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UNCLAS SECTION 01 OF 05 PRETORIA 002515 
 
DEPT FOR AF/S/; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
USTR FOR JACKSON 
 
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 14, 
2008 ISSUE 
 
PRETORIA 00002515  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 46 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Standard & Poor's Dim View of Rand, Rates 
- JSE Out of Favor, But Not Africa 
- The Final Frontier: Nando's Opens a Fast-Food Restaurant 
  in Washington 
- Newly Enlarged Delta to Improve and Expand Africa Service 
- Vodafone Deal Expected to Unleash Expansion Shackles for 
  Telkom and Vodacom 
- Build ICT Infrastructure and They will Come 
- Eskom Dialing for Dollars - AfDB and World Bank Loans 
- Renewable Energy: Bold Targets, Little Progress 
- Miners Face Huge HIV/AIDS Challenge 
- Xstrata-Merafe Venture Shuts Six Furnaces - Cuts Output 
  by 29% - and Improves South Africa's Electricity Reserve 
  Margin 
- Ivory Sales Fetch Millions in Revenues 
 
End Summary. 
 
 
----------------------------------------- 
Standard & Poor's Dim View of Rand, Rates 
----------------------------------------- 
 
¶2. (U) Standard & Poor's (S&P) revised its outlook on South Africa's 
sovereign credit rating from "stable" to "negative," warning that 
capital outflows could depress the rand more, keeping inflation high 
and delaying expected cuts in interest rates.  The decision followed 
a similar step by Fitch Ratings Agency earlier this week, adding to 
concern that fallout from the global financial crisis may lead to a 
downgrade to South Africa's investment-grade credit ratings. 
Treasury Director General Lesetja Kganyago described the news as 
"disappointing" and a reminder that South Africa should stick to the 
prudent fiscal policies which have supported its credit rating at a 
time when other countries are being downgraded.  S&P pointed out 
that if South Africa kept its commitment to growth-enhancing reforms 
and prudent fiscal policies after the election, this would support 
its rating.  S&P affirmed its BBB+ rating for South Africa's foreign 
currency debt, and said local banks should weather the domestic 
slowdown well, as they had limited exposure to the global credit 
crunch.  But at the same time, Fitch revised its outlook for three 
of South Africa's biggest banks, ABSA, Investec and Nedbank, from 
"stable" to "negative."  Experts regarded the downgraded outlook for 
the banks as inevitable given Fitch's revision to the country's 
rating outlook.  Fitch said the step reflected "a deteriorating 
macro economic environment and its anticipated impact on the 
financial performance and financial position of the banks."  Banking 
Association Head Cas Coovadia described the outlook revision as 
"ridiculous."  But banking stocks fell in response to the news and 
followed a further plunge in global equity markets. (Business Day, 
November 11, 2008) 
 
--------------------------------- 
JSE Out of Favor, But Not Africa 
--------------------------------- 
 
¶3. (U) Foreign investors may be dumping South African equities for 
US bonds, but the outside world is far from turning its back on 
Africa as a whole.  Stanlib Director of Global Investment Marketing 
Dylan Evans said that anyone who followed the money would have 
witnessed a growing flight from South Africa, yet foreign direct 
investment (FDI) in the rest of Africa remained remarkably robust. 
Qinvestment (FDI) in the rest of Africa remained remarkably robust. 
"During the first 22 days of October, foreigners sold a net R22.6 
billion ($2.1 billion) of South African equities, the largest 
monthly sell-off by foreigners ever recorded," said Evans.  From 
January through October, foreigners sold a net R43.7 billon ($4.1 
billion) compared with last year when they bought a net R64.1 
billion ($6.1 billion) of South African equities and a net R220 
billion ($21 billion) of inflows between 2004 and 2007.  The 
dramatic acceleration of foreign equity sales and some bond sales 
had weakened the rand, making it the worst-performing 
emerging-market currency this year.  Over the same period, the 
Johannesburg Stock Exchange (JSE) lost about 30% of its value in 
rand terms and 58% in dollar terms.  Evans said that elsewhere in 
Africa things were looking rosy, with a total of R328 billion 
 
