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RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 05 PRETORIA 001111 
 
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USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
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USTR FOR COLEMAN 
 
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MAY 23, 2008 
ISSUE 
 
PRETORIA 00001111  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 21 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Finance Minister Defends Inflation Targeting 
- JSE Rebounds 
- Crime Leading Factor in Emigration 
- Imported Skills 'Add 15% to SA Project Costs' 
- SA Household Debt Exceeds R1 trillion 
- AGOA Drives Vehicle Exports to the U.S. 
- Commuter Rail Investments on the Rise 
- DOT Proposes Aviation Accident Investigation Agency 
- Regulator Recommends that an Independent Entity Manage  Private 
Power Procurement 
- DME Considers Restricting Coal Exports 
- Neotel Launches Competitive Packages 
- Premier Outlines KwaZulu-Natal Economic Development Plan 
- Tourism Suffers from Outbreak of Violence 
- PSSA Reviews Medical Waste Disposal 
End Summary. 
-------------------------------------------- 
Finance Minister Defends Inflation Targeting 
-------------------------------------------- 
¶2. (U) Finance Minister Trevor Manuel once again joined the Reserve 
Bank Governor in defense of inflation targeting in his address to 
the Parliament Finance Committee. Manuel defended inflation 
targeting as an economic management tool and hinted that the 
government was still comfortable with a 3-6% target range for the 
main CPIX gauge.  Manuel said "that given the peculiarities of SA, a 
country with low savings, low reserve as a measure, inflation 
targeting is without its equal."  A shift from current economic 
policy is doubtful until the change in government next year.  (ABSA 
Morning Brief, May 21, 2008.) 
 
------------ 
JSE Rebounds 
------------ 
¶3. (U) The Johannesburg Stock Exchange (JSE) leapt to a new record 
on May 19, buoyed by a surge in global appetite for emerging 
markets, along with rallying metals prices.  The all-share index 
rose 1.5% to a record of 33,191, in step with the strongest recovery 
in global equities in four years.  "Global markets changed their 
minds about risk a week ago.  Emerging markets and high yields are 
now the flavor of the day," said Citigroup senior dealer Julian 
Wilson.  "Foreigners are picking up a basket of emerging markets and 
the rand is on their list."  (Business Day, May 20, 2008). 
---------------------------------- 
Crime Leading Factor in Emigration 
---------------------------------- 
¶4. (U) Crime was the most frequently cited reason for professionals 
to leave, according to a survey released by Grant Thornton.  More 
than 80% of those surveyed cited the high crime rate as a 
consideration for leaving SA permanently.  No other factor received 
as many mentions.  The survey was conducted among 300 privately held 
businesses with 100 to 400 employees.  Other factors prompting 
emigration included uncertainty about the future leadership of SA 
(15%), better business opportunities elsewhere (14%), race 
discrimination (13%), education (10%), and health care (10%).  In 
2008, 72% of the business executives reported that employees or 
their relatives had been affected by violent crime, down from 84% in 
the 2007 survey.  (Business Day, May 14, 2008) 
--------------------------------------------- 
Imported Skills 'Add 15% to SA Project Costs' 
--------------------------------------------- 
Q-------------------------------------------- - 
¶5. (U) Council for the Built Environment CEO Bheki Zulu told a built 
environment symposium that the recruitment of foreign engineers to 
implement infrastructure projects is adding as much as 15% to the 
cost of projects as the global scramble for these skills has seen 
demand far outstrip supply.  "This shortage could certainly slow the 
roll-out of projects, and is also increasing the cost of that 
roll-out as many of these skills have to be imported", Zulu said. 
Zulu said that according to a recent skills audit conducted by the 
council, there were not enough skills entering the system while a 
lot of skills were being lost.  Murray & Roberts CEO Brian Bruce 
said because many of these skills have to be brought from outside 
and because there is high demand for them globally, they come here 
at a premium.  Bruce said experienced people from other countries 
are also unwilling to come to South Africa because of the negativity 
the country has been getting, especially as a result of crime and 
 
PRETORIA 00001111  002.2 OF 005 
 
 
the recent xenophobic attacks.  (Business Day, May 16, 2008) 
------------------------------------- 
SA Household Debt Exceeds R1 trillion 
------------------------------------- 
 
