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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
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SUBJECT: SOUTH AFRICQECONOMIC NEWS WEEKLY NEWSLETTER OCTOBER 26, 
2007 ISSUE 
 
 
PRETORIA 00003779  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 43 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Inflation At Four-Year High 
- Debt Service Cost To Income More Than 10% 
- Earthlife Africa Challenges Nuclear Thrust 
- Mbeki's Re-Election Bid Worries Investors 
- Broad-Band May Not Stay In State Hands 
- Legislation Delaying SA Oil Projects 
- Nedbank On Greening Crusade 
 
End Summary. 
 
 
--------------------------- 
Inflation At Four-Year High 
--------------------------- 
 
¶2. (U) According to Statistics South Africa (StatsSA), 
CPIX-inflation (CPI less mortgage interest) increased to a four-year 
high of 6.7% in September 2007, breaching the South African Reserve 
Bank's (SARB's) 3-6% target band for the sixth month in a row. 
CPIX-inflation accelerated from 6.3% in August and outpaced 
analyst's September forecasts of 6.4%.  Analysts said the data 
showed inflation pressures were entrenched. "It reinforces that we 
have an inflation problem and that 7.0% is likely before the end of 
the year," said Jeff Gable, ABSA Capital's Head of Research.  "It's 
going to continue to leave the focus on the SARB, whether or not 
it's time to call an end to interest rates hikes or not.", he said. 
The SARB expects inflation to peak in February 2008 and then 
gradually come back to the bank's 3-6% target band.  Bonds fell 
after the data was released, with yields on the 2015 issue spiking 
as much as 15-basis points, before retreating.  The SARB has raised 
its key repo rate, at which it lends to commercial banks, 
cumulatively by 350-basis points since June last year.  The 
unexpectedly high inflation figure for September increases the 
pressure for the SARB to raise its repo rate once again when its 
Monetary Policy Committee meets in early December, just a week ahead 
of the ANC leadership election.  (Business Day, October 24, 2007) 
 
----------------------------------------- 
Debt Service Cost To Income More Than 10% 
----------------------------------------- 
 
¶3. (U) According to the Bureau for Economic Research (BER), rising 
interest rates and inflation have pushed debt service costs as a 
share of consumer's disposable income above 10% for the first time 
in eight years.  The service cost ratio measures the toll taken on 
households by interest payments on mortgage and credit card debt. 
Analysts said the ratio is set to creep higher in the next few 
months as the effect of the past two interest rate hikes filters 
through, putting more pressure on household finances.  The SARB has 
highlighted that household debt as a share of disposable income 
reached a record peak of 76.5% in the second quarter of 2007. 
(Business Day, October 23, 2007) 
 
------------------------------------------ 
Earthlife Africa Challenges Nuclear Thrust 
------------------------------------------ 
 
¶4. (U) Anti-nuclear environmental group Earthlife Africa called for 
the South African draft nuclear policy to be withdrawn in its formal 
comment submission at the end of the public comment period. 
According to Earthlife Africa, "The draft nuclear policy is a hasty 
and ill-informed document replete with sweeping unsupported 
Qand ill-informed document replete with sweeping unsupported 
statements as to the appropriateness of nuclear power."  The South 
African Department of Minerals and Energy (DME) will soon begin to 
study the 400 pages of comments from various organizations on the 
draft policy.  DME Chief Director for Nuclear Tseliso Maqubela said, 
"These comments may result in the draft policy being revised. 
Inputs could not change policy, but could change the emphasis." 
Earthlife Africa has objected that the policy did not follow DME's 
own procedures as determined by the white paper on energy policy of 
1998, wherein a decision on new nuclear capacity would depend on the 
environmental and economic merits of alternative energy sources, 
relative to nuclear and the political and public acceptance of 
nuclear power.  Maqubela said the DME was finalizing an electricity 
master plan, as well as a new national integrated resource plan. 
 
