAA to Buy More Planes 
- Mbeki Takes a Swipe at Telkom 
- Denel Faces Hard Times 
- Unemployment Rate Improves, But in Low Wage Jobs 
- February Inflation Better Than Expected 
- SA Government Rejects Planting of GM Maize 
 
End Summary. 
 
SARB Holds Interest Rate Steady 
------------------------------- 
 
2. (U) The Monetary Policy Committee (MPC) of the South African 
Reserve Bank (SARB) left the repo rate unchanged at its meeting of 
April 11.  The MPC cited lower inflationary expectations, a stable 
rand, and a positive global inflation outlook as reasons for its 
decision.  It noted, however, that oil prices and food prices remain 
of concern, household consumption expenditure poses a risk of 
inflation, and consumer confidence remains at high levels.  After 
reviewing the mixed inflation picture, the MPC stated that it "has 
decided that despite the slight deterioration in the inflation 
outlook, an unchanged monetary stance continues to be appropriate 
for now."  The decision was in line with market expectations.  SARB 
Governor Tito Mboweni said that the MPC should wait to see the full 
impact of its 200 basis point hike in 2006 before it acts again. 
(Business Day, April 13) 
 
Treasury Provides Bailout for SAA 
--------------------------------- 
 
3. (U) The SA government announced on April 2 that it had decided to 
provide a guarantee of 1.3 billion rand ($178 million) to 
state-owned South African Airways (SAA) in what the Department of 
Public Enterprises has called, "the first tranche of a 
recapitalization process."  The announcement means that SAA CEO 
Khaya Ngqula and Public Enterprises Minister Alec Erwin have been 
able to overcome opposition in the Department of Treasury, which had 
been reluctant to provide a bail-out.  SAA is expected to report 
losses of 650 million rand ($88.8 million) for last year and says it 
needs more than 4 billion rand ($570 million) to restructure 
properly.  This follows more than 6 billion rand of guarantees that 
were provided in 2003 when the SAA's hedge book went sour.  The 
restructuring includes a comprehensive review of SAA's routes which 
led to the postponement of the proposed May 9 launch of a new route 
between Johannesburg and Chicago.  The restructuring may also 
include the break-up of the airline into various operating 
businesses.  (Business Day, April 3.) 
 
SAA to Buy More Planes 
---------------------- 
 
4. (U) SAA is also moving ahead with its fleet planning process 
which will result in a decision on which types of aircraft need to 
be purchased for 2009, 2010 and beyond.  A large tender to purchase 
up to 20 Boeing or Airbus aircraft is expected to be issued in 
August.  SAA has a mixed Boeing/Airbus fleet, but the most recent 
purchases have been from Airbus.  A purchasing decision needs to be 
made by mid-2007 if the new planes are to arrive before the 2010 
FIFA World Cup.  Boeing and Airbus production lines are both full 
and it will be difficult for either manufacturer to deliver new 
aircraft prior to 2010 even in the best of conditions.  (Business 
Day, April 4, 2007) 
 
Mbeki Takes a Swipe at Telkom 
----------------------------- 
 
5. (U) President Mbeki accused state telecommunications company 
Telkom in a Financial Times article of "profiteering" from the 
exorbitant rates it charges on the Sat-3 undersea cable which 
connects SA with Europe and Asia.  Mbeki described the rates as 
"absolutely phenomenal" and said that a range of "interventions" 
were being put in place to reduce phone charges.  These 
interventions include building a new, and far larger, fiber optic 
cable along the west coast.  Another intervention is the licensing 
 
PRETORIA 00001274  002 OF 003 
 
 
of Neotel, a private telecommunications company which is already 
providing competition in the provision of wholesale services and 
hopes to provide retail services to companies and individual 
consumers later this year.  Another state-owned company, Infraco, is 
expected to compete with the provision of internet bandwidth space 
later this year.  Yet another intervention would be to persuade 
Telkom to provide special rates to potential call centers.  Mbeki 
said the SA government had been talking to Telkom about the 
establishment of call centers, but SA was still not attracting call 
centers due to the high cost of telecommunications.  Mbeki's 
complaints about high telecommunications costs are part of a broader 
concern about microeconomic issues that create obstacles to higher 
rates of economic growth, an issue he has mentioned in his state of 
the nation addresses.  Telkom CEO Papi Molotsane announced his 
unexpected resignation on April 5.  (Business Day, April 3, 2007, 
Business Report, April 4, 2007 and Business Times, April 8, 2007) 
 
