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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER 
FEBRUARY 22, 2008 ISSUE 
 
 
PRETORIA 00000371  001.2 OF 003 
 
 
¶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: 
- Budget Unveiled 
- Rand Weakens After Budget Speech 
- SA Looks to Indian Skills Development Model 
- SA Launches Diaspora Networking Program 
- Skills Shortage to Stymie Watchdog Group 
- Coal Markets Rocked by Ambitious Plan 
  for Coal Purchases 
- Proposal to Streamline 
  Environmental Assessments 
- Coal Mining Threatens Fresh Water 
End Summary. 
 
--------------- 
Budget Unveiled 
--------------- 
 
¶2. (U) South African Finance Minister Trevor Manuel delivered his 
annual Budget Speech before Parliament on February 20, 2008. 
According to Manuel, South Africa continues to have a positive 
fiscal outlook despite global economic turmoil.  Gross domestic 
product (GDP) growth was projected at 4% with the government posting 
a budget surplus of 1.0% of GDP for 2007/2008 and an estimated 0.8% 
in 2008/2009.  Proposed spending plans support further economic 
growth and expanded social welfare including additional incentive 
funding for the industrial policy framework and increased social 
grants.  Power utility Eskom will receive a R60 billion ($7.8 
billion) infusion of funds to assist with power generation projects. 
 Manuel proposed tax relief for corporations while he revealed plans 
to impose a levy on revenue from electricity generated by 
non-renewable sources.  In line with past gradual relaxation of 
exchange controls, Manuel announced that exchange controls on 
institutional investors will be removed and replaced with prudential 
regulation. 
 
-------------------------------- 
Rand Weakens After Budget Speech 
-------------------------------- 
 
¶3. (U) The rand weakened more than 3% against the dollar after 
Finance Minister Trevor Manuel's Budget speech on February 20.  It 
reached a 16-month low of R7.9225 against the dollar.  Traders 
predicted a further weakening to above R8 per dollar.  Traders said 
it was difficult to pinpoint the exact reason for the rand's fall, 
but said it could be attributable to concerns as to how the 
government plans to finance a widening current account deficit. 
Standard Chartered Bank Regional Research Director Razia Khan said 
that no one could be surprised by the projections for the current 
account deficit (staying high this year and widening further the 
next).   Concerns have also been expressed about the fact that the 
government needs to provide up to R60 billion ($7.6 billion) to the 
electricity utility Eskom over the next five years.   (Business 
Report, February 20, 2008) 
 
------------------------------------------- 
SA Looks to Indian Skills Development Model 
------------------------------------------- 
 
¶4. (U) Public Works Minister Thoko Didiza acknowledged that although 
the Extended Public Works Program had created 854,460 job 
opportunities, many were of a temporary nature and often did not 
allow for skills development.  Didiza said South Africa was looking 
to India as an example on how to improve the government's flagship 
jobs creation program.  She told reporters that India had a program 
guaranteeing 100 days of work at a certain pay level, and the South 
Qguaranteeing 100 days of work at a certain pay level, and the South 
African government was weighing this option. "We have been looking 
at different countries. How the system works in India is that 
various governing authorities such as infrastructure departments 
will guarantee work at a particular pay band."  Public Works is 
testing some of these new ideas, including targeting the youth in 
the OR Tambo municipality in Eastern Cape.  (Business Day, February 
15, 2008) 
 
--------------------------------------- 
SA Launches Diaspora Networking Program 
 
PRETORIA 00000371  002.2 OF 003 
 
 
--------------------------------------- 
 
¶5. (U) South Africa's International Marketing Council announced the 
launch of Global South Africans (GSA).  GSA is a pilot "brain bank" 
for linking the South African diaspora.  Approximately two million 
South Africans are thought to live abroad and among them is a 
contingent of top achievers who have made it big in business, 
finance, medicine and academia.  Spokesperson Simon Barber stated 
that "SA's best brains need not be lost to it completely".  GSA's 
goal is to harness "human capital" and connect it to opportunities 
in South Africa.  One hundred and fifty people have been recruited 
since April 2007.  "The network is expected to make an important 
contribution to skills development," says Barber. "Members will get 
the chance to adopt schools, place South African students in U.S. 
universities, offer internships in their companies and help 
graduates from disadvantaged backgrounds develop connections." It is 
hoped the network will also be able to help promote entrepreneurs 
and innovators, give advice and build partnerships.  Barbers added 
that members who sign up to join GSA "will be actively engaged with 
carefully targeted requests for knowledge and ideas from 
stakeholders in SA."  (Financial Mail, February 8, 2008) 
 
