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UNCLAS SECTION 01 OF 03 PRETORIA 002155 
 
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 JUNE 15, 2007 
ISSUE 
 
¶1. (U) Summary.  This is Volume 7, issue 24 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Zoellick Urges Africa "To Catch The Wave" 
- Planed Duty Cuts On Infrastructure Projects 
- Manuel Stresses Need For Exports 
- General Electric To Construct New Plant 
- Reserves Increase 
- Manufacturing Could Brake GDP 
- Hike Threatens SA's Cheap-Power Edge 
End Summary. 
 
----------------------------------------- 
Zoellick Urges Africa "To Catch The Wave" 
----------------------------------------- 
 
¶2. (U) World Bank President-nominee Robert Zoellick told reporters 
that he is impressed by a new generation of African leaders who are 
taking responsibility for the economic development of their 
countries.  Zoellick spoke to reporters in Pretoria at the end of a 
tour of Africa that took him to Ghana, Ethiopia, and South Africa. 
No one-size-fits-all approach could be adopted for Africa, Zoellick 
said, emphasizing the vast potential of the continent.  "There are 
some strong opportunities here," he said.  "You want to catch the 
wave and move forward with some of the high-quality economic leaders 
in Africa.  I hope the World Bank can develop stronger partnerships 
with African countries to assist them in reaching stronger growth." 
Zoellick also cited the need for African countries to address 
infrastructure constraints and to make progress toward regional 
integration.  (Business Day, June 11, 2007) 
 
------------------------------------------- 
Planed Duty Cuts On Infrastructure Projects 
------------------------------------------- 
 
¶3. (U) The South African Government is considering the reduction of 
import duties on products needed for its four-year R400 billion ($75 
billion) infrastructure development program.  Last month the SAG's 
International Trade Administration Commission (ITAC) announced the 
review of two chapters of the tariff schedule, which include a wide 
array of electrical goods and mechanical appliances, including 
nuclear reactors and boilers.  ITAC said that the review was a 
"proactive initiative" to support the infrastructure program and 
would determine whether current duties place an unnecessary burden 
on importers, especially in the case of items that are not 
manufactured domestically.  Trade specialists have warned that 
unilateral cuts could undermine South Africa's bargaining power in 
international trade negotiations and strain the country's 
relationships with other members of the Southern African Customs 
Union, which rely on tariffs collected by South Africa.  (Business 
Day June 11, 2007) 
 
-------------------------------- 
Manuel Stresses Need For Exports 
-------------------------------- 
 
¶4. (U) Finance Minister Trevor Manuel played down the challenges 
faced by South Africa's rapidly expanding economy, saying export 
performance must improve for the country to sustain a faster pace of 
growth.  Manuel told delegates to an International Monetary 
Conference meeting in Cape Town that South Africa's economy had 
clocked up annual growth of about 5% over each of the past three 
years, its fastest for a quarter of a century and the longest period 
of expansion in four decades.   But the blistering pace has led to 
supply constraints, particularly in construction and energy. 
However, "For SA to sustainable grow faster, we must improve our 
export performance, especially in non-commodity sectors," Manuel 
said.  Export volumes rose 6% last year mainly due to buoyant global 
demand and a weaker rand.  Manuel also repeated the government's 
view that the widening deficit on the current account, seen as the 
most vulnerable spot in its economy, was not alarming due to strong 
capital inflows, which amounted to R144 billion ($20.6) last year. 
"Increased confidence in our economy means that we do not face a 
binding constraint on the balance of payments," he said.  However, 
economists said the problem with this position is that the inflows, 
which mainly reflect equity investment, could subside for reasons 
beyond South Africa's control, like a sudden bout of global risk 
aversion or a sharp fall in commodity prices.  That would knock the 
rand weaker and add to mounting inflation pressures, prompting 
 
PRETORIA 00002155  002 OF 003 
 
 
interest rate hikes weighty enough to slow growth.   (Business Day, 
June 6, 2007) 
 
--------------------------------------- 
General Electric To Construct New Plant 
--------------------------------------- 
 
