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RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 04 PRETORIA 002390 
 
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 31, 
2008 ISSUE 
 
PRETORIA 00002390  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 8, issue 44 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- CPIX Inflation Drops 
- SA Receives 'Negative' Rating 
- Mboweni: South Africans Ignorant of Crisis 
- Corn Farming Not Profitable in Current 
  Climate 
- SA Unemployment Rate Higher 
- SACU in EU-South Africa Talks Crossfire 
- Polokwane International Airport Now Open 
- Ford South Africa Set to Reduce Production Platforms and 
  Target Global Export Market 
- Eskom Names Pre-qualified Developers for Independent 
  Base-load Program 
- Sasol Seeks Greater Upstream Independence 
- Rehabilitating Defunct Mines Proves Costly for DME 
 
End Summary. 
 
-------------------- 
CPIX Inflation Drops 
-------------------- 
 
¶2. (U) CPIX inflation (CPI less mortgage interest) in South Africa 
dropped for the first time in twelve months, falling from 13.6% in 
August to 13.0% in September.  Headline CPI inflation fell from 
13.7% to 13.1%.  Forecasters had predicted that both measures would 
ease to 13.3%.  Experts say that CPIX inflation peaked in August and 
will continue to fall in coming months.  While rand weakness and 
volatility pose key inflationary risks, the South African Reserve 
Bank (SARB) is likely to remain focused on the expected improvement 
in the medium-term inflation outlook, as slower economic growth and 
a new CPI methodology should pull inflation lower.  The 
better-than-expected inflation supports the notion that interest 
rate relief may come during the first six months of 2009, even as 
inflation remains above the 6% inflation target ceiling.  (ABSA 
Capital Research, October 30, 2008) 
 
----------------------------- 
SA Receives 'Negative' Rating 
----------------------------- 
 
¶3. (U) Rating and Investment Information Incorporated (R&I) has 
revised its rating outlook for South Africa from stable to negative. 
 South Africa's domestic and foreign currency debt ratings remain 
unchanged at "A" and "A-" respectively.  The National Treasury 
observed that the South African government is aware of the 
challenges regarding the current account deficit, inflationary 
environment, and GDP growth outlook of the country.  "These 
challenges are not unexpected and government took appropriate 
measures early on to address them," said a Treasury official, 
adding, "these [measures] include significantly reducing the level 
of government debt and increasing official reserves through 
sustained prudent fiscal and monetary policies.  As a result, South 
Africa is well positioned to weather the current global financial 
crisis."  R&I was the first and remains the only major rating agency 
to rate South Africa's foreign currency debt issue in the single "A" 
category ("A-" with a stable outlook) since December 2006.  (I-Net 
Bridge, October 24, 2008) 
 
 
------------------------------------------ 
Mboweni: South Africans Ignorant of Crisis 
------------------------------------------ 
 
¶4. (U) SARB Governor Tito Mboweni, speaking at the Bond Exchange's 
annual Spire Awards, delivered three stern messages: inflation 
targeting should be left alone; a weak rand should not be pursued; 
and a larger fiscal deficit would not be appropriate.  He said that 
Qand a larger fiscal deficit would not be appropriate.  He said that 
people calling to abandon inflation targeting, weaken the rand, and 
rack up larger fiscal deficits should be "prayed for."  Mboweni said 
that sound macro-economic policies and strong regulation, including 
unpopular exchange controls, will ensure that South Africa is able 
to ride out the global financial storm better than most other 
countries.  Mboweni also said that South Africans are not 
sufficiently aware that they are living through a severe global 
crisis because they are relatively protected from its impact.  "I 
 
PRETORIA 00002390  002.2 OF 004 
 
 
can tell you we are living through a major crisis not seen maybe 
since the 1930's," he emphasized. "The world as we know it has 
changed, but it is difficult to make sense in South Africa," he 
said.  (Beeld, October 24, 2008) 
 
--------------------------------------------- - 
Corn Farming Not Profitable in Current Climate 
--------------------------------------------- - 
 
¶5. (U) The Department of Agriculture's Crop Estimates Committee said 
the land area upon which farmers might plant could be cut to from 
last year's 2.7 million hectares to 2.5 million hectares.  The 
Committee attributed this to limited availability of credit, higher 
input costs and lower international corn prices.  Overall input 
costs have increased 90% since last September.  Grain SA Economist 
Nico Hawkins said fertilizers, chemicals and farm equipment costs 
have risen.  However, the price of corn has not increased at all for 
the past 16 months, said Hawkins.  At current prices, farmers might 
consider switching to crops such as soybeans and sunflowers.  It is 
expected that a global recession would have a significant impact on 
corn prices, especially in China and the US, the latter of which 
subsidizes about a third of its crop for the production of ethanol. 
(Business Times, October 26, 2008) 
 
