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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 NOVEMBER 7, 
2008 ISSUE 
 
PRETORIA 00002469  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 45 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- Reserve Bank: Crisis Hurts South Africa 
- Manufacturing Activity Slows Down 
- More Pain for House Sellers 
- Ford Motor Company Executive Points to Inferior 
  Infrastructure, High-Priced Utilities, and Labor 
  Disruptions as Obstacles to Global Competitiveness 
- Worst Car Sales Picture Since '94 
- Bilateral Trade and the President-Elect 
- ANSAC Settles Cartel Case - The End of the Soda Ash Saga 
- Hyundai Hopes to Leverage World Cup Sponsorship 
- August Arrivals Data Reflect Global Slowdown 
- Blackouts Loom in 2009 as Electricity Saving Fails 
- Political Nuclear Meltdown 
- Companies Set Aside Land to Preserve Grasslands 
 
End Summary. 
 
 
 
--------------------------------------- 
Reserve Bank: Crisis Hurts South Africa 
--------------------------------------- 
 
¶2. (U) The local economy cannot expect to be immune from the global 
financial turmoil, reports the South African Reserve Bank's (SARB) 
latest Monetary Policy Review (MPR).  The SARB believes its own 
policymaking may be complicated "for some time" as a result of the 
financial crisis.  One of the consequences of the financial turmoil 
has been a decline in commodity prices, reported the SARB.  "From a 
narrow inflation perspective this means that one of the biggest risk 
factors to the inflation outlook has subsided significantly," it 
said.  According to the SARB, this factor, in conjunction with the 
widening output gap and subdued household consumption expenditure, 
indicates some of the pressures on inflation "may be abating." 
However, another risk has emerged in the form of the rand exchange 
rate which, along with other emerging-market currency exchange 
rates, has been negatively affected by the global turmoil. "The 
impact of the exchange rate on the inflation outlook will depend, to 
a significant degree, on the extent to which these new levels are 
sustained," said the SARB.  While inflation is set to return to the 
3%-6% range in the second quarter of 2010, the SARB said that in a 
world of "heightened turmoil and uncertainty," the risks to the 
outlook are "amplified."  The SARB reiterated, "Monetary policy will 
continue to focus on the expected medium-term inflation outcomes and 
will act appropriately to ensure that inflation returns to within 
the inflation target range over a reasonable time frame." (I-Net 
Bridge, November 5, 2008) 
 
--------------------------------- 
Manufacturing Activity Slows Down 
--------------------------------- 
 
¶3. (U) South Africa's purchasing managers index (PMI) dipped from 
47.7 index points in September to 46.2 index points in October, said 
PMI sponsor Investec.  The latest PMI, a measure of the country's 
underlying manufacturing activity, reflected the challenging 
economic environment facing producers partly due to slowing domestic 
demand.  "Not only is domestic demand slowing, but there is 
increasing evidence of further moderation in growth by our most 
important trading partners," said Investec Asset Management 
Portfolio Manager Mokgatla Madisha, adding that interest rate hikes 
and higher inflation are weighing on domestic demand.  Madisha added 
Qand higher inflation are weighing on domestic demand.  Madisha added 
the PMI could fall further over the next six months as the bleak 
outlook for the world economy pushes the recovery in the index 
further into the future.  (Beeld, November 5, 2008) 
 
 
--------------------------- 
More Pain for House Sellers 
--------------------------- 
 
¶4. (U) South African house prices decreased by 2.5% year-on-year 
(y/y) in October, as demand for property remained depressed, a 
Standard Bank property survey showed.  "The reduced affordability of 
housing, exacerbated by higher mortgage rates, high food and fuel 
 
PRETORIA 00002469  002.2 OF 005 
 
 
prices and a slowing economy, led to a decline in the demand for 
residential property and a substantial softening in house price 
growth," Standard Bank said in a statement.  Standard Bank said the 
housing sector would likely remain under pressure until the second 
quarter of 2009.  Economists expect interest rates to start falling 
in the first quarter of 2009 after the targeted CPIX inflation (CPI 
less mortgage interest) slowed for the first time, from a record 
high of 13.6% in August 2008 to 13% in September.  (Fin 24, November 
5, 2008) 
 
