VZCZCXRO9481
RR RUEHDU
DE RUEHSA #2195/01 2801542
ZNR UUUUU ZZH
R 061542Z OCT 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5920
INFO RUEHTN/AMCONSUL CAPE TOWN 6098
RUEHDU/AMCONSUL DURBAN 0240

UNCLAS SECTION 01 OF 04 PRETORIA 002195 
 
SIPDIS 
 
DEPT. PLEASE PASS TO USTR FOR C. HAMILTON 
DEPT FOR AF/EPS A. BREITER AND G. MALLORY 
 
E.O. 12958: N/A 
TAGS: ECON ETRD AGOA SF
SUBJECT: SOUTH AFRICA INPUT FOR 2009 AGOA ELIGIBILITY REVIEW 
 
REF: SECSTATE 85086 
 
¶1.  In response to Ref A, Post provides the following input 
for the 2009 AGOA eligibility review. 
 
-------------------------- 
Country Background Summary 
-------------------------- 
 
 ¶2.  The population of South Africa was 48.7 million in 
mid-2008.  In 2007, South African Gross National Income (GNI) 
was $255 billion; GNI per capita was $5,390.  South African 
exports to the U.S. were $9.1 billion in 2007, an increase of 
22% from 2006.  Platinum group metals were the biggest export 
item to the U.S, followed by vehicles and transport 
equipment.  Over 98% of South Africa's exports to the U.S. 
were duty-free in 2007 due to the combination of AGOA, GSP 
benefits, and South Africa's most-favored nation status. 
 
-------------------- 
Market-based Economy 
-------------------- 
 
¶3.  Major Strengths Identified:  South Africa continues to 
make progress in deepening its market-based economy. 
Government expenditure as a percentage of GDP is lower than 
the OECD average.  That is partially due to the fact that the 
country does not have a national pension system.  The economy 
has achieved record growth on the strength of the private 
sector and robust domestic demand.  The real annualized 
economic growth during the four quarters of 2007 was 5.5 
percent (revised from 5.1).  The forecast for growth is 3.5 
to 4.0 in 2008 with a similar level of growth expected in 
¶2009.  The government has set sound macroeconomic objectives, 
and has managed to eliminate the fiscal deficit.  The 
government had a fiscal surplus of 0.3% of GDP in 2007. 
Inflation (CPIX, or consumer price inflation less mortgage 
costs) was relatively high at 13% in August 2008.  Increasing 
food and fuel prices have pushed CPIX above the upper end of 
the 3% to 6% inflation target range for the better part of 
2007 and 2008.  Strong fundamentals, comparatively high 
interest rates, and the view that the rand is essentially a 
commodity-based currency have kept the value of the rand 
strong.  However, in 2007 the rand started to depreciate 
following turbulence in the global financial markets and 
concerns about South Africa's large current account deficit. 
This caused the rand to depreciate from about R7/1USD in 
early June 2007 to almost R8.2/1USD in September 2008.  In 
June 2008, the South African Reserve Bank (SARB) hiked its 
policy interest rate for the 10th time since June 2006.  The 
SARB's tightened monetary policy can be attributed to higher 
food and oil prices, continued growth in domestic credit, and 
a weaker rand.  The SARB now expects inflation to remain 
above the target range until the second half of 2010. 
 
