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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER NOVEMBER 28, 
2008 ISSUE 
 
PRETORIA 00002590  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 48 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- South Africa's Growth "Lowest in a Decade" 
- Liquidations Increase 
- Regional Integration Critical to Africa's 
  Economic Competitiveness 
- Shippers Reroute Fleets to Cape of Good Hope; Pirates 
  Might Help South African Economy 
- SAA to Launch Johannesburg-Buenos Aires Route 
- Cape Town Faces a Long, Slow Summer 
- Voice and Data Carriers Free at Last to Build Their Own 
  Networks 
- Telecom Advisory Firm to Invest in South Africa 
- Eskom and the Economic Dimness 
- Regulator Still Waiting for Eskom's Tariff Request 
- A Passes New Mine Safety Bill 
- DEAT Targets Acquisition of CDM Regulatory Authority 
 
 
End Summary. 
 
 
------------------------------------------ 
South Africa's Growth "Lowest in a Decade" 
------------------------------------------ 
 
¶2. (U) South Africa's economic growth rate slowed from an upwardly 
revised 5.1% growth in the second quarter of 2008 to 0.2% in the 
third quarter on a seasonally adjusted and annualized basis. The 
third quarter figure was the lowest in a decade.  A Reuters poll of 
economists last week forecast the economy growing by an annualized 
0.3% in the third quarter.  On an unadjusted basis, South Africa's 
economy grew by 2.9% compared to the third quarter of 2007, against 
forecasts of 3.0%.  Economists said the slower growth is an 
indication that the economy is under significant strain.  Efficient 
Group Economist Lorett Els said, "The economic driver, from the 
expenditure side, is the consumer, and it shows that consumers have 
been under a lot of strain and so has business confidence.  It 
signals that we are in for a period of significantly slower growth, 
and we could perhaps see a quarter of negative growth."  (Reuters & 
I-Net Bridge, November 25, 2008) 
 
--------------------- 
Liquidations Increase 
--------------------- 
 
¶3. (U) Statistics South Africa (StatsSA) data showed the total 
number of liquidations increased from 328 in September to 348 in 
October, with year-on-year (y/y) growth in liquidations rising to 
21.7%.  The latest liquidations figures are just another source of 
evidence that the real economy in SA is responding noticeably to 
tighter monetary policy.  The SA Reserve Bank is increasingly 
mindful of the strain that firms and individuals are under, and the 
inflation and third-quarter 2008 gross domestic product (GDP) 
numbers are likely to strengthen the argument for reducing interest 
rates sooner rather than later.  However, the most worrying aspect 
is the depreciating rand, which is likely to keep inflationary 
pressures elevated.  (News24, November 26, 2008)? 
 
----------------------------------------- 
Regional Integration Critical to Africa's 
Economic Competitiveness 
----------------------------------------- 
 
¶4. (U) Africa could benefit a great deal through intraregional trade 
because it would allow the continent easier access to enter global 
markets and improve its competitiveness said Lesotho's Deputy Prime 
Minister Lesao Lehohla this week.  Lehohla spoke at the Africa 
Investment Forum 2008 held on November 25 in a Johannesburg suburb. 
QInvestment Forum 2008 held on November 25 in a Johannesburg suburb. 
Lehohla noted that African states have realized the need for 
economic integration, as demonstrated by the tripartite summit held 
by the Southern African Development Community, the East African 
Community and the Common Market for Eastern and Southern Africa in 
October.  African governments should make regional integration a 
priority as a "fundamental step" for these economies to enter global 
markets, Lehohla said.  He asserted that the continent's economies 
 
PRETORIA 00002590  002.2 OF 005 
 
 
must adopt liberalized strategies and policies to maintain an 
environment conducive to facilitating trade and investment.  Lehohla 
suggested that African countries eliminate all barriers to trade and 
"harmonize trade and investment policies" while also "exploring 
their comparative advantages" to improve the attractiveness of the 
continent as a regional investment destination and a powerful 
trading bloc.  African countries must integrate their transport 
systems to reduce costs, he insisted, because the cost of 
transporting products to the export market often exceeds 50% or more 
of overall production costs in certain African countries.  Transnet 
Group official Vuyo Kahla agreed that a regional approach is 
required to build economies of scale.  South African ports could 
play a role as a regional hub for sub-Saharan Africa and as an 
alternative trade route between Asia and South America, Kahla 
believes.  Meanwhile, East African Business Council vice-chairperson 
Keli Kiilu announced preliminary plans to construct a rail system 
between East and Central African countries in an effort to integrate 
transportation systems.  The first phase of the project, which would 
connect Mombasa, Kampala, Kigali, and Bujumbara would cost between 
$5-billion and $8.5-billion to develop.  Another two phases would be 
considered at a later stage, depending on the success of the first 
phase.  (Engineering News, November 26, 2008) 
 
