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RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 002706 
 
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 DECEMBER 12, 
2008 ISSUE 
 
PRETORIA 00002706  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 8, issue 50 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
 
- Manufacturing Outlook Bleak 
- South African Economy Shows Resilience 
- Customs Officials Seize 60 Tons of Illegally Imported 
  Clothing 
- Tourism Slumping 
- SAA Safety Gets Thumbs Up From FAA 
- Eskom Terminates Nuclear 1 Procurement Process, but South 
  Africa Still Committed to Nuclear 
- PetroSA Appoints KBR as Engineering Contractor for 
  Proposed Coega Refinery 
- SADC Launches New Science and Technology Desk 
 
End Summary. 
 
--------------------------- 
Manufacturing Outlook Bleak 
--------------------------- 
 
¶2.  (U) Manufacturing production declined by 1.6% year-on-year (y/y) 
in October.  Stanlib Economist Kevin Lings said that the 
manufacturing sector is under enormous pressure, which would 
intensify in the quarters ahead.  A drop-off in residential housing 
activity, a decline in consumer spending, and sluggish world demand 
are all likely to work against manufacturing activity over the next 
six to 12 months.  Lings expects the weak exchange rate, the 
increased expense of manufactured imports, and the public sector 
infrastructure program to offset some of the domestic economic 
conditions, but these factors are unlikely to be sufficient to 
offset a general slump in manufacturing activity.  Most analysts 
expect the manufacturing sector to slip into a technical recession 
in the fourth quarter of 2008.  Efficient Group Economist Doret Els 
said the outlook for the manufacturing sector should be a trade-off 
between improved export potential (due to the weaker rand) and 
dampened demand.  (I-Net Bridge, December 10, 2008) 
 
-------------------------------------- 
South African Economy Shows Resilience 
-------------------------------------- 
 
¶3. (U) The South African Reserve Bank's quarterly bulletin reports 
that the South African economy weathered stormy conditions in the 
third quarter of 2008.  Despite the global financial turmoil in the 
third quarter and the consequent steep fall in equity and commodity 
prices, final domestic demand grew by 3.1% quarter-on-quarter (q/q) 
from 1.4% q/q in the second quarter.  This growth was despite the 
first contraction in household consumption expenditure since the 
fourth quarter of 1998, as both fixed capital formation and 
government consumption expenditure increased in the third quarter 
relative to the second quarter.  This resilience was not confined to 
the domestic sector, as exports grew by 3.2% q/q in the third 
quarter despite the slowing in global demand.  The balance of 
payments surplus grew from R5.7 billion ($570 billion) in the second 
quarter to R7.8 billion ($768 million) in the third quarter. 
Overall, the economy grew by 4.3% year-on-year in the first nine 
months if measured from the expenditure side.  The growth is well 
ahead of the government's forecast of 3.7% growth for the full year 
and the consensus forecast of 3.2% of private sector economists. 
(Beeld, December 11, 2008) 
 
---------------------------------- 
Customs Officials Seize 60 Tons of 
Illegally Imported Clothing 
---------------------------------- 
Q---------------------------------- 
 
¶4. (U) South African Revenue Service (SARS) officials seized 60 tons 
of clothing that were illegally imported from China and shipped to 
South Africa through Botswana.  SARS spokesman Adrian Lackay said 
the goods were to be sent to three large retailers, but he would not 
disclose the value of the seized goods or the names of the 
retailers.  The retailers were not implicated in the fraud, but, 
Lackay noted, "This is a worrying trend.  Some retailers, in their 
pursuit of the cheapest goods, are not vetting their suppliers 
properly, otherwise they would pick up the anomaly in the value and 
 
PRETORIA 00002706  002.2 OF 003 
 
 
price of goods." The seizure comes just after the Department of 
Trade and Industry (DTI) expressed concern over "massive and 
systemic" fraud involving clothing imports from China.  SARS reports 
that while textiles and apparel worth R15.3 billion ($1.4 billion) 
were exported from China to South Africa in 2007, invoices reflected 
imports worth only R6.1 billion ($597 million), a shortfall of 60%. 
SARS officials believe that importers are masking the country of 
origin by re-labeling and re-routing goods through third countries 
in order to bypass the quotas on imports of Chinese clothing and 
textiles.  The recent 93% increase in clothing imports from Zimbabwe 
can only be explained by transshipment, say trade experts.  SARS has 
vowed to intensify their crackdown this month by targeting South 
Africa's borders with Lesotho, Botswana and Namibia and placing 
unlawfully imported goods under forfeiture.  (Tralac Newsletter, 
December 10, 2008) 
 
---------------- 
Tourism Slumping 
---------------- 
 
¶5. (U) The total number of overseas tourist arrivals declined 12.9% 
between September 2007 and September 2008.  The greatest declines 
are in Asian and European markets, but growth has also declined in 
the UK and US markets.  A comparison of figures from the major 
overseas markets for September 2007 and September 2008 shows that 
there were significant decreases in the number of travelers arriving 
from UK (down from 35,915 to 29,976); the US (down from 23,405 to 
21,590) and Germany (down from 21,796 to 17,377).    (Travel Hub, 
December 3, 2008 and Statistics South Africa, November 27, 2008) 
 