--------------------------- 
SA Unemployment Rate Higher 
--------------------------- 
 
¶6. (U) Statistics South Africa's (StatsSA) Quarterly Labor Force 
Survey (QLFS) reports that the official unemployment rate edged up 
from 23.1% in the second quarter of 2008 to 23.2% in the third 
quarter.  The number of people with a job decreased from 13,729 
million in the second quarter to 13,655 million in the third 
quarter.  A sharp 7.1% drop in informal sector employment, which 
shed 165,000 jobs, is to blame for the higher unemployment rate. 
This informal sector job loss more than offset a gain of 24,000 new 
jobs in formal sector employment, which excludes agriculture.  Most 
sectors of the economy shed jobs between July and September, 
reported the QLFS, with the biggest cuts taking place in finance, 
manufacturing and mining.  Employment in the mining sector dropped 
9.2% to 314,000, while employment in the finance sector fell 3.3% to 
1.632 million.  Employment in the construction sector, the economy's 
fastest growing sector, dived 3.2% to 1.102 million.  South Africa's 
unemployment rate peaked at 29.3% in 2003 and has hovered around 
23.1% since 2006.  (Business Day and Beeld, October 29, 2008) 
 
 
--------------------------------------- 
SACU in EU-South Africa Talks Crossfire 
--------------------------------------- 
 
¶7. (U) Fears persist that South Africa might use the implementation 
of the South African Custom Union's (SACU) Economic Partnership 
Agreement (EPA) with the European Union (EU) as a reason to break up 
SACU.  SACU was split last year when Botswana, Lesotho, Namibia and 
Swaziland broke ranks with South Africa and signed the interim EPA, 
which brings bilateral trade with Europe into conformity with WTO 
rules.  SACU members are prohibited under the SACU membership 
agreement from entering into new preferential trade agreements with 
third parties without the consent of other members.  Sources say 
Qthird parties without the consent of other members.  Sources say 
South Africa may use the split over the EPA to break up the union 
and escape SACU's customs-revenue sharing agreement.  South Africa 
pays large sums of money to the other SACU members under the 
agreement.  These payments equal as much as half of the government 
budgets in Lesotho and Swaziland and a still significant amount of 
the budgets in Botswana and Namibia.  A source close to the EPA 
talks said, "There is political will to kill the union because of 
the customs payments.  Everyone seems to agree that the EPA will not 
include South Africa, but that means South Africa also does not want 
the others to sign."  The death of SACU would have grave economic 
implications for all of the member states.  The governments of 
Lesotho and Swaziland rely heavily on SACU revenues.  In the absence 
of a WTO-compatible EPA, Botswana and Namibia's exports to Europe 
revert to GSP status, under which tariffs are even steeper.  The 
loss of these revenues and trade preferences could have severe 
economic impact on all four countries.  (Business Day, October 28, 
2008) 
 
---------------------------------------- 
 
PRETORIA 00002390  003.2 OF 004 
 
 
Polokwane International Airport Now Open 
---------------------------------------- 
 
¶8. (U) The new Polokwane International Airport was opened at a 
special event on October 21.  The airport is owned and managed by 
Limpopo province.  Authorities are hopeful that the new facility 
will attract more foreign tourists and contribute to the province's 
economy during and beyond the 2010 FIFA World Cup.  It is expected 
that the Polokwane Airport will service about 200,000 passengers per 
year.  (Travel Hub Report, October 27, 2008) 
 
------------------------------------------ 
Ford South Africa Set to Reduce Production 
Platforms and Target Global Export Market 
------------------------------------------ 
 
¶9. (U) Ford Motor Company of Southern Africa CEO Hal Feder announced 
that Ford is flattening its global manufacturing structure and 
reducing its number of production platforms from 25 to 9.  "We'll do 
this by being smarter, and without diminishing the number of brands 
we have," Feder noted.  A "platform" is a shared base on which 
several models may be built.  The new Fiesta, to be launched at the 
Johannesburg International Motor Show next month, represents one of 
Ford's new platforms.  "By doing this, we'll see a significant 
improvement in cost - we'll be able to buy parts in millions, and 
not thousands - and we'll be able to improve the quality of our 
vehicles," said Feder.  The changes at Ford SA will ensure that 
about 92% of the company's showroom will be new or refreshed by 
mid-2009.  These developments are part of Ford's new global product 
development and product revitalization strategy, called the One Ford 
Vision - a single global company designing and building cars for a 
single, global customer base, not divided by regional or national 
borders.  Ford will produce 65,000 units from four platforms in 
2008, and 110,000 units from one platform in 2011.  Ford plans to 
sell 20,000 of these final units locally, and export 90,000 units to 
Africa and Europe.  (Engineering News, October 24, 2008) 
 