--------------------------------------------- 
Shippers Reroute Fleets to Cape of Good Hope; 
Pirates Might Help South African Economy 
--------------------------------------------- 
 
¶5. (U) The world's largest shipping company announced its oil 
tankers will make a major detour to avoid the pirate-plagued waters 
off the Somali coast.  Maersk's decision to reroute its 50-strong 
fleet of tankers via the Cape of Good Hope is likely to cause the 
embattled company further pain, but may be a boon to South African 
port cities, especially because the threat of piracy is causing 
other shippers to follow suit.  Taiwan shipping company TMT said 
this week it is re-routing 20 oil tankers via the same Cape of Good 
Hope route.  Cape Town Harbor Master Ravi Naicker said the Port of 
Cape Town is ready to handle an increase in the number of ships 
expected to refuel in Cape Town to avoid the pirate-infested waters 
of the Horn of Africa.  Naicker said the ports of Durban, Port 
Elizabeth and Richards Bay might also see an increase in the number 
of ships that require bunker fuel.  Cape Town has 61 bunkering 
points supplying marine fuel oil, gas oil, and blended fuels.  It 
takes about 12 hours for a ship to refuel and up to 36 hours if the 
ship also needs repairs.  Transnet operates two dry docks, a repair 
quay and a synchrolift.  There were 14 piracy incidents reported 
worldwide in the past week, most of them in the Gulf of Aden. 
(Business Day, November 24 and 26, 2008)? 
 
--------------------------------------------- 
SAA to Launch Johannesburg-Buenos Aires Route 
--------------------------------------------- 
 
¶6. (U) South African Airways (SAA) will launch a new route to Buenos 
Aires, Argentina SAA officials announced this week.  Twice-weekly 
flights on the route between Johannesburg and Buenos Aires begin in 
Qflights on the route between Johannesburg and Buenos Aires begin in 
April 2008.  SAA plans to add a third service in July 2009.  SAA 
already provides daily South American service to Sco Paulo in 
Brazil.  SAA CEO Ngqula says SAA has experienced strong demand on 
its Sco Paulo route, which is currently the airline's only South 
American destination.  The Buenos Aires route would build on the 
success of this route and allow SAA to facilitate Southern 
Hemisphere traffic flows.  According to Ngqula, SAA is negotiating 
with Lan Chile and Aeromexico to broaden its service to and from the 
Americas.  The Buenos Aires route is SAA's first new route following 
the airline's restructuring.  Ngqula says SAA will emerge from its 
restructuring in March 2009 and is now in a position to think about 
growth for SAA's future.  (Engineering News, November 26, 2008) 
 
----------------------------------- 
Cape Town Faces a Long, Slow Summer 
----------------------------------- 
 
¶7. (U) Cape Town is likely to have its slowest summer holiday season 
in many years as a growing number of tourists, both domestic and 
international, opt to stay at home.  The city relies heavily on the 
busy summer season when many international travelers flock to the 
tip of Africa to escape the Northern Hemisphere winter.  But in this 
year of financial crisis few visitors are making the trip. Southern 
 
PRETORIA 00002590  003.2 OF 005 
 
 
Sun Hotels Director of Sales and Marketing Neil Fraser said, "There 
is definite evidence of a slowdown in the inbound leisure business. 
All the major tour operators are reporting a drop in forward 
business."  One hotel manager observed that hotel occupancy is way 
down from this time last year, and commented that people are making 
last-minute bookings instead of committing early to vacation plans. 
ArabellaStarwood Hotels & Resorts SA Sales and Marketing Director 
Gary Plourde concurred, saying, "The market slowdown has caused 
booking trends to be unpredictable.  Unexpected cancellations have 
been replaced with unexpected short-lead bookings. This makes 
forecasting very difficult... it puts added pressure on everyone in 
the industry."   It is not only the hotels that are feeling the 
pain.  Comair, the operator of British Airways and kulula.com, has 
recorded an overall dip in traffic to Cape Town of nearly 10% for 
both airlines compared with this time last year.  (Business Day, 
November 26, 2008) 
 
