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UNCLAS SECTION 01 OF 04 PRETORIA 000325 
 
SIPDIS 
 
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TREASURY FOR TRINA RAND 
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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 
FEBRUARY 15, 2008 ISSUE 
 
 
PRETORIA 00000325  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 8, issue 7 of U.S. 
Embassy Pretoria's South Africa Economic News Weekly 
Newsletter. 
 
Topics of this week's newsletter are: 
- Industrial Policy to Receive Infusion of Funds 
- SA to Fast-Track Investment Process 
- Mbeki Outlines ICT Priorities 
- SARB Emphasizes Growth over Inflation 
- South Africa's Rand Depreciates 
- Growth Target Revised 
- Analysts Debate Need for Tax-relief 
- Retail Sales at Six-Year Low 
- Credit Rating Remains Stable 
- PetroSA: Crude, But Effective 
- Lanseria Airport Expands 
- Cell C Recovery Campaign Pays Off 
End Summary. 
 
--------------------------------------------- - 
Industrial Policy to Receive Infusion of Funds 
--------------------------------------------- - 
 
¶2. (U) President Mbeki said in his February 8 State of the 
Nation address that the government's industrial policy will 
be reinforced with an injection of state funds amounting to 
R7.3 billion ($1 billion) over the next three years.  R5 
billion ($714 million) will be earmarked for tax incentives 
and the remainder will be dedicated to other forms of 
initiatives.  Further details on the funding package are to 
be released as part of Finance Minister Trevor Manuel's 
budget speech for 2008-2009 on February 20.  The industrial 
policy identifies several high priority sectors for 
development, including automotive, chemical and 
pharmaceuticals, capital equipment and mining 
beneficiation, and forestry and pulp.  Incentives will also 
be provided for other sectors including tourism, business 
process outsourcing and the development of arts and craft 
hubs, according to Department of Trade and Industry's 
Acting Deputy Director-General Sipho Zikode.  (Business 
Day, February 11, 2008). 
 
----------------------------------- 
SA to Fast-Track Investment Process 
----------------------------------- 
 
¶3. (U) President Mbeki also said that South Africa would 
fast track investment application processes and speed up 
infrastructure provision to support continued economic 
growth.  He unveiled plans to set up a call center to help 
prospective investors track applications, such as 
environmental-impact assessments.  This call center would 
also aim to speed up the application process for land 
acquisition and infrastructure.  Mbeki admitted that the 
"tardiness" with which government departments dealt with 
these applications could "make or break investor 
decisions".  He continued that the government was 
"urgently" setting up the call center, which would also 
help government departments track progress.  (Engineering 
News, February 8, 2008) 
 
----------------------------- 
Mbeki Outlines ICT Priorities 
----------------------------- 
 
¶4. (U) President Mbeki also pointed to the information and 
communication technology (ICT) infrastructure as a 
"critical priority, both as a facilitator and as a sector". 
He stated that South Africa would complete the licensing 
process for Infraco, a state-owned broadband infrastructure 
company, in 2008.  Mbeki added that the government has 
allocated money for signal broadcaster Sentech to become a 
wireless Internet wholesaler, as well as to finance its 
digitization.  Mbeki expects to provide digital 
Qdigitization.  Mbeki expects to provide digital 
broadcasting to 50% of the population by the end of 2008. 
(Engineering News, February 8, 2008) 
 
------------------------------------- 
SARB Emphasizes Growth over Inflation 
 
PRETORIA 00000325  002.2 OF 004 
 
 
------------------------------------- 
 
 
¶5. (U) The South African Reserve Bank's (SARB) Monetary 
Policy Committee (MPC) left the policy interest rate 
unchanged for the first time in nine months, at 11.0%.  In 
doing so, the MPC gave more weight to domestic and global 
economic uncertainties and the moderation of domestic 
consumption spending than to South Africa's deteriorating 
inflation outlook.  CPIX-inflation (consumer price 
inflation excluding mortgage interest rates) has exceeded 
the upper end of the inflation target range of 3-6% for the 
ninth consecutive month, reaching an almost 5-year high of 
8.6% in December 2007.  Inflation was mostly driven by food 
and energy prices.  The MPC expected inflation to remain 
above the target range until the end of 2008, with the main 
risks to inflation arising from food, fuel and electricity 
prices as well as the weakening rand exchange rate.  Most 
analysts, businesses and consumers welcomed the MPC's 
decision. 
 
