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FM AMEMBASSY PRETORIA
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RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 001381 
 
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 20, 2007 
ISSUE 
 
 
¶1. (U) Summary.  This is Volume 7, issue 16 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Slow Progress Towards AsgiSA Goals 
- US Equity Giant Bain Snares Edcon for R25bn 
- High Commodity Prices Up SA-US Export Value 
- SA Considering Second, Cheaper Undersea Telecommunications Cable 
- Below Market Value Sale of a Marine Vessel Sets Scene for an 
Investigation 
- First BEE Private Equity Fund Launched 
- Johannesburg Mine Dumps Disappear 
 
End Summary. 
 
Slow Progress Towards AsgiSA Goals 
---------------------------------- 
 
¶2. (U) The Accelerated and Shared Growth Initiative for South Africa 
(AsgiSA), the SA government's one-year old initiative to accelerate 
and spread economic growth, requires a new approach, according to 
Deputy President Phumzile Mlambo-Ngcuka.  Although the "economy is 
pumping," with positive macroeconomic indicators and a massive 
infrastructure program underway, Mlambo-Ngcuka's recently released 
first annual report for AsgiSA noted that behind-target spending, 
especially in provinces and municipalities, and delayed social 
service projects were a particular problem.  Some projects that were 
reportedly begun over three years ago had still not been 
implemented.  She also pointed out that inter-departmental turf wars 
were blocking crucial coordination between government departments 
and has caused delays in aligning funds with AsgiSA's sectoral 
targets for skills development.  Mlambo-Ngcuka acknowledged that she 
had underestimated the challenge of unemployment among the youth 
with no marketable skills and the government had overestimated the 
markets' role in creating jobs.  To redress this problem, she said 
the government needed to re-frame its policies based on the current 
workforce.  She said she would press for new initiatives on youth 
unemployment, manufacturing, small-business development, information 
technology, the creative arts and government capacity.  AsgiSA also 
aims to relieve "binding constraints" to faster economic growth. 
She criticized the information, communications and technology sector 
for failing to bring down prices and to expand opportunities, and 
delivered harsh words against private-sector resistance to Black 
Economic Empowerment.  (Business Times, April 15, 2007) 
 
US Equity Giant Bain Snares Edcon for R25bn 
------------------------------------------- 
 
¶3. (U) In SA's largest private equity deal to date, U.S. equity 
giant Bain Capital won 80% of shareholder votes for its takeover bid 
of Edcon for 25 billion rand ($3.57 billion).  Edcon, a prized 
Johannesburg Securities Exchange (JSE) listed retail conglomerate, 
owns popular outlets including Edgars, CNA, Boardmans, and 
Temptations.  International private equity groups have been sizing 
up other local listed assets, but only one other smaller valued 
transaction has been made.  The Edcon vote may be an impetus to push 
forward other deals during this period of strong consumer spending 
and credit growth.  Although the takeover still requires regulatory 
approvals by the High Court, the SA Reserve Bank and the Competition 
Commission, commentators expect it to clear the remaining hurdles 
without difficulty.  Bain will keep Edcon's Black Economic 
Empowerment initiatives intact and none of its 20,000 staff jobs are 
under threat.  Edcon will be delisted from the JSE on May 18. 
(Business Day and Pretoria News, April 17, 2007) 
 
High Commodity Prices Up SA-US Export Value 
------------------------------------------- 
 
¶4. (U) The value of South African exports to the US surged in the 
first two months of 2007 due to high and rising commodity prices. 
Exports for January and February 2007 rose 32% from the same period 
last year to nearly $1.4 billion.  Historically, mineral and metal 
exports are by far the biggest component of exports to the U.S. 
With the platinum prices ranging from $1,160 to $1,240 per ounce in 
January and February compared to $1,080 for the same period in 2006, 
the chief economist from the Chamber of Mines says that rising 
commodity prices, rather than volumes, were responsible for the 
higher values.  Other metals showed similar price trajectories; 
Rhodium was at $5,600 to $6,000 in January and February from $3,500 
for the same period last year and palladium was at $330 to $350 
 
PRETORIA 00001381  002 OF 003 
 
 
compared with less than $290 last year.  The second largest export 
sector, passenger motor vehicles, was up 126% to $101 million in the 
first two months of 2007, largely owing to the recovery of 
interrupted BMW production in 2005.  (Pretoria News and Business 
Day, April 17, 2007) 
 
SA Considering Second, Cheaper Undersea Telecommunications Cable 
---------------------------------------- 
 
