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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 04 PRETORIA 002343 
 
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 
 
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER OCTOBER 24, 
2008 ISSUE 
 
PRETORIA 00002343  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 8, issue 43 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Credit Storm Drives SA into Deficit Next Year 
- Black Middle Class Stronger 
- Zimbabwean Business Leaders Promote South African 
  Investment 
- Communications Minister Appeals Altech Judgment 
- Emirates Suspends Flight on Johannesburg-Dubai Route 
- PetroSA License for 400,000 Barrels/Day Refinery 
- Mining Industry Needs Skills 
- Two Strikes with Different Outcomes 
- Petroleum Pipeline Denied Passage through South Durban 
End Summary. 
 
---------------------------------------- 
Credit Storm Drives SA into Deficit Next Year 
---------------------------------------- 
 
¶2. (U) Finance Minister Trevor Manuel said that government finances 
will slip back into a deficit of 1.6% of GDP next year.  This would 
be South Africa's first budget deficit since fiscal year 2005-2006. 
Presenting the medium-term budget statement to parliament, Manuel 
said that the global financial crisis will curb growth in South 
Africa and make it harder to finance the country's ambitious 
investment plans.  His warnings were tempered by reassurances that 
South Africa's prudent fiscal policies will help it weather a storm 
expected to tilt developed economies into recession.  Manuel said 
the economic growth rate was set to slow slightly to 3.7% this year 
from an earlier forecast of 4%, while growth would subside to 3% 
next year.  A key pillar supporting growth is the R600 billion ($60 
billion) public sector investment program over the next three years. 
 But funding this program will require a rise in the public sector 
borrowing requirement, which will climb from 1.3% of GDP this year 
to 3% of GDP next year.  On a positive note, inflation was expected 
to fall within its official target of 3%-6% in the third quarter of 
next year as oil and food prices declined.  The new budget framework 
adds R171 billion ($15 billion) to the three-year spending plans 
tabled in February.  Of this, R59 billion ($5.2 billion) will cover 
the effects of inflation on salaries and other expenses while R50 
billion ($4.3 billion) will be for the balance of the R60 billion 
($5.3 billion) Eskom loan.  (Business Day, October 22, 2008) 
 
--------------------------- 
Black Middle Class Stronger 
--------------------------- 
 
¶3. (U) South Africa's black middle class - the so-called "Black 
Diamonds" -- number approximately three million and for the first 
time possess spending power that equals their white middle class 
counterparts.  TNS Research Surveys found that the emerging black 
middle class has increased its spending power from R180 billion ($18 
billion) in 2007 to R250 billion ($25 billion) this year.  The 
majority is becoming more financially savvy, which minimizes the 
risk of getting caught up in debt, TNS said.   An earlier survey by 
TNS showed that only 10% of the black middle class had been affected 
by the credit crunch and South Africa's high interest rates. 
Middle-class black women are faring particularly well, and now 
account for 40% of the R120 billion ($12 billion) spent annually by 
all South African women.  Almost half of the women interviewed said 
Qall South African women.  Almost half of the women interviewed said 
they earned over 50% of the household income.  Over 80% said they 
were the main household decision makers when it came to the majority 
of purchases.  Experts say South Africa's emerging black middle 
class is one of the fastest growing in the world, rising from 
poverty since the end apartheid in 1994.  (Beeld, October 13, 2008) 
 
--------------------------------------------- ---- 
Zimbabwean Business Leaders Promote South African 
Investment 
--------------------------------------------- ---- 
 
¶4. (U) Zimbabwean business leaders who attended a meeting at the 
Johannesburg Stock Exchange (JSE) said that the country's collapsed 
economy should not deter South African companies from investing. 
Executives from the financial, retail, and mining sectors said 
investing in Zimbabwe took bravery, but the rewards made the risk 
worth it.  Imara Capital Managing Director Sean Gammon commented, 
"There are already many businesses established in Zimbabwe ready to 
 
