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DEPT FOR AF/S/; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
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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 12, 
2008 ISSUE 
 
PRETORIA 00002032  001.2 OF 006 
 
 
¶1. (U) Summary.  This is Volume 8, issue 37 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Reserves Fall on Gold Revaluations 
-  Business Confidence Plunges Further 
-  SA Leaps in Business-Friendly Rankings 
-  Old Mutual CEO Quits on U.S. Subprime Loss 
-  Light on Distant Horizon for Cargo Transport 
  between South Africa and Maputo 
-  Carmakers Poised to Shift Maritime 
  Transport Focus to Maputo 
- Johannesburg Signs MOU for Bus System 
-  Limpopo Chosen for Coal-to-Liquids Project 
- Mining Production Declines 
-  Slow Pace of Mining Right Conversions 
  Worries Government 
-  Death is Stalking the Workplace 
- Government Seeks ICT Advice 
- ICASA Moves to Issue New Licenses 
- Cable-laying Company to Profit from ICASA 
  Decision to Issue New Licenses 
- SA Firm Acquires Stake in Indian Distributor 
End Summary. 
 
---------------------------------- 
Reserves Fall on Gold Revaluations 
---------------------------------- 
 
¶2. (U) South Africa's net gold and foreign exchange reserves fell by 
$669 million (2%) to $33.5 billion in August 2008.  The decline is 
attributed to the depreciation of the Rand and a sharp decline in 
the price of gold, and not due to intervention practices.  The gold 
price is continuing to trade at lower levels indicating the 
potential for further declines in reserves, should current levels 
persist at the end of September.  Due to the decline in net reserves 
and the growth in imports, South Africa's import coverage has 
declined from 5.5 to 4.0 weeks of import coverage.  (ABSA 
Newsletter, September 9, 2008) 
 
----------------------------------- 
Business Confidence Plunges Further 
----------------------------------- 
 
¶3. (U) The Rand Merchant Bank and Bureau for Economic Research 
(RMB/BER) Business Confidence Index  declined by a further 11 index 
points during the third quarter of 2008, after falling 22 index 
points in the first half of 2008.  Business confidence declined in 
all five sectors covered by the index during the third quarter, 
while it declined in only two of the five sectors during the second 
quarter survey.  "The persistent decline in business confidence is 
another indication that the second quarter rebound in GDP growth was 
a mere technical recovery following the negative impact electricity 
outages had on the mining and manufacturing sectors during the first 
quarter.  The large third quarter drop in confidence indicates that 
the underlying economic slowdown has become even more marked. 
However, as interest rates have probably already peaked, and are 
likely to start declining in the first half of next year, and as the 
oil price has fallen by nearly one third, an outright contraction in 
economic activity is unlikely," said the survey analysts.  The RMB 
and BER researchers noted that most businesses found themselves 
squeezed between rapidly rising costs and weak domestic and foreign 
demand.  The domestic political environment also remained a source 
of uncertainty and concern for business confidence.  (Business Day, 
September 11, 2008) 
 
-------------------------------------- 
SA Leaps in Business-Friendly Rankings 
-------------------------------------- 
Q-------------------------------------- 
 
¶4. (U) The World Bank's annual Doing Business Index found that South 
Africa's efforts to make it easier for businesses to start-up and 
pay taxes have lifted its ranking from 35 to 32 out of 181 
countries.  South Africa ranked 28 in 2005, but fell behind 
economies that were faster to reform in recent rankings.  The index 
tracks how business friendly the regulatory environment is in each 
country, especially for small and medium-sized businesses.  It is 
based on 10 indicators, which measure the time and cost required to 
start and operate a business, trade across borders, pay taxes, and 
 
PRETORIA 00002032  002.2 OF 006 
 
 
close a business.  South Africa's recovery in the rankings is 
attributed to the Companies Act Amendments, which made it easier to 
register a new business.  The removal of the regional services 
council levies and the reduction in the rate of secondary tax on 
companies also helped.  South Africa is ranked second in the world 
on ease of getting credit.  It also ranks well for protecting 
investors and paying taxes, but is ranked very low for ease of 
employing workers and trading across borders.  (Business Day, 
September 11, 2008) 
 
