VZCZCXRO0331
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2016/01 2550717
ZNR UUUUU ZZH
R 110717Z SEP 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5669
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 5995
RUEHDU/AMCONSUL DURBAN 0146
RUEHJO/AMCONSUL JOHANNESBURG 8352

UNCLAS SECTION 01 OF 02 PRETORIA 002016 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV SF
SUBJECT: NEW INVESTMENT PLANS ROBUST IN SPITE OF SLOWING 
ECONOMY IN SOUTH AFRICA 
 
PRETORIA 00002016  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  Record levels of new investment spending 
plans were announced in South Africa in the first six months 
of 2008.  New planned spending by Eskom led the way, but 
private sector spending plans were also robust.  Investment 
spending will compensate for falling consumer spending and 
underpin continued economic growth.  However, it is unclear 
whether investment will reach 25 percent of GDP (the 
government's target) in the foreseeable future.  End Summary. 
 
------------------------ 
Investment Plans Aplenty 
------------------------ 
 
¶2.  (SBU) Record levels of new investment spending plans were 
announced in the first half of 2008 in South Africa, 
according to Nicky Weimar, an economist at Nedbank and the 
coordinator of Nedbank's semi-annual survey of capital 
expenditures.  Weimar met recently with Deputy Economic 
Counselor and Economist Specialist to discuss the survey. 
 
¶3.  (U) Released on August 25, the Nedbank Capital 
Expenditure Project Listing showed that plans for new 
investment spending remained robust in the first half of 
2008, with 80 new projects being announced worth R336 billion 
($42 billion).  In contrast, only 128 projects worth R224 
billion ($28 billion) were announced in all of 2007.  (Note: 
The Nedbank survey records announcements of new investment 
plans; it does not track actual expenditures, which could be 
spread out over years.  The survey only captures projects 
worth R20 million (about $2.5 million) or more.  It excludes 
investments to replace worn-out or outdated capital goods. 
End Note.) 
 
¶4.  (U) The rise in the value of new projects was mainly 
attributable to power utility Eskom, which announced during 
the first half of the year that its already-large, multi-year 
capital expansion program would grow in size by another R243 
billion ($30 billion).  Planned private sector investment 
spending also remained strong, with 64 new projects worth R72 
billion ($9 billion) being announced in the first six months 
of 2008.  Of this amount, the finance and real estate sector 
accounted for R38 billion ($4.5 billion), with manufacturing 
following at R25 billion ($3 billion).  However, the mining 
sector announced new projects worth only R6.5 billion (less 
than $1 billion), compared with R27 billion ($3 billion) in 
the same period in 2007. 
 
-------------- 
Chugging Along 
-------------- 
 
¶5.  (SBU) Weimar said that investment spending is poised to 
keep the South African economy "chugging along" even as 
consumer spending wilts under the impact of high interest 
rates.  "The new projects will keep demand high for steel, 
cement, and construction services," she said, noting that 
Nedbank is projecting GDP growth of 3.5 percent in 2008.  She 
also said that the import-intensity of most infrastructure 
projects will keep the current account under heavy pressure. 
 
¶6.  (SBU) Weimar saw little risk of a major let up in 
investment spending in the near-to-medium term.  She cited 
several reasons for optimism:  parastatals Eskom and Transnet 
are committed to expansion; manufacturing companies are 
operating at almost full capacity; mining companies 
anticipate years of high commodity prices; and China and 
India continue to grow.  "Everyone is thinking long-term," 
she said, noting, "Everyone is looking past the current 
slowdown."  She acknowledged that electricity shortages might 
threaten some of the new projects, but she was struck by how 
muted the impact of power constraints has been so far. 
Qmuted the impact of power constraints has been so far. 
 
¶7.  (SBU) That said, Weimar was skeptical that investment 
spending would climb to 25 percent of GDP (the government's 
target) anytime in the foreseeable future.  (Investment is 
currently 21.5 percent of GDP.)  She explained that some 
infrastructure projects were already hitting bottlenecks 
because of skills shortages and insufficient project 
capacity.  She also claimed that some firms are taking a 
"wait and see" posture on investment until the political 
environment is sorted out and a new ANC cabinet is in office. 
 Weimar took comfort, however, from the fact that the 
government is in such strong fiscal shape.  "The government 
has money set aside for infrastructure," she said, citing as 
an example its ability to provide guarantees to help Eskom 
raise capital. 
 
------- 
 
PRETORIA 00002016  002.2 OF 002 
 
 
Comment 
------- 
 
¶8.  (SBU) Investment as a share of South Africa's GDP did not 
exceed 18 percent in any year between 1991 and 2005, and 
dipped to a dismal 14 percent in 1993.  The culprits behind 
this weak performance included heavy public debt, political 
uncertainty, high interest rates, and slow growth.  These 
years of underinvestment have left the country with stressed 
and dilapidated infrastructure, as was demonstrated by the 
loadshedding of early 2008.  The government's massive plans 
to upgrade power, ports, airports and other infrastructure, 
though overdue, promise to lift the economy to a higher 
growth trajectory.  However, it is unclear whether the 
government's investment target of 25 percent of GDP can be 
attained. 
BOST