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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2254
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 003602 
 
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 OCTOBER 12, 
2007 ISSUE 
 
PRETORIA 00003602  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 41 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- SA Foreign Reserves Past $30 Billion 
- Higher-Than-Expected Budget Surplus 
- Euro's Held In Gross Reserves Increase 
- SA No Magnet For Talent 
- Cathay Poaches SAA Pilots 
- Delta Flies Smarter 
- SA and China Propose Trade Swap Deal 
- Safety Audit For All SA Mines 
- Electricity Shortages And Rolling Black-Outs 
End Summary. 
 
------------------------------------ 
SA Foreign Reserves Past $30 Billion 
------------------------------------ 
 
¶2. (U) According to the South African Reserve Bank (SARB), gross 
gold and foreign exchange reserves exceeded the $30 billion barrier, 
climbing from $29.8 billion in August to $30,5 billion in September. 
 The SARB's foreign exchange accumulation was prompted by a 
relatively weaker rand and plenty of foreign investment in the 
equity and bond markets.  The South African Treasury has also put 
its excess cash on deposit at the SARB, where it earns hard 
currency-related, not rand-related, interest.  Four years ago, 
before the SARB began accumulating reserves by buying dollars in the 
market at appropriate moments, gross reserves were stuck below $10 
billion.  In response to the improvement in the reserve position, 
the international rating agencies have upgraded South Africa's 
sovereign rating which has lowered the cost of borrowing on 
international markets.  Although Moody's external vulnerability 
indicator for South Africa shows a spectacular improvement, it still 
lags other emerging markets.  According to the International 
Monetary Fund's (IMF) measure that takes into account the current 
account deficit, as well as short-term foreign debt, South Africa's 
reserves still look fairly weak, at 74%, compared with an emerging 
market average of 112%.  The IMF's recent staff report on South 
Africa recommended "that some further accumulation would be 
beneficial".  The SARB has said it will continue to build its 
reserves during periods when the rand is strong, without affecting 
the value of the rand.  That may well imply that the Treasury would 
have to continue running a fiscal surplus to support the 
accumulation.  (Business Day, October 9, 2007) 
 
----------------------------------- 
Higher-Than-Expected Budget Surplus 
----------------------------------- 
 
¶3. (U) The South African Government is expected to achieve a 
higher-than-expected budget surplus of about 1% of GDP in the 
current financial year, according to Efficient Research economist 
Fanie Joubert.  This would be higher than the surplus of 0.6% of GDP 
projected at the time of the February budget.  Ahead of Finance 
Minister Trevor Manuel's medium-term budget policy statement on 
October 30, Joubert predicted that revenue inflows should continue 
to dampen the need for financing for the rest of the financial year. 
 This will relieve pressure on long-term interest rates, Joubert 
said.  (Pretoria News, October 4, 2007) 
 
-------------------------------------- 
Euro's Held In Gross Reserves Increase 
-------------------------------------- 
 
¶4. (U) The South African Reserve Bank (SARB) has boosted the Euro 
component of its gold and foreign exchange reserves, bringing it 
more in line with South Africa's trade flows, foreign debt 
composition, and the Euros' growing role in global markets.  Over 
the last two years, SARB's Euro holdings have nearly quadrupled to 
R40.1 billion ($5.7 billion), while the proportion of Euros held in 
its gross reserves has doubled to 21%.  Over the same period, SARB's 
holdings of U.S. dollars declined from 72.5% of total reserves to 
64%, largely because of the declining value of the dollar.  SARB 
research head Johan van den Heever said, "If you look at the change 
in Euros, you can see there has been some conscious decision."  He 
noted that Europe is South Africa's main trading partner.  (Business 
Day, October 4, 2007) 
 
 
PRETORIA 00003602  002.2 OF 003 
 
 
----------------------- 
SA No Magnet For Talent 
----------------------- 
 
¶5. (U) According to a study by the Economist Intelligence Unit, 
South Africa ranks lowest among 30 countries around the world in 
terms of attracting skilled people, a trend that does not bode well 
for the economy.  "Being ranked last in the survey when it comes to 
attracting talent from the local talent pool is a very serious 
problem, especially when countries higher up the ladder are 
continuing to suck our own talent out of the country." said Derick 
Boshard from executive search firm Heidrick and Struggles in 
Johannesburg.  The SAG has identified a gaping skills shortage as a 
constraint to faster economic growth, with the shortfall also 
curbing job creation, keeping the official jobless rate stuck at 
25.5%.  Poor education has been cited as one of the main stumbling 
blocks to skills development.  "Less than 2% of learners achieve 
higher grade mathematics, inadequate for South Africa," Boshard 
said.  (Business Day, October 10, 2007) 
 