------------------------------------------ 
Old Mutual CEO Quits on U.S. Subprime Loss 
------------------------------------------ 
 
¶5. (U) Old Mutual CEO Jim Sutcliffe became South Africa's first 
sub-prime casualty when he resigned amid large write-downs and 
urgent cash injections linked to the insurer's U.S. Life business. 
U.S. Life recently reported that a product from its Bermuda unit had 
incurred liabilities and had been withdrawn.  A downgrade of Freddie 
Mac and Fannie Mae bonds tipped the scale for Old Mutual.  It was 
holding bonds through one of its affiliates, and recorded a 
write-down of $135 million.  Old Mutual's Head of Skandia business 
Julian Roberts was immediately named as the replacement, but Old 
Mutual's stock dropped 8%, when the news first broke.  No other 
South African companies have reported crises related to the 
sub-prime crisis yet.  Investec said it had "absolutely no exposure 
to Fannie Mae and Freddie Mac".  Nedbank, which is owned by Old 
Mutual, said it had no exposure and that its parent company's woes 
would not affect it.  (Business Day, September 11, 2008) 
 
-------------------------------------------- 
Light on Distant Horizon for Cargo Transport 
  between South Africa and Maputo 
-------------------------------------------- 
 
¶6. (U) Maputo Development Corridor (MDC) Director Blessing Manale 
announced that an agreement between South Africa and Mozambique 
regarding the movement of cargo between the two countries moved 
forward this week.  Finalization of an agreement is crucial to the 
development of the Port of Maputo in Mozambique.  Manale indicated 
that the negotiations, which began three-years ago, should be 
finalized by September 2009.  He noted that the South African 
Department of Transport has been recruited to push state-owned 
transport and logistics group Transnet towards a final agreement. 
The agreement to improve the exchange of cargo at the common border 
between the two countries relies on speeding up rail transport, 
which is controlled by Transnet.  Industry analysts blame the delay 
on Transnet's ability to negotiate due to the fact that it also has 
vested interests in South African ports.  (Port and Ship News, 
September 5, 2008) 
 
---------------------------------- 
Carmakers Poised to Shift Maritime 
  Transport Focus to Maputo 
---------------------------------- 
 
¶7. (U) The construction of a $30 million car terminal at the Port of 
Maputo comes as Transnet rejected a proposal to build a new R2.6 
billion ($325 million) car terminal at the Port of Durban last 
month.  Transnet opted instead for a R460 million ($57 million) 
expansion of its existing car terminal in Durban.  Shipping 
Qexpansion of its existing car terminal in Durban.  Shipping 
specialist Grindrod emphasized that the expansions at Maputo do not 
compete with Durban, as "all ports are choking at the moment."  He 
added that expansions were needed in both South Africa and 
Mozambique.  The Port of Maputo is roughly the same distance from 
Gauteng as the Port of Durban, which currently handles most of South 
Africa's vehicle imports and exports.  Grindrod has just completed 
the first phase of its Maputo car terminal, which will have a 
capacity to handle 50,000 to 60,000 vehicles a year.  Further 
expansions could raise the potential capacity to 250,000 units a 
year.  "We're talking to (manufacturers), especially Rosslyn-based 
(Gauteng Province) companies to do their vehicle exports and imports 
through Maputo," said Grindrod Freight Division Director Dave 
Rennie.  He noted that the first South Africa-based manufacturer 
will transport its vehicles through Maputo starting October, but 
declined to name the manufacturer.  Trials have been run to test the 
corridor, which includes a recently up-graded rail-link to Maputo. 
Other projects at the Port of Maputo include a $50 million expansion 
of the coal terminal and the development of a bulk-liquid facility. 
 
