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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 5, 
2008 ISSUE 
 
PRETORIA 00002648  001.2 OF 005 
 
 
¶1. (U) Summary.  This is Volume 8, issue 49 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
 
- Concern as Chinese Clothing Quotas Expire 
- Tax Reforms Help South Africa's Rankings in a Global 
  Study 
- Factories Hit Historic Low as Recession Bites 
- Parliament Passes Competition Amendment Act, Consumer 
  Protection and Companies Bills 
- SACU Meets to Discuss EPA 
- Freight Transport Threatened By Looming Strikes 
- World Cup Fuel Demands 
- GM South Africa Believes Low-Level of Tariffs under ADPD 
  Will Threaten Industry 
- COSATU Affiliates Urged to "Invest in ESKOM" 
- Xstrata-Merafe and Other Ferrochrome Producers Close More 
  Furnaces 
- EIA for the Wild Coast Toll Road Released for Comment 
 
End Summary. 
 
----------------------------------------- 
Concern as Chinese Clothing Quotas Expire 
----------------------------------------- 
¶2.  (U) The quotas on Chinese clothing and textile imports are due 
to expire at the end of the month, but the industry is gripped by 
uncertainty on whether an 11th-hour extension will be made through a 
bilateral agreement with the Chinese government.  A two-year 
bilateral agreement that came into effect in January 2007 is the 
basis of the current quota scheme.  If the term of the agreement is 
not extended, the quotas will expire unless one of the stakeholders 
makes a formal application to the International Trade Administration 
Commission (ITAC).  South African Clothing and Textile Workers' 
Union General Secretary Ebrahim Patel said the union would strongly 
support an extension because the quotas have been "very helpful" and 
saved thousands of jobs.  He warned it would be "an absolute 
disaster" if there were a huge surge in cheap Chinese clothing and 
textile imports early in 2009.  He estimated that cheap Chinese 
imports had resulted in the loss of more than 80,000 clothing jobs 
and more than 20,000 textile jobs before the quotas were introduced. 
 Patel conceded that China's need to increase its exports in the 
context of an economic slowdown might make it reluctant to extend 
the quota scheme.  However, he said Chinese clothing exports to 
South Africa were only 0.5% of its total global exports, whereas 
they made up about 62% of South Africa's total clothing imports. 
(Business Day, December 4, 2008) 
----------------------------------------- 
Tax Reforms Help South Africa's Rankings 
in a Global Study 
----------------------------------------- 
¶3. (U) South Africa is ranked 23rd out of 181 economies in terms of 
ease of paying taxes, reports an international study released by the 
World Bank.  The World Bank's Doing Business 2009 annual report 
rates 181 economies on key business regulations and reforms.  South 
Africa's ranking is a "significant improvement," remarked 
PriceWaterhouseCoopers Tax Director Charles de Wet, given that South 
Africa moved up from a ranking of 61st in the World Bank's Paying 
Taxes 2008 report and is now in the top quartile of all economies. 
South Africa's high ranking is attributable to steps taken by the 
National Treasury and the South African Revenue Service (SARS) to 
implement electronic filing for taxpayers.  International Finance 
Qimplement electronic filing for taxpayers.  International Finance 
Corporation (IFC) Doing Business Team official Caroline Otonglo 
observed that South Africa has also abolished two taxes for 
businesses, regional services levies and the retirement fund tax. 
Otonglo also noted that the time taken for companies to be tax 
compliant has been reduced and "For businesses it's not just the tax 
rates that matter.  The administrative processes also count."  South 
Africa was also ranked as the third easiest country in which to 
obtain credit.  The study measured legal rights of borrowers and 
lenders, including the scope and quality of credit information 
systems.  South Africa was ranked ninth for its laws in protecting 
investors.  The country's laws were cited as an inspiration for 
other economies.  South Africa's worst ranking was 147th out of 181 
in the "trading across borders" category.  The number of days 
required for imports and exports far exceeded those for the Asia or 
South America regions.  (Business Day, November 28 and December 2, 
 