--------------------------------------------- ----- 
Ford Motor Company Executive Points to Inferior Infrastructure, 
High-Priced Utilities, and Labor Disruptions as Obstacles to Global 
Competitiveness 
--------------------------------------------- ----- 
 
¶5. (U) Ford Motor Company EVP for Asia Pacific and Africa John 
Parker told an audience at the Johannesburg International Motor Show 
on November 5 that protectionism and high labor costs were the 
reasons why South Africa's motor industry had higher production 
costs than countries like India, China and the ASEAN countries.  He 
said that while South Africa's Motor Industry Development Program 
was necessary, the protection it provided was largely responsible 
for the country's higher production costs.  He also noted that South 
Africa's labor costs were seven times the average wage in Thailand, 
while GDP per capita was only 20 percent higher in South Africa. 
Parker warned that South Africa could not continue to protect its 
motor industry in the long term and still be globally competitive. 
He said that Ford also needed to work with labor to increase the 
efficiency and productivity of its work force.  A key area where 
productivity needs to improve is the country's ports, which are 
among the world's costliest and least efficient.  "South Africa's 
ports are nearly five times the cost of Thailand's Laem Chabang 
port, yet deliver on average one-fourth of Laem Chabang's 
productivity," he said.  Inferior infrastructure that creates 
inefficient logistics systems, high-priced utilities that still do 
not guarantee supply, and frequent labor disruptions that cost auto 
makers in precious downtime - all contribute to an environment of 
higher operating costs and greater uncertainty," he said.  (Business 
Report, November 6, 2008) 
 
Other Ford executives noted that Mercedes, BMW and Toyota have 
already found a way to become globally competitive in South Africa, 
but that Ford had not yet reached that level of productivity. 
Ford's January 2008 announcement of a planned $150 million 
investment to produce the company's next-generation, T-6 pick-up in 
Silverton, Pretoria and the Puma diesel engine in Struandale, Port 
Elizabeth is part of the company's overall plan to become globally 
competitive by increasing production volumes to improve economies of 
scale and raising local content to reduce transport costs.  Another 
part of the plan is to find a more efficient and productive way of 
working with the labor force.  The same executives noted that while 
progress had been made in recent negotiations with the union, more 
progress needs to be made. 
 
--------------------------------- 
Q--------------------------------- 
Worst Car Sales Picture Since '94 
--------------------------------- 
 
¶6. (U) According to the National Association of Automobile 
Manufacturers of South Africa (NAAMSA), new vehicle sales 
deteriorated further in October, plunging by more than 30% to 54,569 
units compared with the same month last year. This is the worst car 
sales month on a year-on-year basis since September 1994.  NAAMSA 
said sales for the first ten months of the year were 19% lower than 
the same period last year.  NAAMSA attributed the substantial fall 
to higher-than-average new vehicle price increases in recent months 
and the extraordinary loss of confidence in global financial markets 
in recent weeks.  T-Sec Chief Economist Mike Schussler said car 
price rises in light of a weak rand mean that sales will not recover 
quickly. "It is a bad period here for car sales. We should not have 
interest rates this high at this time," said Schussler. (I-Net 
Bridge, November 4, 2008) 
 
--------------------------------------- 
Bilateral Trade and the President-Elect 
--------------------------------------- 
 
¶7. (U) The South African government anticipates that Barack Obama's 
 
PRETORIA 00002469  003.2 OF 005 
 
 
election will provide a boost for trade between Africa and the US. 
The cabinet released a statement saying that Obama's election will 
lay a "solid foundation for the redefinition of America's relations 
with the rest of the world," while Department of Trade and Industry 
(DTI) Director General Tshediso Matona told the media that the South 
African government was planning to up the ante when it came to 
negotiating trade agreements and that it was setting a "lot of 
store" by the Obama win.  Referring to South Africa's position on 
global free trade talks, Matona said that the country was committed 
to returning to them when the conditions were right, and that this 
was perhaps the opportunity to do so.  This is, of course, provided 
that the new administration in the US does not adopt a more 
protectionist stance than the outgoing administration had.  "We will 
be watching closely," says Matona, who is confident that the Obama 
win will boost the outlook for bilateral trade. (Fin 24, November 6, 
2008) 
 