PRETORIA 00002032  003.2 OF 006 
 
 
The coal terminal will be expanded to an export capacity of 
six-million tons of coal a year.  Grindrod CEO Alan Olivier believes 
it would be possible for the port to move eight-million tons of 
goods in 2008, compared to six-million tons in 2007.  Grindrod 
increased its shareholding in the consortium that manages the Port 
of Maputo from 12% to 25% last year.  The Mozambique government 
controls 50%, and the remaining 25% is held by Dubai Port World. 
(Engineering News, September 8, 2008) 
 
------------------------------------- 
Johannesburg Signs MOU for Bus System 
------------------------------------- 
 
¶8. (U) The City of Johannesburg and bus operators Johannesburg 
Metropolitan Bus Services (Metrobus) and Putco signed a memorandum 
of understanding (MOU) outlining the framework for the first phase 
of the planned Rea Vaya bus-rapid transit (BRT) system.  The city 
aims to have 43 new buses move along the BRT system's newly-widened 
streets by the time the FIFA Confederations Cup kicks-off in June 
¶2009.  Johannesburg Mayor Amos Masondo said engagement with 
operators was vital to the timely and successful implementation of 
the BRT system, which would "vastly improve" the city's public 
transport.  The city confirmed that the BRT system would be 
available to provide bus services for the Confederations Cup, 
concentrating on areas that would ensure that the BRT could provide 
services around and between the key soccer stadia, as well as 
looking to satisfy the need for enhanced public transport for 
commuters travelling from Soweto and surrounding areas. 
(Engineering News, September 10, 2008) 
 
------------------------------------------ 
Limpopo Chosen for Coal-to-Liquids Project 
------------------------------------------ 
 
¶9. (U) Coal-to-Liquids (CTL) champion Sasol has selected a coalfield 
in the western part of Limpopo province as part of its 
pre-feasibility study into the proposed Mafutha CTL project.  Sasol 
and the Industrial Development Corporation may need to find up to 
$16 billion to construct the 80,000 barrel-per-day project, 
according to a Sasol spokesperson.  One analyst described this 
figure as "crazy", noting that it would cost one-half this amount 
for a comparable facility under investigation in China.  An 
anonymous analyst did not expect Mafutha to proceed as it appeared 
that Sasol had agreed to investigate the project as a result of the 
Treasury's inquiry into a possible windfall tax on the company. 
Sasol announced that its operating profit soared 32% to a record $4 
billion in 2007.  The energy security master plan released last 
September shows that the state has ambitions to meet 50% of local 
liquid fuels demand through synthetic production from coal and gas 
(currently 35%).  Sasol is taking steps to reduce its emission and 
carbon footprint, given its ignoble label as the world's largest 
single-point source of greenhouse gases.   (Engineering News and 
Business Report, September 8-11, 2008) 
 
-------------------------- 
Mining Production Declines 
-------------------------- 
 
¶10. (U) Statistics South Africa (StatsSA) reported that total mining 
production for the third quarter of 2008 decreased by 6.6% compared 
to the third quarter of 2007.  The total mining production for the 
Qto the third quarter of 2007.  The total mining production for the 
month of July 2008 decreased by 12.6% compared with July 2007.  Gold 
production decreased by 16.4%.  The platinum group metals recorded a 
large decrease in actual production of 32.8% compared with July 
¶2007.  StatsSA said the platinum group decline was mainly 
attributable to deferred maintenance, whichQd normally have 
occurred in the first half of the year.  (Business Day, September 
11, 2008) 
 
------------------------------------- 
Slow Pace of Mining Right Conversions 
  Worries Government 
------------------------------------- 
 
¶11. (U) Department of Minerals and Energy (DME) Minister Buyelwa 
Sonjica reiterated her concern for the "snail's pace of mining 
rights conversions," with less than envisaged progress towards 
attainment of the objectives of the South Africa's Mining Charter to 
date.  "Less than 30 % of old-order mining rights have been 
 