--------------------------------------- 
Voice and Data Carriers Free at Last to 
Build Their Own Networks 
--------------------------------------- 
 
¶8. (U) ALTECH's landmark high court victory winning liberalization 
for the telecommunications sector will stand.  Communications 
Minister Ivy Matsepe-Casaburri decided not to escalate the issue to 
the Supreme Court of Appeal.  The Minister's capitulation means 
Altech and about 300 other voice and data carriers can build their 
own network infrastructure with no further risk of their investment 
being legally challenged.  The industry has already celebrated its 
long-awaited freedom from having to lease networks from a few 
dominant operators in the market, but there was a risk 
Matsepe-Casaburri would continue to fight to protect her unpopular 
policy of managed liberalization.  The threat dissolved on November 
21 with a statement that she would drop the case "in the interest of 
the information and communications technologies sector." 
Matsepe-Casaburri's position had been that only she could authorize 
the Independent Communications Authority of SA (ICASA) to grant 
permission to build telecommunications networks.  But the high court 
upheld Altech's belief that companies already licensed to provide 
value-added network services could automatically convert that into 
the new variety of license created by the Electronic Communications 
Act.  (Business Day, November 21, 2008) 
 
--------------------------------------------- -- 
Telecom Advisory Firm to Invest in South Africa 
--------------------------------------------- -- 
 
¶9. (U) Dubai-based telecommunications advisory firm Delta Partners 
(DP) seeks to invest in South Africa by launching a R825 million 
($80 million) equity fund.  DP expects to invest in one or two South 
African companies before turning its attention to the rest of 
Africa.  The typical deal would be worth between $5 million and $15 
million.  DP Managing Partner Kristoff Puelinckx said that DP plans 
to invest in different types of companies, which could include cable 
layers or infrastructure suppliers," and the companies might range 
between "established telecoms players, new industry entrants, 
Qbetween "established telecoms players, new industry entrants, 
alternative telecom operators and industry suppliers that have 
proven track-records, solid business models and existing cash 
flows."  Puelinckx said there was an unprecedented amount of 
development taking place that would increase Africa's bandwidth 
substantially over the next five to 10 years.  "With the continued 
liberalization of the local and regional telecoms markets, more 
players are expected to enter this market, giving rise to increased 
competition and more affordable access to communications technology 
for businesses and consumers," he said.  DP is the largest 
telecommunications advisory and investment firm in Africa and the 
Middle East.  It operates in 25 countries, and its regional 
headquarters is in Johannesburg.  (Business Day, November 26, 2008) 
------------------------------ 
Eskom and the Economic Dimness 
------------------------------ 
 
¶10.  (U) A Business Day Senior Associate Editor wondered this week 
why Eskom continues to bemoan tight reserve margins and asks users 
to save power when the drooping economy has caused the demand for 
electricity to drop.  ArcelorMittal has cut steel prices 25-30% and 
slashed its production by one-third as demand dries up.  At its 
peak, the company was drawing 660 megawatts (MW) and was saving 
about 10% after the January power crisis.  Now its power consumption 
 
PRETORIA 00002590  004.2 OF 005 
 
 
is about 60% of what it used to be.  Other steel makers and 
commodity producers have also cut power usage, but Eskom argues that 
the savings are insignificant and do not relieve it of the pressure 
to produce power.  Gold and other large industrial and commercial 
customers have not cut back, say Eskom officials.  Total cutbacks 
amount to only enough savings to counter the effect of the unplanned 
shut down of one of its Koeberg nuclear power units outside of Cape 
Town.  Power stations are operating harder than they should have to 
in order to meet demand, so unplanned outages are a problem. 
Further, Eskom plans maintenance for this time of year, so up to 10% 
of its capacity can be out at any given time.  The woefully low 
reserve margin makes Eskom's system especially vulnerable to spikes 
in demand and dips in supply.  Observers wonder how the economic 
downturn might affect the reserve margin in the near future and 
Eskom's build program in over the long haul.  Eskom devised its huge 
new build program based on the now overly ambitious growth rate of 
6%, so the demand slump can give Eskom a breather, but only after it 
brings online the two new mega coal-fired plants of Medupi and 
Kusile.  Eskom is pursuing a tender for a new nuclear power plant, 
but the multiple nuclear power stations the government had in mind 
are now on the back burner.  And the slowdown should open the space 
for South Africa to debate what it can afford in the way of new 
power capacity and how to phase it in.  But, if South Africa had the 
choice, it surely would have opted for stronger economic growth and 
a tighter electricity market.  (Business Day, November 25, 2008) 
 