------------------------------------------ 
South Africa's Rand Depreciates 
------------------------------------------ 
 
¶6. (U) South Africa's Rand depreciated by 13.7% against the 
dollar between January 1 and February 13, 2008.  The 
depreciation was spurred by heavy sales of local shares and 
bonds by foreigners.  The main reasons for the heavy 
selling of local assets were the electricity supply 
problem, its impact on economic growth, and fears about 
South Africa's ballooning current account deficit. 
 
--------------------- 
Growth Target Revised 
--------------------- 
 
¶7. (U) Treasury Director-General Lesetja Kganyago said 
South Africa was unlikely to reach its target of 6% 
economic growth by 2010 because of slower global expansion 
and domestic energy problems.  Kganyaho added that the 4.5% 
growth rate estimated for 2008 in the medium-term budget 
policy statement would also be revised.  However, she 
played down concerns that the economy could fall into 
recession, predicting that the revision of growth targets 
would not be large.  She noted that the economy remained 
resilient.  The economy has grown at an average of about 5% 
over the past four years.  "What we have actually seen is 
that current global turmoil will push that back, but talks 
of a recession are misplaced," said Kganyago.  (Business 
Report, February 11, 2008) 
 
----------------------------------- 
Analysts Debate Need for Tax-relief 
----------------------------------- 
 
¶8. (U) Analysts debated the need for tax relief in Finance 
Minister Trevor Manuel's next budget.  Taxpayers have 
received R89.2 billion ($11.7 billion) in tax relief since 
Manuel's first 1997 budget and some analysts called for 
further relief.  Manuel signaled a policy in his October 
2007 budget policy statement to accumulate budget surpluses 
when the economy is growing strongly, to moderate excessive 
spending, and to run deficits when growth in the economy 
slows and needs a boost.  Manuel had budgeted for a R16.2 
billion ($2.1 billion) surplus in 2008 on the expectation 
that the economy would grow 4.5%.  However, power cuts and 
a global slowdown have reduced growth prospects.  Brait 
Economist Colen Garrow said this change justified a shift 
QEconomist Colen Garrow said this change justified a shift 
towards deficit spending and called for more tax breaks. 
Sanlam Group Chief Economist Jac Laubscher believed that 
the government needed to opt for a stimulatory budget and 
should raise capital spending instead.  Other analysts 
would like to see a balanced budget.  Absa Economist Ridle 
Markus urged caution in spending as "this is not the time 
to overspend".  However, he said that priority should be 
given to Eskom's expansion plans and that some of the 
funding should come from the government.   (Business 
Report, February 11, 2008) 
 
PRETORIA 00000325  003.2 OF 004 
 
 
 
---------------------------- 
Retail Sales at Six-Year Low 
---------------------------- 
 
¶9. (U) Statistics South Africa (StatsSA) reported that 
retail sales decreased by 0.5% y/y in December, the lowest 
level in six years.  Retail sales slowed from a 9.6% growth 
rate in 2006 to 5.1% in 2007, the lowest annual growth rate 
in three years.  Analysts said the fall in the main gauge 
of consumer spending provides further confirmation of 
slowing consumer spending on the back of rising 
inflationary pressures, high debt levels, and high interest 
rates.  It confirms concerns raised by some analysts that 
South Africa is heading into a consumer recession on a real 
basis.  The South African Reserve Bank (SARB) raised 
interest rates by 400 basis-points between June 2006 and 
December 2007 in an effort to bring inflation under 
control.  Consumer spending has been the main driver of 
economic growth in the past few years and its decline could 
depress gross domestic product expansion in 2008.  The 
slower growth, which may be further dampened by a crippling 
energy crisis, could close the door on more rate hikes, and 
some analysts are starting to look ahead to possible cuts 
later this year or in early 2009, despite a still bleak 
inflation outlook.  (Fin 24, February 13, 2008) 
 
---------------------------- 
Credit Rating Remains Stable 
---------------------------- 
 
¶10. (U) The global and domestic challenges facing South 
Africa do not threaten the stable outlook on its mid- 
investment grade rating, global rating agency Standard & 
Poor's said on February 14.  "As long as the slowdown is 
moderate, it won't undermine the outlook we have," said S&P 
Managing Director for South Africa and sub-Saharan Africa 
Konrad Reuss.  Reuss predicted that gross domestic product 
growth would slow to 4% in 2008, in contrast to average 
growth of 5% over the last four years.  Reuss said S&P did 
not foresee a recession for South Africa, since the extent 
and duration of power cuts that hit business, industry and 
homes in January were unlikely to be repeated.  He also 
played down the substantial outflows from local equity 
markets last month, which will make it harder to finance 
South Africa's large current account deficit.  "At this 
point, from what we have seen and heard, investors have not 
turned negative on South Africa.  But it highlights the 
fact that all the players and decision makers will have to 
tread carefully," Reuss said.  S&P officially opened its 
South Africa office in Johannesburg on February 13. 
(Business Day, February 15.) 
 
