VZCZCXRO8007
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #1893/01 2381445
ZNR UUUUU ZZH
R 251445Z AUG 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5508
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJO/AMCONSUL JOHANNESBURG 8311
RUEHTN/AMCONSUL CAPE TOWN 5950
RUEHDU/AMCONSUL DURBAN 0105

UNCLAS SECTION 01 OF 04 PRETORIA 001893 
 
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 AUGUST 22, 
2008 ISSUE 
 
PRETORIA 00001893  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 8, issue 34 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Mining and Manufacturing Boost GDP Growth 
- Slowdown Weighs on Construction Sector 
- ABSA to Lend for Old Township House Upgrades 
- Taxi Industry Draws Battle Lines Against Proposed    Bus Rapid 
Transit Systems 
- Eskom to Increase Its Base-load Capacity Through Independent Power 
Producers 
- Power Cuts Threaten Aluminum Smelters 
- Broaddand Infraco Expected to Receive License, but It's West Coast 
Cable Project Not Likely to be Ready for World Cup. 
- Ambient Air Quality Monitors for Hot Spots 
End Summary. 
 
----------------------------------------- 
Mining and Manufacturing Boost GDP Growth 
----------------------------------------- 
 
¶2. (U) South Africa's GDP rebounded markedly to 4.9% q/q (4.5% y/y) 
in the second quarter of 2008 from 2.1% q/q (4.0% y/y) in the first 
quarter of 2008. The recovery was largely the result of a rebound in 
the mining and manufacturing sectors after a slump in the first 
quarter caused mainly by electricity supply disruptions, which saw 
mining production at some large mines shut down for several days and 
power supplies to large industrial users being curtailed. Growth in 
the mining sector jumped 15.6% q/q in the second quarter after 
dipping 22.1%, while the manufacturing sector grew 14.5% q/q (4.9% 
y/y) from -1% q/q in the first quarter (1.1% y/y). As expected, 
activity in the consumer-sensitive sectors was weighed down by high 
interest rates, the impact of the National Credit Act (NCA), and 
plummeting consumer confidence. For instance, the wholesale, retail 
trade and hotels sector contracted 2.2% q/q after rising 3.6% in the 
first quarter. Although the q/q data are subject to large base 
effects, the y/y data, thanks to a surge in manufacturing, does 
suggest a somewhat resilient economy, which should dispel 
recessionary fears. Nonetheless, the production-side data suggest 
that tighter monetary policy has had an impact on consumption 
spending. Most economists believe that the latest GDP data provide 
little reason for the SARB to change course on monetary policy, and 
that a combination of a more favorable inflation outlook and a 
moderation in economic activity will see the SARB on hold for the 
rest of the year, with the potential for interest rates to start 
falling in the second quarter of 2009.  (ABSA-Newsletter, August 20, 
2008) 
 
------------------------------------- 
Slowdown Weighs on Construction Sector 
------------------------------------- 
 
¶3. (U) According to Statistics South Africa (StatsSA), private 
sector building plans passed by municipalities decreased by 18.3% in 
the second quarter of 2008, indicating that investment in 
residential properties remained under severe strain, while strength 
in the commercial sector may have also begun to wane.  This follows 
news of a slowdown in South Africa's booming construction sector 
over the same period, as rising debt costs and a slowdown in 
domestic demand takes the edge off double-digit growth seen since 
the start of 2004.  ABSA Bank Property Analyst Jacques du Toit said 
the residential building statistics not only confirm the current 
Qthe residential building statistics not only confirm the current 
slowdown in the housing market, but also indicates that conditions 
in this segment of the property market will remain subdued for the 
rest of the year and into 2009.  Building plan statistics are seen 
as an important leading indicator for the property market, which has 
been knocked by the cumulative five-percentage-point increase in 
lending rates seen since mid-2006.  (Business Day & Beeld, August 
21, 2008) 
 
--------------------------------------------- -------- 
ABSA to Lend for Old Township House Upgrades JSE Down 
--------------------------------------------- -------- 
 
¶4. (U) ABSA bank, South Africa's largest home loan lender, launched 
a program to finance extensions and upgrades to old township houses. 
 Managing Executive for ABSA Home Loans Luthando Vutula said the 
program is aimed at helping people create personal wealth.  Township 
houses could only be rented prior to 1994.  After 1994, the new 
 
