VZCZCXRO8889
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2183/01 2800620
ZNR UUUUU ZZH
R 060620Z OCT 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5906
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 8442
RUEHTN/AMCONSUL CAPE TOWN 6090
RUEHDU/AMCONSUL DURBAN 0232

UNCLAS SECTION 01 OF 06 PRETORIA 002183 
 
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 OCTOBER 3, 
2008 ISSUE 
 
PRETORIA 00002183  001.2 OF 006 
 
 
¶1. (U) Summary.  This is Volume 8, issue 40 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- New President Addresses Investor's Fears 
- Current Account Outlook Bleak Despite 
  Narrower Trade Deficit 
- PMI Data Shows Some Signs of 
  Improvement in Manufacturing Activity 
- Large Businesses Bear Brunt of Tax Burden 
- SA Begins Preferential Trade Talks with India 
- Transnet Port Terminals Appoints 
  New Operations Chief 
- Cape Town Firm Launches Africa's 
  First All-Electric Vehicle 
- Opposition Party Seeks an End 
  to the SAA Bottomless Pit 
- Africa Airline Passenger Volume Expected to Rise 
  Despite Global Downturn 
- Government Change Clouds Eskom Projects 
- Reserve Margin Remains Low as Eskom 
  Starts its Summer Maintenance Season 
- SA Ponders Business Spin-offs from Solar 
- Dow Jones Sustainability Index Lists Sasol 
- No Plan for State-owned Mining 
  Company "at the Moment" 
- MTN Acquires Firms in the Ivory Coast 
End Summary. 
 
---------------------------------------- 
New President Addresses Investor's Fears 
---------------------------------------- 
 
¶2. (U) New South African President Kgalema Motlanthe reiterated 
government's commitment to economic growth, employment creation, and 
poverty reduction following the ousting of President Mbeki. 
Motlanthe said that government would remain "true to the course that 
we have set", suggesting that there are unlikely to be any 
significant changes to economic policies in the near- term. 
However, policies such as inflation-targeting and running a budget 
surplus may come under increasing pressure after next year's 
elections (scheduled for next April-July).  In fact, some policies 
are already under the spotlight from some of the ANC alliance 
partners.  For instance, South African Communist Party (SACP) 
General Secretary Blade Nzimande said that the party would use an 
alliance economic summit this week to press for changes, adding that 
"those who say there won't be any policy change - sorry, we don't 
agree".  (ABSA Capital, September 29, 2008) 
 
------------------------------------- 
Current Account Outlook Bleak Despite 
Narrower Trade Deficit 
------------------------------------- 
 
¶3. (U) South Africa's trade balance narrowed from -R14.3 billion 
(-$1.7 billion) in July to -R5.1 billion (-$638 million) during the 
month of August. The improvement was largely a result of positive 
developments in the minerals sector.  Petroleum imports fell by R8.7 
billion ($1.1 billion) from July to August after rising R8.1 billion 
($1 billion) from June to July.  Despite the August improvement, a 
large current account deficit for 2008 is still expected. 
Economists estimate that the current account deficit will widen from 
7.3% of gross domestic product in 2007 to close to 8% for 2008. 
From a fundamental perspective, the large current account deficit 
continues to pose a depreciation risk to the rand, but for now the 
focus is on global developments.  Potential FDI inflows in the ICT 
and steel industries, coupled with the recent uptick in the gold 
price, could be supportive for the rand with a bias towards strength 
in the near-term.  (ABSA Capital, October 1, 2008) 
Qin the near-term.  (ABSA Capital, October 1, 2008) 
 
------------------------------------- 
PMI Data Shows Some Signs of 
Improvement in Manufacturing Activity 
------------------------------------- 
 
 
¶4. (U) The Purchasing Managers Index (PMI), which measures business 
conditions in the manufacturing sector, remained unchanged at 47 in 
September.  This marks the fifth consecutive month when the index 
 
