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OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3903/01 3120536
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O 080536Z NOV 07
FM AMEMBASSY PRETORIA
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 2604
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RUEATRS/NATIONAL SCTY AFFAIRS WASHINGTON DC

UNCLAS SECTION 01 OF 05 PRETORIA 003903 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR SECRETARY HENRY PAULSON FROM AMBASSADOR ERIC 
BOST, TREASURY FOR MATTHEW LANGSTON, MATT EVERSON, DAN 
PETERS AND TRINA RAND 
 
E.O. 12958: N/A 
TAGS: ECON PREL PGOV SF
SUBJECT: SCENESETTER FOR SECRETARY PAULSON'S VISIT TO SOUTH 
AFRICA 
 
¶1. (SBU) Secretary, I warmly welcome your upcoming visit to 
South Africa.  My staff and I stand ready to do everything we 
can to make your trip a success.  You are visiting South 
Africa at a particularly interesting time, only weeks before 
the African National Congress (ANC) elects its new 
leadership.  Because the ANC has overwhelming support in the 
country (70 percent in the last election), the person who 
wins the ANC election in December will likely become the next 
president.  If President Mbeki wins, although 
constitutionally barred from a third term, he will be in a 
position to strongly influence the choice of the next 
president of the country.  I look forward to discussing the 
evolving political situation with you, as well as the other 
key elements of the U.S.-South Africa relationship.  I know 
our staffs are in touch on the details of your visit, but 
please feel free to contact me directly if you have questions 
or special requests. 
 
¶2. (SBU) South Africa is an anchor country in U.S. Africa 
policy.  Since the end of apartheid in 1994, the ANC-led 
South African Government (SAG) has made major progress toward 
establishing a vibrant democracy and market-based economy. 
The SAG has focused on political and economic transformation: 
 closing the gap between the historically privileged and 
disadvantaged communities -- primarily through 
government-provided housing, electricity, and water to the 
poor -- and creating employment and business opportunities. 
South Africa, however, continues to face daunting challenges, 
including skills shortages in all sectors of the economy, 
growing infrastructure bottlenecks, income inequality between 
haves and have-nots, massive unemployment, entrenched poverty 
in both rural and urban areas, violent crime, and a severe 
HIV/AIDS pandemic.  These problems are intensifying political 
tensions within the ANC-led ruling coalition.  The next ANC 
president will be selected at the party's December 16-20, 
2007 national conference.  While the likely victor is still 
unclear, current SAG President Thabo Mbeki and ANC Deputy 
President Jacob Zuma are the leading candidates. 
 
¶3. (SBU) Despite its challenges, South Africa remains the 
continent's best prospect for establishing a successful 
democratic society with widespread prosperity.  South Africa 
plays a key role in promoting peace and stability in Africa, 
and is an important voice on global trade and 
nonproliferation issues.  U.S.-South African relations are 
stable, as reflected by President Bush's July 2003 visit to 
South Africa and President Mbeki's June 2005 and December 
2006 trips to Washington.  We share objectives on the African 
continent and work together closely on many of them. 
 
------------------ 
POLITICAL OVERVIEW 
------------------ 
 
¶4. (SBU) The African National Congress (ANC) dominates the 
political scene in South Africa.  President Thabo Mbeki began 
his current five-year term on April 27, 2004.  The ANC won 70 
percent of the vote, and 279 of 400 seats in the National 
Assembly at the April 14, 2004 poll.  A subsequent "floor 
crossing" period in September 2005, in which parliamentarians 
were allowed to switch parties, boosted the ANC's total to 
¶293.  The ANC also won 66 percent of the vote nationally in 
March 2006 local elections.  The Democratic Alliance (DA) is 
QMarch 2006 local elections.  The Democratic Alliance (DA) is 
the largest of several opposition parties in parliament, with 
47 seats.  The ANC leads the administrations in all nine of 
South Africa's provinces and in the vast majority of its 
municipalities.  The most visible exception to this 
country-wide ANC domination is the DA's control of the Cape 
Town municipality where there have been multiple attempts to 
unseat the DA-led, multi-party municipal government. 
 
