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UNCLAS SECTION 01 OF 05 PRETORIA 000474 
 
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 15, 2008 ISSUE 
 
 
PRETORIA 00000474  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 10 of U.S. 
Embassy Pretoria's South Africa Economic News Weekly 
Newsletter. 
 
Topics of this week's newsletter are: 
- Outlook for SA's Economy Weakens 
- High Marks for Economic Freedom 
- Vehicle Sales Fall on Higher Interest Rates 
- Eskom' French Kiss 
- Power Rationing on the Cards for SA - 
  To Load-Shed or Not to Load-Shed 
- Finland Pledges Assistance for ICT 
  Infrastructure Development 
- Fiber Optic Cables Set to Reduce Costs 
- Funding Hampers Broadcast Signal Carrier 
- Vodacom Launches New Division 
End Summary. 
 
-------------------------------- 
Outlook for SA's Economy Weakens 
-------------------------------- 
 
¶2. (U) The latest Investec Purchasing Managers Index (PMI) revealed 
 
that manufacturing activity fell from 52.1 points in January to 46.4 
 
points in February, a four-and-half-year low.  Manufacturing is the 
 
second biggest contributor to South Africa's economy (16%) after 
financial services, so the PMI slump points to softening growth in 
the first quarter.  "In all likelihood, the decline reflects not 
only the effect of a softening real economy, but also the effect of 
 
the electricity crisis on the sector," Investec said in a statement. 
 
Large manufacturers, together with the mines, have borne the brunt 
of power rationing which has had a negative effect on both output 
volumes and order books.  Industry, business and households have 
been asked to cut consumption by up to 10% until 2010 to stabilize 
power supply in a step that will add to other constraints and may 
curb the 5% growth of the last four years to between 3% and 4% this 
 
year.  (Business Day, March 4, 2008) 
 
------------------------------- 
High Marks for Economic Freedom 
------------------------------- 
 
¶3. (U) South Africa has scored a rating of 63.2% on the Heritage 
Foundation's 2008 index of economic freedom, placing it 52nd in the 
 
global ranking.  South Africa was rated above average in 7 of 10 
categories.  It was the third-highest ranked country in Africa, 
after Botswana and Mauritius.  South Africa scored 71.2% for 
business freedom, with overall freedom to start a business being 
relatively well-protected, and the process for closing a business 
being fairly simple and straightforward.  In the financial freedom 
category, regulation was found to be generally consistent with 
international standards.  Heritage also found that the judiciary is 
 
 
independent and that contracts are generally secure.  (Business Day, 
 
March 4.) 
 
------------------------------------------- 
Vehicle Sales Fall on Higher Interest Rates 
------------------------------------------- 
 
¶4. (U) According to the National Association of Automobile 
Manufacturers (NAAMSA), new vehicle sales declined by 12% y/y in 
February, from 52,526 units in February 2007 to 46,248 units in 
February 2008.  Passenger car sales were worst hit, falling 14.8% 
y/y.  "Sales continued to be affected by rising inflationary 
pressures, the effect of cumulative interest rate rises and high 
personal debt," NAAMSA said in a statement.  The commercial sector 
appeared to be boosted by massive government spending on 
infrastructure, while consumers curbed their spending.  NAAMSA said 
Qinfrastructure, while consumers curbed their spending.  NAAMSA said 
 
 
PRETORIA 00000474  002.2 OF 005 
 
 
medium commercial and extra-heavy vehicle sales increased 2.2% and 
19.8%, respectively. "Supported by strong investment and 
infrastructural spending, sales of vehicles in the medium and heavy 
 
 
truck segments of the industry had maintained their strong upward 
momentum," NAAMSA said.  On the export front, February was the 
best- 
performing month on record, with exports up 23.3% from the same 
period last year.  NAAMSA said the outlook for vehicle exports was 
promising this year, and would benefit both the component industry's 
 
production volumes and the country's trade balance.  (Business Day, 
 
March 4, 2008) 
 
------------------ 
Eskom' French Kiss 
------------------ 
 
¶5. (U) Eskom may still be trying to clear its head after a week of 
intense courtship from the French, who rolled into town with hard 
cash, skills, and intense ardor to make all of Eskom's capacity 
dreams come true.  There was nothing subtle in the flirtation of the 
 
