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UNCLAS SECTION 01 OF 04 PRETORIA 000653 
 
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TREASURY FOR TRINA RAND 
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 28, 2008 
ISSUE 
 
PRETORIA 00000653  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 8, issue 13 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- CPIX Soars 
- Employment Up 0.8% 
- Heineken to Open Brewery in SA 
- Nissan Expands Truck Production Facility 
- Concerns about Electricity-Price Increase - Government and ANC 
Disagree 
- SADC Closer to Single Tourism Visa 
- Tourist-Friendly Program Launched 
- Private Sector to Participate in Government's 
    West Coast Cable Project 
- EASSY Cable Project Begins Construction 
- Government Set to Reduce Telecom       Costs to Promote Call 
Centers 
End Summary. 
 
---------- 
CPIX Soars 
---------- 
¶2. (U) CPIX inflation (consumer price inflation excluding mortgage 
interest rates) surged from 8.6% y/y in January to 9.4% y/y in 
February, according to Statistics South Africa (StatsSA).  This 
increase represented a five-year peak.  Higher food and fuel prices 
were the main drivers of inflation.  CPIX inflation has breached its 
3%-6% target range for 11 months running and is expected to peak 
near 10% next month, as the rand's depreciation and looming hikes in 
electricity tariffs feed into prices.  The South African Reserve 
Bank (SARB) has raised interest rates by four percentage points 
since June 2006 in a bid to stem inflation, but so far the effect 
has only been seen in waning consumer demand, the main engine of 
economic growth in the past.  This is worrying analysts at a time 
when the global economy is slowing and an electricity crisis is also 
curbing growth.  SARS Governor Tito Mboweni said he would take 
"whatever action was needed to anchor inflation expectations at the 
low side" and that there was no danger of "overdosing" the economy 
with higher interest rates.  "If there is an overdose of any 
medicine, there is a danger of killing the patient.  I don't think 
we are in that situation now.  We have seen much higher interest 
rates," he said.  Prime lending rates set by commercial banks stand 
at 14.5%, their highest level in eight years, but well below a peak 
of more than 25% in 1998.  At its latest policy meeting in January, 
SARB kept interest rates steady, giving more weight to the threat to 
growth than the deteriorating inflation outlook, which stems mainly 
from rising global food and oil prices.  Some analysts believe this 
will remain the case when the SARB's monetary policy committee (MPC) 
meets on April 9-10, but local money markets are now pricing in an 
80%-90% chance of another rate hike.  "It seems clear that the MPC 
is now more concerned about inflation than growth and will pick up 
where it left off in December," said Lehman Brothers Analyst Peter 
Attard Montalto.  (Business Day, March 26, 2008) 
 
------------------ 
Employment Up 0.8% 
------------------ 
¶3. (U) The number of people employed in South Africa's 
non-agricultural sectors increased by 0.8% from the third quarter to 
the fourth quarter of 2007, according to Statistics South Africa 
(StatsSA) data.  Consumer demand helped support the retail and 
financial services sector, increasing employment in those sectors by 
2.2% and 1.2%, respectively, in the fourth quarter.  StatsSA 
reported that manufacturing sector jobs fell by 0.5% in the fourth 
Qreported that manufacturing sector jobs fell by 0.5% in the fourth 
quarter while employment in the mining industry was steady. 
Unemployment decreased from 25.5% in March 2007 to 23.0% in 
September 2007.  Analysts have said while unemployment may be 
showing a downward trend it remains high as the workforce is largely 
unskilled, a legacy of apartheid.  High unemployment and poverty 
have clouded economic gains since the end of apartheid in 1994 and 
are seen as the main reason for the high level of violent crime. 
(Business Day, March 27, 2008) 
------------------------------- 
Heineken to Open Brewery in SA 
------------------------------- 
¶4. (U) International brewer Heineken will build its new $407 million 
South African brewery in the Sedibeng area south of Johannesburg. 
Heineken Regional President for Africa and Middle East Tom de Man 
said that the location of the brewery was based on more than just 
 
