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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 001972 
 
DEPT FOR AF/S/; 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 SEPTMEBER 5, 
2008 ISSUE 
 
PRETORIA 00001972  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 36 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Executive Turnover on the Increase 
- Mboweni Not Quite Ready to Retire 
- JSE Chief Sees More Foreign Selling Ahead 
- Vehicle Sales Take another Nosedive 
- Industry Hails New Motor Plan 
- OR Tambo Airport Expansion on Track 
- Emirates Reconsiders Durban Route 
- Government Concerned over Impact of 
  Eskom's Credit Downgrade 
- Eskom Chief Financial Director Resigns 
  - More Woes 
- Major Miners Resisting Self-Generation, 
  But Juniors Step up to the Power Plate 
- Johannesburg Leads Hotel Industry Growth 
- Dubai-based Group to Invest Billions to 
  Develop Theme Park in Durban 
End Summary. 
 
---------------------------------- 
Executive Turnover on the Increase 
---------------------------------- 
 
¶2. (U) Deloitte reported that the average turnover of executives in 
South Africa increased from 10.5% for the period August 1, 2006 to 
July 31, 2007 to 13.5% for the period August 1, 2007 to July 31, 
¶2008.  In the survey of 400 companies, Deloitte found that the main 
reasons for attrition at the top levels of companies included early 
retirement (22%), emigration (15%), lack of career advancement 
(11%), and retrenchment (11%).  The turnover statistic suggested 
that South Africa would lose up to half of its executives every four 
or five years.  Globally, companies have acknowledged that they 
would be losing half of their senior executives over the next five 
years.  Deloitte said South African executives abroad were in top 
positions in companies across a broad spectrum of sectors.  The 
majority of executives (60%) in the Deloitte report cited crime and 
violence as their main reasons for emigration, with better 
employment opportunities (35%), and company transfers (30%) given as 
other reasons.  Australia replaced the UK as the most popular 
destination for executives leaving South Africa.  The manufacturing 
and finance sectors reported the highest percentage of executives 
emigrating over the past three years at 32% each.  (Business Day, 
September 3, 2008) 
 
--------------------------------- 
Mboweni Not Quite Ready to Retire 
--------------------------------- 
 
¶3. (U) South African Reserve Bank (SARB) Governor Tito Mboweni has 
confirmed that he is ready to serve a third term in his post if 
asked by the country's next president, who will be elected next 
year.  Mboweni took the unusual step of calling a press conference 
on his future to dispel speculation that he may step down before his 
second five-year term ends in August 2009.  "My own position is that 
I have been governor of the Bank since August 1999 and I will 
complete my current term in August 2009," he told reporters.  "If 
asked to serve, I will. That should put the issue to rest and I will 
not entertain that question in the future," he added.  Mboweni, 49, 
was labor minister before former President Nelson Mandela asked him 
to become the first black official to head the SARB, where he spent 
a year as adviser to former Governor Chris Stals.  Mboweni has been 
a staunch supporter of the government's inflation-targeting policy. 
Qa staunch supporter of the government's inflation-targeting policy. 
It has won South Africa respect in global markets but has drawn 
fierce criticism from left-wing allies of the African National 
Congress (ANC).  Mboweni said he saw no reason why Zuma should not 
reappoint him for a third term.  Governors of the SARB are appointed 
by South Africa's President, after consultation with the Finance 
Minister and the SARB's 14-member board of directors.  Asked if he 
thought there were suitable candidates to fill his post, he replied: 
"There are lots of them, there is a huge list, but I won't reveal 
names.  Don't write my obituary yet."  (Business Day, September 3, 
2008) 
 
----------------------------------------- 
JSE Chief Sees More Foreign Selling Ahead 
----------------------------------------- 
 
PRETORIA 00001972  002.2 OF 005 
 
 
 
¶4. (U) Johannesburg Stock Exchange (JSE) CEO Russell Loubser said 
foreign investors are expected to remain net sellers of South 
African shares until the end of 2009.  Loubser also said the bourse 
operator's five-fold, first-half profit growth was not sustainable 
and he expects conditions to remain tough for the next year, despite 
a "healthy" pipeline for local equity listings.  Foreign investors 
have turned net sellers of local stocks this year amid a global 
downturn, selling a net R12.5-billion ($1.6 billion) worth of shares 
so far this year.  "I can see this continuing for a good period of 
time because the bad times are not over," Loubser said. 
Furthermore, he did not expect to see many de-listings in the second 
half of 2008.  Loubser said the JSE would seek to list more 
companies from elsewhere on the continent and described talks with 
Nigerian companies as "going well".  He said the JSE saw "huge 
potential" in the Middle East.  Loubser did not expect the 2009 
elections in South Africa to destabilize the country, but he said 
South Africa's power crisis was "here to stay".  "It's going to take 
quite a number of years before new power sources come on line, and 
between then and now, we're going to have power cuts ... that is 
going to slow growth," he added.  (Sunday Times, August 31, 2008) 
 