PRETORIA 00002648  002.2 OF 005 
 
 
2008) 
--------------------------------------------- 
Factories Hit Historic Low as Recession Bites 
--------------------------------------------- 
¶4. (U) South Africa's factories have put in their worst performance 
in nine years.  The global recession and waning consumer demand have 
hammered the manufacturing sector, which accounts for 16% of South 
Africa's GDP and 14% of its formal jobs.  Manufacturing output in 
South Africa shrank 6.9% in the third quarter of this year, its 
steepest fall in 17 years.  The Investec purchasing managers' index 
(PMI), an economic indicator of factory production, plunged from 
46.4 in October to 39.5 in November.  Investec Asset Management 
Portfolio Manager Mokgatla Madisha noted "the manufacturing sector 
continues to operate under severe pressure."  The dismal PMI 
readings for South Africa and its main trade partners were seen as 
likely to put pressure on the South African Reserve Bank (SARB) to 
cut interest rates at its policy meeting next week to help stimulate 
the flagging economy.  Standard Chartered's Regional Research 
Director for Africa Razia Khan commented, "There is no argument now 
to justify unchanged monetary policy in South Africa, given the 
extent to which the world has changed ... these are not normal 
times.  When you factor in the worst global slowdown seen in decades 
... there is less reason for the [SARB] to keep rates on hold now." 
(Business Day, December 2, 2008) 
------------------------------------------- 
Parliament Passes Competition Amendment Act, 
Consumer Protection and Companies Bills 
------------------------------------------- 
¶5. (U) Parliament passed the Competition Amendment Bill, the 
Companies Bill, and the Consumer Protection Bill in a legislative 
flurry during the last week of November.  The Competition Amendment 
Bill introduced criminal sanctions against individuals found guilty 
of causing a firm to engage in price fixing, output restriction, 
market allocation, or collusive tendering.  An offending individual 
may face up to ten years in prison or be fined R500,000 ($50,000), 
or both.  Minister of Trade and Investment Mandisi Mpahlwa stated, 
"This severe penalty serves as a signal that cartel activities will 
not be tolerated, and those involved in this harmful practice will 
be severely punished."  The Consumer Protection Bill sought to 
promote an economic environment that supports a culture of consumer 
rights and responsibilities.  The Consumer Protection Bill provides 
for a controversial system of product liability where any producer, 
distributor, or supplier would be held liable for any damage in the 
form of death, injury, loss, or damage to property and economic loss 
to the consumer or a third party.  A National Consumer Commission 
would be established to investigate consumer complaints, while the 
National Consumer Tribunal would adjudicate over violations of the 
Consumer Protection Act.  The courts would also adjudicate on all 
contractual matters, and would confirm consent orders concluded with 
suppliers.  Minister Mpahlwa commented that the bill encourages 
consumer activism and alternative dispute resolution.  The Companies 
Bill was aimed at overhauling the current Companies Act.  Under the 
QBill was aimed at overhauling the current Companies Act.  Under the 
new Companies Bill, all companies would be required to prepare 
annual financial statements.  Business shareholders would also have 
to appoint an audit committee as a subcommittee of the board of 
directors, and demand for a meeting would have to be supported by 
10% of the voting rights.  The bills will not become effective until 
President Kgalema Motlanthe signs them.  The Department of Trade and 
Industry expects that all three pieces of legislation would come 
into force by mid-2010.  (Engineering News, November 27, 2008) 
------------------------- 
SACU Meets to Discuss EPA 
------------------------- 
¶6. (U) The Southern African Customs Union (SACU) plans to meet with 
the European Union (EU) in Namibia on December 6 to discuss the 
SACU-EU economic partnership agreement (EPA).  The EU is pushing for 
the agreement to be signed by January.  South African trade 
officials believe that the draft EPA does not benefit South Africa 
and that provisions in the document are at odds with some South 
African government policies.  Department of Trade and Industry (DTI) 
Director General Tshediso Matona said, "The other countries in SACU 
may not see matters in the same way, and it is understandable 
because our economy is different.  South Africa is the largest 
economy in the region and in the customs union.  It is much more 
complex and diversified."  South Africa's interests will not always 
coincide with the interests of other SACU members Botswana, Lesotho, 
Namibia, and Swaziland, Matona observed, and it is not up to South 
Africa to dictate to the other members which position to take.  "Any 
suggestion that we are a bully is without any foundation," he said. 
 