PRETORIA 00002343  002.2 OF 004 
 
 
grow, and they do not need a lot of money to capitalize them, so the 
opportunities are vast."  Zimbabwe's hugely untapped mining sector, 
where South Africa's Implats and Australia's Rio Tinto are scouting 
for opportunities, is of particular interest to foreign investors. 
Zimbabwe Stock Exchange Chief Executive Emmanuel Munyukwi said South 
African companies had the best comparative advantage because they 
"understand our market better than any of the rest of the world" and 
should buy assets which are cheap in US dollar terms. While the 
United Nations and the World Bank had calculated it could take more 
than 10 years to fix Zimbabwe's economy, Gammon said an overnight 
relaxation of exchange controls would immediately attract investment 
and portfolio funds, as well as donor funding, thus quickening the 
recovery.  (Business Day, October 22, 2008) 
 
--------------------------------------------- -- 
Communications Minister Appeals Altech Judgment 
--------------------------------------------- -- 
 
¶5. (U) Communications Minister Ivy Matsepe-Casaburri is taking the 
Independent Communications Authority of SA (ICASA) communications 
regulator to court to prevent it from issuing an electronic 
communications network services (ECNS) license to JSE-listed Altech. 
 A court action pitting a minister against an industry regulator is 
thought to be unprecedented, and comes after a high court judge 
ruled that the minister had overstepped her powers.  The judge ruled 
that Altech and about 300 other voice and data carriers were 
automatically entitled to a license giving them the right to build 
their own networks.  Matsepe-Casaburri has applied to appeal the 
verdict, claiming it would throw her policy of managed 
liberalization into chaos, but the appeal has not yet been 
considered.  The Minister also applied for an order to prevent the 
ICASA from issuing an ECNS license.  If the Minister's appeal is 
rejected, Altech can press ICASA to issue a license so it can begin 
to construct a network. The high court's ruling that value added 
network services license holders were entitled to ECNS licenses was 
a breakthrough for liberalizing the telecommunications industry 
because companies would no longer have to lease their bandwidth from 
Telkom, Neotel or cellular operators.  (Business Day, October 21, 
2008) 
 
--------------------------------------------- ------- 
Emirates Suspends Flight on Johannesburg-Dubai Route 
--------------------------------------------- ------- 
 
¶6. (U) Emirates has been forced to drop one of its three daily 
flights between Johannesburg and Dubai due to slow delivery of 
aircraft from aircraft manufacturers Boeing and Airbus.  The 
schedule change will take effect in February 2009.  Emirates 
Regional Manager for Southern Africa Fouad Caunhye said that the 
schedule change is temporary and that the airline will reinstate the 
flight when it receives new aircraft.  A strike at Boeing's Seattle 
factory delayed the delivery of 39 Boeing 777-300ERs to Emirates. 
Caunhye commented that the Boeing 777, which he called the workhorse 
of the fleet, is the aircraft model used on the Johannesburg route. 
Emirates also ordered 58 Airbus A380s, the first of which was 
QEmirates also ordered 58 Airbus A380s, the first of which was 
delivered earlier this year.  A technical issue relating to the 
wiring on the A380 derailed Airbus's delivery schedule last year. 
Airbus expects to return to its usual delivery schedule late next 
year.  (Business Day, October 20, 2008) 
 
--------------------------------------------- --- 
PetroSA License for 400,000 Barrels/Day Refinery 
--------------------------------------------- --- 
 
¶7. (U) PetroSA, South Africa's national oil and gas company, 
announced on October 2 that it had received a manufacturing license 
for its planned 400,000-barrel per day crude oil refinery.  The 
Mthombo refinery is to be constructed in the Coega industrial 
development zone (IDZ) east of Port Elizabeth in the Eastern Cape at 
a cost of $11 billion.  PetroSA CEO and President Sipho Mkhize said 
the refinery would ease the country's current and projected fuel 
shortage.  It is also of strategic importance to South Africa's 
economic development, providing a secure oil supply for the country. 
 The license allows PetroSA to manufacture refined petroleum 
products subject to obtaining environmental and other permits. 
Construction is expected to start in 2010 and the refinery should 
come on stream in 2014.  The refinery would be the biggest in Africa 
and would create about 25,000 direct and indirect jobs.  PetroSA 
previously announced its intention to dedicate the new refinery for 
 