French business delegation, which accompanied President Nicolas 
Sarkozy on his first state visit to South Africa February 28-29. 
Sarkozy made a promise to send French engineers to help Eskom. 
Alstom won its second six-turbine contract, this time for the new 
coal-fired power station Bravo in Mpumalanga.  Areva CEO Lauvergeon 
 
said Areva is involved through the nuclear chain from the mining of 
 
uranium to fuel enrichment and from the production and installation 
 
of nuclear power plants to nuclear waste recycling, as she sought to 
 
distinguish her company's bid for a fleet of up to 20,000 Megawatts 
 
from the bid of rival Westinghouse.  Lauvergeon says Areva's 
technology offering's biggest advantage is that it already has two 
plants of its design under construction, one in Finland and the 
other in France.  "We are not only a concept," she says, taking a 
swipe at competitor Westinghouse, which has yet to begin 
construction of its first AP-1000 in China.  Lauvergeon also stated 
 
that Areva is "fully integrated in the fuel cycle which means we can 
 
deliver nuclear fuel when our clients need it", taking another swipe 
 
at Westinghouse, which does not enrich recycle nuclear fuel.  Areva 
 
also signed agreements to fund nuclear skills training through joint 
 
 
programs with the Nuclear Energy Corporation of South Africa 
(NECSA).  (Financial Mail, March 7, 2008 and Sunday Independent, 
March 2, 2008) 
 
--------------------------------------------- ----- 
Power Rationing on the Cards for SA - To Load-Shed 
or Not to Load-Shed 
--------------------------------------------- ----- 
 
¶6. (U) Eskom continues to improvise on balancing short supply with 
growing demand.  Minister of Public Enterprises Alec Irwin announced 
 
on March 1 that residential demand was still too high and that Eskom 
 
would have to re-impose predictable load-shedding via information on 
 
its web-site (Eskom has not imposed load-shedding since February 4). 
 
Eskom then announced that supplies were adequate and that load- 
shedding would be deferred, but subsequently issued a warning for 
system constraints on March 5.  The Department of Minerals and 
Energy (DME) announced that power rationing was an option under 
scrutiny.  The Department continues to meet with miners who complain 
Qscrutiny.  The Department continues to meet with miners who complain 
 
 
PRETORIA 00000474  003.2 OF 005 
 
 
 
that mandated ten percent cuts will have a negative affect on jobs 
and production.  Smelters have in turn complained that their ten 
percent cut is not sustainable.  Meanwhile, Eskom and DME scrambled 
 
to disavow confusion stemming from rumors that Eskom sought to delay 
 
new large projects and hook-ups.  DME Director General Nelly 
Magubane finally confirmed that new projects would be delayed six 
months while the impacts of demand-side programs were assessed.  DME 
 
has announced intent to put pricing in place that would provide 
incentives to reduce usage.  Programs for solar power for water- 
heaters and energy-saving lamps have been announced.  (Engineering 
News, Business Day, March 4-6, 2008) 
 
---------------------------------- 
Finland Pledges Assistance for ICT 
---------------------------------- 
 
¶7. (U) Finland has pledged 12 million ($18 million) in development 
 
aid to enhance the Information Communication Technology 
infrastructure (ICT) in South Africa.  The aid will be used to roll 
 
 
out ICT infrastructure investments over the next three years.  South 
 
Africa's Minister of Communications Ivy Matsepe-Casaburri and 
Finland's Minister Counselor Marjaana Sall signed an agreement on 
the Provincial Information Society Strategy Program on February 25. 
 
Matsepe-Casaburri said ICT development aid would go to Limpopo and 
the Northern Cape, to strengthen the capacity of the provincial 
government to infuse their Information Society and Development 
(ISAD) plan.  The Finnish Minister Counselor stated that the ICT 
Development Counselor at the Finnish Embassy will be assisting with 
 
the roll out.  (Business Day, February 25, 2008) 
 
-------------------------------------- 
Fiber Optic Cables Set to Reduce Costs 
-------------------------------------- 
 
¶8. (U) South Africa could soon have two undersea, fiber-optic cables 
 
connecting it with the rest of the world via the African east coast. 
 
SEACOM, the consortium behind a $600 million project to build a 
submarine cable system linking South Africa and countries in East 
Africa with Europe and Asia, announced that the system will be 
completed by June 17, 2009.  The East Africa Submarine System 
(EASSY) project also finally looks set "to get off the ground". 
SEACOM has promised to slash the price of international connectivity 
 
by as much as 90%.  SEACOM president Brian Herlihy said the aim is 
to create a high-demand, low-cost model for bandwidth.  Until now, 
bandwidth in the region has been scarce and expensive.  In South 
Africa, Telkom has tightly controlled supply on the system along 
Africa's west coast.  Despite SEACOM's competitive pricing, the 
telecom companies behind EASSY look set to press ahead, too.  They 
will meet in Tanzania to make a final decision for the $235 million 
 