PRETORIA 00002183  002.2 OF 006 
 
 
has remained below 50 (a below-50 reading suggests a contraction in 
manufacturing activity).  The PMI continues to point to lackluster 
manufacturing activity, but there are some signs that other business 
indicators may be deteriorating at a slower pace.  The business 
activity sub-index, which tends to be a leading indicator of 
production trends, fell from 44.4 in August to 42.6 in September. 
However, inventory levels rose and purchasing managers' expect 
business conditions to improve in six month's time.  The new sales 
orders sub-index rose from 44 in August to 45.3 in September.  On 
balance, the report suggests that manufacturing activity remains 
under pressure as domestic and international economic conditions 
continue to worsen.  (ABSA Capital, October 2, 2008) 
 
 
----------------------------------------- 
Large Businesses Bear Brunt of Tax Burden 
----------------------------------------- 
 
¶5. (U) South African Revenue Service (SARS)  Chief Operations 
Officer Edward Kieswetter said South Africa remains very dependent 
on large business for direct and indirect taxes.  Speaking at a 
recent tax administration conference in Johannesburg, Kieswetter 
said that 60-70% of SARS revenue is collected from large businesses 
every year.  SARS' large business center collected R150 billion 
($18.3 billion) for the 2006-07 financial year.  Since its 
establishment in September 2004, the center has grown from 9,100 
taxpayers to 20,900 taxpayers.  (Business Day, September 30, 2008) 
 
 
---------------------------- 
SA Begins Preferential Trade 
Talks with India 
---------------------------- 
 
¶6. (U) South Africa and India have begun talks on a preferential 
trade agreement.  This is in line with South Africa's ambitions to 
remap patterns traditionally centered on North-South trade 
relationships and to promote closer South-South ties.  However, some 
trade commentators have said that despite political commitments, the 
level of ambition of the negotiations is too low to draw in 
exporters. The agreement would supposedly open 1,000 additional 
product lines for tariff liberalization, but there are doubts that 
even this ambition would be achieved.  The South African Department 
of Trade and Industry announced the launch of the trade talks last 
week, urging industry to make inputs in the compilation of the list 
of goods of export interest to the country.  Trade Expert Danie 
Jordaan said the Southern African Customs Union (SACU) has already 
compiled a tentative list, which includes agricultural and 
agri-processed goods, chemicals, automotive parts and metals, 
machinery, and engineering equipment. India is working on a similar 
list.  (Tralac Newsletter, October 1, 2008) 
 
-------------------------------- 
Transnet Port Terminals Appoints 
New Operations Chief 
-------------------------------- 
 
¶7. (U) State-owned transport and logistics group Transnet recently 
appointed Solly Letsoalo to the position of Port Terminals (TPT) 
Chief of Operations, and made a number of other management changes. 
Letsoalo will oversee a team of divisional executive managers, who 
will oversee the container, bulk, multi-purpose, and automotive 
sectors.  Siyabulela Mhlaluka, who currently holds the position of 
Qsectors.  Siyabulela Mhlaluka, who currently holds the position of 
Development Executive at the Ngqura container terminal (Eastern Cape 
province), has been appointed Divisional Executive Manager for the 
container sector.  Terminals Transformation Executive Zeph Ndlovu 
will head the bulk sector division; and Victor Mkhize has been 
promoted from his position as Business Unit Executive at the 
Richards Bay multi-purpose terminal to Divisional Executive Manager 
for the multi-purpose and automotive sectors.  Lastly, Graham Braby, 
who served as Chief of Operations for the bulk and automotive 
sectors at TPT since 2005, has been appointed General Manager for 
Transnet Group's Richards Bay corridor.  The Richards Bay corridor 
is one of four intermodal routes of port-rail integration where 
Transnet has specifically committed to improving productivity and 
efficiency to meet the future long-term demand for freight 
transport.  A Transnet spokesperson said, "these individuals have 
played a key role in many of the strategic and operational successes 
we have enjoyed at TPT in the recent past and we look forward to 
 
PRETORIA 00002183  003.2 OF 006 
 
 
their continued problem-solving and visionary leadership as they 
assume their new roles."  (Engineering News, September 29, 2008) 
 
-------------------------------- 
Cape Town Firm Launches Africa's 
First All-Electric Vehicle 
-------------------------------- 
 