PRETORIA 00002343  003.2 OF 004 
 
 
Venezuelan heavy oil.  Critics say that such a big refinery would 
far exceed South Africa's own requirements and could make existing 
refineries obsolete.  The SAG's response is that it will export any 
excess to neighboring countries.  (Sunday Times, October 12, 2008) 
 
---------------------------- 
Mining Industry Needs Skills 
---------------------------- 
 
¶8. (U) South Africa is not alone in facing the severe skills 
shortage afflicting the global mining industry, which has been in 
growth mode since about 2002.  Some projects are likely to be slowed 
or postponed because of the current financial turmoil, but the 
industry fundamentals still look good for the medium-term as China 
and India are in a major industrial boom.  The lack of qualified, 
experienced engineers and miners who are able to respond to another 
mining growth period is likely to be a major constraint.  Ernst & 
Young (E&Y) reports that the shortage of skills in the mining 
industry is so acute that it is likely to persist even if 5%-10% of 
the new projects are halted because of the financial crisis.  A 20 
to 30-year investment horizon is typical of the mining industry, and 
though it is not easy to halt new projects, the firm had seen some 
projects cancelled in the past weeks. According to E&Y, HIV/AIDS is 
the primary cause of mining skills shortages, followed by 
emigration.  Estimates are that a third of the country's engineering 
graduates have emigrated over the past 40 years.  Mining CEOs have 
had to adopt smarter strategies to develop and retain their 
workforce.  In response to the skills shortage, world leader in 
coal-to-liquid (CTL) technology Sasol announced an annual financial 
contribution of $3 million to South African academia to ensure the 
development of world-class science and engineering graduates. 
(Business Day, October 16, 2008) 
 
----------------------------------- 
Two Strikes with Different Outcomes 
----------------------------------- 
 
¶9. (U) Uranium One announced the temporary suspension of operations 
at its Dominion uranium mine located 150 kilometers west of 
Johannesburg on October 14.  This action follows labor disruptions 
that started on October 7 in support of employees dismissed for 
misconduct that culminated in a general strike.  A majority of the 
labor force at Dominion have refused to return to work despite 
repeated company directives and a court order by the Labor Court to 
end the strike.  The Company began issuing termination notices to 
the strikers and has dismissed 900 of its 2,500 miners. 
 
In the second case, the Black Economic Empowerment (BEE) junior 
mining company Pamodzi Gold reached a wage settlement with striking 
workers.  Miners were on strike for a week over equalization of 
wages and demands for pay increases.  The agreement includes a 14% 
increase (about the current inflation rate) in basic salary, an 8% 
increase in provident fund contributions, and a 44% increase in the 
housing allowance.  (Mining Weekly, October 14, 2008) 
 
--------------------------------------------- --------- 
Petroleum Pipeline Denied Passage through South Durban 
--------------------------------------------- --------- 
 
¶10. (U) Communities of south Durban object to Transnet's plan to 
Q10. (U) Communities of south Durban object to Transnet's plan to 
establish a pipeline to transport petroleum products from costal 
refineries to inland territory.  Durban South Communities 
Environmental Alliance (SDCEA) representative Desmond D'sa said that 
local communities experience heavy air pollution and are already 
overburdened with 15 other conduit pipelines passing through their 
areas.  The activist said that the pipelines carry hazardous 
products such as benzene, which put locals at risk of developing 
asthma or cancer.  D'sa also added that over 40 pipeline leaks have 
been recorded in south Durban since 1995.   Transnet Public 
Relations Manager Saret Knoetze said her company plans to build the 
pipeline because of heightened demand for transport petroleum 
product inland.  She argued that Transnet has consulted with all 
relevant parties including SDCEA regarding the proposed initiative. 
Knoetze emphasized that Transnet was satisfied with the 
recommendation to go ahead with the project since it was based on a 
balanced and sound environmental evaluation.  SDCEA has threatened 
to file suit to thwart the proposed pipeline project. (Business 
Report, October 16, 2008). 
 
 
PRETORIA 00002343  004.2 OF 004 
 
 
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