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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #4155/01 3411431
ZNR UUUUU ZZH
R 071431Z DEC 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2920
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 7776
RUEHTN/AMCONSUL CAPE TOWN 5129
RUEHDU/AMCONSUL DURBAN 9417

UNCLAS SECTION 01 OF 04 PRETORIA 004155 
 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
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 DECEMBER 07, 
2007 ISSUE 
 
 
PRETORIA 00004155  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 7, issue 49 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Trade Deficit Widens 
- Manufacturing Activity Slips 
- Vehicle Sales Down 
- Business Confidence Dips Further 
- US Trade With Sub-Saharan Africa Increase 
- SA Leads World on Life Cover 
- The CAA Grounds Nationwide Airline 
- CAA Restructuring Announced 
- SA Companies Submit Emissions Reports 
- Mineworkers Stage Safety Strike as Fatalities Top Previous Year's 
End Summary. 
 
-------------------- 
Trade Deficit Widens 
-------------------- 
 
¶2. (U) According to South African Revenue Service (SARS) data, South 
Africa's trade deficit widened to a record R14.7 billion ($2.2 
billion) in November 2007.  Exports increased by 4.3% month-on-month 
(m/m) to R41.5 billion ($6.2 billion) in November 2007, while 
imports surged 27.4% m/m to a record R56.3 billion ($8.4 billion). 
Oil imports doubled to R13.2 billion ($2 billion), more than a fifth 
of the total imports, partly because of rising global crude prices 
but also due to disruptions to local production and increased 
purchases by refineries ahead of the year-end.  SARS officials said 
the surge in imports also reflected rising demand for capital goods 
sparked by the government's R482 billion ($72 billion) 
infrastructure spending plan and preparations to host the FIFA 
Soccer World Cup in 2010.  The cumulative trade deficit widened from 
R55.3 billion ($8.3 billion) in the first 10 months of 2006 to R70.1 
billion ($10.5 billion) for the same period in 2007.  It means the 
current account deficit would exceed last year's ratio of 6.5% of 
gross domestic product (GDP), which was its largest in more than 
three decades.  National Treasury (NT) officials have acknowledged 
that South Africa would have to live with a large current account 
deficit for several years to come, largely due to its spending 
program, which in the end will expand the economy's productive 
capacity.  NT has predicted that the current account deficit will 
widen to 7.7% of GDP in 2009 and 7.8% in 2010, both near 60-year 
peaks.  Although the shortfall is covered by capital inflows, it 
makes the South African economy vulnerable to any substantial shift 
in global sentiment against emerging markets and high-yield assets. 
South Africa has the second largest current account deficit as a 
percent of GDP among the 25 emerging market economies.  (Business 
Day, December 3, 2007) 
 
---------------------------- 
Manufacturing Activity Slips 
---------------------------- 
 
¶3. (U) The Investec Purchasing Managers Index (PMI) which measures 
underlying manufacturing activity, dropped from 56.1 points in 
September to 54.3 points in October.  A sharp fall in new sales 
orders, a slowdown in activity and a decline in expected business 
conditions conspired to put pressure on the sector, which accounts 
for more than 16% of the economy.  The PMI has been weighed down in 
recent months by higher interest rates as the South African Reserve 
Bank (SARB) strives to bring inflation under control.  Investec 
Asset Management head Andre Roux said the manufacturing sector is 
continuing to adjust to pressure from higher interest rates, a 
Qcontinuing to adjust to pressure from higher interest rates, a 
slower global economy and strength in the rand.  A stronger rand 
tends to be bad for manufacturers as it erodes the competitiveness 
of South Africa's exports while making imports less expensive, 
encouraging substitution for locally produced goods.  Figures last 
week showed that manufacturing production decreased by 0.1% in the 
second quarter of 2007 and by 2.5% in the third quarter of 2007, 
which technically puts the sector in a recession for the first time 
since 2003.  (Business Day, December 4, 2007) 
 
------------------ 
Vehicle Sales Down 
------------------ 
 
¶4. (U) According to the National Association of Automobile 
Manufacturers of South Africa (NAAMSA), total new vehicle sales 
 
PRETORIA 00004155  002.2 OF 004 
 
 
declined by 13.8% year-on-year (y/y) in November 2007.  The fall in 
vehicle sales was particularly noticeable in the new passenger 
vehicle segment of the market where sales decreased by 15.7% y/y in 
November.  According to NAAMSA the lagged impact of past interest 
rate hikes, record high household debt levels, inflation and a 
deterioration in consumer sentiment contributed to the contraction 
in the volume of passenger vehicles sold over the past year.  During 
the January to November 2007 period, passenger vehicle sales were 
9.2% lower than during the corresponding period last year.  However, 
sales of light commercial vehicles were 3.6% higher than during the 
same period last year, while medium and heavy commercial vehicle 
sales increased by 12%.  Heavy commercial vehicle sales growth 
remained relatively strong during 2007, but there was a noticeable 
slowdown in medium commercial vehicle sales growth.  Economists said 
the continued contraction in vehicle sales, particularly passenger 
vehicle sales is an indication of the effect of interest rate hikes 
and inflationary pressures on household budgets, reducing the 
consumer's ability to spend on interest rate sensitive items such as 
motor vehicles. (ABSA Newsletter, November 4, 2007) 
 
