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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER NOVEMBER 2, 
2007 ISSUE 
 
¶1. (U) Summary.  This is Volume 7, issue 44 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Treasury Forecasts Slower Economic Growth 
- Skills Poaching Is Asset Stripping - Manuel 
- SA's Cheap Power May Attract $3.8 billion Aluminum Smelter 
- Cape Town Convention Center Yields Returns 
- Electricity Shortages Over Next Five Years 
- Eskom Imposes Load-Shedding Again 
- Westinghouse Acquisition Aligned to Localization Effort 
 
End Summary. 
 
----------------------------------------- 
Treasury Forecasts Slower Economic Growth 
----------------------------------------- 
 
¶2.  (U) According to the National Treasury's Medium Term Budget 
Policy Statement, the South African economy would grow by 4.9% this 
year, slowing to 4.5% in 2008 but increasing to 4.8% in 2009 and 
5.3% in 2010.  National Treasury said the expected lower pace of 
economic expansion in 2008 reflects the impact of tighter monetary 
policy and slower growth in developed markets as a result of the 
sub-prime mortgage crisis in the U.S.  The South African Reserve 
Bank has increased interest rates by 350-basis points since June 
2006, in a bid to control inflation.  According to the National 
Treasury, the deficit on the current account will likely widen from 
6.5% in 2006 to 6.7% in 2007, 6.9% in 2008, 7.7% in 2009, and 7.8% 
in 2010.  It said South Africa's investment needs and the capital 
imports required to support infrastructure expansion would likely 
exceed the economy's ability to raise exports, resulting in a 
"relatively large" current account shortfall.  National Treasury 
said in the event of sharply slower world growth or a reversal of 
capital inflows to emerging markets, South Africa's high current 
account deficit and inflationary pressures could expose the domestic 
economy to heightened risk.  "Future growth needs to reflect a much 
stronger expansion in South African exports and production. 
Improved export growth alongside the accumulation of foreign 
reserves will help to reduce the economy's exposure to international 
financial risks," National Treasury said.  (Business Day, October 
30, 2007) 
 
---=--------------------------------------- 
Skills Poaching Is Asset Stripping - Manuel 
------------------------------------------- 
 
¶3. (U) South African Finance Minister Trevor Manuel, speaking at the 
Institute of International Finance in Washington D.C., complained 
that advanced countries were asset-striping less developed countries 
of their human skills. He particularly criticized the migration of 
health care workers to developed countries, resulting in significant 
shortages in Africa.  Manuel complained that South Africa had become 
a training ground for developed countries.  Manuel returned to the 
theme of advanced country asset stripping in his Medium Term Budget 
Policy Statement speech on October 30.  In the context of a comment 
about global skills shortages, he said, "Last week, the European 
Union announced its intent to recruit 20 million skilled foreigners 
over the next twenty years.  I believe this kind of parasitic 
conduct of nations is wrong."  (Business Report, October 22, 2007) 
 
--------------------------------------------- ----- 
SA's Cheap Power May Attract $3.8 billion Aluminum Smelter 
QSA's Cheap Power May Attract $3.8 billion Aluminum Smelter 
--------------------------------------------- ----- 
 
¶4. (U) National Aluminum (Nalco), India's second largest aluminum 
producer, is considering the construction of a $3.8 billion, 500,000 
ton smelter in South Africa to benefit from low-cost electricity. 
Nalco is looking at a number of countries, but the chairman said 
that the cost of the plant would halve if the company got power 
supply from the SAG, rather than having to build its own power plant 
in other locations. India's Minister of Mines and South African 
Department of Minerals and Energy Director General Sandile Nogxina 
called for greater collaboration between the two countries.  In a 
separate development, BHP Billiton is considering a $3 billion plan 
to build its largest aluminum smelter in the DRC.  Given Eskom's 
growing electricity shortages and the SAG's desire to attract energy 
intensive investments, South Africa's electricity prices will have 
to increase in order to finance additional power plants.  The 
regulator is taking a go-slow approach to approving price changes. 
 