PRETORIA 00002515  002.2 OF 005 
 
 
($31.3) in FDI flowing into Africa in the 12 months to September. 
Head of Pension Reform Strategy at Liberty Corporate Benefits Baron 
Furstenburg said the recent flight of foreign investors from South 
African equities and bonds had drawn attention to the need for this 
country to supplement "hot money" from offshore fund managers with 
long-term domestic capital.  (Business Times, November 9, 2008) 
 
------------------------------------ 
The Final Frontier: Nando's Opens 
a Fast-Food Restaurant in Washington 
------------------------------------ 
 
¶4. (U) South Africa's Portugese-style chicken chain Nando's has 
opened its first U.S. restaurant in Washington, D.C.  Nando's is 
expanding its international operation and now has 800 restaurants in 
more than 26 countries.  Nando's CEO Kevin Utian said the US market 
was ready to embrace the brand and its "unique taste, flavor and 
positioning."  Utian said the group was looking at further expansion 
in Africa and across the globe but was doing so conservatively by 
opening restaurants one-at-a-time in different countries after 
studying the markets there.  He said Nando's, which is 60% owned by 
its franchisees and employs 7,000 people in South Africa, was facing 
the problems of slowing economies, market volatility, food 
inflation, and rising product costs.  "Debates on the readiness of 
US markets, who are renowned mass consumers, to receive a 
traditional food offering such as ours, have continued for years," 
Nando's co-founder Robert Brozin said.  He said the branch in 
Washington was a milestone for the brand.  Brozin said the consumer 
response to date had been "terrific."  He said Nando's, which 
celebrated its 21st birthday on Friday, had always had a vision of 
expanding into the US.  Brozin commented that even at the beginning 
of his venture, he believed that he could build "a global brand... 
the growth of the Nando's business over a mere 21 years has been 
phenomenal and now we've tackled the final frontier.  Washington DC 
is our first step into the U.S. and we're positive that Nando's will 
be well received."  Today the brand has stores across South Africa, 
the United Kingdom, Canada, Australia, and New Zealand.  It also 
operates in Israel, Malaysia, Pakistan and India.  South Africa 
remains Nando's cash cow with about 280 stores, followed by the UK 
with about 175. There are a similar number in Australia and New 
Zealand.  (Business Day, November 11, 2008). 
 
 
----------------------------------- 
Newly Enlarged Delta to Improve and 
Expand Africa Service 
----------------------------------- 
 
¶5. (U) Delta Airlines announced that it will replace its current 
flight from Johannesburg to Atlanta via Dakar with a daily non-stop 
service. The airline is upgrading the aircraft used on the route and 
plans to operate the new service with a Boeing 777-200LR aircraft 
beginning June 2, 2009.  The aircraft is among the newest in Delta's 
fleet and features its 180-degree full flatbed in the Business Elite 
class.  Delta will be the first U.S. airline to offer non-stop 
roundtrip service between South Africa and the United States.  This 
announcement forms part of a Delta's global expansion announced on 
November 11.  Delta became the world's largest airline after its 
QNovember 11.  Delta became the world's largest airline after its 
merger with Northwest.  The expansion includes 18 new trans-Pacific 
and trans-Atlantic routes in 2009 allowing the airline to provide 
service to nearly all of the world's major travel markets.  The 
Boeing 777-200LR features a two-class service with up to 276 seats - 
43 Business Elite seats and 233 seats in economy.  Delta is the 
leading airline connecting Africa to the U.S and has unveiled plans 
to rapidly expand in Africa next year.  By June 2009, Delta will be 
the only carrier to offer service between North, East, South, and 
West Africa and the United States and (subject to government 
approvals) will operate from 12 cities in 10 African countries.  In 
addition to the non-stop Johannesburg flight, Delta will fly between 
Nairobi and Atlanta via Dakar (four times a week), Monrovia and 
Atlanta via Cape Verde (once weekly), Abuja and Atlanta via Cape 
Verde (twice weekly), Luanda and Atlanta via Cape Verde (twice 
weekly), Malabo and Atlanta via Cape Verde (once weekly) and Lagos 
and New York (non-stop, five times a week).  (Delta Airlines Press 
Release, November 12, 2008) 
 
