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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 002755 
 
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 26, 
2008 ISSUE 
 
PRETORIA 00002755  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 8, issue 52 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- No House Price Recovery in '09' 
- Third of South African Firms Plan Layoffs 
- Markets End Bad Year 
- European Commission Offers Tariff Deal 
- Independent Peaking Power Plant Negotiations Ongoing 
- Not all Doom and Gloom in Mining - Harmony Gold Raises 
  Capital 
- Unilever Company Abandons the Hoodia Plant Initiative 
 
End Summary. 
 
------------------------------- 
No House Price Recovery in '09' 
------------------------------- 
 
¶2. (U) More than 100,000 homeowners are two months behind in their 
mortgage payments and more than 30,000 are four months behind, 
reports the Alliance Group.  The homeowners' payments are tardy 
despite the South African Reserve Bank's (SARB) recent interest-rate 
cut of 50 basis points.  Analysts do not expect that the situation 
will improve soon unless interest rates are aggressively reduced. 
Alliance Group Chief Executive Rael Levitt said it would take a rate 
cut of more than four percentage points to rectify the situation. 
He points out that since the middle of 2008 the residential property 
market has been in freefall, becoming flooded with houses, and 
resulting in lower house values.  In the third quarter of 2008 banks 
tightened their lending criteria, particularly for new housing 
finance, and the number of homeowners in a negative-equity situation 
increased.  Levitt expects 5% of all homeowners will experience 
negative equity by the middle of next year.  According to Rode & 
Associates economist Erwin Rode, this applies largely to first-time 
buyers who bought a house after 2006.  Rode expects no dramatic 
improvement in either the demand for residential property or its 
pricing in 2009.  He foresees a fairly extended recession with 
demand for residential property only beginning to improve in 2010. 
(Fin24, December 23, 2008) 
 
----------------------------------------- 
Third of South African Firms Plan Layoffs 
----------------------------------------- 
 
¶3. (U) According to a KPMG survey of 120 leading South African 
businesses, more than 35% are likely to lay off workers as higher 
interest rates and slowing local economy eat into their profits. 
The survey further found that 65% planned to encourage their workers 
to take voluntary attrition.  Almost 23% of the survey respondents 
felt that, in the current economic circumstances, the interest rate 
should be significantly lower; 60% supported a moderate lowering of 
rates.  Respondents also believe that government should focus its 
infrastructure spending on energy in 2009, and that energy spending 
would have the most advantageous effect on the South African 
economy.  But in general the survey found that business people are 
confident about the country economic outlook, with respondents 
quoted as saying, "South Africa will get out of the starting blocks 
better and quicker than most other countries.  I am very positive 
about this country."  (I-Net Bridge, December 23, 2008) 
 
-------------------- 
Markets End Bad Year 
-------------------- 
 
¶4. (U) South African markets were hit hard by global economic 
Q4. (U) South African markets were hit hard by global economic 
turmoil in 2008.  The Johannesburg Stock Exchange (JSE) shed 28% 
over the course of the year, dropping 37% since its high point in 
May.  The rand also weakened by 30% against the dollar over 2008, as 
investors dumped emerging market currencies and assets in a flight 
to safety.  More bad news is likely in 2009, as companies and 
consumers feel the real effect of high interest rates in South 
Africa and recession in export markets.  However, the worst may be 
over for the JSE, according to Simon Hudson-Peacock, head of 
equities at Cadiz African Harvest Asset Management.  He said that 
negative emotion in the market has pushed asset valuations well 
below fair value:  "I really do think we could look for 20 percent 
out of the equity market next year.  It doesn't sound very large, 
 
PRETORIA 00002755  002.2 OF 003 
 
 
but it's a good deal when you think that inflation will go below 10 
percent."  Jeremy Gardiner, a director at Investec Asset Management, 
agreed.  He said that stock markets traditionally rise during 
recessions, and he predicted a broad-based recovery during the first 
half of 2009.  (Business Day, December 23, 2008) 
 
-------------------------------------- 
European Commission Offers Tariff Deal 
-------------------------------------- 
 