----------------------------------- 
Vehicle Sales Take another Nosedive 
----------------------------------- 
 
¶5. (U) The National Automobile Manufacturers Association of South 
Africa (NAAMSA) reported that total new vehicle sales contracted for 
the 17th consecutive month to 30.3% y/y in August, worse than July's 
decline of 19.9%.  The trend in vehicle sales continues to point to 
lackluster consumer spending on interest-rate-sensitive durable 
goods due to a tighter credit environment, slowing real disposable 
income growth, and plummeting consumer confidence.  Poor domestic 
sales have led to further local dealership and distributor 
consolidation and job losses.  Local distributors expressed the hope 
that the August figures represented the low-point in the declining 
sales cycle.  In contrast, new vehicle exports posted an impressive 
73.8% y/y increase in August and a 61.5% y/y increase during the 
first eight months of 2008.  NAAMSA data confirmed that domestic 
economic activity remains weak, but the welcome export boost may 
assist in addressing South Africa's gaping current account deficit 
(9% of gross domestic product in the first quarter of 2008), and 
thereby reduce some of the associated currency risk.  (ABSA 
Newsletter and Business Report, September 3, 2008) 
 
----------------------------- 
Industry Hails New Motor Plan 
----------------------------- 
 
¶6. (U) Vehicle manufacturers welcomed the government's long-awaited 
announcement on the successor to the Motor Industry Development 
Program (MIDP).  Manufacturers hailed the cabinet-approved 
Automotive Production and Development Program (APDP) for finally 
providing certainty for their strategic investment decisions.  The 
APDP, which will run from 2013 until 2020, will bring South Africa 
into compliance with World Trade Organization (WTO) industry-support 
requirements.  The new program includes moderate tariffs, local 
Qrequirements.  The new program includes moderate tariffs, local 
assembly and investment allowances, and a production incentive.  It 
is aimed at doubling vehicle production to 1.2 million units a year 
by 2020.  APDP includes import tariffs of 25% for completely 
built-up vehicles and 20% for components used by vehicle assemblers. 
 A local assembly allowance will allow light-vehicle manufacturers 
with an annual production volume of at least 50,000 units to import 
20% of their components duty-free for three years from 2013.  It 
would fall to 18% thereafter.  To support investment in new plant 
and machinery a direct grant or investment allowance equal to 20% of 
the project value will be provided from 2009.  There will also be 
company-specific allowances such as a maximum additional 10% for 
training, technology transfer, localization, research and 
development, and commissioning.  Industry will be expected to 
intensify skills development and increase local content in return 
for the incentives.  The shift away from the previous export 
incentive-based MIDP to a production-based allowance is expected to 
benefit high-volume vehicle exporters such as DaimlerChrysler. 
However, Department of Trade and Industry (DTI) Director-General 
Tshediso Matona said that the right balance had been struck through 
intensive negotiations with industry.  National Association of 
Automobile Manufacturers of South Africa (NAAMSA) President Johan 
van Zyl said the new program provided the automotive industry "with 
 
PRETORIA 00001972  003.2 OF 005 
 
 
a solid basis to rise to the challenge of becoming more 
internationally competitive and to expand the production".  He added 
that each vehicle manufacturer would have to evaluate the provisions 
of the new program and take steps to optimize its production plans 
and operations.  The R20 billion ($2.6 billion) catalytic converter 
industry has been left out of the APDP.  Support for catalytic 
converters, medium and heavy-commercial vehicles, and other 
material-intensive components will be subject to further 
consultation.  DTI Automotive Program Director Mkhululi Molota said 
announcements would be made on the catalytic converters in the 
current financial year.  (Business Day and Engineering News, 
September 4, 2008) 
 
----------------------------------- 
OR Tambo Airport Expansion on Track 
----------------------------------- 
 
¶7. (U) Airports Company South Africa (ACSA) opened the first phase 
of its R2.3 billion ($299 million) central terminal building at OR 
Tambo International Airport on September 3.  International 
passengers arriving in Johannesburg will now pass through the new 
public concourse, which is two and a half times bigger than the 
airport's prior concourse.  The remainder of the building will be 
opened in two phases: the new international departures hall will 
open in December and the expanded retail center will open in April 
¶2009.  ACSA will also complete the installation of a new baggage 
management system at international arrivals by December.  Four of 
the new baggage carousels are specifically-designed for massive 
new-generation aircraft such as the Airbus A380.  OR Tambo Projects 
Manager Kesavan Naicker said construction at the airport was about 
70% complete and there was no doubt that the airport would be ready 
for the 2010 FIFA World Cup.  The renovations are aimed to ease the 
passage of passengers through Africa's busiest airport.  OR Tambo 
currently handles 80,000 passengers as day on 600 flights.  The 
advent of low-cost airlines in Africa has spurred exponential 
passenger volume growth.  Naicker said that once the current cycle 
of construction at the airport was completed there would be enough 
capacity to meet growth in passenger numbers until 2015, bringing an 
end to construction at least for a few years.  (Business Day and 
Pretoria News, August 30-September 3, 2008) 
 