PRETORIA 00002648  003.2 OF 005 
 
 
Under the trade policy signed by SACU members, no member of the 
union could enter third-party agreements without all the members 
being jointly informed and taking part in joint negotiations. 
Matona commented, "Ideally, there should be a consensus within the 
union with regard to what stance we take, not only in relation to 
the EU, but also in regard to negotiations with the World Trade 
Organization."  He added that the EU should respect the region's 
integration agenda, and should not allow its own interests to upset 
or fragment the region.  SACU has not decided to dissolve itself, 
Matona insisted and South Africa has not considered withdrawing from 
the union.  (Engineering News, December 3, 2008) 
--------------------------------------------- -- 
Freight Transport Threatened By Looming Strikes 
--------------------------------------------- -- 
¶7. (U) The supply of food and clothes to retailers could grind to a 
halt early next year if 60,000 road freight industry workers go on 
strike.  The looming industrial action in the national road freight 
industry depends on the outcome of the second and final dispute 
resolution meeting between unions and the Road Freight Association 
over wages and employment conditions.  The first meeting in November 
ended in deadlock, and the last meeting is likely to take place in 
the third week of January.  The South African Transport and Allied 
Workers' Union (SATAWU) and other unions that are part of the 
National Bargaining Council for the Road Freight and Logistics 
Industry declared the dispute in October.  The 60,000 potential 
strikers include long-distance drivers, loaders, general workers, 
vehicle guards, and clerks.  SATAWU National Sector Coordinator 
Tabudi Ramakgolo said, "We will now proceed to a second compulsory 
dispute meeting in terms of the protocol agreement.  Once these 
meetings have taken place and if there is still no agreement, the 
unions may issue a 48-hour notice with the aim of engaging in an 
industrial action."  SATAWU called on the government to begin 
regulating the road freight industry, because the current 
self-regulation method has failed.  Other issues raised by SATAWU 
include companies' use of labor brokers and sub-contractors.  A 
strike would also affect the transportation of manufacturing parts 
and other equipment since most commercial goods are transported via 
road in South Africa due to lack of effective rail transport 
infrastructure.  (Business Times, December 2, 2008) 
---------------------- 
World Cup Fuel Demands 
---------------------- 
¶8. (U) Ensuring that parts of South Africa do not run out of fuel 
during the 2010 FIFA World Cup requires careful management and 
teamwork, cautioned Engen General Manager for International Business 
Development Wayne Hartmann.  He said supply concerns would persist 
"until the day of the races actually happens."  The Guateng 
industrial heartland currently receives much of its diesel, petrol, 
and jet fuel through a pipeline from refineries in Durban.  But the 
pipeline network is reaching its capacity, say liquid-fuels sector 
experts.  State-controlled freight and transport logistics group 
Transnet is planning to build an R11.2 billion ($1.1 billion) 
QTransnet is planning to build an R11.2 billion ($1.1 billion) 
pipeline, including a 544 kilometer trunk line from Durban to 
Gauteng but it is unlikely to be ready in time to help meet the 
increased demand that will be sparked by the World Cup - 
particularly for jet fuel.  Hartmann explained that alternative 
strategies could be employed to resolve the shortage.  For example, 
some aircraft could be refueled at the coast on their way to and 
from Johannesburg.  (Note: A new international airport is being 
built in Durban, which could provide these services.)  (Business 
Times, November 24, 2008) 
--------------------------------------------- 
GM South Africa Believes Low-Level of Tariffs 
Under ADPD Will Threaten Industry 
--------------------------------------------- 
¶9. (U) General Motors South Africa (GMSA) President Steve Koch told 
the press that the low level of tariff protection against vehicle 
imports was a long-term threat to South Africa's automotive 
industry.  Koch said import duties on vehicles were currently 29%, 
which would fall to 25% by 2012 when changes to the Motor Industry 
Development Program (MIDP) are implemented.  Duties will remain at 
this level when the new Automotive Production and Development 
Program (APDP) comes into effect in 2013.  But Koch emphasized that 
no country with low-volume markets had duty levels below 35%.  For 
example, India has an annual new vehicle market of 2 million units 
and a 100% duty on imported vehicles.  Brazil has a 3 million unit 
market and a 35% duty.  Koch expects the total South African vehicle 
market to decline from 614,000 units in 2007 to about 490,000 units 
this year and 400,000 units in 2009.  The level of support to South 
 