-------------------------------- 
Business Confidence Dips Further 
-------------------------------- 
 
 
¶5. (U) The South African Chamber of Commerce and Industry (SACCI) 
said its business confidence index (BCI) decreased from 96.9 points 
in October to 95.8 in November, the lowest since February 2004. 
Five of the 13 sub-indices of the BCI turned positive in November, 
while eight sub-indices were negative.  SACCI noted that economic 
growth in prominent sectors, that have been pushing growth for the 
last 12 months, slowed by a half to two percentage points 
year-on-year.  The October inflation data also indicate that 
consumer inflation is accelerating and while producer inflation 
slowed down somewhat.  Producer inflation is still 1.5% points 
higher than consumer inflation.  "This could lead to greater price 
instability if not managed prudently by business, policy makers and 
other role players," the SACCI said.  Of great concern to the SACCI 
are the U.S. dollar prices of crude oil and the increasing rates of 
food and non-food agricultural products, while higher real financing 
costs are particularly detrimental to small and medium-size 
business, especially in a slowing economy.  However, the higher real 
interest rates provide an incentive for attracting capital to South 
Africa that support the rand and that finances the huge current 
account deficit. SACCI believes that notwithstanding tougher 
business conditions, South African business has shown resilience in 
the past and when sound and consistent economic policy decisions 
lead the way, business confidence will follow.  (Business Day, 
December 5, 2007) 
 
----------------------------------------- 
US Trade With Sub-Saharan Africa Increase 
----------------------------------------- 
 
¶6. (U) U.S. total trade with Sub-Saharan Africa (SAA) increased by 
8% year-on-year (y/y) in the first 9 months of 2007, as both exports 
and imports grew.  U.S. exports to SAA increased by 24% to $10.6 
Qand imports grew.  U.S. exports to SAA increased by 24% to $10.6 
billion in the first 9 months of 2007, driven by growth in vehicles 
and parts, wheat, non-crude oil, medical equipment and platforms for 
offshore oil drilling.  U.S. imports from SAA increased by 4% y/y to 
$47.6 billion in the first 9 months of 2007, mainly driven by oil 
and platinum imports.  U.S. exports to South Africa rose by 27% 
while U.S. imports from South Africa increased by 22%, driven mainly 
by increased imports in platinum, diamonds, and ferroalloys.  Total 
AGOA imports amounted to $35.9 billion, 5% more than in the first 
nine months of 2006.  Petroleum products accounted 93% of overall 
AGOA imports and the top five AGOA beneficiary countries included 
Nigeria, Angola, South Africa, Chad, and Republic of Congo.  Once 
again, South Africa was the largest beneficiary of non-oil AGOA 
exports to the U.S.  (U.S. Department of Commerce, November 30, 
2007) 
 
---------------------------- 
SA Leads World on Life Cover 
---------------------------- 
 
7.(U) Life Offices Association (LOA) Gerhard Joubert said South 
Africa's extensive antiretroviral therapy (ART) programs, which are 
now treating more than 300,000 HIV-positive people, are making it 
 
PRETORIA 00004155  003.2 OF 004 
 
 
possible for local life insurers to introduce more affordable and 
comprehensive life and disability cover.  Sanlam, Old Mutual and 
Metropolitan, three of South Africa's largest life insurance 
companies, were the first to introduce life insurance policies for 
HIV-positive people as early as 2001.  AllLife and AltRisk, two 
smaller life insurance companies, subsequently pioneered more 
affordable life insurance for people living with HIV.  Sanlam is now 
the first large life insurance company to announce new, affordable 
and flexible life and disability cover for HIV-positive people. 
Joubert said the previous lack of reliable data relating to the 
HIV/AIDS survival rate and the way the disease responds to treatment 
had encouraged insurers to use conservative assumptions when pricing 
products for the HIV-positive, causing the products to be expensive. 
 Improvements in treatment over the past decade have increased 
survival rates and have caused HIV to become a chronic treatable 
disease.  The new products require policyholders to be on ART, 
monitored through a properly structured treatment program.  The 
LOA's HIV testing protocol, which regulates testing and counseling 
for insurance purposes, was also hailed as one of the best in the 
world.  (Business Times, December 2, 2007) 
 
---------------------------------- 
The CAA Grounds Nationwide Airline 
---------------------------------- 
 