PRETORIA 00000653  002.2 OF 004 
 
 
geology, geography and infrastructure.  "We are also very aware that 
southern Johannesburg is an area that will benefit enormously from 
new commercial investment, which will in turn assist and enable 
social and economic progress in the whole area," he said.  The 
company announced early in March that it would build the brewery, in 
which the British company Diageo would own a 25% stake, to brew a 
range of Heineken and Diageo brands.  The brewery will replace 
capacity Heineken lost in the South African local market when it 
terminated its contract with local brewer SAB last year.  The 
Sedibeng brewery site would have an initial capacity of 
three-million hectolitres, with the flexibility to expand.  Work was 
already under way on the site and construction is expected to be 
completed by the end of 2009.  The company anticipated that the 
brewery would initially create some 225 new, permanent jobs and a 
considerable number of new, service-related outsourcing 
opportunities.  Heineken would provide technical training for South 
African personnel in South Africa and abroad.   (Engineering News, 
March 26, 2008 and Business News, March 27, 2008) 
---------------------------------------- 
Nissan Expands Truck Production Facility 
---------------------------------------- 
¶5. (U) Local truck company Nissan Diesel South Africa (NDSA) 
officially opened its new R10.9 million ($1.3 million) production 
and warehouse facilities in South Africa.  The facility upgrades 
would enable Nissan Diesel to boost its production from the current 
4,500 units to 9,000 trucks a year.  NDSA said that it had expanded 
the physical truck assembly building and installed additional 
equipment to ease assembly processes.  "With the benefit of 
increased production capability and the launch of our new flagship 
model range this week, we are intent on strengthening our position 
even further," said NDSA Chief Executive Hiroshi Yokofujita.  NDSA 
is currently the third-largest truck-seller in South Africa. 
(Engineering News, March 25, 2008) 
------------------------------------------- 
Concerns about Electricity-Price Increase - Government and ANC 
Disagree 
------------------------------------------- 
 
¶6. (U) South Africa's cabinet said on March 20 that the response to 
state utility Eskom's request to raise electricity tariffs by as 
much as 60% "was understandable, but premature", qualifying the 
request as a proposal subject to consideration by the regulator and 
stakeholders.  The National Regulator of South Africa (NERSA) 
announced that it would take three months to respond to Eskom's 
request.  The government came out in support of Eskom's proposed 60% 
electricity price increase, saying it was needed to cover sharp 
increases in fuel costs and to implement an accelerated demand side 
management program.  The significant new build program would be 
funded by other sources.  The government said, "South Africans must 
come to terms with the reality that it would be difficult for Eskom 
to continue providing the cheapest electricity rate in the world." 
The ruling African National Congress party spoke out against the 
increase, saying that the price hike would have "adverse effects on 
Qincrease, saying that the price hike would have "adverse effects on 
the daily lives of the poor people," as well as inflationary 
effects.  Meanwhile, Eskom reported that it was still waiting for 
some mines to come forward with requested information to make the 
determination on how to allocate the extra five% of poorer 
requirements offered to deep mines.  Easter break brought some 
relief and stability to the tight South African power system, so the 
risk of load-shedding was low during the week of March 24.  (Sunday 
Times, Engineering News, March 20-23, 2008) 
 
---------------------------------- 
SADC Closer to Single Tourism Visa 
---------------------------------- 
¶7. (U) The Southern Africa Development Community (SADC) has agreed 
to speed up the process of establishing a single visa (a Univisa) 
for tourists.  The decision was taken at a ministerial conference in 
Luanda, Angola last week, and was announced by South African Deputy 
Tourism Minister Rejoice Mabudafhasi on March 25.  The conference 
also encouraged removal of obstacles to the movement of SADC 
citizens within the region through bilateral agreements, which 
include visa waivers.  The nine member states which have signed the 
protocol on the free movement of citizens are Botswana, the DRC, 
Lesotho, Mozambique, Namibia, South Africa, Swaziland, Tanzania and 
Zimbabwe.  Mabudafhasi said: "Statistics of foreign arrivals 
gathered in the past few years provide clear evidence that the SADC 
region is amongst the top preferred destinations by tourists in the 
world.  Noting this encouraging development, the Inter-Ministerial 
 
