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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3641
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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UNCLAS SECTION 01 OF 06 PRETORIA 000425 
 
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 
FEBRUARY 29, 2008 ISSUE 
 
PRETORIA 00000425  001.2 OF 006 
 
 
¶1. (U) Summary.  This is Volume 8, issue 9 of U.S. 
Embassy PretoriaQs South Africa Economic News Weekly 
Newsletter. 
 
Topics of this week's newsletter are: 
- Textile Sector Seeks Survival Aid 
- SA-EU Trade Row Puts Customs Union at Risk 
- U.S. Trade with Sub-Saharan Africa Increases 
- GDP Growth Surprises 
- Inflation Surged to a Near Five-Year Peak 
- Power in South Africa 
- Mining Takes on SA Power Crunch 
- Treasury Carbon Footprint Revealed 
End Summary. 
 
--------------------------------- 
Textile Sector Seeks Survival Aid 
--------------------------------- 
 
¶2. (U) South AfricaQs largest textile manufacturer, Frame Textiles, 
 
called on the government to save the industry, which has been 
earmarked 
as a key job-creating sector. This comes amid concerns that high 
input 
costs, in addition to South AfricaQs power problems, are increasing 
 
pressure on a sector that has already been forced to cut jobs. 
Textile 
Federation Executive Director Brian Brink confirmed that the 
industry, 
which employs about 44,000 workers, was shedding jobs.  Employment 
at 
textiles mills shrank about 10% this year.  High international 
prices 
for commodities, particularly oil, and a weaker currency have seen 
the 
price of raw materials soar, putting pressure on the industry. 
According to Frame Textiles Managing Director Walter Simeoni, the 
sector 
has seen input prices for caustic soda increase by as much as 68% in 
the 
past eight months.  Cotton and viscose fiber have risen 35% and 63%, 
 
respectively, packaging material has increased 22%, and freight 
costs 
are now 12%-34% higher than eight months ago.  Coal prices, which 
have 
risen 60%, were also adding to pressure on textile manufacturers. 
Simeoni said retailers, aiming to preserve their own margins, were 
putting pressure on manufacturers to absorb increasing costs, but 
these 
expectations were unrealistic.  South AfricaQs clothing and textiles 
 
industry has been hammered by cheap imports, especially from China. 
A 
curb on the imports through the implementation of quotas on Chinese 
 
products has done little to improve the industryQs lot as retailers 
have 
turned to other countries for imports.  Furthermore, the textile 
industry faces the possibility of losing protection through import 
tariffs, as the International Trade Administration Commission (ITAC) 
is 
contemplating cutting duties on textiles in a bid to drive down 
input 
costs to help clothing manufacturers.  While clothing and textiles 
have 
been identified as a key industry for industrial policy support from 
the 
government, the program is yet to be implemented.  (Business Day, 
February 26, 2008) 
 
------------------------------------------ 
SA-EU Trade Row Puts Customs Union at Risk 
------------------------------------------ 
 
¶3. (U) The future of the Southern African Customs Union (SACU) hangs 
in 
 
PRETORIA 00000425  002.2 OF 006 
 
 
the balance, even as engagement takes place to save the worldQs 
oldest 
customs union.  SACU was divided last year when Botswana, Lesotho, 
Namibia and Swaziland broke ranks with South Africa and signed an 
interim Economic Partnership Agreement (EPA) with the European Union 
 
(EU).  Now, some observers believe that South Africa might use the 
interim EPA as a reason to break up the union. This would have huge 
 
economic implications, especially for Lesotho and Swaziland, which 
rely 
heavily on revenues from the SACU customs pool.  It is understood 
that 
EU Trade Commissioner Peter Mandelson is in South Africa to meet 
President Thabo Mbeki this week to discuss South AfricaQs position 
on 
the EPA.  Mbeki, in his State of the Nation address, singled out the 
EPA 
and regional integration as priorities, but observers said these 
commitments were not reflected on the ground.  South AfricaQs Chief 
 
Trade negotiator Xavier Carim said, QNone of us are looking at the 
break-up of the customs union.  We will try to go forward in a way 
that 
will not undermine the benefits achieved by the other countries. 
At a 
SADC ministerial meeting in Botswana last week, South Africa is said 
to 
have tabled 32 pages of concerns about the EPA, and is said to be 
calling for the EPA to be negotiated afresh.  However, Botswana in 
particular is said to be angered by South AfricaQs stance, and a 
source 
said that country was Qprepared to make the break.Q  (Business Day, 
 
February 25, 2008) 
 
-------------------------------------------- 
U.S. Trade with Sub-Saharan Africa Increases 
-------------------------------------------- 
 
¶4. (U) Total U.S. trade with Sub-Saharan Africa increased by 15% in 
 
2007, with growth in both exports and imports.  U.S. exports 
increased 
by 19% to $14.4 billion, driven by growth in vehicles and parts, 
parts 
for oil field equipment, wheat, non-crude oil, and medical 
equipment. 
Of the top African destinations for U.S. products, exports to South 
 