¶6. (U) The National Credit Regulator (NCR) reported that credit 
extension to households increased from R289.8 billion ($38.6 
billion) in 2002 to R1.1 trillion ($147.7 billion) this year (do you 
mean in 2007 or in May 2008?).  Mortgages accounted for more than 
50% of the debt.  Other credit classes, including overdrafts, 
leases, installment sales and credit cards made up the balance. 
SA's credit market is estimated at about R2 trillion ($266.7 
billion).  NCR CEO Gabriel Davel said 300,000 "over-indebted 
households" were saddled with a R30 billion ($4 billion) debt 
burden, while 1 million "debt-stressed" South Africans owed more 
than R50 billion ($6.7 billion).  Amounts in arrears continued to 
swell as interest rates rose.  The NCR has registered 360 
debt-counselors to help over-indebted South Africans reschedule 
their debts.  To date, NCR had received 12,000 applications for debt 
counseling involving about R2.5 billion ($0.3 billion).  (Business 
Day, May 22, 2008) 
 
-------------------------------------- 
AGOA Drives Vehicle Exports to the U.S. 
--------------------------------------- 
¶7. (U) International car manufacturers that base operations in SA 
are benefiting from the U.S. African Growth and Opportunity Act 
(AGOA), which allows certain categories of exports to enter the U.S. 
duty-free.  Motor vehicle exports from SA to the U.S. surged 226% in 
the first three months of 2008.  Figures show that the U.S. imported 
$375 million worth of motor vehicles from South Africa between 
January and March, compared with $115 million in 2007.  National 
Association of Automobile Manufacturers of South Africa Executive 
Director Nico Vermeulen said BMW SA is a top exporter, including to 
the U.S.  The company has introduced a new C-class model, after 
phasing out its old C-class model last year.  The local operation 
has ramped up production, exporting 8,000 vehicles worldwide in the 
first four months (a fivefold increase over 2007).  The cars are 
allowed into the U.S. duty-free under AGOA.  Motor vehicles, along 
with other automotive manufactures, have made transport equipment 
the second-largest category of local exports to the U.S., after 
metals and minerals.  In the first three months of 2008, transport 
exports were worth $423.9 million, up from $169 million last year. 
This is still a big dip from $664.9 million in 2006.  Vermeulen 
suggested that the decrease came after the closure of BMW's old 
C-class model and ahead of the introduction of its new model.  The 
balance of trade in this category lies with the U.S., which exported 
$544 million worth of transport equipment to SA, compared with 
$344.4 million a year earlier.  (Business Report, May 20, 2008) 
------------------------------------- 
Commuter Rail Investments on the Rise 
------------------------------------- 
¶8. (U) The South African Rail Commuter Corporation (SARRC) is 
investing about R18 billion ($2.4 billion) in upgrading its rail 
infrastructure, according to CEO Lucky Montana.  "Our intervention 
Qinvolves a stabilizing phase and, by 2010, we want to restore rail 
services to their 1992 status and, thereafter, we will build new 
lines and expand our capacity."  SARRC is "currently upgrading 200 
coaches and has set aside about R7 billion ($933 million) to 
intensify maintenance of the 40-year-old fleet to increase its 
ability to meet safety requirements," he said at the Eastern Cape 
Rail Conference.  Montana noted that the company had increased its 
passenger volume by 12%, but stated that the cost of R50 million 
($6.7 million) per kilometer in rail repairs was proving to be a 
critical constraint.  He pointed out that the current transport 
system was a product of apartheid when issues of comfort and safety 
were overlooked.  Montana said "over 70% of South Africa's 
households do not have access to a car and we need to find a 
solution that is accessible."  (Engineering News, May 16, 2008) 
--------------------------------------------- ------ 
DOT Proposes Aviation Accident Investigation Agency 
--------------------------------------------- ------ 
¶9. (U) The SA Department of Transport (DOT) released a proposal to 
create an independent Aviation Accident Investigation Agency.  The 
establishment of the state-funded agency, which would act 
independently from the SA Civil Aviation Authority, is mooted in the 
DOT's 2008 Civil Aviation Bill.  The bill is currently out for 
industry comment, after which it will be passed to parliament for 
enactment.  Under current regulation, the Minister of Transport 
 
PRETORIA 00001111  003.2 OF 005 
 
 
appoints an ad hoc Accident Inquiry Board to investigate accidents. 
According to the proposed legislation, the new agency would be 
composed of a full-time chairman and two part-time members.  They 
would be appointed for a renewable term of three-years by the 
Minister of Transport following public nominations.  The functions 
of the agency would be to investigate aircraft accidents and 
incidents; make safety recommendations; submit a final report on its 
findings to the minister and all stakeholders within three months of 
the completion of an investigation; and to implement safety 
recommendations.  It would have the power to institute or defend 
legal actions; reopen investigations; establish an aircraft accident 
and incident reporting system to detect safety deficiencies; and 
conduct investigations on behalf of other states.  (Travel News 
Weekly, May 14, 2008) 
--------------------------------------------- --------- 
Regulator Recommends that an Independent Entity Manage  Private 
Power Procurement 
--------------------------------------------- --------- 
 