¶5. (U) GE Water & Process Technologies, a unit of the U.S. Company 
General Electric, is to design and construct a reverse osmosis 
seawater desalination plant, which will produce about 70,000 cubic 
meters of fresh water and 1,800 tons of 99.9% pure salt per day 
(630,000 tons annually).  In a first for South Africa, the GE plant 
will recover ultra-pure salt from the concentrated brine stream for 
the production of chlorine, caustic soda, and hydrochloric acid at a 
new refinery to be developed by Uhde South Africa.  The $220 million 
GE project is part of a larger investment totaling $800 million, 
which will see a new chlorine refinery in the Coega Industrial 
Development Zone, which lies about 25 kilometers west of Port 
Elizabeth.  The refinery will be owned and operated by, Strait 
Chemicals, a unit of Singapore-based Chemical Industries Far East 
Limited, and will produce 610 tons of chlorine gas and 660 tons of 
caustic soda per day to meet the growing global demand for 
chlor-alkali and its derivatives.  GE's seawater desalination plant 
will improve the overall economics of the chlorine refinery and 
ensure a reliable and locally available supply of high grade salt. 
Construction of the refinery is expected to take between 18 and 24 
months and should be commissioned towards the end of 2009.  Chlorine 
gas is used in making PVC, plastics, pesticides, footwear, 
disinfectants, water treatment and paint pigments, while caustic 
soda is used in parachutes, pen tips, telephones and 
pharmaceuticals. 
 
----------------- 
Reserves Increase 
----------------- 
 
¶6. (U) According to South African Reserve Bank data, net gold and 
foreign exchange reserves increased from $24.59 billion at the end 
of April to $25.48 billion at the end of May.  Gross reserves 
increased from $27.02 billion in April to $27.85billion in May.  The 
SARB attributed the increase in the reserves to "a combination of 
valuation adjustments and foreign exchange operations conducted by 
the SARB for its own account".  Economists expect the build-up of 
reserves to continue at a steady pace, although the recent weaker 
rand could have a somewhat negative impact on the rate of reserve 
accumulation.  Nonetheless, economists expect the SARB to continue 
to build up reserves, with a $30 billion target in sight. 
International credit rating agencies have always been concerned by 
South Africa's relatively low foreign reserves if compared with 
other emerging markets.  (Fin24, June 7, 2007) 
 
----------------------------- 
Manufacturing Could Brake GDP 
 
----------------------- 
 
¶7. (U) According to Statistics South Africa (StatsSA), manufacturing 
output growth in volume terms slowed from an upwardly revised 5.5% 
in March to 3.8% in April, suggesting the key sector could put a 
brake on economic growth this year.  Analysts said the number did 
not bode well for the country's economic growth outlook for the 
year.  Expansion in the sector slowed from 8.3% growth in the fourth 
quarter of 2006 to 4.7% in the first quarter of 2007.  This has been 
blamed on slower global growth, which reduces demand for South 
African exports.  The slower growth in manufacturing output was in 
line with a decline in the Purchasing Managers' Index (PMI), which 
points to trends in manufacturing ahead of official data, from 60.5 
points in March to 57.9 points in April, indicating slowing 
underlying growth.  Manufacturing is the second-biggest sector in 
Africa's biggest economy after financial services, accounting for 
nearly 17% of gross domestic product.  (Fin 24, June 7, 2007) 
 
------------------------------------ 
Hike Threatens SA's Cheap-Power Edge 
------------------------------------ 
 
¶8. (U) According to a study by New Jersey-based cost management 
consulting firm NUS Consulting Group, electricity prices in South 
Africa remain the lowest in the world despite the fact that power 
utility Eskom has a de facto monopoly in the market.  However, the 
 
PRETORIA 00002155  003 OF 003 
 
 
report warned that Eskom's planned 18% tariff increase could 
"dislodge" South Africa from its enviable position.  Eskom has 
requested higher tariffs to help finance its R150 billion ($21.4 
billion) capital investment program over the next five years.  Eskom 
plans to build new power stations, increase the capacity of 
transmission lines, refurbish distribution infrastructure and bring 
back to service power stations that were shut down in the early 
1980s.  The NUS research found that Eskom had outperformed 13 other 
deregulated markets from both an infrastructural planning and 
pricing perspective, thanks to a vigilant and strong industry 
watchdog, the National Energy Regulator of SA (NERSA).  "One of the 
interesting phenomena emerging from our surveys is that a 
well-regulated and well-managed electricity supply monopoly, treated 
as a matter of strategic economic importance, can outperform 
deregulated markets from both an infrastructural planning and 
pricing perspective," said Stephan Dolk, NUS General Manager in 
South Africa.  He said South African electricity prices, at 
$0.04/kWh, were one-sixth of those in Denmark, the most expensive 
country in the world for electricity.  NUS predicted that South 
African electricity prices would rise well above the inflation rate 
in the next 12 months, and could escalate sharply in the next few 
years should Eskom get the 18% tariff increase it has applied for 
from NERSA.  (Business Day, June 6, 2007) 
 
BOST