----------------------------------------- 
Vodafone Deal Expected to Unleash 
Expansion Shackles for Telkom and Vodacom 
 
PRETORIA 00002515  003.2 OF 005 
 
 
----------------------------------------- 
 
¶6. (U) UK-based Vodafone's acquisition of a further 15% stake of 
mobile-operator Vodacom will result in over R20 billion ($2 billion) 
in foreign direct investment into the South African economy and 
facilitate another significant listing on the JSE - that of Vodacom 
- at a time when global markets are tumbling and the South African 
current account deficit threatens to increase.  State-controlled 
Telkom, which owned 50% of Vodacom, will receive the acquisition 
price of R22.5 billion ($2.3 billion) minus debt of about R1.55 
billion ($155 million).  The South African government and the Public 
Investment Corporation, which own a combined 58% of Telkom, will 
vote in favor of the transaction and will become significant 
shareholders in Vodacom.  Telkom will retain half of the Vodafone 
money.  The other half will be distributed to shareholders as a 
special dividend.  Vodafone's holdings in Vodacom will increase from 
50% to 65%.  Telkom's remaining 35% stake in Vodacom will be 
distributed to shareholders via a JSE listing of Vodacom.  Telkom 
CEO Reuben September said Telkom would be free to compete, to expand 
geographically, and to bring fixed and mobile services to customers. 
 Telkom is expected to either create a mobile service to complement 
its fixed-line operations or enter into partnership with Cell C 
since the South African mobile market is already saturated.  Telkom 
had previously looked to Vodacom to converge fixed and mobile 
offerings to customers, but this had not materialized.  Telkom was 
also bound by a restrictive shareholders' agreement with Vodafone. 
"We have realized that being married to a competitor, however 
lucrative, is not a bond made in heaven," September said.  Now that 
Telkom has been freed from its shackles, the challenge will be to 
show that it can expand and diversify on its own.  For Vodacom, the 
deal relieves it from the restrictions of having joint controlling 
shareholders with restrictive agreements in place.  It can also 
extend its expansion in Africa except into countries where Vodafone 
already has a presence (Ghana and Kenya).  Vodafone has agreed to 
keep the Vodacom brand alive for the African expansion creating a 
boon for Vodacom's South African Black Economic Empowerment (BEE) 
partners.  (Business Times, November 9, 2008, Business Day, November 
7, 2008, and Engineering News, November 8, 2008) 
 
------------------------------------------- 
Build ICT Infrastructure and They will Come 
------------------------------------------- 
 
¶7. (U) SEACOM President Brian Herlihy told the press that the 
prospect of SEACOM landing a 15,000 kilometer fiber-optic, undersea 
cable on South Africa's shores next year has forced broadband prices 
down by 90%.  The SEACOM project will be the first undersea cable to 
connect East Africa to the rest of the world through links to India, 
England, and France.  Herlihy noted that when SEACOM announced its 
intention to launch the $600 million undersea cable project, 
operators in South Africa were pricing broadband at R8,000 ($800) 
per megabit per month and that prices have now dropped as low as 
R800 ($80) per megabit per month.  "We have created competition 
QR800 ($80) per megabit per month.  "We have created competition 
before we even landed the cable," said Herlihy.  SEACOM plans to 
reduce these prices again when it enters the market in June 2009 
with a price of R435 ($43) per megabit per month.  The SEACOM cable 
is well into its production stage -- just last week it broke ground 
in Maputo for the Mozambique landing station, which follows similar 
developments in Mombassa, Kenya.  He said the project is set to 
begin construction of the South African and Tanzanian landing 
stations by next month.  Besides South Africa, Mozambique, Kenya and 
Tanzania, the SEACOM cable will also link to Madagascar, Ethiopia, 
and Egypt.  Nearly 90% of the SEACOM cable has been manufactured and 
the first load of assembled cable and repeaters has been loaded on a 
Tyco Telecommunications' ship for installation.  The second ship 
will reach Africa in early 2009.  The project is 76.25% 
African-owned, with South Africa's Shanduka Group (12.5%), Venfin 
Limited (25%), Convergence Partners (12.5%) and Kenya's Industrial 
Promotion Services (26.25%) all on board.  The remaining 23.75% is 
owned by Herakles Telecom, part of the New York-based Blackstone 
group.  "With only eight months to go before the system is ready for 
service, SEACOM remains set to become the first cable to connect 
East and Southern Africa to the rest of the world with plentiful and 
inexpensive bandwidth," emphasized Herlihy.  He said a simple 
calculation shows that South Africa needs about 50 gigabits of 
international capacity to service the one million broadband 
subscribers in the country, but currently has only 10 gigabits. 
"International capacity has been choking the data market in Africa 
for years now," added Herlihy.  Initially SEACOM will deliver 80 
 
