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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 05 PRETORIA 001003 
 
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 MAY 9, 2008 
ISSUE 
 
PRETORIA 00001003  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 19 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Manufacturing Activity Rebounds 
- Credit Data Points to a Further Rate Hike 
- Business Confidence Dips Again 
- Ford SA Secures Africa Export Contract 
- Vehicle Sales Still Sagging 
- Potential Buyers for Nationwide 
- Eskom Issues New Tender for 2,100 MW of Independent   Base-Load 
Capacity 
- Eskom Suspends New DSM Projects 
- Mining for Safety 
- SA to Benchmark ICT Costs 
- Asian Companies Eye SA Mobile Market 
- Durban Trade Port Project Launched to Boost Provincial  Economy 
- Emirates to Start Direct Service to Durban 
- Cape Town Focuses on Climate Change 
 
End Summary. 
------------------------------- 
Manufacturing Activity Rebounds 
------------------------------- 
¶2. (U) Manufacturing activity rebounded unexpectedly last month 
after plunging to a five-year low in March, easing fears of a 
recession in the economy's second-biggest sector.  The purchasing 
managers index (PMI) rebounded from 43.7 in March to 54.1 in April. 
The rebound follows three consecutive months where the index was 
below the neutral level of 50, signaling a contraction in the 
manufacturing sector during the first quarter.  However, the latest 
PMI reading suggests some manufacturing resilience to the 
generalized slowdown in economic activity. (Business Day, May 7, 
2008.) 
 
----------------------------------------- 
Credit Data Points to a Further Rate Hike 
----------------------------------------- 
¶3. (U) Statistics South Africa (StatsSA) reported that credit 
extensions to the private sector (PSCE) increased from 20.8% y/y in 
February to 22.6% y/y in March, well above Bloomberg's consensus 
expectations of a 20.5% increase.  The higher PSCE growth is a 
further disappointment following poor inflation numbers in April and 
together with a slowdown in the real economy, it is unlikely that 
the inflation-targeting Monetary Policy Committee (MPC) would leave 
rates on hold at its June 12 meeting.  Most economists now agree 
that a further 50 basis-points interest rate hike at the June 
meeting looks highly likely.  (Fin24, May 5, 2008) 
------------------------------ 
Business Confidence Dips Again 
------------------------------ 
¶4. (U) The South African Chamber of Commerce and Industry (SACCI) 
Business Confidence Index (BCI) declined slightly from 93.9 index 
points in March to 93.4 index points in April 2008.  "Although this 
is the lowest level thus far in 2008, the pace of decline in the BCI 
appears to have slowed," noted SACCI.  The BCI has dropped by 8.5 
index points, or 8.3%, since April 2007 and the average for the 
SACCI BCI in the first four months of 2008 is 93.8 index points 
compared with the average of 100.9 index points in the first four 
months of 2007.  "Strong relative price adjustments on a global 
scale on basic items such as food and crude oil further complicate 
decision-making by business and exert increasing pressures," 
concluded SACCI.  (I-Net Bridge, May 7, 2008) 
-------------------------------------- 
Ford SA Secures Africa Export Contract 
-------------------------------------- 
Q-------------------------------------- 
¶5. (U) Ford Motor Company of Southern Africa (FMCSA) has secured an 
export contract to supply the Ford Ranger pickup to African markets 
outside South Africa.  FMCSA, which already produces the Ford Ranger 
at its Pretoria plant, began exporting right-hand-drive Rangers to 
sub-Saharan markets in April. This will be followed by 
left-hand-drive units in July.  FMCSA expects to produce around 
10,000 Rangers for export during the remainder of 2008.  This will 
increase to 24,000 Rangers for export in 2009, and approximately 
40,000 by 2010, raising FMCSA's total export volume to 60,000 units 
per year.  Producing at this level should enable FMCSA to qualify 
for the benefits due to flow from a revised Motor Industry Support 
Program (MIDP).  This SAG program is currently the subject of a 
review, with the final details to be announced in August 2008.  The 
 
PRETORIA 00001003  002.2 OF 005 
 
 
Department of Trade and Industry (DTI) has indicated that it is set 
to introduce significant change to its automotive policy from 2012, 
with the emphasis to shift from export incentives to 
volume-production support.  In a document published in December 
2007, the DTI noted that SAG "intends to support production 
platforms/investment plans that intend to reach a minimum volume of 
output per platform of 50,000 units per year within a reasonable 
period of time".  FMCSA President and CEO Hal Feder said the move 
"further highlights Ford's ongoing commitment to expanding its 
operations and export component in South Africa."  (Engineering 
News, May 6, 2008) 
--------------------------- 
Vehicle Sales Still Sagging 
--------------------------- 
 