------------------------- 
Cathay Poaches SAA Pilots 
------------------------- 
 
¶6. (U) Cathay Pacific told the South African Airways Pilots 
Association (SAAPA) that they would receive applications from SAA 
pilots and the SAAPA has passed this information to its members. 
The SAAPA will compile a list of interested pilots that it will 
submit to Cathay on October 31 and Cathay will follow-up by 
contacting the interested pilots directly.  Cathay expression of 
interest comes at a time when SAA is seeking to retrench a number of 
its older pilots and renegotiate the terms of employment for the 
remaining pilots.  The Cathay move would add to the ongoing exodus 
of South African pilots to foreign airlines.  (Travel News Weekly, 
October 10, 2007) 
 
------------------- 
Delta Flies Smarter 
------------------- 
 
7 (U) Delta Regional General Manager Jimmy Eichelgruen told the 
local press that Delta will coordinate the timing of its recently 
announced New York to Cape Town flight, which is to begin on June 3, 
so that its passengers can disembark in Dakar and embark on its 
existing Atlanta to Johannesburg flight.  Similarly, passengers on 
the Atlanta to Johannesburg flight will be able to disembark in 
Dakar and embark on the future New York to Cape Town flight.  The 
arrangement will make it possible for U.S. travelers from New York 
to reach Johannesburg and for U.S. travelers from Atlanta to reach 
Cape Town without the added time and expense of a domestic flight. 
Delta Manager for Southern Africa Margaret Copeland added that Delta 
will schedule its New York to Nairobi flight to arrive in Dakar at 
the same time, facilitating additional combinations.  The new 
flights are is part of an overall plan to convert Dakar into a new 
mini-hub that is able to handle three to four aircraft at the same 
time.  (Business Report, October 10, 2007) 
 
------------------------------------ 
SA and China Propose Trade Swap Deal 
------------------------------------ 
 
8 (U) The South African and Chinese governments are discussing a 
trade swap in which China would place manufacturing plants in South 
Africa in return for China's greater access to South Africa's 
minerals.  South African Deputy President Phumzile Mlambo-Ngcuka 
commented that China's pollution problem was the impetus for the 
talks.  "China needs to send some of its polluting industries 
elsewhere because it is choking on them," she said.  The new 
manufacturing agreement would include commodity exports from other 
African countries as well as Chinese investment in them.  As for 
China's access to minerals, the talks had focused primarily on iron 
ore, but also included manganese and platinum group metals. 
(Business Report, October 1, 2007) 
 
----------------------------- 
Safety Audit For All SA Mines 
----------------------------- 
 
9 (U) President Thabo Mbeki asked Minerals and Energy Minister 
 
PRETORIA 00003602  003.2 OF 003 
 
 
Buyelwa Sonjica to conduct an audit of the country's mines to 
determine whether they are meeting the health and safety standards 
in the law.  The order comes after 3,200 workers were rescued after 
being trapped up to 48 hours 1.5 km underground at Harmony Gold's 
Elandsrand mine near Johannesburg.  South Africa's mines kill about 
200 people every year - and injure about 4,000, despite efforts from 
the private sector to move to zero-fatality.  At least 23 illegal 
miners died in an underground fire in an unused shaft at Harmony's 
St Helena Mine in Free State province on October 7.  Four miners 
died at AngloGold Ashanti's Mponeng mine last month.  Minister 
Sonjica called for an amendment to the existing mining safety law to 
lay down minimum standards at a press conference during the fifth 
biennial Mine Health and Safety Council Summit on October 8.  In a 
separate statement, she noted that the SAG struggles to enforce 
compliance given dire staff shortages, unclear legislation, and the 
difficulties in prosecuting offenders.  A Harmony spokesperson 
welcomed the move to audit all local mines, noting that Harmony 
employs 54,000 people, and, regrettably, 27 people died in the past 
year.  (Mining Weekly, October 8, 2007) 
 
-------------------------------------------- 
Electricity Shortages And Rolling Black-Outs 
-------------------------------------------- 
 
10 (U) The inadequacy of South Africa's slim electricity reserve 
margin of around 8% has been evidenced by significant rolling 
black-outs around the country.  The combination of cold and wet 
weather, planned maintenance at 10 power stations (4,700 MW), 
unexpected outages at 3 power stations (2,030 MW), and additional 
losses due to wet coal supplies (1,400 MW) has reduced state 
electricity supplier Eskom's 42,000 MW of installed capacity by up 
to 20% since October 9.  As a result, Eskom has enforced 
"load-shedding" (enforced rationing or rolling black-outs) in 
Pretoria and other municipal areas to cope with the electricity 
shortfall.  Eskom asked its industrial customers, such as gold mines 
and operators of aluminum, ferrochrome, and steel furnaces to share 
the power sacrifices.  (Business Day and Pretoria News, October 
10-11, 2007) 
 
BALL