 
---------------------------------- 
SAA Safety Gets Thumbs Up From FAA 
---------------------------------- 
 
¶6. (U) The U.S. Federal Aviation Administration (FAA) has extended 
its accreditation of South African Airways Technical (SAAT) through 
July 2009.  SAAT's accreditation with the FAA was extended after FAA 
inspectors performed a follow-up audit of SAAT's facilities in 
November.  "The outcome of the FAA's findings and the subsequent 
renewal of our accreditation with this top regulatory organization 
are of incredible significance for passengers, who can rest assured 
that safety at SAAT remains a priority," stated SAAT CEO Clive Else. 
 The FAA undertook its annual inspection of SAAT's facilities in 
April 2008.  Inspectors identified areas requiring corrective 
action.  SAAT "immediately worked towards addressing and correcting 
the audit issues and completed this within three months of the 
initial inspection," said Else.  One of the issues raised in the 
FAA's initial inspection report was concern over the loss of skills 
at SAAT.  Else remarked that aircraft technicians were in short 
supply globally, but emphasized that SAAT has since retained more 
than 260 aircraft technicians and is still recruiting.  Aircraft 
maintenance conducted by SAAT, the largest of its kind in Southern 
Africa, is governed by several international aviation regulatory 
bodies, including the FAA, the European Aviation Safety Agency and 
the South African Civil Aviation Authority. (News24, December 4, 
2008) 
 
--------------------------------------------- -- 
Eskom Terminates Nuclear 1 Procurement Process, 
QEskom Terminates Nuclear 1 Procurement Process, 
but South Africa Still Committed to Nuclear 
--------------------------------------------- -- 
 
¶7. (U) State power utility Eskom has terminated the procurement 
process for the proposed Nuclear 1 project after its board decided 
it could not make an investment decision to proceed due to financial 
pressures.  Department of Public Enterprises Director General Portia 
Molefe stressed that the country remained committed to its nuclear 
power program despite the decision.  She commented that South Africa 
must "deal with" its carbon footprint and diversify its energy mix. 
Molefe asserted that there was sufficient capacity coming on line to 
close the power supply gap, especially in an environment of slowing 
demand.  She was also convinced that the market dynamic would change 
so that when the government and Eskom were ready to reengage with 
the nuclear vendors, it would be more of a "buyers market."  The 
proposed Nuclear 1 project would have resulted in the construction 
of the country's second pressurized water reactor nuclear power 
plant, after the station at Koeberg near Cape Town.  Westinghouse 
and Areva of France were the designated bidders for the project. 
 
PRETORIA 00002706  003.2 OF 003 
 
 
Eskom is grappling with a huge financing challenge.  Ratings agency 
Standard & Poors recently said South Africa's National Treasury 
needed to extend "unconditional, timely guarantees" across all of 
Eskom's debt stock if it hoped to sustain the utility's current BBB+ 
investment-grade credit rating.  The Treasury has not yet announced 
its position on the matter.  (Engineering News, the Weekender, 
Business Report, Business Day, December 6, 2008) 
 
-------------------------------------- 
PetroSA Appoints KBR as Engineering 
Contractor for Proposed Coega Refinery 
-------------------------------------- 
 
¶8. (U) State-owned petroleum company PetroSA has appointed US firm 
KBR as the engineering contractor for Project Mthombo, the proposed 
$11 billion, 400,000 barrel-per-day (bpd) Coega crude oil refinery. 
PetroSA CEO Sipho Mkhiza stated that KBR had been contracted to 
provide feasibility and front-end engineering and design study 
services.  The contract is estimated to be worth about $100 million. 
 KBR expressed its commitment to Black Economic Empowerment 
principles.  KBR expects to complete the feasibility study by 
September 2009, and plans to start construction in 2011.  Mkhize 
stated that the rationale for building the refinery was that 
national demand for refined fuels already exceeded South Africa's 
refining capacity.  Critics question the government's decision to 
prioritize this investment, noting that it may be based on now 
out-of-date growth and demand projections.  (Engineering News, 
Business Day, December 10, 2008) 
 
--------------------------------------------- 
SADC Launches New Science and Technology Desk 
--------------------------------------------- 
¶9. (U) South African Development Community (SADC) Science and 
Technology Chairman Mosibudi Mangena announced the creation of a 
unit that will coordinate the SADC region's science and technology 
activities.  The unit would apply science, technology, and 
innovation to poverty eradication efforts and ensure that the SADC 
region contributes to and benefits from the global pool of 
scientific knowledge and technological advances.  The South Africa 
Department of Science and Technology Chief Director for Multilateral 
Cooperation and Africa Lindiwe Lusenga explained that the unit would 
be based at the SADC secretariat in Botswana.  South Africa has 
already commissioned an official to serve at the unit for a period 
of three years.  Lusenga commented that "The vision of the SADC 
Ministers was to see the desk grow into a fully-fledged unit of 
science and technology, recognizing the challenges faced by the 
region on capacity building, and coordinating efforts to share 
infrastructural resources and experiences for research and 
development."  Mangena added that the unit would coordinate the 
region's science and technology activities and also promote its 
agenda.  He also encouraged the member states to help increase the 
capacity of the unit.  [Note: Mangena is also the South African 
Minister of Science and Technology.]   (Engineering News, November 
5-11, 2008)