¶6. (U) The National Association of Automobile Manufactures of South 
Africa (NAAMSA) reported that new vehicle sales fell by 2.8% y/y, or 
1,204 units, to 43,536 units in April 2008, an improvement on the 
previous month's fall of 17.6%.  However, analysts said the trend 
was still a sign of a sagging market.  "Domestic new car and light 
commercial vehicle sales had reflected further weakness during 
April, 2008, while aggregate industry sales had received support 
from above-average sales of medium and heavy commercial vehicles," 
NAAMSA said.  Demand in the new car market had weakened 
substantially in recent months as a result of the cumulative effect 
of interest rate increases, pressure on disposable income due to 
rising energy and food costs, and negative consumer sentiment and 
business confidence.  Supported by strong investment sentiment and 
infrastructural spending, sales of vehicles in the medium and heavy 
truck segments of the industry maintained their upward momentum with 
increased sales of 17.9% y/y in the case of medium commercials, and 
34.8% y/y in the case of heavy trucks and buses in April 2008. 
NAAMSA said the new domestic car and light commercial vehicle 
sectors were expected to remain under pressure as a result of tight 
monetary conditions, rising inflationary pressures, high levels of 
household debt and a further modest slowdown in economic activity, 
while the medium and heavy truck segments should continue to perform 
relatively well, registering positive growth during 2008.  (I-Net 
Bridge, May 7, 2008) 
 
 
------------------------------- 
Potential Buyers for Nationwide 
------------------------------- 
¶7. (U) Nationwide's Provisional Liquidator Hannes Muller met with 
two potential buyers on May 6, but received no firm offers.  More 
than 30 buyers had shown an interest since the airline stopped 
flying in April.  Muller said the two potential buyers were local 
companies with foreign interests and neither was an existing 
airline.  If Muller can not find a buyer within a week there will be 
little of Nationwide to sell, with staff leaving in droves.  Both 
Comair and 1Time confirmed yesterday that they were likely to employ 
some Nationwide staff.  Muller said that potential buyers would have 
to reach some agreement with creditors, as the airline's liabilities 
would make it virtually impossible to revive.  According to 
Nationwide's documents, total liabilities are R218 million ($29 
QNationwide's documents, total liabilities are R218 million ($29 
million), including R71 million ($9.3 million) in outstanding 
tickets.  Any potential buyer would have to acquire new aircraft as 
Nationwide's fleet of 10 fuel-heavy Boeing 737-200s and three Boeing 
727-200s are no longer viable.  "With fuel prices at record highs, 
it will be difficult for any investor to make a return using the 
existing fleet," Muller says.  Nationwide's leased Boeing 767-300, 
used on the London route, has been returned to its owner in Ireland. 
 (Business Day, May 7, 2008) 
--------------------------------------- 
Eskom Issues New Tender for 2,100 MW of    Independent Base-Load 
Capacity 
--------------------------------------- 
¶8. (U) State power company Eskom released its long-awaited 
expression of interest for new base-load independent power producers 
(IPPs) to fill an anticipated gap of some 2,100 MW ahead of the 
possible deployment of large-scale nuclear capacity.  In an 
advertisement in Business Day, Eskom invited interested parties to 
bid to supply "new, multiple-site, base-load IPPs" with a minimum 
capacity of 400 MW and indicated that requests for proposals to 
pre-qualified bidders could be issued in July.  Eskom anticipates a 
supply gap of 4,000 MW while waiting for new coal-fired plants to 
come on line between 2012 and 2017 (new nuclear capacity is expected 
to come on stream in later years).  It is widely expected that half 
 
PRETORIA 00001003  003.2 OF 005 
 
 
of the supply shortfall could be filled by the much-anticipated 
Mmamabula power project, which is being advanced by Toronto-listed 
CICF Energy in Botswana.  Eskom's tender states that the offer is in 
line with South Africa's stated policy of having 30 percent of its 
new generation capacity provided by IPPs and Eskom would extend a 
40-year purchase agreement to winning bidders as single buyer.  The 
base-load tender is over and above the earlier tender for 
co-generation and IPP options up to 3,000 MW for the medium term, as 
well as the pilot national cogeneration program tender, which closes 
on May 31.  According to Engineering News, Eskom has not received a 
single firm cogeneration offer, despite earlier suggestions that 
potential for as much as 5,000 MW existed.  (Engineering News, April 
30, 2008) 
------------------------------- 
Eskom Suspends New DSM Projects 
------------------------------- 
¶9. (U) Eskom Demand-side-management (DSM) Manager Monkwe Mpye said 
Eskom has suspended new DSM projects because of "cash flow issues" 
stemming from soaring coal and diesel prices, but it is confident 
that it would begin signing new projects starting in June.  Eskom's 
DSM programs include offering incentives to replace older, less 
efficient equipment with high-efficiency units, including light 
bulbs, solar water heaters, pumps, motors, and compressors.  Under 
its DSM program, Eskom was hoping to trim 3,000 MW of South Africa's 
consumption by 2012 and 8,000 MW by 2025.  Eskom is depending on 
future funding from its application for a tariff increase under 
review by the national regulator and an $8.5 billion shareholder 
injection from the SA government.  Eskom expects to receive a term 
sheet from Treasury over the next few weeks regarding the loan, as 
well as an outline of various scenarios for the actual transfer of 
funds.  Eskom will also need significant funds for its ambitious 
capital expansion program.  (Engineering News, May 5, 2008) 
----------------- 
Mining for Safety 
----------------- 
 