PRETORIA 00002032  004.3 OF 006 
 
 
submitted to my department for conversion.  While the Mineral and 
Petroleum Resources Development Act (MPRDA) provides for security of 
tenure, submissions close to the deadline of April 30, 2009 will 
create unnecessary bottlenecks in processing of applications," she 
said in her address at the South African Mining Summit in 
Johannesburg. The summit convened stakeholders to discuss issues of 
transformation in preparation for review of the Mining Charter in 
¶2009.  "Failure to convert will not be without consequences," she 
warned.  Sonjica asserted that only a few of the empowerment 
transactions embraced "the true spirit of broad-based black economic 
empowerment (BEE)".  The Minister also urged the mining houses 
holding mining rights to find more meaningful ways of participating 
and consulting with their local communities, expressing worries 
about tension between mining companies and the communities where 
they operated.   Sonjica said DME had constituted a task team to 
investigate reports of disinvestment in the mining sector. 
Preliminary findings cited negative factors as: a lack of 
infrastructure capacity; a paucity of skills; non-proximity of the 
country to new markets, typically the Far East; introduction of the 
new mining legislative framework, which created some investor 
uncertainty; and currency fluctuations.  The Minister claimed the 
government had taken many steps to address these challenges. 
(Mining Weekly and Business Day, September 10, 2008) 
 
------------------------------- 
Death is Stalking the Workplace 
------------------------------- 
 
¶12. (U) Unions have launched a series of costly one-day protests 
against a spate of fatalities in the mining, construction, and 
manufacturing industries - but they say the government shares the 
blame because it does not have enough safety inspectors.  National 
Union of Mineworkers President Senzeni Zokwana struck hit out at 
mining companies during a health and safety summit on September 5. 
The death of a miner at DRD Gold's Blyvoor mine the day before took 
the death toll in South Africa's mines this year to 116, only 
slightly below the pace of last year's fatalities.  Minister Sonjica 
said mine safety audits ordered by President Mbeki earlier this year 
had been completed and would be released after being presented to 
the President.  A mining industry expert said the audit was not 
serious, reflecting skills shortages at the ministry.  Official 
figures for deaths in other industries are not available, but a 
steady stream of fatal accidents on construction sites and in 
factories has been reported.  (Sunday Times, September 7, 2008) 
 
--------------------------- 
Government Seeks ICT Advice 
--------------------------- 
 
¶13. (U) Appointments of a raft of advisers are expected to help 
South Africa utilize ICT more effectively.  The announcement follows 
a three-day meeting between President Thabo Mbeki and his 
Presidential International Advisory Council on Information Society 
and Development, which ended on August 7.  The council is a 
high-level panel made up of 23 advisors, including representatives 
from SAP, Microsoft, Nokia, Oracle, and HP.  Mbeki said: "The 
establishment of the council is born from the fact that there is a 
Qestablishment of the council is born from the fact that there is a 
lack of a coordinated, coherent and integrated approach for 
addressing the ICT skills shortage at all levels in the country." 
The meeting focused on developments in ICT and reviewed progress in 
areas such as e-government, education, and health.  A new, local 
CEOs' forum is expected to help implement decisions taken by the 
advisory council, now in its seventh year of existence.  In 
addition, advisers would work with the Department of Trade and 
Industry's Trade and Investment South Africa Division to ensure that 
South Africa improves its ICT investment.  A scorecard would be 
developed to measure progress against set goals.  Mbeki said "as 
government, service providers and operators we need to look into 
innovative approaches to expand connectivity in rural areas."  The 
country's readiness to host the 2010 FIFA World Cup was also 
discussed.  The country is expected to spend between R2 billion and 
R5 billion ($250-625 million) on ICT infrastructure for the games. 
This would include event management systems with software to manage 
the accreditation of delegates, as well as transportation, travel, 
and protocol systems.  (Business Day and Engineering News, September 
8, 2008) 
 