---------------------------- 
ANSAC Settles Cartel Case - 
The End of the Soda Ash Saga 
---------------------------- 
¶8. (U) The American Natural Soda Ash Corporation (ANSAC), a U.S. 
industry body that had been accused of organizing its members as an 
export cartel, effectively admitted to antitrust violations and 
agreed to withdraw from the South African market.  ANSAC reached a 
settlement with the Competition Commission, bringing to an end the 
longest-running case in the Commission's history.  ANSAC admitted 
that its membership agreement had eliminated price competition 
between its members in export sales in contravention of the 
Competition Act.  ANSAC agreed to stop export sales to South Africa 
within six months of the confirmation of the agreement and to "make 
modifications" for members to individually sell into South Africa. 
ANSAC will pay a R9.7 million ($1 million) fine, which amounts to 8% 
of its annual turnover in South Africa.  The corporation also agreed 
to pay the legal expenses of soda ash producer Botswana Ash 
(Botash), which brought the initial complaint. 
It is believed the costs of the case, which dragged on for almost 10 
years, were likely to match the size of the fines.  ANSAC President 
John Andrews explained this week that the South African soda ash 
market was no longer attractive given the costs of the case and the 
availability of other profitable markets.  ANSAC could return to the 
South African market if the DTI designates the soda ash industry as 
"strategic."  Such a designation would allow ANSAC to obtain an 
exemption from competition challenge.  ANSAC is a group of companies 
that coordinate efforts in export markets. 
The collaborative arrangement is authorized in terms of the U.S. Web 
Pomerene Act, which allows for such arrangements in export markets, 
but prohibits them at home.  Competition Tribunal Chairman David 
Lewis recommended that the settlement be posted on the International 
Competition Network's website and be referred to other countries, 
such as Brazil, Korea and Mexico, "similarly beset by having to deal 
with ANSAC".  (Business Day, November 5, 2008) 
----------------------------------- 
Hyundai Hopes to Leverage World Cup 
QHyundai Hopes to Leverage World Cup 
Sponsorship 
----------------------------------- 
 
¶9. (U) Hyundai Automotive South Africa showcased its luxury Universe 
Express bus, which it hoped would play a big part in transporting 
teams during the 2010 FIFA World Cup.  Hyundai contributed $100 
million towards the World Cup to secure its place as an official 
partner.  Hyundai Africa and Middle East General Manager Young Cho 
said the company saw its sponsorship as an opportunity to upgrade 
its brand image, since it was one of the newest entrants to the 
market in South Africa.  Hyundai commercial vehicles entered the 
South African market about five years ago.  The Universe Express was 
on display at the Johannesburg International Motor Show.  The South 
African Department of Transport recently issued a tender for 1,422 
buses, which it would require for operation during the games.  Of 
these, 210 would be luxury buses.  The results for the tender 
process are expected in January.  "We have tendered and are 
confident we will get our share," said Cho.  The company boasted 
that production lead time of the luxury coach was three months - 
including shipping.  (Engineering News, October 31, 2008) 
 
-------------------------------------------- 
August Arrivals Data Reflect Global Slowdown 
-------------------------------------------- 
 
 
PRETORIA 00002469  004.2 OF 005 
 
 
¶10.  (U) South African tourist arrival statistics for August 2008 
revealed decreases across all major source markets, with Far East 
markets dropping the most.  South African Tourism (SAT) Chief 
Operations Officer Didi Moyle blamed the drastic decreases on a 
global tourism slowdown related to the global economic crisis.  "The 
good first quarter we had in 2008 was based on travel that was 
booked in 2007.  What has been happening since then month-by-month 
is that the market is slowing and for the first time in August there 
was an actual decline.  It is at this time in the cycle that we 
generally lift from the low season (May to July). This didn't happen 
this year," said Moyle.  Asian markets accounted for the most 
significant decreases in August monthly figures.  The Chinese source 
market decreased by 47.5% y/y and the Japanese market dropped by 17% 
y/y for August arrivals.  The Asian markets were also the first to 
show declines this year with a poor July performance.  "When there 
is a crisis - particularly of an economic or financial one - the 
Japanese stop traveling very quickly. In the USA and Europe the lead 
times are longer," said Moyle. The key source markets for 
international arrivals in August were: 
 