PRETORIA 00000653  003.2 OF 004 
 
 
Committee representing SADC member states is currently exploring 
further avenues such as the Univisa to optimize tourism income.  The 
Univisa is expected to operate similarly to the European Schengen 
visa system. (Business Report, March 26, 2008) 
--------------------------------- 
Tourist-Friendly Program Launched 
--------------------------------- 
¶8. (U) South African Tourism (SA Tourism) CEO Moeketsi Mosola said 
the country needs to develop a tourist-friendly mind-set to meet its 
2010 tourism targets to attract 10 million foreign tourists.  He 
warned that South Africa's competitiveness would depend on its 
ability to offer affordable air travel, increasing skills 
development in the tourism industry, tourism product development and 
tackling crime and security head on.  Mosola said that though 
tourism was "one of the biggest success stories" of the past decade, 
SA needed to "move up a gear" to meet its target by 2010.  To 
educate the nation, and young South Africans in particular, SA 
Tourism has launched a series of lectures on university campuses 
this year to raise public awareness.  The Global Competitive Program 
by Tourism SA aims to highlight areas where focused attention and 
investment will improve the visitor experience, grow the number of 
arrivals and develop the economic contribution objectives, Mosola 
said.  Between September 2006 and September 2007 more than nine 
million tourists visited SA, a 9% y/y increase and above the global 
growth average of 5.6%.  According to Mosola, the industry created 
more than one million jobs in the past 15 years but there was 
ignorance among South Africans about the economic value of tourism 
and the need to grow a tourist-friendly mind-set. 
--------------------------------------------- 
Private Sector to Participate in Government's 
West Coast Cable Project 
--------------------------------------------- 
¶9. (U) State-owned broadband infrastructure company Broadband 
Infraco has secured private sector participation for its 
fiber-optic, submarine cable project from South Africa along the 
west coast of Africa to the UK.  The companies expected to sign a 
shareholders agreement on April 15 were Telkom, Neotel, Tenet, Tata 
Communications, Multichoice, Vox Telecom, Internet Solutions, 
Gateway Communications, Equator Telecom Nigeria, and British 
Telecom.  Broadband Infraco, through the Department of Public 
Enterprises, would hold a 26% stake in the cable and its capacity, 
and the remaining 74% was earmarked for the private sector.  A 
memorandum of understanding outlining the principles of operation 
was signed at the end of February between Broadband Infraco and the 
private sector participants.  The percentage of the total capital 
input invested by a company would translate into the percentage of 
the broadband capacity that the company would get once the cable was 
operational.  It was understood that the principles agreed to allow 
each participant to determine their own market pricing of bandwidth 
on the system.  Bids from suppliers to construct the system were 
already under evaluation by the consortium members, and supply 
contracts were scheduled to be signed before end April.  The cable 
Qcontracts were scheduled to be signed before end April.  The cable 
is expected to enter service during the first half of 2010.  The 
system made provision for about 12 landing stations along the 
African West coast, which could be built at a later stage. 
(Engineering News, March 27, 2008) 
--------------------------------------- 
EASSY Cable Project Begins Construction 
--------------------------------------- 
 
¶10. (U) Construction on the fiber-optic East African Submarine Cable 
System (EASSY) project, which would connect 21 East and Southern 
African countries to each other and the rest of the world, started 
on March 27.  According to press reports, the supply contract for 
installation of the cable is now in force.    The International 
Finance Corporation (IFC), the African Development Bank, the Agence 
Frangaise de Dveloppement, KfW of Germany, and the European 
Investment Bank, were partnering to provide the project's long-term 
loan financing of $70.7 million, with $18.2 million coming from IFC. 
 The $247.1 million balance would be provided by the 25 consortium 
members.  (Engineering News, March 27, 2008) 
 
-------------------------------- 
Government Set to Reduce Telecom 
Costs to Promote  Call Centers 
-------------------------------- 
 
¶11. (U) Business Trust Chief Executive Brian Whittaker said a 
government announcement reducing telecoms costs for call centers, 
 
PRETORIA 00000653  004.2 OF 004 
 
 
necessary to ramp up foreign investment in the sector, was expected 
within a month.  Whittaker explained that global spending on call 
centers, or business processing outsourcing, was expected to 
increase by $60 billion over five years. But with local telecoms 
costs 74% higher than those in India, investment in South Africa was 
being held back.  Public Works Minister Thoko Didiza confirmed that 
the government would make the announcement.  Whittaker said: "I 
believe an announcement is imminent in lowering the cost specific to 
outsourcing operators linked to the Department of Trade and 
Industry's incentive scheme."  He hoped the cut would result in a 
lower cost than India's.  A 2 megabit line in South Africa costs R 
146,000 ($18,000) a month, while in India it costs R 84,000 
($10,300) a month.  He said there had been long discussions between 
the government and fixed-line operator Telkom.  The trade and 
industry department's incentive scheme for outsourcing firms 
includes grants for new investments and training. Business Trust 
trains unemployed people to work in the sector. Call centers are 
included as a priority in the government's Accelerated and Shared 
Growth Initiative for South Africa (ASGISA).  Business Trust hopes 
to create a total of 100,000 outsourcing-linked jobs by December 
¶2009.  (Business Report, March 26, 2008) 
 
TEITELBAUM