¶5. (SBU) The ANC is part of a tripartite alliance whose other 
members are the South African Communist Party (SACP) and the 
Congress of South African Trade Unions (COSATU).  The ANC-led 
alliance has developed schisms in recent years, largely based 
on the SACP's and COSATU's more populist styles, as well as 
opposition to the government's more business-friendly 
economic policies.  However, the alliance is likely to hold 
together, at least in the short term.  Despite their 
dissatisfaction with many ANC policies, most SACP and COSATU 
leaders remain intensely loyal to the ruling party and prefer 
to lobby for change from within.  Splitting from the alliance 
and fielding candidates independently could have catastrophic 
electoral results for SACP and COSATU. 
 
PRETORIA 00003903  002 OF 005 
 
 
 
¶6. (SBU) Mbeki had a 77 percent public approval rating in 
January 2006, but his popularity within the party is lower. 
Mbeki is currently embroiled in managing internal party 
tensions related to succession and his centralized 
decision-making style.  Supporters of Jacob Zuma accuse Mbeki 
of conspiring against his party deputy; using charges of rape 
(on which Zuma was acquitted in May 2006) and corruption 
(state prosecutors continue to investigate Zuma) to ensure 
Zuma does not become the next ANC president.  Many within the 
party's grassroots also think Mbeki does not consult with ANC 
structures before making decisions, such as when he overrode 
the selection of several hundred local candidates by ANC 
branches to ensure gender parity on party lists for the March 
2006 local elections.  Mbeki's legacy will depend in large 
part on who is elected ANC President at the December party 
conference.  Mbeki, who is also the current party president, 
has not formally declared his candidacy, but is widely 
expected to run.  If he wins, he will remain safely at the 
helm until his state presidential term expires in 2009.  If 
he loses, he faces lame-duck status. 
 
------------------------------------------ 
FOREIGN POLICY - FOCUS ON PROMOTING AFRICA 
------------------------------------------ 
 
¶7. (U) South Africa has taken a high-profile role in 
promoting Africa's development.  South Africa served as the 
first chair of the African Union until July 2003 and helped 
establish continental institutions such as the Pan-African 
Parliament (which sits in South Africa) and the AU Peace and 
Security Council.  President Mbeki is the driving force 
behind the New Partnership for Africa's Development (NEPAD), 
an African-developed program to strengthen economic and 
political governance across the continent and a framework for 
productive partnership with the international community. 
 
¶8. (SBU) South Africa recognizes that, by virtue of its 
regional political, economic, and military clout, it has a 
responsibility to participate in conflict resolution and 
peace support operations.  South Africa played a leading role 
in negotiations that ended the conflicts in Burundi and the 
Democratic Republic of Congo.  Approximately 3,000 personnel 
are deployed in UN, African Union and bilateral peace support 
operations in Sudan, Burundi, DRC, Ethiopia/Eritrea, and 
Comoros.  While the U.S. has a strong policy interest in 
seeing South Africa expand and enhance its peace support 
capabilities, our ability to support these efforts has been 
limited by the suspension of FMF military assistance because 
of the lack of an Article 98 agreement with South Africa. 
South Africa participates in the African Contingency 
Operations Training and Assistance program (ACOTA) to enhance 
the capacity of the South African National Defense Force 
(SANDF) for participation in multilateral peace support 
operations. 
 
¶9. (SBU) Zimbabwe remains a continuing challenge and 
increasing concern for President Mbeki.  In March, regional 
SADC leaders appointed Mbeki as official mediator between 
Zimbabwean President Robert Mugabe and the opposition 
Movement for Democratic Change (MDC).  Negotiations are 
ongoing, but human rights abuses against the opposition 
continue.  While South Africa wants political and economic 
Qcontinue.  While South Africa wants political and economic 
reform in Zimbabwe, SAG officials argue that additional 
pressure, such as imposing sanctions, would have little 
effect on President Mugabe and could destabilize Zimbabwe 
with spillover effects in South Africa.  South Africa already 
hosts between 1 and 2 million Zimbabwean refugees. 
 