PRETORIA 00002648  004 OF 005 
 
 
Africa's automotive industry as a percentage of revenue had declined 
from 12% in 2004 to an estimated 9% in 2008, said Koch.  He 
anticipates it falling to 7.6% in 2012, and said the industry would 
not achieve the objective of doubling vehicle production from 
600,000 units this year to 1.2 million in 2012.  Koch noted that the 
support levels in the ADPD fell short of covering the various 
insufficiencies and cost penalties confronted by original equipment 
manufacturers in South Africa. "Without higher duty levels, closer 
to global norms, market prices do not generate adequate returns to 
support future investment," Koch explained.  "As a result, GMSA does 
not believe the APDP objectives (large export volumes) can be 
achieved without higher completely built-up duty levels or 
additional support."  Koch's comments were accompanied by press 
statements that GM is expected to make a decision regarding the sale 
of the Hummer brand in early 2009.  Hummer is GMSA's principal 
export and South Africa is the only site on the continent that 
produces the brand.  GMSA produces 8,000 Hummers per year for the 
export market, and 1,200 for the local market.  These volumes would 
not be large enough to qualify for ADPD support.  (Business Report 
and Business Day, December 3, 2008) 
-------------------------------------------- 
COSATU Affiliates Urged to "Invest in ESKOM" 
-------------------------------------------- 
¶10. (U) COSATU President Sdumo Dlamini has asked COSATU affiliates 
to consider investing in power utility Eskom.  The beleaguered state 
electricity provider needs to raise at least $34 billion to 
implement its capital expansion program and reduce a critical 
electricity shortage.  The South African Government has lent Eskom 
$6 billion and COSATU hopes its affiliates can help make up the 
shortfall by investing in the company.  Affiliates have been asked 
to invest in ESKOM instead of placing pension fund money with 
brokerage houses and offshore.  Dlamini argued that investing in 
Eskom will ensure job creation, economic growth, and prevent further 
electricity price hikes.  (Business Day November 28, 2008) 
------------------------------------ 
Xstrata-Merafe and Other Ferrochrome 
Producers Close More Furnaces 
------------------------------------ 
¶11.  (U) The world's biggest producer of ferrochrome is temporarily 
closing more furnaces to bring its total suspension of production to 
52% of capacity.  The suspensions are in response to weakening 
prices.  Xstrata-Merafe Chrome Venture (Xstrata) announced three 
weeks ago that it would suspend six furnaces or 29% of capacity 
because of "short-term demand weakness."  Xstrata now says it 
intends to suspend another five furnaces until market conditions 
improve.  Altogether it has suspended 906,000 tons of annualized 
production capacity.  Company officials said they will monitor 
market conditions closely, and that there are no plans to retrench 
any permanent staff.  The Xstrata-Merafe Chrome Venture decision 
follows cutback announcements by all South African producers last 
month.  Second-biggest ferrochrome producer Samancor Chrome plans to 
shut all of its furnaces for more than two months.  International 
Qshut all of its furnaces for more than two months.  International 
Ferro Metals (IFM) said last week it will suspend production from 
its ferrochrome furnaces until March.  Local ferrochrome producers 
may have cut back as much as 3 million tons of annual output since 
the beginning of November.  The cutbacks will reduce electricity 
demand by 1,100 megawatts, or 3% of Eskom's capacity.  IFM Managing 
Director David Kovarsky estimated that the local ferrochrome 
industry is using one gigawatt less power since the cutbacks.  The 
reduced demand on Eskom to produce electricity is the single bright 
spot for South Africa, which is the world's biggest source of 
ferrochrome.  IFM plans to continue to supply customers from its 
stock, but it will suspend new sales in places where ferrochrome 
market conditions are particularly poor, like China.  Hernic 
Ferrochrome Operations Director Jasper Pieters commented, "It just 
seems like the market is falling further ... there is no demand. 
You can't sell anything."  Fairfax Analyst John Meyer remarked that 
orders from the stainless steel industry were likely to recover next 
year as production resumes, but he does "not expect a rapid return 
to 2007-08 levels, though fiscal stimulation could see some 
resumption towards this level of demand.  Capacity is available 
within the stainless steel sector to drive demand ahead of available 
ferrochrome supply if confidence and finance returns to construction 
and consumer markets."  (Business Day, December 2, 2008) 
-------------------------------- 
EIA for the Wild Coast Toll Road 
Released for Comment 
-------------------------------- 
¶12. (U) Private consulting company CCA Environmental has completed 
 
PRETORIA 00002648  005 OF 005 
 
 
and released for public comment an environmental impact assessment 
(EIA) report for the proposed construction of an extension of the N2 
freeway along the Wild Coast.  The proposed 560 kilometer freeway 
will be a toll road that runs from the Eastern Cape to Kwa-Zulu 
Natal.  The EIA highlighted the potential impact for economic 
development and tourism, and considered the potential impact upon 
air quality, agriculture, land use, noise, and scenery.  The public 
may comment on the EIA until January 9, 2009.  CCA Environmental 
will include the comments in its final Environmental Impact Report. 
CCA Environmental conducted the EIA for the National Department of 
Environmental Affairs and Tourism, the Eastern Cape Department of 
Economic Development and Environmental Affairs and the 
Kwa-Zulu-Natal Department of Agriculture and Environmental Affairs, 
all of which would be involved in the project.  (Engineering News, 
December 2, 2008)