---------------------------------------- 
Skills Shortage to Stymie Watchdog Group 
---------------------------------------- 
 
¶6. (U) Johannesburg Stock Exchange CEO Russell Loubser expressed 
concerns about who would sit on a new financial watchdog panel. 
Analysts worried that there might not be enough people with the 
required skills to manage the new Department of Trade and Industry 
panel on a full-time basis.  The Corporate Laws Amendment Act 
provided wider investigative powers to the panel.  Under the act, 
the new investigation panel would have to monitor documents such as 
interim financial results, annual reports, prospectuses, and 
circulars. However Loubser said," it is questionable as to where the 
government is going to find the required number of professionals to 
monitor thousands of financial reports issued annually by 
companies".  GAAP Monitoring Panel Chairman Harvey Weiner reported 
that companies issued more than 3,000 reports a year and 
"appropriate people with skills, such as chartered accountants, 
should preferably sit on the monitoring team."  However, there were 
only 26,803 chartered accountants in South Africa. "It was a 
worrying factor," Weiner said.  (Business Day, February 15, 2008) 
 
------------------------------------- 
Coal Markets Rocked by Ambitious Plan 
for Coal Purchases 
-------------------------------------- 
 
¶7. (U) Eskom's plan to buy an additional 45 million tons of coal to 
replenish depleted stockpiles has been met with skepticism 
internationally, with analysts saying it overlooks severe global 
coal supply constraints, logistical challenges, and price concerns. 
The emergency move could cost the utility as much as R11 billion 
($1.5 billion), but Eskom says it has no choice if it is to make 
headway in relieving South Africa's power crisis.  The 45 million 
tons would be above Eskom's running requirements, which are 125 
million tons per year, and would be added systematically over the 
Qmillion tons per year, and would be added systematically over the 
next two years in a bid to raise coal reserves at power stations to 
at least 20-days supplies (reporting has indicated that some plants' 
reserves have decreased to hardly a few days).  A Business Day 
editorial notes that South Africa will have to adjust from its days 
of enjoying the cheapest electricity in the world as Eskom copes 
with the need to replenish coal stocks and finance a capital 
expansion program of $45 billion over the next five years.  Analysts 
have long argued for market pricing of electricity, even though this 
will necessitate painful price increases, but this would offer a 
more reliable mechanism to manage demand rather than rationing. 
Another editorial called for the energy regulator and the government 
to create realistic tariff mechanisms to allow co-generation 
projects to move forward.  (Business Day, February 18, 2008) 
 
------------------------- 
Proposal to Streamline 
Environmental Assessments 
------------------------- 
 
¶8. (U) Department of Environmental Affairs and Tourism (DEAT) Deputy 
Director-General Joanne Yawitch said that the mining industry could 
 
PRETORIA 00000371  003.2 OF 003 
 
 
look forward to a streamlined environmental authorization process 
under the proposed National Environmental Management Act (Nema). 
Environmental impact assessment applications are currently managed 
by the Department of Minerals and Energy (DME) under the Mineral and 
Petroleum Resources Development Act (MPRDA).  However, the mining 
industry has complained about delays and called for "one system 
where one department has authority".  She reported that the 
departments "are moving towards a much more rational system." 
Chamber of Mines environmental adviser Nikisi Lesufi concurred, 
stating that there was a backlog of applications awaiting 
environmental or water-use approval.  The question of jurisdiction 
over the mining industry's environmental impact assessments has been 
a thorny one.  In a briefing to Parliament's environmental affairs 
and tourism committee this week, the two departments had worked out 
a proposal, which would be presented to their respective ministers 
for approval shortly.  (Business News, February 15, 2008) 
 
--------------------------------- 
Coal Mining Threatens Fresh Water 
--------------------------------- 
 
¶9. (U) Wits School of Geoscience Professor Terence McCarthy warned 
mining houses not to proceed with coal mining plans near the Vaal 
River in Ermelo in the Mpumalanga province due to the environmental 
impacts.  McCarthy argued that the river water could be polluted and 
its quality could deteriorate to a point where it could no longer be 
fit for human consumption.  Acid water pollution resulting from coal 
mining in the region has already destroyed the Wilge River which 
flows through a nature reserve in Mpumalanga.  He added that the 
pollution caused the death of fish, crocodiles and some marine 
plants in the area.  McCarthy and other environmental groups 
demanded that the coal mining proposal tabled by Xstrata and other 
mining houses should not proceed.  Angus Burns of the Enkagala 
Grassland Project added that there was more coal in less sensitive 
areas of the escarpment and there was "no need to mine for it an 
ecologically precious area, which could yield only 15% of what the 
miners require".  (The Sunday Independent, February 10, 2008) 
 
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