¶10. (U) The deaths of nine workers at Gold Fields' South Deep mine 
on May 1 Workers Day brought the issue of mine safety to the fore 
yet again.  Last year ended with mineworkers' trade unions going on 
a national strike over safety.  The strike came after some 
high-profile accidents that saw the number of fatalities reach 220 
for the year, up from 201 in the previous year.  Anglo's Cynthia 
Carroll and Minister of Minerals and Energy Buyelwa Sonjica have 
made a big issue of mine safety.  Official statistics indicated that 
some progress had been made this year: in the 12 months to February, 
the fatality rate fell to 0.19 per million hours worked, from 0.20 
in the previous 12 months - and to 0.41 per 1000 persons at work, 
from 0.44.  The May 1 accident - which brought Gold Fields' deaths 
to 14 during one week - has generated particularly strong protests, 
because it was due to a snapped lift cable, rather than a rock fall 
or random event.  A Business Day editorial called for caution to 
wait for the results of the investigation, as well as the results of 
the safety audit ordered by President Mbeki, before making too many 
angry accusations.  Effective mine safety requires strong 
Qangry accusations.  Effective mine safety requires strong 
partnerships between the mining companies, trade unions, and the 
government.   That is especially so as South African gold mining is 
going ever deeper and becoming ever more risky because of the age 
and nature of the ore bodies.  South Deep itself is a new mine that 
is still in development and has a rather fraught history.  (Business 
Day, May 8, 2008) 
 
------------------------- 
SA to Benchmark ICT Costs 
------------------------- 
 
¶11. (U) Minister of Public Enterprises Alec Erwin announced that a 
comparative study into the respective costs, availability, access 
and usage of telecommunications infrastructure and services between 
South Africa and five other emerging markets is under way and would 
be completed by June 2008.  The countries selected for the 
benchmarking exercise included South Korea, Malaysia, India, Brazil 
and Chile, and the process to collate the data was "in motion", said 
Erwin in a prepared statement.  The study came amidst rising anxiety 
about the cost of telecoms in South Africa, and against an 
aspiration by SAG to materially enlarge the size of the business 
process-outsourcing sector.  President Thabo Mbeki had raised the 
issue on several occasions and South Africa's competition 
authorities were also keen to probe allegations of excessive pricing 
by state-owned Telkom, which previously had a fixed-line monopoly. 
 
PRETORIA 00001003  004.2 OF 005 
 
 
However, Telkom had mounted a court action challenging the SA 
Competition Commission's jurisdiction over the industry, given that 
it had its own economic regulator in the form of the Independent 
Communications Authority of South Africa.  (Engineering News, May 8, 
2008) 
 
------------------------------------ 
Asian Companies Eye SA Mobile Market 
------------------------------------ 
 
¶12. (U) Speculation that mobile-operator MTN was in talks with 
Bharti Airtel of India was confirmed in the press.  MTN issued a 
cautionary statement emphasizing that "talks were exploratory in 
nature and may or may not lead to any transaction".  Bharti Airtel's 
Chairman Sunil Bharti Mittal told the press that he had "been 
approached by bankers in the last few months in a much more frenzied 
manner", but had not formally discussed any bid for MTN with his own 
board."  The Financial Times reported that Bharti Airtel would "move 
pretty quickly" if MTN's board put it up for sale.  Bloomberg quoted 
analysts as saying MTN had been on most firms' shopping list for the 
past two years, and whoever bought the company was expected to pay a 
huge premium per share.  MTN had aggressively built its assets in 
the past six years by acquiring and winning licenses in 
poorly-penetrated countries on the African continent.  MTN's 
acquisition of Investcom two years ago gave it access to 10 
additional countries including Afghanistan, Yemen and Ghana.  MTN 
now has more than 21 operations in Africa and the Middle East.  Its 
other operations are in countries including Nigeria, Iran, 
Swaziland, Syria, Sudan and Botswana.  If Bharti's bid went through, 
analysts said it would expose MTN to a culture of low-cost 
operations, as Bharti had expertise in running networks at minimal 
costs.  China Mobile Ltd, the world's biggest mobile carrier, said 
it is also interested in the South Africa market but has not bid for 
MTN.  "China Mobile has not joined the MTN bidding, but we are 
interested in the South African market and we are looking at various 
opportunities for entering that market," CEO Wang Jianzhou told 
reporters.  China Mobile dominates its domestic market with roughly 
400 million subscribers, more than three times the combined customer 
base of Bharti and MTN, but has a mixed track record of 
acquisitions.  An analyst with Daiwa Institute of Research said that 
if China Mobile were to bid for MTN, it would likely do so at the 
parent company level - an approach often taken by Chinese 
State-controlled companies when making acquisitions. (Business 
Report, May 5, 2008 and Engineering News, May 8, 2008) 
 