¶5. (U) The European Commission (EU) has made a concession in trade 
talks with the Southern African Customs Union (SACU.  The EU has 
proposed a tariff deal that would align SACU's Economic Partnership 
Agreement (EPA) with the Trade, Development and Co-operation 
Agreement (TDCA), under which South Africa trades with the EU.  The 
deal would keep SACU intact by allowing SACU to maintain its common 
external tariff, while allowing South Africa to balance its 
"regional coherence" goals with its desire for market access to the 
EU.  SACU members Botswana, Lesotho, Namibia and Swaziland signed 
the interim pact last November to preserve preferential access to 
the EU.  South Africa does not want to sign the EPA, and has since 
been at loggerheads with the other SACU members.  South Africa's 
chief trade negotiator Xavier Carim noted that the deal would result 
in a "single SACU arrangement" and described it as "a really good 
development," but also noted that the deal would not resolve other 
concerns that South Africa has. (Business Day, December 22, 2008) 
 
------------------------------- 
Independent Peaking Power Plant 
Negotiations Ongoing 
------------------------------- 
 
¶6. (U) The much-delayed Department of Minerals and Energy 
(DME)-spearheaded independent power producer (IPP) project is 
forging ahead, and a new commercial operation date has been set for 
mid-2011, announced DME Chief Director of Electricity Ompi Aphane. 
Aphane said negotiations with a consortium led by Suez Energy of 
France for the construction of two open cycle gas-turbine plants 
were proceeding and should be completed by the end of March 2009. 
DME received a binding offer from Suez after negotiations with the 
designated preferred bidder US power firm AES were terminated in 
April 2008 due to reported sticking points on price, commercial 
terms, and the dates for generation.  Aphane admitted that the 
economic landscape had changed since the start of the project, but 
he believed that the power plants were an opportune project for 
banks to take up.  Electricity demand may be lower than originally 
projected for 2009, but Aphane asserted that the reduced demand is a 
function of the economic climate and South Africa still requires 
energy infrastructure.  The proposed project would include a 750 
megawatt (MW) power station near Durban and a 330 MW plant at Coega, 
near Port Elizabeth, both near the Indian Ocean.  (Engineering News, 
December 19, 2008) 
 
---------------------------------- 
Not all Doom and Gloom in Mining - 
Harmony Gold Raises Capital 
---------------------------------- 
 
¶7. (U) Harmony Gold (Harmony) raised R979 million ($98 million) by 
selling 10.5 million of its shares on the open market this week and 
reaffirmed its capital expenditure plans.  The cash would be used to 
Qreaffirmed its capital expenditure plans.  The cash would be used to 
reduce its debt levels as part of a plan to have zero debt by June 
¶2009.  Harmony reported that it had paid to Nedbank a substantial 
portion of a loan due by the end of December 2008.  Harmony plans to 
develop its pipeline of projects as planned, despite turbulent 
economic conditions and a grim outlook.  The third-ranked South 
African gold company, Harmony has eleven underground mines and one 
opencast operation in South Africa and is currently building and 
expanding mines in South Africa and Papua New Guinea.  (Mining 
Weekly, December 22, 2008) 
 
----------------------------- 
Unilever Company Abandons the 
Hoodia Plant Initiative 
----------------------------- 
 
¶8. (U) Unilever has abandoned its plan to develop a weight-loss 
product based on South Africa's indigenous Hoodia Gordonii plant, 
dashing the local San community's hopes that it would soon profit 
 
PRETORIA 00002755  003.2 OF 003 
 
 
from the spiny succulent.  Unilever has invested over 20 million 
pounds ($29 million) in research on the plant over four years, in 
partnership with British company Phytopharm and South Africa's 
Council for Scientific and Industrial Research.  The hoodia plant 
was traditionally used by San and Khoi hunters to suppress hunger 
and thirst during extended hunting expeditions, but it might not be 
safe or effective for dieters, said Unilever spokesperson Trevor 
Gorin.  He noted that hoodia has potentially dangerous side effects, 
including increased blood pressure.  Researchers also found that 
hoodia had little or no impact upon the calorie consumption of 
participants in a Unilever study.  Unilever had since returned the 
development rights to Phytopharm.  Phytopharm's Functional Foods 
Chief Simon MacWilliam is adamant that hoodia might still have 
potential as a commercial weight-management aide.  Phytopharm is 
seeking new partners to continue with the development and marketing 
of hoodia.  (Business Day, December 22, 2008)