8.(U) The South African Civil Aviation Authority (CAA) suspended its 
approval of Nationwide Airlines' aircraft maintenance organization 
(AMO) on November 30.  The CAA also suspended the airworthiness 
certificates of Nationwide's fleet of 16 Boeing aircraft.  In a 
cascading series of events, the CAA recalled all of the 
non-Nationwide aircraft that had been serviced by the Nationwide AMO 
and the International Air Transport Authority (IATA) suspended 
Nationwide from its interchangeable ticket agreement.  The 
combination of these events led to the cancellation of 60 Nationwide 
flights and the stranding of 6,000 passengers just as most schools 
closed for the holidays on November 30.  Many passengers were unable 
to purchase the more expensive, regular-priced tickets on competing 
airlines.  The CAA's decision was related to an accident in which an 
engine fell off of a Nationwide Boeing 737-200 at the Cape Town 
International Airport on November 7.  The CAA said it had raised 21 
safety concerns with Nationwide, including the fact that the airline 
was using possible pirate parts that did not comply with safety 
regulations.  The local press claims that the CAA raised its 
concerns about Nationwide's inability to trace whether some of its 
bolts were genuine parts three months ago (i.e., before the November 
7 incident).  (Pretoria News, December 1, 2007 and Business Day, 
December 4, 2007) 
 
--------------------------- 
CAA Restructuring Announced 
--------------------------- 
 
 
9.(U) The South African Civil Aviation Authority (CAA) announced on 
December 4 that CEO Zakes Myeza had resigned to allow the CAA to 
unify the positions of CEO and Commissioner for Civil Aviation.  The 
announcement explained that Minister of Transport Jeff Radebe had 
issued a policy directive to unify the two positions in response to 
Qissued a policy directive to unify the two positions in response to 
concerns raised by two international audits conducted on the CAA. 
CAA Spokesperson Phindi Gwebu said that the two international audits 
had been conducted by ICAO and the FAA.  She also said Myeza's 
resignation had "nothing to do with" the November 30 action taken 
against Nationwide Airlines.  Radebe spokesperson Collen Msibi also 
said that the Nationwide action and the CAA restructuring were 
separate issues and that it was Myeza's decision to resign.  The new 
CEO/Commissioner has not been announced, but Embassy sources report 
that the SAG would like South African Airways' Manager of Operations 
to occupy this position.  In another management shake-up, CAA Board 
Member and Auditor General Head of Operations and Transaction 
Management Bridget Mohlala was suspended on December 3 after being 
found guilty of several financial offences.  (Pretoria News, 
Business Day, and Die Burger, December 5, 2007 and News 24, December 
4, 2007) 
 
------------------------------------- 
SA Companies Submit Emissions Reports 
------------------------------------- 
 
¶10. (U) The Carbon Disclosure Project (CDP) presented a report on 
 
PRETORIA 00004155  004.2 OF 004 
 
 
emissions by South Africa's top 40 JSE-listed companies.  The 
companies had to report on climate change risks as well as the 
accounting and management of green house gas emissions.  The report 
fingered state electricity supplier ESKOM as the leading emitter, 
with emissions 2.8 times higher than the next highest among the 40 
companies.  SASOL, BHP Billiton, Anglo American and Sappi were the 
other companies identified as large emitters.  Minister of 
Environmental Affairs and Tourism Marthinus Van Schalkwyk has urged 
CEOs and Board Chairmen to rise to the new challenges and 
opportunities and to move away from the "business as usual" 
approach, which he regarded as a high-risk approach.  The CDP will 
continue with the rating on an annual basis and hopes to include the 
top 100 JSE-listed companies in the near future.  (Business Day, 
November 23, 2007) 
 
--------------------------------------------- ---- 
Mineworkers Stage Safety Strike as Fatalities Top Previous Year's 
--------------------------------------------- ---- 
 
¶11. (U) Some 240,000 members of South Africa's biggest union, the 
National Union of Mineworkers (NUM), staged a one-day strike and 
march against deteriorating safety conditions on December 4.   The 
Chamber of Mines said the chamber and the NUM had agreed on the 
protest action because the two needed to cooperate in tackling 
safety issues.  The number of deaths in South African mines this 
year, at 201 thus far, has already topped last years' year-end 
figure of 199.  This has galvanized concerns about safety in the 
aftermath of the recent incident of 3,200 workers trapped, but 
ultimately rescued, at Harmony's Elandsrand mine.  Mining companies 
reported substantial output losses due to the work stoppage. 
Platinum producer Anglo Platinum said the impact of the one-day 
strike was expected to be a loss of about 9,000 ounces of production 
as some mines experienced an almost 100 percent stay-away.  South 
Africa's top gold producer AngloGold Ashanti said it experienced 
substantial mine worker stay-aways, to the extent that none of its 
South African operations were producing gold on December 4. 
(Business Day, Mining Weekly, 102.7 Classic FM news, December 4-5, 
2007) 
 
BOST