¶8. (U) Cape Town-based transport firm Optimal Energy will launch 
Africa's first all-electric, zero-emission vehicle.  The six-seater, 
multipurpose vehicle named "Joule" has been hailed as a celebration 
of South African engineering ingenuity and will make its global 
debut at the Paris Motor Show in October.  Optimal CEO Kobus Meiring 
said the sector must seek out long-term environmentally sustainable 
solutions to address issues of energy resource depletion and climate 
change from dependence on finite fossil fuels.  The Joule's chassis 
has been designed to accommodate two, large-cell, lithium ion 
battery packs.  It will take about seven hours to recharge a Joule 
pack for a 200 kilometer driving range, with two packs providing a 
400 kilometer range.  Meiring said he decided to locate the 
production facility in South Africa because the country is a 
cost-effective manufacturer and exporter of cars.  The project 
received funding and support from the Department of Science and 
Technology and the Industrial Development Corporation (Engineering 
News and Business Day, October 1, 2008) 
 
----------------------------- 
Opposition Party Seeks an End 
to the SAA Bottomless Pit 
----------------------------- 
 
 
¶9. (U) Opposition Democratic Alliance (DA) public enterprises 
spokesman Manie van Dyk said government should finally put the lid 
on the bottomless pit of South African Airways (SAA), which imposed 
a heavy and seemingly limitless burden on taxpayers.  He was 
responding to a briefing provided by the Department of Public 
Enterprises (DPE), which noted that SAA had absorbed R12 billion 
($1.5 billion) in government financial support since 2004.  SAA's 
losses totaled R13.7 billion ($1.7 billion) between 2002 and 2008. 
The $1.7 billion in losses exclude restructuring costs of R1.3 
billion ($212 million) and interest paid on loans raised from 
financial institutions with government guarantees.  Van Dyk blamed 
poor management for the airline's woes, and called for it to be 
privatized to spare taxpayers any further burden.  Poor management, 
he said, was the reason for 240 technician vacancies and 53 pilot 
and 217 technician resignations last year.  He also called for an 
independent forensic investigation into SAA's finances. 
Newly-appointed DPE Minister Brigitte Mabandla disagreed with Van 
Dyk's criticism and expressed strong support for SAA CEO Khaya 
Ngqula and his team.  No consideration was being given to replacing 
the CEO, whose contract expires in 2010.  Instead, she commended the 
CEO and current management team on the implementation of a 
comprehensive and challenging restructuring program that has enabled 
the airline to post an operating profit (prior to restructuring 
costs) of $15 million at the end of 2007-08.  Government officials 
have confirmed media reports that the airline has asked for R2-3 
billion ($250-375 million) from the National Treasury this financial 
year to offset losses sustained in the last financial year. 
Qyear to offset losses sustained in the last financial year. 
(Business Day and Business Report, October 2, 2008) 
 
------------------------ 
Africa Airline Passenger 
Volume Expected to Rise 
Despite Global Downturn 
------------------------ 
 
 
¶10. (U) Africa has emerged as one of the three strongest markets in 
the latest data released by the International Air Transportation 
Association (IATA), as the struggling airline industry battles to 
keep afloat amid the smallest growth in international passenger 
volumes in five years.  IATA's third quarter data on passenger 
growth found that the number of people flying internationally had 
increased 0.7%, compared with 4.2% growth in the second quarter, and 
8% in the previous year.  IATA is forecasting anticipated losses in 
the sector of about $5.2 billion this year and further airline 
failures.  In contrast, Africa's internal passenger growth was 18% 
during the same period.  Growth in travel between Africa and the 
 
PRETORIA 00002183  004.2 OF 006 
 
 
Middle East continued to be strong at 6.9%, and travel between 
Africa and the Southwest Pacific was 9.7%.  According to IATA, the 
strongest markets in July were within South America and markets 
connected to the Middle East and Africa.  This is positive news for 
South Africa's cash-strapped national carrier South African Airways 
(SAA), which has focused expansion plans on Africa.  SAA CEO Khaya 
Ngqula believes that there is room for future growth, especially on 
routes to Western Africa.  SAA said part of its restructuring plans 
would involve expanding services into the rest of Africa with Star 
Alliance's assistance.  Ngqula said the two biggest challenges 
facing the airline were rising fuel prices and obtaining approval 
from the government for access to some African countries.  (Business 
Day, September 30, 2008). 
 