PRETORIA 00002515  004.2 OF 005 
 
 
gigabits of international capacity through its cable but can meet 
more demand easily because the cable has a potential capacity of 
1.28 terabits (1,280 gigabits).  SEACOM has already sold two-thirds 
of the initial 80 gigabits capacity.  In South Africa, SEACOM has 
had to partner Neotel for the landing station because only Neotel, 
Telkom, or Sentech are licensed to lay undersea cables.  Herlihy 
noted that because of South African politics, SEACOM had to work 
with a partner such as Neotel to land the cable, unlike in Tanzania 
and Kenya where it has set up licensed local subsidiaries. He says 
that although SEACOM partnered with Neotel to land the cable, the 
international capacity will be sold using an open-access model so 
that any operators can buy capacity from SEACOM.  (Mail & Guardian, 
November 7-13, 2008) 
 
---------------------------- 
Eskom Dialing for Dollars - 
AfDB and World Bank Loans 
---------------------------- 
 
¶8. (U) State-owned electricity producer Eskom signed a R4.9 billion 
($500 million) 20-year loan with the African Development Bank (AfDB) 
as part of its capital-raising plans to fund its R343 billion ($35 
billion) investment program.  Eskom also announced that it had 
secured a further Euro 300 million ($376 million) from the European 
Investment Bank.  Eskom said that since April it had received debt 
commitments of R19 billion ($1.8 billion), but still needs R11 
billion ($1 billion) by the end of next March to keep the funding to 
expand its power generation and distribution on track.  The National 
 Treasury confirmed that Eskom and the World Bank have  entered into 
talks about a $5 billion loan.  Eskom CEO Bongani Nqwababa said that 
because of the global financial crisis, Eskom would wait six to 12 
months before starting to raise fresh cash.  (Engineering News, 
Business Report, Times, Business Day, November 11, 2008) 
 
 
--------------------------------------------- -- 
Renewable Energy: Bold Targets, Little Progress 
--------------------------------------------- -- 
 
¶9. (U) World Wildlife Fund South Africa hosted a National Renewable 
Energy Conference in Johannesburg November 6-7.  The conference 
garnered civil society and private sector interest in renewable 
energy as a way to mitigate power shortages and reduce the country's 
carbon footprint.  The U.S. Department of Energy (USDOE) presented 
information on adopting green building codes.  The 1998 South 
African government white paper on energy policy called for renewable 
energy to comprise 5% of total energy consumption by 2013, but 
progress has been slow.  Participants at the conference called for 
an even higher renewable energy target of 15%.  The Darling wind 
farm in the Western Cape powered up on November 7, becoming South 
Africa's first significant renewable energy power initiative.  The 
wind farm delivered 5.2 megawatts (MW) of energy to the power grid. 
Eskom hopes to establish a demonstration plant for a 100 MW solar 
concentrating tower in the Northern Cape, with interest from U.S. 
firm SolarReserve to provide the technology.  The Department of 
Minerals and Energy and the Development Bank of Southern Africa have 
established a $8.3 million renewable energy market transformation 
Qestablished a $8.3 million renewable energy market transformation 
program to assist investors in overcoming obstacles preventing 
growth in the sector.  An energy consultant noted that little 
progress has been made in the development of renewable energy 
projects to date because of regulatory uncertainty and unclear 
incentives.  The electricity regulator NERSA is expected to finalize 
feed-in tariffs for renewable energy by February which would clarify 
the investment environment.  (Mail & Guardian, Engineering News, 
Business Day, November 11, 2008) 
 