Africa rose by 24%, to Nigeria by 25%, and to Kenya by 11%.  U.S. 
imports from Sub-Saharan Africa increased by 14% to $67.4 billion in 
 
¶2007.  Imports from the oil producing countries grew in almost every 
 
case, with imports from Gabon growing by 60%, from Nigeria by 18%, 
from 
Chad by 12%, from Angola by 7%, and from Equatorial Guinea by 3%. 
U.S. 
imports from South Africa continued to show strong growth of 21%, 
driven 
by increased imports across several products, including platinum, 
diamonds, ferroalloys, vehicles and automotive parts.  AGOA imports 
were 
$51.1 billion, 15% more than in 2006.   Petroleum products continued 
to 
account for 93% of AGOA imports.  Non-fuel AGOA imports came to $3.4 
 
billion, a 7% increase over 2005.  The top five AGOA beneficiary 
countries were Nigeria, Angola, South Africa, Chad, and Gabon.  The 
U.S. 
merchandise trade deficit with Sub-Saharan Africa continued to widen 
in 
2007 to $53.0 billion, from $47.0 billion in 2006.  Nigeria, Angola, 
 
South Africa, and the Republic of Congo accounted for 90% of the 
U.S. 
trade deficit with Sub-Saharan Africa in 2007.  (U.S. Department of 
 
 
PRETORIA 00000425  003.2 OF 006 
 
 
Commerce, February 25, 2008) 
 
-------------------- 
GDP Growth Surprises 
-------------------- 
 
¶5. (U) According to Statistics South Africa (StatsSA), economic 
activity 
increased by an annualized rate of 5.3% in the fourth quarter of 
2007, 
up from 4.8% in the third quarter and defying forecasts for a slump 
to 
4.3%.  The healthy pace of growth in the fourth quarter put GDP 
growth 
for 2007 at 5.1%, below the 25-year record of 5.4% in 2006, but 
above 
official estimates of 5%.  Manufacturing output, the economyQs 
second- 
biggest sector, delivered the biggest surprise, rising 8.2% after a 
 
contraction of 2.5% in the third quarter blamed on vehicle industry 
 
strikes.  Growth in financial services, the economyQs biggest sector 
at 
20% of GDP, slowed to 8.5% from 12.3% in the third quarter, but 
still 
provided most of the impetus.  Construction was another winner, 
rocketing 14.2% and clocking up 16 quarters in a row of double-digit 
 
growth as the official infrastructure spending drive gathers 
momentum. 
However, growth in retail sales, the economyQs third-biggest sector, 
 
slowed to 2.1% in the last quarter on the back of higher interest 
rates. 
QThe data are incredibly upbeat but questions will still be asked 
about 
how much deterioration to expect in the first quarter of 2008, when 
we 
see the worst of the energy crisis impacting on the figures,Q said 
Razia 
Khan, regional research head for Africa at Standard Chartered.  In 
last 
weekQs budget, the National Treasury predicted growth would slow to 
4% 
in 2008 in response to power constraints, slackening consumer 
spending 
and a global slowdown.  However, many economists think growth will 
be 
lower, with estimates between 3% and 4%.  (Business Day, February 
27, 
2008) 
 
----------------------------------------- 
Inflation Surged to a Near Five-Year Peak 
----------------------------------------- 
 
¶6. (U) According to Statistics South Africa (StatsSA), the benchmark 
 
CPIX inflation gauge increased from 8.6% in December to 8.8% in 
January, 
its highest level since March 2003.  Some analysts said this boosted 
the 
chances the South African Reserve BankQs Monetary Policy Committee 
(MPC) 
may hike interest rates at its next meeting in April 2008.  A weaker 
 
rand along with sharp increases in fuel and electricity prices look 
set 
to propel CPIX above 9% in the next couple of months, and keep it 
above 
the MPCQs 3%-6% target range until early 2009.  It has already 
breached 
the target for 10 months in a row.  QThe Reserve Bank is likely to 
revise its inflation projections up, which increases the chance of a 
50 
basis point hike at its April monetary policy committee meeting, 
said 
Investec economist Annabel Bishop.  At its meeting last month, the 
 
PRETORIA 00000425  004.2 OF 006 
 
 
MPC 
opted to keep its policy rate steady at 11%, giving more weight to 
the 
threat to economic growth than the inflation outlook, which has 
steadily 
deteriorated in response to rising global costs of both fuel and 
food. 
Consumer demand is slowing sharply on a cumulative four percentage 
point 
rise in lending rates since June 2006, while electricity constraints 
are 
set to erode output from mining and manufacturing. That would make 
another interest rate hike controversial, as well as unpopular. 
Despite 
criticism from trade unions and independent analysts, officials from 
the 
South African Reserve Bank and the National Treasury have repeatedly 
 
said they will not abandon or revise the inflation targeting 
framework, 
as it supports economic growth in the long run.  (Business Day, 
February 
28, 2008) 
 
--------------------- 
Power in South Africa 
--------------------- 
 
¶7. (U) Eskom sponsored a three-page Sunday newspaper advertisement 
outlining its plan for mitigating and resolving the power shortage. 
 