PRETORIA 00001893  002.2 OF 004 
 
 
government launched a campaign to give titles to the occupants. 
"What is important is that we understand there is a slowdown in new 
housing developments as a result of escalating building costs and 
the shortage of land, and therefore we have had fewer new houses 
available in the market.  We understand that people in old township 
houses want to improve their lifestyle," said Vutula.  The loans for 
extensions could range from R20,000 ($2,600) to R400,000 ($52,000), 
depending on the borrower's monthly income and the value of the 
property.  (Business Day, August 21, 2008) 
 
--------------------------------------------- ---- 
Taxi Industry Draws Battle Lines Against Proposed    Bus Rapid 
Transit Systems 
--------------------------------------------- ---- 
 
¶5. (U) The minibus taxi industry vowed to fight the government for 
lack of consultation over the implementation of the proposed Gauteng 
bus rapid transit (BRT) system.  The General Secretary of the South 
African National Taxi Council (SANTACO) Philip Taaibosch said, "We 
will make use of all avenues available to us to protect the rights 
of taxi operators."  SANTACO felt that its business was threatened 
by the proposed BRT systems for Johannesburg and Pretoria. 
Taaibosch said the taxi industry was not opposed to the Gauteng 
transformation strategy; however, the industry needed to be involved 
as it was an integral part of the transport system.  He noted that 
the taxi industry moved the largest percentage of the commuting 
public and yet the industry was not involved in the BRT system. 
(Business Report and Engineering News, August 18-19, 2008) 
 
--------------------------------------------- --- 
Eskom to Increase Its Base-load Capacity Through Independent Power 
Producers 
--------------------------------------------- --- 
 
¶6. (U) State-owned power utility Eskom issued a request for 
qualification (RFQ) from national and international companies for 
the development of its multi-site base-load independent power 
producer (IPP) program on August 17.  Eskom is seeking to secure 
between 2,100 MW and 4,500 MW of power from private developers with 
a minimum plant capacity of 200 MW.  Eskom had called for an 
expression of interest for new base-load IPPs in April to address a 
potential power supply gap after two new coal fired base-load 
stations - Medupi and Kusile - are commissioned, and before the 
planned nuclear power station (scheduled for 2017) is up and 
running.  Eskom received expressions of interest from a "fairly 
global mix" of 76 companies, HSBC Africa Senior Vice-President Paul 
Eardley-Taylor said.  HSBC Africa is the lead financial adviser to 
Eskom on the multi-site base load IPP program.  The program would be 
developed on a build-own-operate basis, and the term of the contract 
would be 25 years.  The IPP company would be required to enter into 
an equivalent-term agreement with a fuel supplier to procure fuel 
supply.  Interested parties were required to select sites in South 
Africa based on access to fuel, transmission infrastructure, and 
water sources.  Connection to the Eskom transmission grid would be 
made in compliance with the terms of the Grid Code as published by 
the national regulator.  Eskom had previously indicated that it 
Qthe national regulator.  Eskom had previously indicated that it 
could pursue a hybrid-type Eskom/private sector IPP arrangement. 
Under a hybrid structure Eskom could complete much of the upfront 
planning and engineering design.  The RFQ stage of the process would 
not require a detailed proposal, but a company would need to show 
experience in the industry and prove that it could qualify for the 
bidding process, Eardley-Taylor stated.  The RFQ followed a Cabinet 
announcement in September 2007, which designated Eskom as the single 
buyer of power from IPPs.  Shareholder arrangement criteria are 
being finalized, and they are expected to include a minimum of 25% 
shareholding to be allocated to black economic-empowerment compliant 
investors.  (Engineering News, August 18, 2008) 
 
------------------------------------- 
Power Cuts Threaten Aluminum Smelters 
------------------------------------- 
 
¶7. (U) BHP Billiton sounded the death knoll for the $3.25 billion 
Coega aluminum smelter, stating that there would be no extra local 
aluminum capacity built until 2018 due to Eskom's power cutbacks. 
BHP Billiton CEO Marius Kloppers said the rationing would prevent 
the construction of new smelters or the expansion of existing units. 
 Rio Tinto, which BHP Billiton is seeking to buy, was planning to 
make a decision on proceeding with the Coega smelter later this 
 