--------------------------------- 
Emirates Reconsiders Durban Route 
--------------------------------- 
 
¶8. (U) Emirates announced that it could reinstate its plans to fly 
to Durban if oil prices remain stable. The airline announced that it 
would have to temporarily pull out of its scheduled service due to 
begin on December 1, when oil prices reached $140 per barrel in 
June.  Emirates is now reconsidering its plans due to the recent 
drop in oil prices.  Emirates President Tim Clark said if oil 
continued to trade around the $116 per barrel mark, the airline 
would restart the expansion of its network, adding Durban, 
Amsterdam, Barcelona, and Kiev.  Emirates Southern Africa Regional 
Manager Fouad Caunhye confirmed that escalating fuel prices had 
forced Emirates to review its operations and noted that, "Emirates 
will reconsider its options should there be a sustained regression 
Qwill reconsider its options should there be a sustained regression 
of the price of oil."  Tourism KwaZulu Natal (TKZN) spokesperson 
Pinky Radebe described the proposed Emirates flights as important to 
the province since they would improve direct air access and give the 
province a competitive edge as a destination.  TKZN had begun 
discussing direct tour packages with operators and was disappointed 
when Emirates pulled back from the flights in June.  (Travel Hub, 
August 27, 2008) 
 
----------------------------------- 
Government Concerned over Impact of 
  Eskom's Credit Downgrade 
----------------------------------- 
 
 
¶9. (U) Public Enterprises Minister Alec Erwin announced that the 
government is concerned over the higher borrowing costs associated 
with the recent downgrade of Eskom's credit rating.  Moody's 
downgraded the state-owned electricity utility's foreign currency 
rating by three notches to Baa1 from A2, while the local currency 
rating was cut to Baa2 from A1 in August 2008.  The downgrade will 
add to the cost of Eskom's plan to raise R150 billion ($19.2 
billion) from banks and bond issues to fund part of its construction 
 
PRETORIA 00001972  004.2 OF 005 
 
 
program. Eskom plans to spend around R343 billion ($44 billion) over 
the next five years and R1.3 trillion ($166.6 billion) over a 
20-year period to increase its electricity generating capacity. 
South Africa's electricity supply constraints became apparent early 
in 2008 when a number of mines were forced to shut down operations 
for five consecutive days and countrywide load shedding ensued. 
That contributed to a 25.1% q/q contraction in mining sector output 
in the first quarter of 2008 and a slowing in overall economic 
growth from 5.1% in the fourth quarter of 2007 to 2.1% q/q in the 
first quarter of 2008.  (ABSA-Newsletter, September 3, 2008) 
 
-------------------------------------- 
Eskom Chief Financial Director Resigns 
  - More Woes 
-------------------------------------- 
 
¶10. (U) The resignation of Eskom's highly-regarded Financial 
Director Bongani Nqwababa, who will join Anglo Platinum as CFO next 
year, has left an important gap in the corporate structure, 
spokesman Fani Zulu acknowledged.  Nqwababa will continue to oversee 
Eskom's submission to the National Energy Regulator of South Africa 
(NERSA) for the second phase of the multi-year price determination, 
but Zulu added that his replacement would have to take over that 
responsibility once he left.  Zulu dismissed the suggestions that 
Nqwababa had left owing to his failure to convince markets to issue 
capital to help it fund Eskom's $44 billion investment program.  He 
stressed that Nqwababa would still be in office when the next bond 
raising took place within the next few months.  Zulu said a recent 
investor roadshow in Europe showed a strong appetite for Eskom 
paper.  However, he acknowledged that this was prior to the decision 
by Moody's to downgrade Eskom's credit rating.  (Mining Weekly, 
September 2, 2008) 
 
---------------------------------------- 
Major Miners Resisting Self-Generation, 
  But Juniors Step up to the Power Plate 
---------------------------------------- 
 