------------------------------------------- 
Durban Trade Port Project Launched to Boost    Provincial Economy 
------------------------------------------- 
 
¶13. (U) The SAG launched the Dube Trade Port project as a catalyst 
for economic growth and the creation of sustainable employment 
opportunities in Kwazulu-Natal (KZN) Province.  The project, located 
about 40 kilometers north of downtown Durban, will include a trade 
zone and the new King Shaka international passenger and cargo 
airport facility.  More than R1.6 billion ($211 million) has been 
spent on the design of the R6.8 billion ($907 million) Dube Trade 
Qspent on the design of the R6.8 billion ($907 million) Dube Trade 
Port project.  The King Shaka International Airport is expected to 
handle new-generation, long-haul freight and commercial aircraft. 
Consulate General Durban staff recently visited the airport and 
observed that major construction is underway at the passenger and 
cargo terminals, the control tower, access roads, and runways. 
Project management admitted that the project is two months behind 
schedule, but predicted complete construction by March 2010 in 
advance of the FIFA 2010 World Cup.  KZN Provincial Minister of 
Finance and Economic Development Zweli Mkhize said an "aggressive" 
marketing strategy was under way to attract additional airline 
services to the new King Shaka International Airport.  Mkhize said 
2010 had provided the platform for growth and development.  He added 
that government investment in the Dube Trade Port project and the 
local soccer stadium also signaled an improvement in investor 
confidence in the KZN province.  The project has received 
significant interest from a United Arab Emirates-based entity. 
(Independent News & Media IOL Online, April 23, 2008) 
 
------------------------------------------ 
Emirates to Start Direct Service to Durban 
------------------------------------------ 
 
¶14. (U) Emirates Airlines announced that it will increase its 
 
PRETORIA 00001003  005.2 OF 005 
 
 
presence in South Africa with the introduction of daily flights to 
Durban starting December 2008.  The direct link is expected to 
provide a boost for tourism and the KZN provincial economy.  The new 
service - Emirates' third direct connection between Dubai and South 
Africa - comes close on the heels of the launch of its third-daily 
service to Johannesburg in 2007 and daily service to Cape Town in 
¶2008.  An Emirates press-release noted that Durban's location on the 
east coast of South Africa made it a natural hub for trade with the 
Indian Ocean and Asia Pacific countries, boosting its status as 
Africa's largest port and the world's ninth busiest.  Durban will 
play a catalytic role in strengthening trade movement between the 
United Arab Emirates and South Africa.  Emirates Airlines President 
Tim Clark said, "Africa is key to Emirates' global network expansion 
strategy.  We currently operate 86 flights per week to 15 African 
gateways and, owing to the continent's growing economy and 
escalating demand for air travel, these flights operate at robust 
seat factors of over 80%."  Emirates will serve Durban with an 
Airbus A330-200 aircraft.  The wide-bodied aircraft also offers 
about 14 tons of belly-hold cargo capacity that will facilitate 
efficient and timely imports of chemicals, petroleum products, and 
foodstuff from Germany, United Kingdom, China and the United States. 
 Dube Tradeport Chief Executive Rohan Persad added that Emirates 
vote of confidence in Durban could also lead European and Indian 
airlines to begin direct service to Durban.  (The Mercury, May 6, 
2008, Emirates Press Release, May 5, 2008) 
 
----------------------------------- 
Cape Town Focuses on Climate Change 
----------------------------------- 
 
¶15. (U) The Western Cape provincial government installed 60 
Eskom-accredited solar water geysers in households to combat climate 
change and promote sustainable energy use.  The project could save 
up to 500 MW in electricity, which would ease pressure on the 
national electricity supply.  The project represents the first phase 
of a bigger proposed project through which the Western Cape 
provincial government would install 1,000 solar-powered geysers in 
local communities.  Provincial Premier Ebrahim Rasool said the 
project was being implemented among Western Cape's poor communities, 
because climate change is a poverty issue, which would affect the 
poor the most.  According to Rasool, the project is also a means of 
bringing renewable energy to the poor.  (Engineering News, May 2-8, 
2008) 
 
 
BALL