PRETORIA 00003843  002 OF 003 
 
 
(Business Report, October 23, 2007) 
 
------------------------------------------ 
Cape Town Convention Center Yields Returns 
------------------------------------------ 
 
¶5. (U) A study conducted jointly by Barry Standish of the University 
of Cape Town and independent economic modeler Antony Boting has 
shown that the Cape Town International Convention Center (CTICC), 
established in 2003, is making significant contributions to the 
economy and society.  The CTICC has contributed over R2.4 billion 
($370 million) to the GDP in 2006-2007, according to the report. 
The CTICC has been used to host international meetings, private, 
public and organizational gatherings, including occasional private 
weddings.  CTICC Managing Director Dirk Elzinga stated that the 
center has hosted over 509 conferences in the past year, 46 of which 
were international, collectively bringing over 45,576 international 
delegates to Cape Town.  Standish and Boting's report has also 
indicated that the CTICC promotes "induced" tourism, because 
delegates who had been attending events at the center tend to extend 
their stay in Cape Town after the conferences, or they return as 
leisure tourists at a later stage.  This type of tourists or 
business tourists accounts for 30 - 40% of the CTICC's economic 
effect, while visiting delegates' spending reflects 50%.  In terms 
of the report, the contribution is the most important and 
comprehensive measure of the center's macroeconomic impact.  The 
largest international conference hosted by the CTICC was the 19th 
World Diabetes Congress held in December 2006, which attracted over 
12,300 delegates.  CTICC employs 3,796 people directly and an 
additional 5,343 people indirectly, a significant contribution in 
the effort to mitigate unemployment.  (Business Day, October 29, 
2007) 
 
------------------------------------------ 
Electricity Shortages Over Next Five Years 
------------------------------------------ 
 
¶6. (U) State electricity supplier Eskom CEO Jacob Marega qualifies 
the scale of recent electricity interruptions as unprecedented in 
South Africa.  Marega said the reserve margin gap between available 
capacity and demand had declined from 25% in 2001 to 8-10% now.  He 
warned that the power system would be susceptible to supply 
interruptions over the next five years until Eskom is able to bring 
on a new base-load power station.  Marega implicitly blamed the 
government for failing to plan for new plants in time.  He 
attributed recent load-shedding and outages to a convergence of 
planned maintenance outages, technical problems that led to 
unplanned outages, load losses in a number of power stations, and 
unanticipated demand due to cold weather.  Marega emphasized that 
the low reserve margin rendered the system vulnerable to problems. 
He called for greater attention to demand-side management measures 
to help mitigate the slim margin.  Marega appealed to South African 
citizens to assist by conserving energy.  (Sunday Times, October 21, 
2007) 
 
--------------------------------- 
Eskom Imposes Load-Shedding Again 
--------------------------------- 
 
¶7. (U) Eskom imposed another round of load-shedding (rolling, 
unwarned black-outs) last week as it faced an electricity shortage 
Qunwarned black-outs) last week as it faced an electricity shortage 
due to cold weather, seasonal scheduled maintenance (2,700 MW), 
unscheduled shutdowns of some domestic generation units, and the 
shutdown of a key supply unit in Mozambique, normally providing 
1,500 MW.  Eskom said it had to use all its emergency resources, 
including gas turbines and buying back power from large industrial 
users.  Eskom "exhausted" its load-shedding agreements with major 
users, particularly BHP Billiton's two aluminum smelters in Richards 
Bay.  BHP Billiton said that it had received power reduction 
requests from Eskom every day for the past three weeks.   Eskom 
called for people to practice conservation in their electricity 
consumption.  The Department of Minerals and Energy has started a 
conservation advertisement campaign.  (Business Report, October 28, 
2007) 
 
--------------------------------------------- --- 
Westinghouse Acquisition Aligned to Localization Effort 
--------------------------------------------- ---- 
 
¶8. (U) Westinghouse Regional VP for South Africa Rita Bowser 
 
PRETORIA 00003843  003 OF 003 
 
 
announced that the acquisition of South Africa's IST Nuclear (ISTN) 
should be concluded later this week, materially increasing the 
domestic footprint of the U.S. company.  Bowser said the purchase is 
aimed to position Westinghouse for bidding on the first tranche of 
Eskom's new nuclear build, which is targeted to total 20,000 MW over 
the next two decades.  Westinghouse aims to respond to the South 
African Government's stated objective of seeking to build local 
nuclear-industry capacity around Eskom's multibillion dollar nuclear 
power program.  In addition, Bowser argued that Westinghouse's 
modular design of 1,100 MW units would be advantageous and also 
promote localization of suppliers.  The name ISTN will be changed to 
Westinghouse Electric Company South Africa as soon as the 
acquisition is complete.  (Engineering News, October 30, 2007) 
 
 
BOST