------------------------ 
Government Change Clouds 
Eskom Projects 
------------------------ 
 
¶11. (U) A change at the helm of the Department of Public Enterprise 
(DPE), which runs state-owned power utility Eskom, may delay 
projects to expand electricity generation and mitigate the power 
crisis gripping the country.  New South African President Kgalema 
Motlanthe surprised analysts by naming former Department of Justice 
Minister Brigitte Mabandla as the new DPE Minister.  Analysts said 
Mabandla would have to get to grips with plans to build a slew of 
new power stations and help Eskom raise cash internationally, in the 
midst of a global credit squeeze.  Her term will last six-eight 
months before the scheduled general elections, leaving little time 
for meaningful changes and the possibility of further change in the 
leadership of the DPE.  One of the key tasks for Mababandla will be 
approval of huge deals to expand power generation, including a new 
nuclear power plant, contested by Westinghouse and Areva of France. 
Areva said it expected a decision soon, but added that Mbeki's exit 
could have pushed back the timing.  Mabandla has not publicly spoken 
of her plans since being sworn in September 26, but analysts do not 
expect her to radically change current policies.  (Engineering News, 
September 30, 2008) 
 
------------------------------------ 
Reserve Margin Remains Low as Eskom 
Starts its Summer Maintenance Season 
------------------------------------ 
 
¶12. (U) State-owned power utility Eskom's spokesman Fani Zulu 
affirmed that South African electricity supplies remained strained 
and vulnerable, because of a low reserve margin.   Zulu said Eskom 
found itself at present in a "bit of a tricky situation because 
South Africans had instituted savings following the pronouncement of 
the electricity crisis.  As a result, there were no black-outs 
during the (southern hemisphere) winter.  This has given consumers a 
false sense of comfort."  Department of Minerals and Energy 
spokesman Bheki Khumalo said at the last electricity stakeholder 
advisory council meeting that South Africa was "not out of the woods 
yet," as far as the electricity crisis is concerned.  Khumalo said 
if demand was not reduced, Eskom would be forced to embark on 
emergency measures such as planned and unplanned power outages. 
Eskom has started its summer maintenance season, already shutting 
QEskom has started its summer maintenance season, already shutting 
down some units.  Zulu said for now Eskom had enough money for the 
needed maintenance, but securing financing for the multi-billion 
rand expansion program, including nuclear power, was proving 
difficult.  (The Sunday Independent, September 28, 2008) 
 
-------------------- 
SA Ponders Business 
Spin-offs from Solar 
-------------------- 
 
¶13. (U) Department of Trade and Industry (DTI) Chief Director of 
Industrial Policy Nimrod Zalk said the electricity emergency 
presents a sizeable new industrial development opportunity for South 
Africa, citing solar water heating (SWH) as a prime example.  "We 
expect the SWH industry to expand exponentially, deepening its value 
chains and industrial structure," he said.  Eskom General Manager 
Andrew Etzinger says there is vast untapped potential in the SWH 
industry, and the training of new SWH installers would result in 
thousands of new jobs.  Johannesburg City Power Managing Director 
Silas Zimu says City Power plans to install SWHs in all the 
households in Johannesburg before 2010, introducing tariff 
 
PRETORIA 00002183  005.2 OF 006 
 
 
incentives to promote this goal.   Eskom is offering a rebate to 
customers who install SWHs through an Eskom-accredited and South 
African Bureau of Standards-approved supplier.  A number of 
processes are under way to create a regulatory environment that 
supports energy efficiency initiatives in South Africa, by 
implementing SWH and building standards.  DTI and Eskom are working 
to make SWH installation affordable and to augment the skills base 
to make them widely available.   (Engineering News, September 26, 
2008) 
 