¶4.   Poverty and unemployment, compounded by the impact of 
HIV/AIDS on the work force, remain serious issues.  Official 
unemployment was 23.1% in June 2008 and total unemployment 
(including discouraged workers who did not actively seek 
employment, was 35%.  Researchers estimate that the country 
needs 6.0% growth for a decade or more to halve unemployment 
(i.e., to reach an official unemployment target of 15%).  The 
strong rand has been problematic for labor-intensive 
industries and exporters of all kinds, especially for 
textiles and apparel.  The depreciation in the rand during 
the last half of 2007 and 2008 has improved the position of 
these industries in 2008.  The growth in the economy has also 
led to an unexpectedly large current account deficit.  South 
Africa's current account deficit has grown steadily, reaching 
7.3% of GDP in the second quarter of 2008.  Such levels 
Q7.3% of GDP in the second quarter of 2008.  Such levels 
expose South Africa to the risk of a sharp currency 
depreciation should capital inflows fall off dramatically. 
Looking forward, the current account is likely to improve, 
albeit modestly, during the remainder of 2008 on the back of 
an improvement in mining production and a slowdown in the 
domestic economy, and hence import demand.  The economy is 
still encumbered by new regulations and layers of 
bureaucratic regulation that can inhibit domestic and foreign 
investment.  Many government departments and agencies suffer 
severe capacity constraints and have thus been unable to 
implement programs on time and with minimal confusion.  The 
economy is still hampered by severe skills shortages in all 
sectors.  U.S. firms are supportive of the aims of the 
government's Black Economic Empowerment (affirmative action) 
program, but they continue to have reservations about the 
implementation of regulations and provisions calling for 25% 
equity ownership for large and medium-sized companies by 
black, or formerly disadvantaged, groups in South Africa. 
Infrastructure bottlenecks and shortages, including growing 
 
PRETORIA 00002195  002 OF 004 
 
 
electrical power outages, limit growth investment.  High 
crime levels add increased costs to businesses. 
 
--------------------------------------------- 
Political Reforms/Rule of Law/Anti-Corruption 
--------------------------------------------- 
 
¶5.  Major Strengths Identified:  In April 2004, South Africa 
held free and fair elections in which the ruling African 
National Congress (ANC) won nearly 70% of the vote.  Seats in 
the Parliament's National Assembly are allocated based on the 
percentage of votes each party receives.  In the 2004 
elections, the ANC won 279 of the 400 seats in the Assembly, 
followed by the Democratic Alliance, which won 50 seats, and 
the Inkatha Freedom Party, which took 28.  Subsequent 
"floor-crossing" periods, in which MPs were allowed to change 
parties, resulted in the ANC gaining 20 more seats for a 
total of 297.  The Cabinet includes 28 ministers from the ANC 
and one from the Azanian People's Organization (AZAPO). 
Mbeki extended the cabinet to include ANC Deputy President 
and current state president Kgalema Molanthe as minister 
without portfolio.  Upon Mbeki's forced resignation in 
September 2008, the AZAPO minister, along with eleven other 
cabinet ministers, resigned with Mbeki.  The Constitution's 
bill of rights provides for due process including the right 
to a fair and public trial within a reasonable time of being 
charged, and the right to appeal to a higher court.  South 
Africa has an excellent anticorruption regulatory framework, 
highlighted by the passage of the Prevention and Combating of 
Corrupt Activities Act of 2004.  For the first time, the Act 
defined the scope of corrupt activities and thus is a welcome 
complement to other anticorruption laws.  Mbeki made the 
fight against corruption a hallmark of his administration. 
ANC parliamentarians, and provincial and municipal officials 
have been charged, arrested, and convicted of corruption, 
signaling official discouragement of this practice.  In 
addition, the ruling ANC ousted five MPs from the party and 
Parliament who were found guilty of pocketing Parliamentary 
travel funds.  Mbeki lost the leadership of the ANC to Jacob 
Zuma in December 2007 at the party's national congress in 
Polokwane.  Mbeki resigned from the position of President of 
South Africa on September 25, 2008 after the ANC recalled him 
from the position of President and he was replaced by 
President and ANC Deputy President Kgalema Motlanthe. 
Elections are scheduled for April 2009. 
 
¶6.  Major Issues/Problems Identified:  Police use of lethal 
force against suspects resulted in a significant number of 
deaths, and deaths in police custody were a problem.  The 
government investigated and punished some abusers.  Violent 
crime is high, frightens the public, discourages investment, 
and strains the judicial system.  Severe prison and prolonged 
pretrial detention are problems.  Despite advances against 
corruption, there is still the widespread view that 
corruption is present in some parts of the government, 
particularly within the South African Police Service and the 
Department of Home Affairs.  In May 2008, xenophobic attacks 
aimed at African foreigners and some South African ethnic 
minorities broke out and spread nationwide.  Sixty-two people 
died and about 100,000 people were displaced in connection 
with the attacks.  Other deaths have occurred as the 
displaced persons returned to their original or other 
communities. 
 