PRETORIA 00001893  003.2 OF 004 
 
 
year.  However, the power crisis in January resulted in Rio Tinto 
putting the Coega smelter on hold until at least 2012, when Eskom is 
expected to complete the first of its new base-load power stations. 
Eskom had agreed to supply the Coega smelter with 1,350 megawatts in 
November 2006 before the power cutbacks.  Coega Aluminium 
spokesperson Robert Valdmanis was not available to comment on 
whether the status of the project had changed.  BHP Billiton 
operates three smelters in Southern Africa that have been disrupted 
by the power curbs.  In Richards Bay it owns the Hillside and 
Bayside smelters. In Maputo it has a 47.1% stake in the Mozal 
smelter.  BHP Billiton said in March that it would partially close 
the Bayside aluminum smelter, while the Hillside smelter and the 
Mozal plant would run at reduced capacity.  "There's going to be no 
power for a long time and I'm very surprised that people are still 
talking about building new capacity," Kloppers said.  He stressed 
that there would not be capacity expansions at BHP Billiton's local 
smelters "under almost any scenario that I can envisage for at least 
the next decade".  The group said annual earnings from its aluminum 
operations fell 21% because of a weaker dollar and as output from 
South Africa fell 8% following power shortages.  Energy makes up 
about 40% of the cost of producing aluminum.  (Business Report, 
August 18, 2008) 
 
--------------------------------------------- ------ 
Broaddand Infraco Expected to Receive License, but It's West Coast 
Cable Project Not Likely to be Ready for World Cup. 
 --------------------------------------------- ------ 
 
¶8. (U) Minister of Communications Ivy Matsepe-Casaburri is expected 
to issue a policy direction for the Independent Communications 
Authority of South Africa (ICASA) to license Broadband Infraco.  The 
State-owned broadband infrastructure company will negotiate the 
license terms and conditions directly with ICASA.  Broadband Infraco 
CEO Dave Smith said licensing the entity would enable it to reduce 
the cost of national and international long-distance broadband 
connectivity.  Smith noted that the Electronic Communications 
Amendment Act, which came into effect in February, would encourage 
investment in the sector.  In his State of the Nation address in 
February, President Mbeki said the licensing of Infraco would be 
completed this year and that, by working with other governments on 
the continent and with the private sector, the process of launching 
the African West Coast Cable (AWCC) - the undersea cable linking 
Cape Town with London - would also be completed.  The cable, which 
will cost $510-million, will have units branching to at least ten 
countries along the West Coast of Africa.  "There will be no central 
pricing agreements and all participants will market their capacity 
independently of each other in a competitive environment," Smith 
said.  He added that "as far as possible, participants will get the 
same rights to expand and trade their capacity as if they had built 
their own independent cable system."  The government will remain the 
major shareholder, owning more than 25% of the equity.  While the 
cable was originally intended to be completed in time for the 2010 
Qcable was originally intended to be completed in time for the 2010 
FIFA World Cup, a delay in the finalization of the commercial and 
legal agreements means that the project will now only be completed 
after the World Cup.  According to press reports, the World Cup 
traffic will be carried on Telkom's upgraded Sat-3 system. 
Provisional arrangements might also be made to carry 2010 World Cup 
traffic on the AWCC by completing the section of the cable that 
connects to Portugal from the northern branching unit before the 
World Cup.  (Engineering News, August 15, 2008) 
 
------------------------------------------ 
Ambient Air Quality Monitors for Hot Spots 
------------------------------------------ 
 
¶9. (U) The Department of Environmental Affairs (DEAT) and the 
Mpumalanga provincial Department of Agriculture and Land Affairs 
(DALA) have installed new air quality monitoring stations in one of 
South Africa's air pollution hot spots, a 31,106 square kilometer 
area encompassing the small towns of Balfour, Middleburg, Standerton 
and Witbank, in the near eastern part of the country.  Pollution in 
these areas is created mostly by heavy industry operations, 
residential coal burning and veld fires.  According to the DEAT 
Deputy Minister Rejoice Mabudafhasi, the air quality monitoring 
stations will help mitigate pollution.  She said they would be able 
to identify pollutants and the specific areas from where they came. 
The stations would be able to detect and measure pollutants such as 
benzine, carbon monoxide, lead, sulphur dioxide etc. The data 
collected would be made available to the general public and relevant 
 
PRETORIA 00001893  004.2 OF 004 
 
 
stake holders such as the Air Quality Officers Forum, in which all 
the municipalities in the priority areas are represented. 
Mabudafhasi also noted that once a polluter was identified, 
especially the heavy industry companies, DEAT would show them their 
levels of pollution and then work with them to remedy the situation 
over a stipulated time frame.  She also added that polluters could 
subjected to fines or jail terms if they were recalcitrant or 
ignored reform time frames.  The monitoring stations were installed 
at a cost of R1million ($134,000) each, with the financial 
partnership of DALA and the Royal Danish Embassy.  (Engineering 
News, August 18, 2008) 
 
BOST