Eskom expressed commitment to resolve the power emergency, noting 
there 
has been no load-shedding since February 4.   Eskom briefly 
explained 
the problem as a current imbalance in the supply and demand for 
electricity in South Africa, manifested by a Qnegative reserve 
margin, 
and resulting in load-shedding to prevent a cascading failure of the 
 
network.  The situation will remain extremely tight for the next 5-8 
 
years until new power plants come on line.  In addition, the ad 
noted 
the problems with coal quantity, quality, and wetness.   EskomQs 
National Response Plan identifies three phases: 
 
-- Phase 1 Q Stabilization (completed): Impose a 10% reduction in 
power consumption with mining and industrial consumers; Replenish 
coal 
stock-piles. 
 
-- Phase 2 Q Power Rationing (March-July): Continue across-the-board 
 
10% power reduction, establishing predictability to consumers. 
 
-- Phase 3 Q Power Conservation (next four years):  Fast-track new 
plants, while sustaining the power reduction to enable growth and 
assure operational reserves. 
 
The final page of the advertisement exhorts residential consumers to 
 
adopt conservation and efficiency measures.  QWe no longer have the 
 
luxury of excess capacity.  We must embrace energy efficiency as a 
way 
of life.Q  (Sunday Times, February 24, 2008) 
 
------------------------------- 
Mining Takes on SA Power Crunch 
------------------------------- 
 
¶8. (U) AfricaQs biggest gold-miner AngloGold Ashanti believes the 
power 
shortage in South Africa is manageable and expects to achieve enough 
 
energy savings to eliminate the effects of power rationing on output 
by 
the end of 2009, said CEO Mark Cutifani.  Eskom is supplying mines 
 
PRETORIA 00000425  005.2 OF 006 
 
 
90% 
of their normal power usage and recently said this situation was 
expected to continue until 2012.  Cutifani said that AngloGold would 
 
accelerate implementation of its five-year 15% energy efficiency 
program 
over 18 months.  He said that South Africa would continue to provide 
a 
solid base for the gold company for at least 15 to 20 years, but Qit 
was 
not going to be the place where you see us drive growth.Q  Mining 
giant 
Anglo American has similarly stated that the power crunch was not a 
 
disaster and the company would work closely with the SAG to put in 
place 
significant efficiency measures.  The day before, number two gold 
producer Gold Fields announced that it would cut 6,900 jobs and 
close 
three shafts in South Africa, scale back output at one and suspend a 
 
life-extension project at a fourth, as a result of operating at 90% 
of 
historical power consumption until at least 2012.  Operations Chief 
 
 
Terence Goodlace said Gold Fields will direct power supply to 
higher- 
margin, revenue-generating operations, at the expense of 
lower-margin 
shafts.  Both Goodlace and CEO Ian Cockerill bemoaned the irony that 
the 
company was facing these issues at a time when the rand-gold price 
was 
at its highest level ever.  Gold Fields also announced that it will 
cut 
back production at its South Deep operation (said to be the largest 
 
remaining gold ore-body in the world), as the recently acquired mine 
 
continues to miss targets.  (Mining Weekly, February 25-26, 2008) 
 
---------------------------------- 
Treasury Carbon Footprint Revealed 
---------------------------------- 
 
¶9. (U) The Treasury Department has registered its carbon footprint 
in 
response to Finance Minister Trevor ManuelQs call to take concrete 
steps 
to protect the environment.   Manuel announced that Treasury work 
has 
resulted in 38,000kg of carbon emissions and the use of over 37 tons 
of 
paper (an equivalent of over 276 trees) this past fiscal year. 
However, 
he noted that the budget documents were printed on bio-degradable 
and 
chlorine-free paper called Triple Green, which is composed of 60% 
sugar 
cane fiber that meets sustainable forestation standards.  Manuel 
pledged 
to reduce Treasury's carbon footprint and encouraged other 
departments 
to emulate TreasuryQs efforts.  The Minister also emphasized the 
need 
for policy change in alignment to the agreements in the UN 
International 
Panel on Climate Change, pertaining to carbon trades, cleaner 
production 
and tax incentives.  He announced the eminent introduction of a new 
levy 
Qon the sale of electricity generated from non-renewable sources, at 
a 
rate of 2 cents per kilowatt hour" this year.  Treasury anticipates 
this 
levy to yield over R2 billion ($266 million) in 2008/9 and R4 
billion 
($533 million) the next fiscal year. (South Africa Budget Speech, 
 
PRETORIA 00000425  006.2 OF 006 
 
 
February 20, 2008) 
 
BOST