UK, down 7.9% from 36,426 to 33,562 
USA, down 10.1% from 28,760 to 25,845 
Germany, down 15.9% from 16,071 to 13,510 
France, down 5.8% from 11,836 to 11,155 
Italy, down 4.6% from 10,998 to 10,494 
The Netherlands, down 10.4% from 10,061 to 9,019 
Australia, up 1.7% from 8,578 to 8,722 
Spain, down 3.3% from 5,672 to 5,487 
India, down 7.2% from 5,202 to 4,827 
Canada, little difference from 4,104 to 4,012 
 
(Travel Hub, November 6, 2008) 
 
 
------------------------- 
Blackouts Loom in 2009 as 
Electricity Saving Fails 
------------------------- 
 
¶10. (U)  South Africa may face fresh power cuts early in 2009 
because voluntary energy savings have fallen "woefully" below the 
required 10%, new Minister for Public Enterprises Brigitte Mabandla 
said.  State-owned utility Eskom has been rationing electricity 
since January, when the national grid nearly collapsed.  Mabandla 
said savings on a voluntary basis were only 2%, well short of the 
10% efficiency correction needed to provide the necessary reserve 
margin to stabilize the system.  "Should the necessary savings 
levels not be achieved, then the risk of load-shedding to prevent 
system-wide blackouts increases massively going into 2009 and 
beyond."  Under the new program, she said, consumers using more than 
the required limit of 90% of their normal power requirements would 
face tariff penalties.  Mabandla noted Eskom had made progress on 
reducing unplanned outages since last January 2008 and had increased 
coal stockpiles to a conservative 30 days across power stations.  On 
the decision between Westinghouse and Arevea for new nuclear build, 
Mabandla said, "no final decision has been made.  The real challenge 
that we have to overcome is the capital cost of the nuclear build 
relative to the cost of a coal build."   (Sunday Times, Engineering 
News, November 2, 2008) 
 
-------------------------- 
Political Nuclear Meltdown 
-------------------------- 
 
¶11.  (U)  South Africa's trillion-rand "nuclear renaissance" hangs 
Q11.  (U)  South Africa's trillion-rand "nuclear renaissance" hangs 
in the balance as funding problems and political indecision bite 
into the Mbeki administration's grand design for a fleet of new 
nuclear power stations and a full-scale support industry.  Eskom has 
missed deadlines - most recently during the week former President 
Thabo Mbeki was ousted - to decide on a preferred bidder for 
"Nuclear 1", a new-generation conventional power station.  Press 
reports note Eskom has asked the bidders Areva and Westinghouse to 
be patient until December, after delays over the course of 2008.  An 
energy analyst said, "As far as I know the number one reason it 
keeps getting deferred is money."  A further factor was "the new 
guys taking over from the old and not liking the decisions of the 
old."  Compounding matters is access to finance and Eskom's 
downgraded credit ratings.  Eskom has formally applied to the 
Treasury to guarantee its capital expansion-related debt.  (Mail & 
 
PRETORIA 00002469  005.2 OF 005 
 
 
Guardian, October 31, 2008) 
 
--------------------------------------------- - 
Companies Set Aside Land to Preserve Grasslands 
--------------------------------------------- - 
 
¶12.  (U) Eight South African forestry companies have allocated 
45,000 hectares of grasslands at 37 Mpumalanga and Kwa-Zulu Natal 
(KZN) sites to be declared nature reserves or protected land. 
Within each area categorized as grasslands, there could be hundreds 
of species with extensive, old root systems, said Grasslands Program 
official Steve Germishuizen.  Germishuizen noted South African 
grasslands have been overlooked or mistreated for a long time. 
According to Germishuizen, farmers have ploughed over them, 
foresters have planted them with alien species, and commercial 
development has encroached upon them.  The recently established 
Grasslands Program is meant to help increase the number of protected 
grasslands, especially the "mist belt grasslands" in KZN and 
Mpumalanga provinces, where agriculture and forestry industries 
threaten them.  Germishuizen said that the Grasslands Program will 
work with the provincial conservation agencies and tribal 
authorities on the 37 sites to improve grassland management capacity 
and protect the native species.  (Pretoria News, October 27, 2008)