----------------------------- 
PetroSA: Crude, But Effective 
----------------------------- 
 
¶11. (U) National oil company PetroSA has won "tacit" 
approval to build an oil refinery at the Coega Industrial 
Development Zone near Port Elizabeth.  The "Mthombo"-dubbed 
project for a 200,000 barrel per day refinery was mooted 
last year.  A Coega spokesman said the project should break 
ground in 2010 and be completed in 2014/2015.  Two 
competing projects appear to have fallen by the wayside: 
Bidevco (a BEE company) partnered with Brazilian oil 
company IOR and South African Drako Oil - with ambitious 
plans for three refineries in South Africa.  PetroSA's 
Qplans for three refineries in South Africa.  PetroSA's 
spokesman said the Mthombo plant would be in line with the 
parastatal meeting its obligation to guarantee the 
country's fuel security.  The Mthombo plant would also be 
in line with a draft energy security master plan for the 
liquid fuels industry.  South Africa refines 700,000 
barrels of oil per day, but imported as much as 1.2 billion 
liters (7.6 million barrels) of refined product last year. 
There has been a lack of investment, largely due to the 
unexpected surge in demand for liquid fuels and the poor 
returns offered by such large capital-intensive 
investments.  PetroSA says the Mthombo plant is sized to 
satisfy South African demand, but could be expanded to 
 
PRETORIA 00000325  004.2 OF 004 
 
 
allow for exports and growth opportunities.  (Financial 
Mail, February 15, 2008) 
 
------------------------ 
Lanseria Airport Expands 
------------------------ 
 
¶12. (U) Lanseria International Airport Manager Gavin Sayce 
reported that increased domestic flight offerings have 
prompted a number of expansion projects.  Sayce said the 
expansion was driven by Kulula Airline's new daily flights 
from Lanseria to popular domestic destinations such as Cape 
Town, Durban, Port Elizabeth, and East London.  The 
Lanseria airport decided in October 2007 to increase its 
apron capacity by about 215,280 square feet.  Sayce added 
that a new terminal building could be built to serve 
domestic flights, with the existing terminal building 
serving international flights.  The airport can currently 
accommodate 500,000 passengers a year.  According to Sayce, 
Lanseria is aspiring to develop into an airport that will 
serve the sub-Saharan African region. "With the increased 
flights coming into OR Tambo International, a lot of 
flights could be diverted to Lanseria."  The imminent 
introduction of Boeing A380s at OR Tambo means that the 
airport will have to increase its capacity.  During this 
phase, "Lanseria will be needed to serve passenger 
overflow," said Sayce.  Lanseria can accommodate the Boeing 
757-300 and the Airbus A319. (Engineering News, February 8, 
2008) 
 
--------------------------------- 
Cell C Recovery Campaign Pays Off 
--------------------------------- 
 
 
¶13. (U) Mobile operator Cell C expected full-year core 
profit to rise by over 30% as a turn-around plan pays off. 
Newly appointed CFO Fabrizio Mambrini said the struggling 
mobile firm's expected revenue growth would be "quite 
outstanding" after it launched a drive to increase 
subscribers.  "The company has made significant 
improvements in 2007 already." he said.  Unlisted Cell C, 
which releases its full-year results in March, has 
struggled to carve out market share in South Africa and has 
been weighed down by enormous debts.  Mambrini said Cell 
C's recovery campaign, which includes a range of promotions 
and a plan to focus on the lower end of the market, had 
borne fruit.  Cell C had 3.3 million South African 
subscribers at the end of June 2007, compared with rival 
Vodacom's 24 million and MTN's 14 million.  Mambrini said 
he saw room for growth despite talk that the South African 
market, with up to 80% mobile phone penetration, is 
saturated.  (Engineering News, February 12, 2008) 
 
 
END TEXT 
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