¶10. (SBU) Overall U.S.-South African relations are positive, 
but South Africa sometimes takes positions on global issues 
that run counter to U.S. interests.  As a non-permanent UN 
Security Council member, and former chair of the G-77 and the 
Non-Aligned Movement (NAM), South Africa has taken up the 
cause of a greater "South" voice in international 
institutions, increased development assistance, an expanded 
UN Security Council, and lower trade barriers (for 
manufactured and agricultural exports to developed countries). 
 
----------------------------------------- 
THE ECONOMY AND THE STRUGGLE TO TRANSFORM 
----------------------------------------- 
 
¶11. (SBU) As the dominant and most developed economy in 
 
PRETORIA 00003903  003 OF 005 
 
 
sub-Saharan Africa, South Africa is markedly different from 
other countries of the region.  It is a middle income, 
emerging market economy with GNI per capita of $5,209 (2006), 
akin to Chile, Malaysia, or Thailand.  The South African 
government's fiscal and monetary policies are excellent.  The 
ANC government steadily reduced the fiscal deficit from 
nearly 6 percent of GDP in 1994-95 to a small surplus (0.3 
percent of GDP) in 2006-07. The South African Reserve Bank 
(SARB) is independent and committed to CPIX inflation (CPI 
minus mortgage cost) within a target band of 3.0 to 6.0 
percent.  Inflation fell from 12.4 percent at the beginning 
of 2003 to 4.8 percent in June 2006, but has recently crept 
back up to 6.7 percent (September 2007).  Real GDP growth in 
2006 fell slightly to 5.0 percent from 5.1 percent in 2005. 
The South African Department of Finance expects growth to 
slow to 4.9 percent in 2007 and 4.5 percent in 2008. 
 
¶12. (SBU) South Africa's single greatest economic challenge 
is to accelerate growth.  GDP growth averaged 3.0 percent per 
year between 1994 and 2004, and was not sufficient to address 
widespread unemployment and reduce poverty.  The official 
unemployment rate, currently 25.5 percent, has only recently 
begun to decline, and is significantly higher among black 
South Africans than among whites.  Income inequality between 
haves and have-nots remains high.  Poverty is widespread. 
Fifty-six percent of black South Africans, but only four 
percent of whites, live in poverty.  Nevertheless, the 
government has made strides in the areas of transfer payments 
and public services to close the gap.  Nearly 1.9 million 
low-cost homes have been built to provide shelter to 7.6 
million people, 3.5 million homes have been provided with 
electricity, and nine million people have been connected to 
clean water.  Eleven million people were benefiting from 
social grants in 2006 (compared to the country's five million 
individual taxpayers).  The government's broad-based Black 
Economic Empowerment (BEE) program provides ownership and 
employment opportunities to blacks and has helped the black 
middle class double to an estimated two million since 1994. 
The black middle class now exceeds the size of the white 
middle class and is driving consumer demand. 
 
¶13. (U) The success in preparing for and carrying off the 
2010 Soccer World Cup to be held in South Africa is regarded 
by many as a bellwether of the country's commitment to 
continued progress in a variety of social and economic areas, 
among these being the fight against crime, expanding and 
improving infrastructure, providing services, and developing 
tourism. 
 
----------------------------- 
U.S. SUPPORT FOR SOUTH AFRICA 
----------------------------- 
 
¶14. (U) Since 1994, the United States Government has 
contributed approximately $1.217 billion toward South 
Africa's development, plus $201 million in credit guarantees. 
 Currently, our development assistance program focuses on 
HIV/AIDS and strengthening the healthcare system, addressing 
unemployment through job-skills training and education, 
creating models for efficient service delivery, and reducing 
gender-based violence as part of the President's Women's 
Justice and Empowerment Initiative (WJEI).  A wide range of 
U.S. private foundations and NGOs are also at work in South 
QU.S. private foundations and NGOs are also at work in South 
Africa.  Among them are the Gates Foundation (HIV/AIDS), the 
Ford Foundation (higher education), and the Rockefeller 
Foundation (adult education). 
 