----------------- 
Poverty Reduction 
----------------- 
 
¶7. Major Strengths Identified:  Mbeki continued to make the 
Q7. Major Strengths Identified:  Mbeki continued to make the 
reduction in poverty and the raising of the level of 
employment cornerstones of his second term in office.  Years 
of fiscal discipline by the SAG are making it possible for 
the government to reduce the interest cost of the national 
debt, lower marginal tax rates and increase government 
expenditures on social programs and capital expenditures.  As 
a result, government expenditure on social programs has 
doubled in the last five years.  In February 2008, Finance 
Minister Trevor Manuel presented this year's budget to 
Parliament.  Once again, the government increased spending on 
poverty reduction and social services such as access to 
housing, electricity, sanitation, child and pension grants, 
education, and HIV/AIDS programs.  The government also 
allocated new funds to prepare for the 2010 World Cup, 
including budget allocation for new roads and energy 
infrastructure.  In an effort to stimulate faster growth, 
generate employment and improve the country's 
competitiveness, government expenditure for infrastructure 
spending totals some $50 billion between 2007 and 2010.  Of 
this, about 40% will be spent by public enterprises, mostly 
 
PRETORIA 00002195  003 OF 004 
 
 
Eskom ($11 billion covering energy generation, transmission 
an distribution) and Transnet ($6 billion, of which $5 
billion will go towards harbors, ports, railways and 
petroleum pipelines).  In 2004, Mbeki launched the Expanded 
Public Works Program, a major new jobs initiative similar to 
U.S. Depression-era work programs.  The objective is to 
create one million temporary jobs, and in so doing impart 
skills and bring more of the unemployed into the mainstream 
workforce.  Jobs and skills are increasing through the 
government's Expanded Public Works Programme (EPWP) and small 
farmers are benefiting from the Agriculture Starter Pack 
Programme and the Comprehensive Agricultural Support 
Programme.  The cumulative number of total new work 
opportunities created under the EPWP since its commencement 
in April 2004 through December 2007 is at least 776,190.  It 
is expected that the program will exceed its target of one 
million work opportunities, set for its first five years. 
The government introduced programs to supply free basic water 
and electricity to all, and has been working to expand its 
low and no-income housing programs.  More than 2.3 million 
subsidized housing units have been built since 1994.  Since 
1994, 10 million more people have access to clean water.  The 
government raised the age of eligibility for child support 
grants to cover all children up to the age of 14.  The 
government increased welfare grants going to old age 
pensioners, reducing the qualifying age of men from 65 to 60 
years phased over a period of three years.  The government 
also increased welfare grants to foster care (important to 
the growing number of HIV/AIDS orphans) and the disabled. 
The government's expenditure on HIV and AIDS has increased 
from R30 million in 1994 to about R4.6 billion in 2008.  The 
very poor are steadily improving their lives through 
increased social assistance grants.  The number of people 
benefiting has increased from 2.6 million to more than 10 
million since 1994.  The government continues to commission 
research to better understand the dimensions of poverty and 
the poverty gap, and to establish a poverty line so as to be 
able to monitor success. 
 
¶8.  Major Issues/Problems Identified:  There are serious 
skills shortages throughout the economy.  An area of 
particular concern for economists and the government is the 
shortage of skilled professionals such as doctors, nurses, 
math and science teachers, social workers, engineers, 
artisans, and project managers.  Critics increasingly focus 
on problems with the education system and inadequacies in 
vocational training programs for not producing the skills 
that the country needs.  The quality of South African schools 
remains uneven and education, though compulsory, is not free. 
 The government has moved to fully subsidize schools in the 
poorest areas and all schools are officially required to 
inform parents that they may apply for fee exemptions. 
Nevertheless, school fees and associated costs for uniforms, 
books and stationery have an adverse impact on school 
attendance.  The capacity of local government to administer 
services (administrative and physical infrastructure 
services), public-private partnerships, and welfare payments 
is limited. 
 