--------------------------------------------- ----- 
Regulator Still Waiting for Eskom's Tariff Request 
--------------------------------------------- ----- 
 
¶11. (U) The South African cabinet approved the so-called electricity 
pricing policy (EPP) at its meeting November 19, which had been 
designed to provide a framework for the determination of electricity 
prices.  The policy is reported to have emerged from consultation 
with stakeholders.  Meanwhile, National Energy Regulator of South 
Africa (NERSA) is still eagerly awaiting Eskom's tariff adjustment 
application under the so-called multi-year price determination (MYPD 
2), intended to run from April 2009 until the end of March 2012. 
Eskom has asked for more time given the changing global economic 
climate.  Eskom spokesman Fani Zulu said the delay was not an 
attempt to reduce the time available for public consultation.  NERSA 
granted a 27% tariff hike in June of this year, which was short of 
the 53% hike requested by Eskom.  In making its determination, NERSA 
indicated that price increases of between 20 and 25% would probably 
have to be introduced over the next few years.  This would 
effectively result in a near doubling of the average tariff to 5 
U.S. cents per kilowatt hour (kwh), from the current level of 2.5 
U.S. cents per kwh.   Eskom has justified increases in tariffs as 
helping to underpin its ambitious capital expansion program, but it 
is now reviewing its tariff plans in light of consumer complaints 
and global financial turmoil.  (Engineering News, Business Report, 
Qand global financial turmoil.  (Engineering News, Business Report, 
November 20, 2008) 
 
---------------------------------------- 
South Africa Passes New Mine Safety Bill 
---------------------------------------- 
 
¶11.  (U) South Africa's parliament passed new mine safety laws which 
enforce stricter penalties and hold mine CEOs criminally liable for 
deaths in some of the world's deepest mines.  The mining industry, 
represented by the Chamber of Mines, has criticized as "too 
punitive" laws which would make provision for heavier penalties to 
be levied against companies.  The Chamber has also questioned the 
insertion of a criminal liability clause allowing chief executives 
and managers to be prosecuted should they be found guilty of causing 
serious injury or deaths.  The new laws, which must still be signed 
by President Mothlanthe before becoming effective, also made 
provision for mine accident investigations to be held within ten 
days and a report completed within 30 days.  South Africa 
experienced 221 mine deaths in 2007 and the government began 
temporarily shutting down mining operations after fatal accidents, 
further reducing output in an industry already suffering the effects 
of an ongoing power crisis.  (Mining Weekly, November 21, 2008) 
 
--------------------------- 
DEAT Targets Acquisition of 
CDM Regulatory Authority 
--------------------------- 
 
 
PRETORIA 00002590  005.2 OF 005 
 
 
¶12.  (U) The Minister of Environmental Affairs and Tourism Marthinus 
van Schalkwyk announced that South Africa's Designated National 
Authority (DNA), which oversees the registration process of Clean 
Development Mechanism (CDM) projects in South Africa, could be 
transferred to the Department of Environmental Affairs and Tourism 
(DEAT).  CDM projects allow industrial countries with greenhouse gas 
reduction commitments to invest in projects that reduce emissions in 
developing countries as an alternative to reducing emissions in 
their own countries.  South Africa lags far behind other developing 
countries like China, India and Brazil in the registration of CDM 
projects, and critics say South Africa is losing out on an 
environmentally friendly way to create additional revenue streams. 
Officials from the National Business Initiative (NBI) agree the CDM 
process may be improved by the move to the DEAT.  NBI CEO Andre 
Fourie said, "We must streamline the CDM process, because we are 
struggling with that, and the bureaucracy is killing us."   To date, 
Only 14 CDM projects are registered in South Africa by companies 
such as Sasol, Omnia, PetroSA, Corobrick, PPC, and the City of Cape 
Town. (Engineering News, November 21-27, 2008)