PRETORIA 00003779  002.2 OF 003 
 
 
Eskom is moving forward on nuclear expansion plans, putting in 
motion environmental impact assessments (EIA) at five coastal sites. 
 If all approvals are secured, Eskom aims to start construction in 
2010, targeting first unit operating in 2016 or 2017.  (Business 
Report, October 24, 2007) 
 
----------------------------------------- 
Mbeki's Re-Election Bid Worries Investors 
----------------------------------------- 
 
¶5. (U) According US rating agency Moody's, President Thabo Mbeki's 
determination to make himself available for a third term as African 
National Congress (ANC) leader worries international investors. 
Moody's Vice-President Kristin Lindow said investors interpret it as 
a reluctance to relinquish political power and when there are signs 
that any emerging market head of state wants to retain his powers, 
there tend to be question marks about what that could lead to. 
Lindow said international investors would prefer to see a new ANC 
head elected at the ruling party's national conference in Polokwane 
in December.  According to Moody's, Mbeki's insistence to make 
himself available for a third ANC term is seen as an attempt to halt 
ANC Deputy President Jacob Zuma's march to power.  Lindow said 
investors would be worried if Zuma was elected leader of the country 
because of perceptions he would pursue more populist economic 
policies, but those concerns could be unjustified.  According to the 
local press, Zuma told clients of a top international bank in 
Johannesburg recently that the ANC would stay committed to a mixed 
economy, with the private sector driving growth, but with an 
important role for the state.  South Africa's biggest business 
grouping, Business Unity SA (Busa), said it was worried that the 
country's credit rating, which influences foreign investment 
inflows, could suffer from a change in leadership.  Moody's revised 
its outlook upward on South Africa's Baa1 mid-investment grade 
rating for foreign currency debt from "stable" to "positive" in 
June.  Fitch ratings agency also upgraded their South African rating 
outlook to positive earlier this year.  However, Fitch warned that 
uncertainty over the continuity of the South Africa's successful 
economic policies could influence a future rating.  (Business Day, 
October 24, 2007) 
 
-------------------------------------- 
Broad-Band May Not Stay In State Hands 
-------------------------------------- 
 
¶6. (U) South Africa's planned state-owned broadband infrastructure 
company would not necessarily remain in state hands after it 
achieved its strategic objectives, Public Enterprises Minister Alec 
Erwin said.  Erwin said that Broadband Infraco was established to 
provide accessible and affordable broadband infrastructure.  The 
minister justified the state's investment by the fact that there 
were a few incumbents in the telecommunications industry with 
"significant market power", referring to the state telecom monopoly 
firm Telkom.  Erwin was correct in noting that the lack of broadband 
capacity and the related high cost is an obstacle to economic 
growth.  (Business Day, October 18, 2007) 
 
------------------------------------ 
Legislation Delaying SA Oil Projects 
------------------------------------ 
Q------------------------------------ 
 
7 (U) According to the Petroleum Agency, new laws, which took effect 
in May, have delayed fresh investment in deep-water oil exploration. 
 According to the new law, companies holding mineral rights, 
including oil and gas, have to convert existing rights in order to 
conform to the new code.  The conversion process has been fraught 
with problems, delaying new investment in exploration.  The thrust 
of the new Minerals and Petroleum Resources Development Act is to 
separate the ownership of the mineral rights from ownership of the 
surface and to drive the active use of rights.  Among those affected 
by the conversion process are BHP, South African state owned oil 
firm PetroSA, U.S.-based Forest Exploration, Canadian Natural 
Resources and U.S.-based Pioneer Natural Resources, the five big 
players exploring for oil and gas in South Africa.  According to the 
Petroleum Agency, the conversion process has impeded expensive 
offshore exploration but increased access to onshore rights has 
stimulated the market, with about ten companies looking for gas and 
coal bed methane.  (Business Day, October 18, 2007) 
 
--------------------------- 
 
PRETORIA 00003779  003.2 OF 003 
 
 
Nedbank On Greening Crusade 
--------------------------- 
 
8 (U) Nedbank, one of South Africa's four largest banks, is on a 
greening crusade to promote environmental sustainability.  Nedbank 
Chief Financial Officer (CFO) Mike Brown said their corporate colors 
are green to reflect their hold on the "green space" in the 
financial services sector.  Nedbank not only offers products which 
are environment-oriented but also look into the operating 
environment at issues such as energy utilization and their carbon 
footprint.  Nedbank offers a credit card where users could make a 
contribution to an environmental cause and sponsors the Green Mining 
Award to encourage mines to engage into environmental sustainability 
programs.  Nedbank is the only bank in South Africa which has signed 
the Equator Principle, which involves implementing sustainable 
projects.  Brown noted that Nedbank would in the near future focus 
on climate change and adaptation activities. (Business Report, 
October 12, 2007) 
 
TEITLEBAUM