---------------------------------------- 
Workers' Rights/Child Labor/Human Rights 
---------------------------------------- 
 
¶9. Major Strengths Identified:  The law recognizes workers' 
rights and provides for freedom of association, the freedom 
to organize and bargain collectively and the right to strike. 
Qto organize and bargain collectively and the right to strike. 
 The law prohibits forced or compulsory labor, including 
forced child labor and the commercial sexual exploitation of 
children.  The government is ahead of its target in 
implementing child benefits grants, now available to children 
14 and under.  ILO Conventions 182 on the worst forms of 
child labor and 138 on the minimum age have been ratified. 
The Children's Act prohibits trafficking of children and the 
Child Protection Unit raises awareness of child trafficking 
and conducts investigations.  On May 13, 2008, the South 
African magistrates' courts charged a Mozambican woman with 
child trafficking.  This was the first child trafficking case 
in South Africa.  The law provides for freedom of speech and 
of the press, and the government generally respected these 
rights.  The law provides for freedom of religion and the 
government generally respected this right. 
 
¶10.  Major Issues/Problems Identified:  Since 2006, strikes 
have become more violent.  A strike by private security 
guards against their employers resulted in over 50 deaths. 
Police and strikers in other sectors clashed during a number 
of legal marches.  Food price inflation caused the number of 
strikes in 2007 to reach a new record, with 11.5 million 
workdays being lost to strike activity, according to data 
 
PRETORIA 00002195  004 OF 004 
 
 
published by the South African Reserve Bank.  The trend has 
continued in 2008.  In May 2008, the South African Municipal 
Workers Union (SAMWU) led a three-week strike in Heidelberg 
in which a teenager and a municipal worker were killed as a 
result of a disagreement between government contract workers 
and SAMWU members.  Hundreds have died in the workplace due 
to unsafe working conditions.  Health and safety regulations 
were often not observed when chemicals were used in 
agricultural work, and deaths in mining increased by 10% 
between 2006 and 2007.  Although labor laws protected farm 
workers, some farm workers' unions encountered difficulties 
trying to organize workers.  Farm workers or farm residents 
who attempted to organize were harassed, dismissed and/or 
evicted.  Child labor remains a problem in the information 
and agricultural sectors, partly fueled by the impact of 
HIV/AIDS in creating poverty.  Child sexual exploitation 
continued to be an issue.  Most prisons did not meet 
international standards, and prison conditions did not always 
meet the country's minimum legal requirements.  Violence 
against women is pervasive.  Societal attitudes and a lack of 
infrastructure, resources, and training for law enforcement 
officials hampered the implementation of domestic violence 
legislation.  Violence against children, including domestic 
violence and child rape remains widespread.  Despite 
increased attention to the problem, a lack of coordinated and 
comprehensive strategies to deal with violent crime impeded 
the delivery of needed services to young victims.  Police 
forcibly dispersed several demonstrations during 2007 which 
resulted in injuries.  Some of the demonstrations had turned 
destructive prior to the police taking action to break them 
up. 
 
--------------------------------------------- - 
International Terrorism/U.S. National Security 
--------------------------------------------- - 
 
¶11. Major Strengths Identified:  South Africa is a party to 
11 of the 12 UN counter-terrorism conventions and protocols 
and has ratified nine of the 11 as well as the African Union 
Convention of the Prevention and Combating of Terrorism.  In 
May 2005, South Africa enacted comprehensive anti-terrorism 
legislation entitled, the Protection of Constitutional 
Democracy Against Terrorist and Related Activities Act, which 
required citizens and financial institutions to report 
suspicious activity to law enforcement and allowed terrorist 
assets to be seized.  South Africa remains a member of the 
Financial Action Task Force, an intergovernmental 
organization that combats money laundering and terrorist 
financing. 
 
¶12. Major Issues/Problems Identified:  South Africa must 
still become a party to and ratify three of the UN 
counter-terrorism conventions, including: Safety of Maritime 
Navigation, Safety of Fixed Platforms on the Continental 
Shelf and Protection of Nuclear Material.  South Africa needs 
to take stronger steps to secure its identity documents and 
passports. 
 
 
 
LA LIME