¶11. (U) Major South African deep-level miners want to stick to 
mining and avoid generating their own electricity - except when it 
comes to emergency power.  However, emerging junior miners such as 
South Africa's Wesizwe Platinum and Australia's Braemore Resources 
are taking self-generation in stride.  Braemore goes as far as to 
accuse South African miners of being "spoilt" and points to the 
Australian tradition of miners generating their own electricity. 
However, South African Chamber of Mines official Dick Kruger said it 
is not economically feasible for mining companies to generate their 
own electricity.  Harmony Gold CEO Graham Briggs holds a similar 
view, adding that the cheapest option for Harmony is to continue 
using electricity provided by Eskom, while assuring a back-up for 
safety during power outages.  Outgoing Gold Fields COO Terence 
Goodlace agrees that Gold Fields is "accelerating what we need to be 
doing to save energy, rather than co-generating power".  Wesizwe, 
however, is going to co-generate its own power on a large scale at 
its new 230,000 tons of ore per month platinum mine.  This seems not 
to be the company's first choice, but rather an imperative, because 
Eskom can only "guarantee" minimal power for its new project. 
QEskom can only "guarantee" minimal power for its new project. 
Wesizwe CEO Mike Solomon said, "Wesizwe needs to have contingencies 
as we cannot afford project delays or shortfalls in production and 
we have made adequate provision for supplementary power in our 
budget, as a risk management procedure."  Wesizwe will put in place 
heavy fuel generators for power supply up to 45 MW and plans on 
Eskom being out of the woods by 2017 when the Medupi power station 
comes fully on line.  The National Energy Regulator of South Africa 
(NERSA) encourages companies to co-generate, but mechanisms for 
potentially selling surplus power to Eskom's grid are still being 
worked out. (Mining Weekly, August 29) 
 
---------------------------------------- 
Johannesburg Leads Hotel Industry Growth 
---------------------------------------- 
 
¶12. (U) Pam Golding Hospitality CEO and Managing Director Joop Demes 
announced that the local hotel industry remains vibrant and is 
expanding rapidly.  The latest figures from the industry benchmark 
STR Global Hotel Survey show that revenue per available room 
(REVPAR) in the first seven months of 2008 at South African hotels 
was up 18.1% y/y.  While the REVPAR growth was driven mainly by 
increased room rates, occupancies also remained buoyant at an 
 
PRETORIA 00001972  005.2 OF 005 
 
 
average 70% over the period.  The STR survey is based on a sample of 
31,756 rooms at large hotels - those with more than 35 rooms. 
Growth was being driven largely by the domestic market, which made 
up 75% of the total market.  Demes added that "International 
visitors are just the cherry on top."  Demes estimated that at least 
R9.8 billion ($1.2 billion) will be invested in numerous hotel 
projects next year, adding more than 6,300 rooms countrywide and 
raising the current inventory of 57,000 rooms by more than 10%. 
India's Taj Hotels is a recent entrant to the local market and is 
building two five-star hotels.  The group's flagship Taj Palace 
Hotel will be a 175-room five-star hotel in central Cape Town, while 
a 140-room hotel is under development in Johannesburg.  The STR 
survey shows that Johannesburg is one of the most lucrative 
locations in South Africa, with REVPAR in the first seven months of 
the year up 23% over the corresponding period last year.  Average 
occupancies are at 75.9%.  However, Demes points out that OR Tambo 
International Airport is where the real action is taking place. 
Average occupancies in the airport vicinity are up by 79.3% for the 
first seven months of the year and REVPAR is up 30.5%.  Several 
hotel groups have targeted the airport for further development. 
Comair (operators of British Airways and Kulula) will construct a 
4-star hotel close to OR Tambo in partnership with Protea Hotels. 
 
--------------------------------------- 
Dubai-based Group to Invest Billions to 
  Develop Theme Park in Durban 
--------------------------------------- 
 
¶13. (U) Dubai-based Ruwaad Destinations has submitted a proposal to 
develop a multibillion-dollar theme park on KwaZulu Natal's (KZN) 
north coast.  Pam Golding Hospitality CEO and Managing Director Joop 
Demes said the development will comprise of two theme parks - one 
portraying an African wildlife theme, the other a Zulu culture theme 
- as well as 20 large hotels and 120 residences.  "The theme park 
will be to international standards and will transform KZN," said 
Demes.  Demes described the theme park as a self-contained 
destination, which will provide a bush-beach experience in a 
malaria-free area.  Ruwaad Destinations CEO Darrell Metzger said KZN 
was selected because of its "excellent year-round climate" and the 
upcoming opening of Durban's new King Shaka International Airport. 
Regional and domestic travelers will be the mainstay of the 
development.  The development, expected to be completed by 2014 at a 
cost of over $2 billion, will also create tens of thousands of jobs 
in the area.  Ruwaad is a subsidiary of the Dubai 9 group and 
specializes in real estate, hospitality, tourism investment, and 
destination development.  Ruwaad is also planning a cultural and 
historical focus for the development, centered on a statue of King 
Shaka Zulu.  The statue would cost R200 million ($25 million) to 
build and was expected to be 13 meters higher than the Statue of 
Liberty in New York. (Travel Hub, September 2, 2008) 
 
LA LIME