Denel Faces Hard Times 
---------------------- 
 
6. (U) Embattled state arms manufacturer Denel was passed over for a 
2 billion rand ($273 million) contract to supply the Turkish army 
with 50 attack helicopters, a deal that was seen as critical to the 
company's turnaround efforts and the survival of its Rooivalk attack 
helicopter.  The contract went instead to Italy's Agusta Aerospace. 
Agusta's A129 Mangusta helicopter is considered to be 
technologically superior to the Rooivalk and it will become 
increasingly difficult for Denel to market the Rooivalk as its 
technology becomes more dated.  Denel spokesman Sam Basch said on 
April 2 that Denel was trying to sell more Rooivalks to the SA Air 
Force, which is the only entity that has ever purchased the 
helicopter, having purchased 12 in 1999.  Denel CEO Shaun Liebenberg 
said that he was confident the company would be turned around in the 
next four years and that the company had managed to reduce its 
losses from 1.6 billion rand ($218 million) in FY2004-05 to 1.4 
billion rand ($191 million) in FY2005-06.  Denel recently received a 
2 billion rand ($273 million) cash injection from the government and 
has asked the government to recapitalize it with an additional 5 
billion rand ($683 million).  (Business Day, April 3-4, 2007) 
 
Unemployment Rate Improves, But in Low Wage Jobs 
--------------------------------------------- --- 
 
7. (U) The unemployment rate for the year up to September 2006 
showed a slight decrease, according to the findings of the Labor 
Force Survey (LFS) released this week.  The LFS is a twice-yearly 
household survey specifically designed to measure the labor market. 
The number of unemployed persons dropped from 4.4 million in 
September 2005 to 4.3 million in September 2006, which 
correspondingly reduced the unemployment rate from 26.7 percent in 
September 2005 to 25.5 in September 2006.  The results also showed 
that the number of employed people increased from 12.3 million in 
September 2005 to 12.8 million in September 2006.  The decreases in 
the unemployment rate took place despite an increase in the labor 
force from 16.7 million to 17.1 million. 
 
8. (U) Although the LFS indicates unemployment rates improved, 
Miriam Altman, the Executive Director of the Human Science Research 
Council's (HSRC) Employment, Growth and Development Initiative, said 
the HSRC's key findings showed that the economy was creating large 
numbers of low-skilled and poorly paid jobs mostly in the service 
sector.  Altman claimed that to bring the jobless rate to 15% by 
2014, the private sector would have to create 500,000 jobs per year, 
with the public sector contributing a further 600,000 jobs.  To 
achieve this, an economic growth rate of 6% and a job growth rate of 
4% would be needed over a 10-year period.  The economy is currently 
creating between 100,000 and 300,000 jobs per year.  The problem is 
that even though job creation has been consistently positive with an 
average growth rate of 1% per year since 1995, the population has 
been growing at 2.8% per year.  COSATU trade union Policy 
Coordinator Rudi Dicks said there are approximately 300,000 to 
350,000 new entrants to the labor market each year, meaning that job 
creation will fall short of the government's ASGISA goal of reducing 
unemployment by half by 2014.  Deputy President Phumzile 
Mlambo-Ngcuka acknowledged that while the prospects for economic 
growth looked brighter, "sufficient employment creation remains the 
most crucial and most difficult ASGISA objective."  The good news is 
the economy is currently growing at 5% per year for the third 
straight year and appears to be on track to achieve 6% growth by 
2010.  (Mail & Guardian, March 30 to April 4, 2007) 
 
PRETORIA 00001274  003 OF 003 
 
 
 
February Inflation Better Than Expected 
--------------------------------------- 
 
9. (U) February's CPI was at 5.7% year-on-year compared to 6% in 
January.  The CPIX inflation dropped from 5.3% to 4.9%.  The decline 
is attributed to the decrease in fuel prices during February.  Food 
price inflation, especially in grain products, continued to be high 
at 8% in February, compared to 8.6% in January.  CPIX less fuel 
inflation was 5% in February, and CPIX less food inflation was 3.9% 
compared with 4.2% in January.  Food inflation is expected to 
increase in the next few months due to grain crop failures from 
drought conditions. 
 
SA Government Rejects Planting of GM Maize 
------------------------------------------ 
 
10. (U) The Department of Agriculture's Executive Council, which 
regulates Genetically Modified (GM) organisms, has rejected a seed 
company's application to grow GM maize in South Africa for the 
bio-fuel industry.  US biotechnology company Syngenta wanted to 
plant "Maize Event 3,272," known as the first industrial GM maize in 
the world, but failed to convince the SA government that the maize 
was safe for food or animal feed.  Executive Council Chairman Julian 
Jaftha said that they were concerned that the Event 3,272 maize 
could mix with maize intended for food.  The Council also stated 
that Syngenta did not use the World Health Organization's (WHO) 
evaluation methods to test for allergens.  The African Biosafety 
Center, a watchdog organization monitoring the GM industry, 
announced support for the government's decision.  (Cape Times, March 
29, 2007) 
 
BOST