------------------------------------ 
Eskom Names Pre-qualified Developers 
for Independent Base-load Program 
------------------------------------ 
 
 
¶10. (U) Eskom released the names of the 23 national and 
international developers that it unconditionally pre-qualified to 
produce electricity under the multi-site base-load independent power 
producer program.  Eskom Demand-Side Management General Manager 
Andrew Etzinger confirmed that the bids predominately featured 
conventional coal technologies.  He noted that developers would 
submit detailed plant design and environment mitigation steps during 
the next round of the process.  A liquefied natural gas plant, a 
liquefied petroleum plant, a hydro power plant, and a solar plant 
are under consideration.  The list includes a mix of French, 
Chinese, Indian, and other developers, but no U.S. firms.  These 
developers are scheduled to receive requests for proposals at the 
end of November. The final bids would close in May 2009 and deals 
would be concluded in the first quarter of 2010.  Meanwhile, 
Independent Power South Africa (IPSA) announced that it was in 
advanced discussions to sell four gas turbines, previously intended 
Qadvanced discussions to sell four gas turbines, previously intended 
for its Coega project, near Port Elizabeth.  IPSA said it was still 
committed to developing a 1,600 MW combined cycle gas turbine plant 
there, but delays in implementation of the project forced it to 
release turbines it had committed to acquire.  (Engineering News, 
October 24, 2008) 
 
----------------------------------------- 
Sasol Seeks Greater Upstream Independence 
----------------------------------------- 
 
¶11.  (U)  Petro-chemical giant Sasol has shifted its strategic 
emphasis from downstream gas-to-liquids (GTL) and coal-to-liquids 
(CTL) processing to discovery, development, and possible acquisition 
of natural gas reserves, note analysts.  This could indicate an end 
to the Sasol-Chevron joint venture, formed in 2000 to combine 
Chevron's access to gas reserves with Sasol's ability to "monetize" 
stranded gas assets.  The venture has seemingly failed to live up to 
expectations, having delivered few opportunities for GTL.  In fact, 
the first commercial plant has been developed by Sasol in 
partnership with Qatar Petroleum, rather than Chevron, while Chevron 
 
PRETORIA 00002390  004.2 OF 004 
 
 
is whittling down its stake in its Nigerian joint venture.  Sasol's 
ambitious three-year capital expenditure program of $700 million 
probably includes a "war chest" for upstream acquisition.  In recent 
months, Sasol has acquired assets in Australia, Mozambique, Gabon, 
and Papua New Guinea.  Sasol has started drilling offshore of 
Mozambique and it has been awarded a new block immediately west of 
the successful Temane and Pande blocks.  Sasol CEO Pat Davies said 
Sasol needs "to get our hands on more and more gas resources so that 
we can build these integrated GTL projects in various parts of the 
world into our future."  He also stressed that the group is 
confident of its ability to deploy GTL, arguing that ramp-up 
problems are under control and the $1 billion plus Oryx GTL plant in 
Qatar is at hand.  (Engineering News, October 24, 2008) 
 
----------------------------------- 
Rehabilitating Defunct Mines Proves 
Costly for DME 
----------------------------------- 
 
¶12.  (U) Department of Minerals and Energy (DME) Chief Director of 
Economic Analysis Tseko Nell said this week that "Despite the 
economic gains derived from the mining industry, mining activities 
have also resulted in disastrous environmental acts."  Nell noted 
that mining is the leading generator of solid waste, and that the 
waste generated by mining has a direct and indirect impact on air, 
biological resources, and land.  The DME is spending millions of 
rand to rehabilitate and manage derelict South African mines to 
which no owners lay claim.  Nell said the DME has commissioned the 
Council for Geo-Science to develop a national strategy to manage 
abandoned mines.  The strategy is aimed at developing and 
maintaining a database of the mines, and will also rank the mines in 
the order of their potential to have an impact on the environment, 
health and safety of the local communities.  Nell also noted that 
DME is in the process of developing a strategy for regional mine 
closures.  (Mining Weekly October 24-30, 2008) 
 
LA LIME