------------------------ 
Dow Jones Sustainability 
Index Lists Sasol 
------------------------ 
 
¶14. (U) South African petrochemicals group Sasol's Chief Executive 
Pat Davies announced that Sasol was listed on the Dow Jones 
sustainability world index at the end of September.  Sasol is the 
first South African company to be included in the sustainability 
index, which covers 2,500 companies and consists of the top 10% of 
the largest stocks in the Dow Jones global indexes in terms of their 
sustainability and environmental practices.  He said that it is a 
great achievement for Sasol because their previous goal was to get 
to the top 15% of the oil and gas sector in 2007.  Sasol is regarded 
as one of South Africa's biggest polluters, but the company has an 
abatement project at Sasol Nitro that converts greenhouse gas 
nitrous oxide into nitrogen and oxygen as a clean development 
mechanism.   Davies added that Sasol does not sell its carbon 
credits.  Dow Jones Indexes Editor and Executive Director John 
Prestbo stated that several institutional investors were factoring 
in sustainability "and a growing number of market participants are 
integrating long-term economic, environmental and social factors 
into their analysis". (Business Day, September 26, 2008) 
 
------------------------------ 
No Plan for State-owned Mining 
Company "at the Moment" 
------------------------------ 
 
 
¶15. (U) Department of Minerals and Energy spokesperson Sputnik Ratau 
said there was no plan "at the moment" for the creation of a 
state-owned mining company as the National Union of Mineworkers 
(NUM) had proposed at South Africa's Mining Summit in September.  He 
said, "at the moment it's not government policy" to establish and 
control mines.   NUM President Senzeni Zokwana said at the Mining 
Summit: "Our call is clear and simple.  It is for the government to 
create a government mining company."  Zokwana said he was impressed 
to observe that more than 60% of all oil and gas operations were 
government-owned during his recent visit to Norway.  He added that 
there is significant state ownership of mines in Botswana, Namibia, 
and Ghana; and NUM wanted to see the creation of a mining company in 
South Africa that "not only cared for shareholders, but also for 
workers."  Zokwana, who drew continual applause at the summit, 
emphasized that the establishment of a state-owned mining company 
was very urgent.  He was not proposing the nationalization of 
existing mining companies.  However, he noted that the government 
could partner with the private sector where there was an abundance 
of platinum.  The state could take up a shareholding of 51%, and 
allow the private sector to take up 49%, in return for providing 
Qallow the private sector to take up 49%, in return for providing 
infrastructure, finance, and know-how.  He noted that diamond miner 
De Beers was already in partnership with the state in Botswana. 
Zokwana told the summit that the country was at a critical phase of 
the Mining Charter review, which was the cornerstone of mining 
industry transformation, but "we are very far from achieving the 
objectives we set for ourselves."   (Mining Weekly, September 29, 
2008) 
 
--------------------- 
MTN Acquires Firms in 
the Ivory Coast 
--------------------- 
 
¶16. (U) South Africa-based ICT firm MTN announced that it had 
acquired Afnet and Arobase Telecom through its Ctte d'Ivoire 
subsidiary for an undisclosed amount.  The acquisitions were in line 
with MTN's stated strategy to provide integrated communications 
solutions in all its markets, and followed similar acquisitions in 
Nigeria, Cameroon, and Cyprus.  "These acquisitions reflect the 
 
PRETORIA 00002183  006.2 OF 006 
 
 
progress we are making towards consolidating our business.  We 
believe both Afnet and Arobase will add value to MTN and support our 
strategy to ensure that the group is well positioned to benefit from 
a rapidly converging technology market," said MTN CEO Phuthuma 
Nhleko.  Afnet is one of the leading Internet service providers in 
the Ctte d'Ivoire and offers wireless broadband technology and data 
services to the general public.  Arobase Telecom is the second 
land-line operator in the Ctte d'Ivoire and had signed a concession 
agreement with the State of Ctte d'Ivoire, which allows it to offer 
data services using fiber optics, wireless local loop, and code 
division multiple access (CDMA) technologies.  (Engineering News, 
October 1, 2008) 
 
LA LIME