--------------------------------- 
ICASA Moves to Issue New Licenses 
 
PRETORIA 00002032  005.2 OF 006 
 
 
--------------------------------- 
 
¶14. (U) ICT regulator Independent Communications Authority of South 
Africa (ICASA) has begun issuing new licenses that will permit 
operators to build their own networks.  The announcement comes just 
a week after ICASA lost a legal case that opened the sector up to 
increased competition.  ICASA will hand out two types of licenses to 
replace those that became defunct when the Electronic Communications 
Act was promulgated in 2005.  The most valuable version should 
ultimately be issued to about 300 internet service providers and 
other voice and data carriers, thanks to a court case instigated by 
Altech.  ICASA said it would not challenge the high court verdict, 
which declared that every company holding an old Value Added Network 
Services (VANS) license was entitled to build its own network. The 
verdict was a rebuke for ICASA and Department of Communications 
Minister Ivy Matsepe-Casaburri, since they were planning to reserve 
the network-building licenses for a handful of select players. 
Altech's triumph heralds a new level of competition and the promise 
of cheaper calls, as the companies will no longer be forced to lease 
their facilities from Telkom.  ICASA said it was now ready to issue 
the new licenses.  However, only 27 companies were included in the 
initial list to collect the two types of licenses; one letting them 
build their own networks and the other letting them offer electronic 
communications services.  Those companies can also collect a 
separate license giving them access to the spectrum they need in 
order to operate.  ICASA spokesman Sekgoela Sekgoela said this was 
the first part of a process that would eventually reach all players. 
 ICASA would issue a further notice "in due course" with regard to 
the outstanding licenses for those not among the first batch, he 
noted.  Telkom, Neotel, and the cellular operators can collect their 
converted licenses only after ICASA has finalized how much it 
intends to charge them in license fees.  Industry analysts have 
criticized ICASA for the delay in finalizing the fees structure. 
Although hundreds of companies will technically have the right to 
construct their own networks, only a dozen or so will be able to 
afford the estimated R1 billion ($125 million) it would cost to roll 
out a national infrastructure.  However, just holding a license to 
build their own networks will give them substantially more clout in 
negotiating the cost of leasing their facilities from the incumbent 
players.  (Business Day, September 8, 2008) 
 
----------------------------------------- 
Cable-laying Company to Profit from ICASA 
  Decision to Issue New Licenses 
----------------------------------------- 
 
¶15. (U) Cable-laying company Dark Fibre Africa sold a 10% stake in 
its business to Absa Capital.  Absa would not comment on the value 
of the 10% stake, but said the amount is separate from the R950 
million ($118 million) pledged by Absa to help Dark Fibre grow its 
business.  Dark Fibre focuses on the unglamorous part of the ICT 
sector, which involves digging up roads and laying cables.  Its 
prospects have been raised by the Independent Communications 
Authority of South Africa's (ICASA) decision to heed a court ruling 
QAuthority of South Africa's (ICASA) decision to heed a court ruling 
and grant additional ICT licenses, which will allow Value Added 
Network Services (VANS) to build their own ICT networks and 
infrastructure.  These VANS may hire Dark Fibre Africa to do the 
dirty work if they decide to take advantage of the ICASA decision. 
The company plans to invest R2 billion ($250 million) on rolling out 
broadband infrastructure to sell or operate for multiple ICT 
players.  Absa Capital spokesman Sollie Nortj said Dark Fibre 
Africa was South Africa's only fiber-optic specialist to use 
trenching technology that installed cables up to three times faster 
than traditional methods.  Dark Fibre's plans include entering other 
lucrative African countries with a lack of ICT infrastructure. 
(Business Day, September 11, 2008) 
 
-------------------------------------------- 
SA Firm Acquires Stake in Indian Distributor 
-------------------------------------------- 
 
¶16. (U) South Africa-based ICT group Datatec has acquired a 50.01% 
stake in India-based ICT distribution business Inflow Technologies. 
The stake in Inflow provides Datatec with an entry point and initial 
footprint in India.  Inflow has a presence in nine key Indian cities 
and has operations in Sri Lanka and Singapore.  Datatec CEO Jens 
Montanana said: "India is a very large and fast growing market 
offering strong prospects in our sector with a lower cost of entry 
compared to many other developing markets and potentially higher 
 
PRETORIA 00002032  006.2 OF 006 
 
 
returns and greater organic investment opportunities."  He added 
that investment in Inflow is another step in Datatec's strategy to 
increase its exposure to the world's major emerging markets. 
(Engineering News, September 11, 2008) 
 
BOST