¶10. (U) The National Energy Regulator of South Africa (NERSA) 
released a report asserting that state-owned Eskom should not manage 
and coordinate the procurement of private power generation.  Instead 
it recommended that a "centralized high-level government unit" 
should coordinate the national electricity emergency program, 
including the power conservation program.  According to NERSA, "this 
unit should have "authority to take action".  Meanwhile, the 
regulator also said in its report that the SAG needed to develop a 
national strategy for the acquisition and management of coal to 
ensure supply security.  This came after Eskom found itself in 
serious trouble in January, when it declared a "force majeure" with 
its biggest industrial customers, leading to most of the country's 
underground mines closing for five days.  Eskom blamed much of the 
problem on poor coal supplies, and the heavy rains that had created 
wet coal, which did not burn well.  "National government should 
consider formulating a policy that will balance Eskom's commercial 
decisions and the national security of electricity supply in order 
to avoid national crises," stated NERSA.  "The role of Eskom in 
government's national electricity emergency program should be 
clarified considering that Eskom has to focus on, among others, 
returning the system to normality."  NERSA said it believed that the 
implementation of these recommendations would contribute towards 
mitigating the electricity supply shortage, as well as reduce the 
adverse impact thereof.  (Engineering News, May 19, 2008) 
 
-------------------------------------- 
DME Considers Restricting Coal Exports 
-------------------------------------- 
 
¶11. (U) The Department of Minerals and Energy (DME) spokeperson 
Bheki Khumalo revealed that Minister Buyelwa Sonjica had 
commissioned a study into the management of local "strategic coal 
resources".  "There is a serious need to take a look at the 
country's coal policy," Khumalo said, speaking in the light of a new 
National Energy Regulator of SA (NERSA) report, which highlighted 
Eskom's problems.  One option might be to restrict coal exports 
QEskom's problems.  One option might be to restrict coal exports 
mainly through Richards Bay, Khumalo added.  NERSA Head of 
Electricity Regulation Thembani Bukula said the regulator wanted 
low-grade coal exports, which were mainly for export to India, to be 
limited.  A Wood Mackenzie analyst said it would not make any 
difference to Eskom's coal supply position if exports of coal were 
diverted to the utility.  "Stopping coal exports would create havoc 
in the local coal market, especially among empowerment companies 
that have just entered the export market."  Analysts add that 
diverting coal from exports would be illegal.  An industry source, 
who wished to remain anonymous, said the SAG could face legal action 
from the coal mining industry or its export customers if it 
unilaterally diverted exports.  Eskom has missed its own target for 
increasing coal stocks to a minimum of 20 days of supply by the end 
of April, raising the risk of power cuts during winter.  Bloomberg 
reported that Eskom's coal stocks were at 16.2 days last week after 
dropping below 10 days in January.  Anglo spokesperson Pranill 
Ramchander did not expect the government investigation to have any 
effect on the group's coal exports.  "We have export contracts in 
place that are binding." he said.  (Business Day, May 14, 2008.) 
 
------------------------------------ 
Neotel Launches Competitive Packages 
------------------------------------ 
 
 
PRETORIA 00001111  004.2 OF 005 
 
 
¶12. (U) Emerging telecoms provider Neotel unveiled its long-awaited 
consumer offering.  CEO Ajay Pandey revealed that the company hoped 
to connect between 50,000 and 60,000 customers over the next nine 
months.  Neotel hoped to accelerate its network expansion beyond the 
current geographic coverage area, which was restricted to parts of 
Johannesburg and Pretoria.  Five "converged" packages, branded 
NeoConnect, combine voice and data services, and range in price from 
R299 ($40) a month for the "entry level" product, through to R999 
($133) a month for a high-end solution.  The top-end product 
incorporates 2,000 free network minutes (Neotel-to-Neotel calls), 
120 free local and regional calls to Telkom customers, as well as 
text messaging, high-speed Internet and e-mail.  Industry analysts 
asserted that the Neotel voice and internet offerings could place 
downward pressure on telecommunication rates.  Frost & Sullivan 
Telecoms Analyst Lindsey McDonald said she was impressed at how well 
the offering had been "bundled".  "Despite the costs still being 
fairly prohibitive in terms of universal access, I still think the 
way the offering has been structured is going to place serious 
pressure on Telkom for the first time," McDonlad added.  She 
attributed this to the market research undertaken ahead of the 
launch.  Pandey insisted that extending coverage was a major 
priority and that it would soon have a presence in Cape Town, 
Durban, and Soweto.  Bloemfontein, East London, Kimberley, and Port 
Elizabeth were likely to follow.  Neotel would also be able to offer 
increasingly competitively priced international services once new 
capacity is obtained from the SEACOM and SAT-3 projects underway, 
which will increase African IT links to Europe.  Neotel planned to 
spend some R11 billion ($1.5 billion) to upgrade its network 
incrementally over the next decade.  (Engineering News, May 22, 
2008) 
 