¶15. (U) Twenty-eight U.S. government entities are represented 
at our Mission in South Africa (Embassy Pretoria and the 
three Consulates in Cape Town, Durban, and Johannesburg). 
The Mission has 281 U.S. employees, and 564 local employees. 
More than 40 percent of Mission staff provide regional 
services to other U.S. embassies in Africa.  The Mission has 
embarked on an ambitious program to build safe office 
facilities.  In FY 2005, we completed the new Consulate 
compound in Cape Town, and in FY 2006 broke ground on a new 
Consulate building in Johannesburg.  In FY 2009, we intend to 
break ground on a new 155-desk office annex in Pretoria. 
 
------------------------------ 
U.S.-S.A. TRADE AND INVESTMENT 
------------------------------ 
 
¶16. (SBU) U.S.-South Africa trade grew 23 percent in 2006, 
 
PRETORIA 00003903  004 OF 005 
 
 
totaling $11.7 billion.  U.S. exports were up 16 percent at 
$4.2 billion, while South African exports to the United 
States increased 28 percent at $7.5 billion.  In 2006, South 
Africa was the 37th largest trading partner of the United 
States, equivalent to Turkey or Chile.  It is the largest 
U.S. export market in sub-Saharan Africa, twice the size of 
Nigeria and equal to Russia or Argentina.  South Africa was 
the third largest beneficiary of AGOA in 2006, and the 
largest beneficiary of non-oil products.  Its AGOA exports 
totaled 21 percent of the country's total exports in 2006. 
An impressive 99.6 percent of South Africa's exports entered 
the U.S. with zero import duties in 2005 as a result of 
normal trading relations (NTR), GSP and AGOA benefits.  Only 
0.4 percent of the value of South Africa's exports to the 
U.S. was subject to duty, or $26 million out of $5.9 billion 
in exports in 2005.  Over 600 U.S. firms have a presence in 
South Africa with 85 percent using the country as a regional 
or continental center.  South Africa's stable government, 
sound fiscal and monetary policy management and, by African 
standards, its large market are the primary attractions for 
U.S. businesses.  South Africa has, however, failed to 
attract a proportionate share of foreign direct investment 
since 1994.  Reasons include: slow growth, high unit labor 
costs, crime, regulatory uncertainty and the impact of Black 
Economic Empowerment policies, labor regulations, HIV/AIDS, 
and the slow process of privatization.  The U.S. was the 
largest portfolio investor and the second largest foreign 
direct investor in South Africa ($5.1 billion at year-end 
2005). 
 
¶17. (SBU) Following six rounds of negotiations over three 
years, the U.S. and the Southern African Customs Union (SACU: 
 South Africa, Botswana, Lesotho, Namibia, and Swaziland) 
agreed in April that they could not conclude negotiations on 
a free trade agreement (FTA) by their target date of December 
¶2006.  Negotiators subsequently agreed to deepen the 
bilateral relationship through a Cooperative Agreement on 
Trade, Investment and Development (TIDCA).  Negotiations are 
currently underway for the signing of a framework agreement 
for the TIDCA. 
 