¶5. (U) Department of Communications (DOC) Director-General Lyndall 
Shope-Mafole confirmed that SA may take the lead in building a 
second undersea telecommunications cable along Africa's east coast 
to compete with the planned East Africa Submarine System (EASSy) 
cable.  Shope-Mafole said April 4 that EASSy investors, which 
include SA parastatal telecommunications monopoly Telkom, are more 
interested in profiteering than providing affordable bandwidth.  DOC 
supports the New Partnership for Africa's Development (NEPAD) which 
wants to increase affordable bandwidth and ideally would use the 
EASSy cable.  EASSy consortium members have complained that African 
governments are trying to hijack the project.  The opposing NEPAD 
group insists that users of the cable pay the same price for 
bandwidth access as the private companies that invested in the 
infrastructure.  Unless a compromise between the groups is reached, 
two competing cables may be built.  Telkom CEO Papi Molotsane, who 
signed the investment agreement with the EASSy consortium despite 
DOC's position, resigned April 5.  (Business Day, April 4 and 6, 
2007) 
 
Below Market Value Sale of a Marine Vessel Sets Scene for an 
Investigation 
--------------------------------------------- -- 
 
¶6. (U) The Marine Coastal Management (MCM), a division of the 
Department of Environmental Affairs and Tourism (DEAT), has sold a 
marine patrol vessel "Eagle Star" at well below market value, 
raising concerns within the department, parliament and elsewhere. 
MCM sold the Eagle Star for $42,000 through an auction process in 
which only two bidders were present in November 2006.  Eagle Star 
was sold containing $31,900 worth of diesel, which new owner Ruurd 
Van der Werf immediately resold.  Van Der Werf also stated that the 
vessel was headed for Mozambique where he would lease it to the 
government for a handsome profit.  The main source of controversy in 
the sale of the 50-meter long vessel is that it had undergone a 
refit recently, costing local taxpayers $486,000.  DEAT spokesperson 
Blessing Manale said that the controversial sale flabbergasted many 
senior government officials and some members of opposition parties 
in parliament who are demanding an explanation.  In this regard, 
DEAT will appoint an external audit verification to investigate how 
the auction was conducted, including how it was advertised, the 
choice of the auctioneers and how they arrived at the sale price. 
Manale said that MCM Deputy Director General Monde Mayekiso, who 
gave the approval for the sale in May 2006, was given the mandate to 
do so by DEAT because the vessel was considered obsolete and 
expensive to keep.  He said that Mayekiso did not, however, see it 
appropriate to set a reserve price on the vessel for fear that it 
would drive away potential bidders.  Meanwhile, the finance chief in 
MCM reportedly conceded that sale price was too low, which he blamed 
on the two disputing auction houses who sold the vessel.  Replying 
to parliamentary questions, DEAT Minister Marthinus Van Schalkwyk 
acknowledged that his department sold the ship after spending money 
to convert it from a fishing trawler to a marine patrol training 
ship, which was then used for over four years at a cost of $450,000 
before it was relinquished.  Meanwhile, the Democratic Alliance, an 
opposition political party, said that the value of the vessel was 
$1.1 million when it was acquired in 2003, and has since been 
revamped and fitted with vessel-monitoring systems, radar, IT and 
satellite facilities.  (Sunday Times, April 1, 2007; and Business 
Day, April 3, 2007) 
 
First BEE Private Equity Fund Launched 
-------------------------------------- 
 
¶7. (U) Sanlam Private Equity has launched a series of four 
specialist investment funds aimed at plowing 2.6 billion rand (about 
$370 million) into Black Economic Empowerment (BEE) - with 300 
million rand (about $40 million) allocated specifically towards 
transformation of the small and medium enterprise (SME) sector. 
Announcing the project, Sanlam Private Equity Chief Executive Pieter 
Kriel said that Sanlam Private Equity would provide a 25% anchor 
investment for each fund, and that road shows to raise the remaining 
 
PRETORIA 00001381  003 OF 003 
 
 
75% have already begun.  Potential investors include European 
development agencies, the Industrial Development Corporation of 
South Africa, and several major pension funds.  Transformation of 
the SME sector is widely viewed as critical to the South African 
government's job creation and poverty alleviation objectives. 
(Business Day, April 17, 2007) 
 
Johannesburg Mine Dumps Disappear 
--------------------------------- 
 
¶8. (U) Johannesburg's cityscape has long included huge mounds of 
golden sand (known as "slag heaps") made up of the lowest grade ore 
from the gold rush days.  With gold prices soaring, now even these 
dumps of crushed rock and sand that yield only .45 grams of gold per 
ton are being reprocessed.  The only company that re-treats mine 
dumps in Johannesburg, DRDGold, has already removed 203 million tons 
of dumps, recovering 90 tons of gold.  It is now pressing to lay its 
hands on the most famous dump, which has above-average yields. 
However, heritage organizations are battling the company from 
flattening this "landmark, a symbol of Johannesburg" location that 
includes a defunct drive-in movie facility on its top and has 
spectacular views of Johannesburg.   (Business Day, April 19, 2007) 
 
 
BOST