----------------------------------- 
Miners Face Huge HIV/AIDS Challenge 
----------------------------------- 
 
¶10.  (U) A recent South African Business Coalition Against HIV/AIDS 
conference focused attention on the effect of HIV/AIDS on the 
production and well-being of mining workers and families. 
Benchmarks Foundation estimates that about 16-30% of mine workers 
are infected with HIV/AIDS.  Benchmarks researcher David van Wyk 
said it is difficult to determine exact HIV/AIDS prevalence rates 
because the majority of workers are resistant to participating in 
HIV voluntary testing programs.  Mining employees are afraid to 
disclose their status because they fear discrimination, 
 
PRETORIA 00002515  005.2 OF 005 
 
 
stigmatization, and punishment or penalization for a lack of 
productivity.  Mining supervisors are alleged to be unsupportive of 
the HIV/AIDS- stricken and likely to punish sick workers.  One 
expert said most mining companies have good voluntary testing and 
counseling programs, but infected mine workers do not seek 
antiretroviral treatment because of the potential for retribution 
from employers.  (Business Day, November 11, 2008) 
 
 
--------------------------------------------- -- 
Xstrata-Merafe Venture Shuts Six Furnaces, 
Cuts Output by 29%, and Improves South Africa's 
Electricity Reserve Margin 
--------------------------------------------- -- 
 
¶11. (U) The world's largest ferrochrome producer Xstrata-Merafe 
Resources halted six of its South African ferrochrome furnaces 
because of slowing global demand and competition from major steel 
and iron ore producers.  The six furnaces represent 500,000 tons (or 
29%) of the world's annual ferrochrome production.  Ferrochrome is 
used mainly in the production of steel.  Xstrata said the shutdown 
is temporary and it expects to redeploy personnel within its 
operations.  Xstrata also announced that the closures of the 
highest-cost furnaces would result in energy savings of 300-400 MW 
of power and thereby contribute to easing the power crisis.  This 
contribution represents about 10% of state power company Eskom's 
electicity savings reduction target.  (Mining Weekly, Business 
Report, November 11, 2008) 
 
 
 
-------------------------------------- 
Ivory Sales Fetch Millions in Revenues 
-------------------------------------- 
 
¶11.  (U) South African National Parks (SANP) auctioned 6.51 tons of 
government-owned elephant ivory in November.  The Convention on 
International Trade in Endangered Species (CITIES) approved the 
sale.  The sale fetched over $6.7 million.  SANP CEO Dr. David 
Mabunda said SANP would use a significant amount of the funds 
amassed to "stamp down on poaching of any kind", and would also 
direct parts of the funds to elephant-related research, general 
conservation, buying more land, and employing additional park 
rangers.  The SANP conducted the auction in Pretoria.  Buyers 
included 12 Chinese and 22 Japanese nationals who bid off of 
brochures depicting the ivory lots.  The day before the sale, the 
bidders viewed the lots at Kruger National Park, where the ivory was 
stockpiled.  Botswana, Namibia and Zimbabwe held similar auctions. 
According to CITES General Secretary Willem Winjnstekers the four 
countries auctioned a total of 101 tons of ivory.  The four sales 
generated nearly $15 million in revenues.  The International Fund 
for Animal Welfare was opposed to the sales.  Opponents of the sales 
argued the revenues from the sales would not make any significant 
impact on poaching, and might stimulate the demand for ivory. 
(Pretoria News, November 17, 2008 and www.iol.co.za November 6, 
2008)