--------------------------------------- 
Premier Outlines KwaZulu-Natal Economic 
Development Plan 
--------------------------------------- 
 
¶13. (U) KwaZulu-Natal (KZN) Premier Sibusiso Ndebele stated that the 
province's economic development strategy aimed to transform the 
structure of the provincial economy, to increase investment, to 
build skills and capacity, to broaden participation in the economy, 
and increase competitiveness.  The gross domestic product of the 
KwaZulu-Natal region is now the second-largest in the country, after 
Gauteng.  Ndebele added that the economic development program was 
vital to a society that was undergoing rapid change and having to 
adjust to new challenges.  "The government needs to create 
conditions for interdependence and interconnectedness," he stated. 
Ndebele said that in order to increase the collective impact and 
synergy of government interventions in pursuit of the reduction of 
poverty, it was critical to improve the spatial alignment and 
integration of resource allocation.  For example, the provincial 
spatial economic development strategy (PSEDS) database provided a 
mechanism to capture and reflect all capital projects spatially over 
the medium-term expenditure framework period, while the provincial 
nerve centre was being used to obtain a single view of the province. 
Qnerve centre was being used to obtain a single view of the province. 
 "The PSEDS database and the provincial nerve centre are being used 
as up-to-date technology systems to assist the provincial government 
in developmental decisions," Ndebele stated.  A KZN growth fund 
provided medium to long-term funding for sustainable infrastructure 
and related projects within the province.  He noted that the fund's 
investment committee had approved projects with an estimated value 
of R414 million ($55 million) spread across sectors such as 
manufacturing, transportation and logistics, and agricultural 
processing.  Ndebele said  the investment was set to yield an 
estimated 863 new jobs.  About 40% of these projects were in 
outlying areas within the province and, through 12 approved 
projects, the fund had been able to promote significant black 
economic participation as a strategic imperative.  On the issue of 
local economic development, Ndebele said that just over R95 million 
($13 million) in grants had been committed to 182 projects across 
the province.  In the past eight months, 14 projects had been 
completed.  A further 23 projects, valued at R70 million ($9.3 
million), are in the pipeline for European Union funding approval. 
(Engineering News, May 16, 2008) 
 
----------------------------------------- 
Tourism Suffers from Outbreak of Violence 
----------------------------------------- 
 
¶14. (U) The outbreak of xenophobic violence in Gauteng is sowing 
 
PRETORIA 00001111  005.2 OF 005 
 
 
panic in the tourism industry - and is being blamed for a large 
number of delegates from other African countries pulling out of a 
top business conference in Cape Town at the last minute.  The German 
Foreign Ministry has issued a warning to visitors to avoid central 
Johannesburg and the outlying townships.  It advised against all 
trips to these areas, whether by tour groups or individuals.  These 
are just some of the immediate knock-on effects of the week of 
violence that has left 42 people dead, scores injured and thousands 
of people displaced.  In Cape Town, the conference of the Leading 
Women of Africa Forum got under way this week with only 160 of the 
250 invited delegates.  According to organizer Madelein Mkunu, the 
event "lost delegates from countries such as Nigeria, Guinea, 
Cameroon and Burkina Faso.  "They had confirmed they would come to 
this wonderful business opportunity forum, only to send me e-mails 
saying that due to xenophobic attacks 'we cannot come'."  The 
Tourism Business Council of SA CEO Mmatsatsi Marobe said the image 
of the country reflected in the media was having a "detrimental 
effect" on the tourism industry.  "Certain sections of the travel 
and tourism sector are already fielding panic calls from partners in 
SA's major tourist source markets - something that could reverse the 
major gains made at the travel and tourism indaba held in Durban 
recently," Marobe said.  (Engineering News, May 16, 2008 and 
Business Day, May 16, 2008) 
 
 
BOST