project by March 7.  The EASSY parties will also have to raise 
another $15 million after Alcatel of France, which was commissioned 
 
to build the system, increased its price.  South African investors 
behind the EASSY project include: MTN ($30 million), Telkom ($18 
million) and Vodacom ($11 million).  They look set to press on, but 
 
there is concern that the SAG, which fell out with EASSY's backers, 
 
may use controversial new policy guidelines on undersea cables to 
Qmay use controversial new policy guidelines on undersea cables to 
block EASSY from landing in SA.  If it does, some operators have 
vowed to land the system in Mozambique and to provide bandwidth via 
 
terrestrial backhaul links from Maputo.  Department of 
Communications Director-General Lyndall Shope-Mafole drafted the 
policy guidelines, which were criticized by the press.  Shope-Mafole 
 
PRETORIA 00000474  004.2 OF 005 
 
 
 
still has designs for another submarine system known as Uhurunet, 
which is backed by the New Partnership for Africa's Development 
(NEPAD), but some operators doubt that the project will ever 
materialize.  There are also projects planned for Africa's west 
coast.  Operators prefer the west coast route because it offers 
lower network lag time to Western Europe.  (Financial Mail, February 
 
29, 2008) 
 
 
---------------------------------------- 
Funding Hampers Broadcast Signal Carrier 
---------------------------------------- 
 
¶9. (U) Minister of Communications Ivy Matsepe-Casaburri has 
criticized the Department of Treasury for failing to finance state- 
owned signal carrier Sentech, putting its future into doubt. 
Sentech carries the national TV broadcast signals and needs R955 
million ($129 million) to upgrade the network to handle the switch 
to digital broadcasting, which is required for the FIFA 2010 Soccer 
 
World Cup.  She said treasury officials "just don't understand" the 
 
crucial role Sentech could play in lowering SA's exorbitant cost of 
 
communications and taking voice and data services to rural 
communities.  Matsepe-Casaburri spoke out after Sentech issued a 
statement highlighting its precarious financial position after a 
government refusal to fund its heavy workload.  The Public Finance 
Management Act prevents Sentech from private sector borrowing.  The 
 
 
Sentech board is lobbying to change that so it can raise the 
necessary capital.  Sentech has received R200 million ($26 million) 
 
and has been promised another R450 million ($58 million), leaving it 
 
R300 million ($39 million) short.  Sentech also wants to build a 
national high-speed wireless network to cut the cost of 
communications and hook up schools, clinics and rural communities. 
 
That project will cost R3.1 billion ($402 million) and Sentech has 
received just R500 million ($65 million) for that purpose. 
According to press reports, Minister of Public Enterprises Alec 
Erwin created state-owned Infraco to construct cables linking SA's 
main economic hubs, while Sentech was still floundering.  Sentech 
officials said Infraco was now "a direct competitor", duplicating 
some services and sucking up funding.  Matsepe-Casaburri said 
Infraco and Sentech were both essential for delivering better 
telecoms services.  (Business Day, March 4, 2008) 
 
----------------------------- 
Vodacom Launches New Division 
----------------------------- 
 
¶10. (U) Vodacom Group is investing billions of rands to ensure its 
growth as the South African cellular industry matures.  Vodacom 
unveiled a new division called Vodacom Business and signaled a 
willingness to spend big to grow in complementary areas such as new 
 
media and corporate IT services.  Vodacom says it will spend at 
least R2.5 billion ($345 million) in the next five years.  It has 
already invested more than R700 million ($90.9 million) in building 
 
a state-of-the-art data center and fiber-optic rings in large 
metropolitan areas.  Analysts say Vodacom's entry into the market is 
 
a clear threat to Telkom.  Vodacom generated R6.9 billion ($896 
million) from its 2007 operations and is able to spend billions on 
infrastructure, which its rivals cannot afford to do.  Vodacom, with 
Qinfrastructure, which its rivals cannot afford to do.  Vodacom, with 
 
partner Dark Fibre Africa, is investing in a national high-speed, 
fiber-optic cable network.  Though Vodacom does not have a license 
to build a WiMax network, it is piggybacking off the license held by 
 
iBurst operator Wireless Business Solutions, in which it has a 10% 
stake (soon to be 25.1%).  Vodacom says it will switch on this 
network, consisting of 120 base stations, on April 1.  The network 
 
PRETORIA 00000474  005.2 OF 005 
 
 
will be concentrated in Gauteng, with some infrastructure in the 
Western Cape.  Vodacom has promised that its WiMax products will 
undercut the prices charged by Telkom for ADSL. 
(Financial Mail, February 29, 2008) 
 
 
END TEXT 
BOST