-------------------------------------- 
HIV/AIDS: A CRISIS OF EPIC PROPORTIONS 
-------------------------------------- 
 
¶18. (U) In South Africa, the prevalence rate of HIV 
infections is one of the highest in the world.  HIV/AIDS is 
the country's leading cause of death.  South Africa has a 
generalized, mature HIV epidemic and HIV-related care and 
treatment services are required across the population.  An 
estimated 5.5 million South Africans are HIV-positive, 
including 2.9 million women and approximately 300,000 
children aged 14 or less.  An estimated 18.8 percent of the 
adults between 15 and 49 are infected.  Women in the age 
group 25-29 are the most badly affected, with prevalence 
rates of up to 40 percent.  In 2005, an estimated 800,000 
more citizens became infected and in 2006, 346,000 adults and 
children died from AIDS.  An estimated 3.5 million children, 
or 18.6 percent of South Africa's children, have had at least 
one parent die.  Sixty-six percent of these children had been 
orphaned as a result of AIDS.  The number of AIDS-related 
deaths since the start of the epidemic is estimated at 1.8 
Qdeaths since the start of the epidemic is estimated at 1.8 
million, with 71 percent of all deaths in the 15-41 year old 
age group being due to AIDS.  Continued AIDS-related 
mortality will create millions of new orphans and generate 
additional social and economic disruption, including orphans 
being raised by extended family members or in child-headed 
households. 
 
¶19. (U) In April 2007, the South African Government released 
its National Strategic Plan for HIV, AIDS, & Sexually 
Transmitted Infections (STIs) for 2007-2011 (NSP).  The NSP 
has the goal of reducing new HIV infections by 50 percent by 
2011 and also aims to boost provision of anti-retroviral 
treatment (ART) in South Africa.  However, South African 
public health facilities suffer from an acute shortage of 
skilled personnel and laboratory and clinical infrastructure. 
 Considerable investment in human resources and 
infrastructure is necessary to meet the NSP's national 
anti-retroviral treatment targets.  Approximately 230,000 
people were receiving anti-retroviral (ARV) treatment as of 
2006, while a further 540,000 people needed, but were not 
receiving, treatment.  The Global Fund has provided major 
grants to the Western Cape Health Department and a 
 
PRETORIA 00003903  005 OF 005 
 
 
public-private consortium in KZN. 
 
¶20. (SBU) The President's Emergency Plan for AIDS Relief 
(PEPFAR) is in its fourth year of implementation working with 
public and private sector prevention, treatment, and care 
programs.  To date, the U.S. has provided almost $460 million 
through PEPFAR to support HIV/AIDS programs in South Africa, 
with an additional $397.8 million being funded in FY 2007 and 
$590 million to be funded in FY 2008, making it the largest 
recipient of Emergency Plan resources.  The Emergency Plan 
directly supported  172,400 people in ARV treatment through 
programs in all nine provinces as of June 2007.  The USG 
PEPFAR team in South Africa includes U.S. Agency for 
International Development (USAID), Centers for Disease 
Control (CDC), Department of State, Department of Health and 
Human Services (HHS), Department of Defense and Peace Corps. 
The team works to ensure that the PEPFAR strategic plan is 
aligned with the goals of the NSP.  The South African 
military has expanded prevention programs and collaborates 
with the U.S. military and NIH on AIDS treatment research. 
 
¶21. (U) South Africa has the strongest research and training 
capacity of any country in the region, making it an important 
partner in the fight against HIV/AIDS.  USG agencies work 
with national and provincial health departments, the 
military, universities and NGOs to strengthen primary health 
care, prevention, disease surveillance and research. 
President Bush and President Mbeki confirmed a mutual 
commitment to expand HIV/AIDS collaboration, particularly 
through the Emergency Plan.  The mission has prepared, in 
coordination with the government, a five-year strategic plan 
focused on treatment, prevention, palliative care, and the 
provision of care for orphans and other vulnerable children. 
 
¶22. (U) The epidemics of HIV and tuberculosis (TB) are 
interlinked.  In Southern Africa, between 50 and 88 percent 
of TB patients are HIV positive and TB is the most common 
infectious disease associated with HIV in sub-Saharan Africa. 
 A high overall prevalence rate for HIV in South Africa and 
lack of continuity in treatment contributes to the increasing 
incidence of active TB disease, including multi-drug 
resistant (MDR) strains.  In conjunction with HIV, TB is 
linked to substantially higher fatality rates, even in the 
presence of effective TB chemotherapy. 
BOST