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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 30, 
2009 ISSUE 
 
PRETORIA 00000178  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 9, issue 5 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Big Rate Cut Expected as Inflation Plummets 
- South Africa's Leading Indicator Confirms Dismal Growth 
  Outlook 
- Sharp Rise in Company Failures 
- SARS Seizes Huge Haul of Illegal Imports 
- Emirates to Fly Direct to Durban by October 
- MTN and Neotel Team Up to Build National Cable 
  Infrastructure to Connect to the Undersea Cable 
  Projects in Time for 2010 
- Beyond Eskom - Nuclear was too Big for State Utility 
  Alone 
- PBMR Nuclear Fuel Breakthrough 
- Ferrochrome - Decimating Production 
- National Space Agency Bill Passed into Law 
 
End Summary. 
 
 
------------------------------------------- 
Big Rate Cut Expected as Inflation Plummets 
------------------------------------------- 
 
¶2. (U) The annual increase in the CPIX inflation (CPI less mortgage 
cost) eased from 12.1% in November to 10.3% in December, its lowest 
level in nine months.  The lower inflation rate was driven primarily 
by a sharp fall in fuel prices.  Government bonds and banking shares 
rallied on the news, which fanned speculation that the South African 
Reserve Bank (SARB) will cut rates this year in a bid to keep South 
Africa's flagging economy out of the global recession.  At its 
December meeting, the SARB's Monetary Policy Committee cut the 
policy interest rate by half a percentage point.  That marked the 
start of an easing cycle in local interest rates, which climbed by 
five percentage points between June 2006 and June 2008 as the SARB 
fought soaring inflation.  Since then, slowing domestic demand and a 
steep plunge in prices for commodities that make up more than 60% of 
South Africa's exports have curbed growth to a decade low. 
(Business Day, January 29, 2009) 
 
-------------------------------- 
South Africa's Leading Indicator 
Confirms Dismal Growth Outlook 
-------------------------------- 
 
¶3. (U) South Africa's leading indicator of economic activity posted 
its lowest fall in over four years (-14.3% year-on-year (y/y)).  The 
fall marks the 17th consecutive month of y/y declines and confirms 
the dismal growth outlook for the South African economy.  South 
Africa's economic growth slowed to just 0.2% quarter-on-quarter 
(q/q) in Q3 08, the slowest q/q growth in a decade and looks set to 
continue its downward trend.  Experts speculate the South African 
economy may already be in the midst of a technical recession, with 
the latest projections pointing to negative q/q growth rates in Q4 
08 and Q1 09. Given slowing global and domestic activity as evident 
in many high frequency indicators, experts forecast the South 
African economy's average growth rate will decline from a 3.3% 
average for 2008 to a sub-1% average growth rate for 2009.  (ABSA 
Newsletter, January 27, 2009) 
 
------------------------------ 
Sharp Rise in Company Failures 
------------------------------ 
 
¶4. (U) Company failures soared by more than 68% in December, taking 
the overall increase last year to 4.7% as more firms buckled under 
the pressure of slowing demand and steep debt costs.  Personal 
bankruptcies also leaped 51.5% in the first 11 months of last year, 
Qbankruptcies also leaped 51.5% in the first 11 months of last year, 
although there was a small decline in November, according to 
Statistics South Africa.  Companies should come under more pressure 
this year as consumers continue to rein in their spending.  Consumer 
spending, which is the economy's main engine, shrank by 0.8% in the 
third quarter of 2008, its first contraction in a decade. 
(Business Day, January 28, 2009) 
 
---------------------------------------- 
 
PRETORIA 00000178  002.2 OF 004 
 
 
SARS Seizes Huge Haul of Illegal Imports 
---------------------------------------- 
 
¶5. (U) The South African Revenue Service (SARS) has confiscated more 
than 100 tons of clothing imports since the mid-December launch of a 
customs crackdown on goods imported illegally from Asia. The value 
of the goods has not yet been established.  Since the launch of the 
campaign, customs monitoring has increased.  Up to 15% of shipments 
have been examined since the beginning of the crackdown, in contrast 
to only 2-3 % in the past.  The increased scrutiny has bumped up 
shipping costs and lead times on delivery by about a week.  SARS 
cracked down on imports after discovering large-scale 
under-invoicing of clothing imports from China.  Trade statistics 
showed that textiles and apparel worth R15.3 billion ($1.5 billion) 
were exported from China to South Africa last year. However, 
invoices reflected imports worth only R6.1 billion ($614 million), 
representing a 60% shortfall in invoicing and a sign of large-scale 
fraud, the Department of Trade and Industry said at the end of last 
year.  (Business Day, January 28, 2009) 
 
------------------------------------------- 
Emirates to Fly Direct to Durban by October 
------------------------------------------- 
 
¶6. (U) Dubai-based Emirates Airlines (Emirates) has announced its 
intention to resume plans to launch direct flights to Durban. 
Emirates resolved the aircraft shortage problem that caused it to 
suspend its flight plans late last year.  Emirates Southern Africa 
Regional Manager Fouad Caunhye announced that beginning in October 
2009 Emirates will begin to serve Durban along with Johannesburg and 
Cape Town.  Durban's geographical location on the east coast of 
South Africa makes it a natural hub for trade with the Indian Ocean 
and Asia Pacific countries.  Durban handles 50% of the country's 
break-bulk cargo and 65% of its containerized traffic. The Airports 
Company of South Africa is building a new international airport in 
Durban to accommodate increased traffic for the 2010 FIFA World Cup 
and larger, long-haul aircraft.  (Travel Hub, January 22, 2009) 
 
--------------------------------------------- -- 
MTN and Neotel Team Up to Build National Cable 
Infrastructure to Connect to the Undersea Cable 
Projects in Time for 2010 
--------------------------------------------- -- 
 
¶7. (U) Telecommunications companies MTN South Africa and Neotel 
announced plans to collaborate on a 5,000 kilometer fiber-optic 
cable to service South Africa's major cities.  The cable would be 
installed within the next two years, and would cost between R1.7 
billion ($171 million) and R2 billion ($200 million).  MTN South 
Africa Managing Director Tim Lowry said this was a landmark 
agreement and was the largest collaboration in the South African ICT 
industry to date.  The two-year project's costs would be equally 
shared between MTN and Neotel.  Lowry estimated that by combining 
the two companies' resources, each company would be saving between 
R400 million ($40 million) and R500 million ($50 million).  The 
project would be divided into several phases, with the first phase 
offering connectivity between Johannesburg and Durban, and linking 
Qoffering connectivity between Johannesburg and Durban, and linking 
up to Richards Bay where the under-sea East African Submarine Cable 
System (EASSY) and SEACOM will be landed.  The first phase would 
likely take about seven months to complete, and would cost an 
estimated R200 million ($20 million).  Construction for this phase 
would start in the first week of March, with the completion date 
scheduled before the start of the 2010 FIFA World Cup.  Other phases 
would link Durban with Port Elizabeth, Port Elizabeth with Cape 
Town, Ladysmith with Polokwane, and Polokwane with Pretoria. 
(Engineering News, January 15, 2009) 
 
 
---------------------------------- 
Beyond Eskom - Nuclear was too Big 
for State Utility Alone 
---------------------------------- 
 
¶8. (U) The South African government has established a nuclear task 
team to develop a framework for procuring a nuclear technology 
partner to support both the nuclear power station build program and 
the associated industrialization process.  This came after Eskom 
cancelled the tender for a 3,000 megawatt nuclear power station, 
based on funding and affordability concerns.  The task team plans to 
 
PRETORIA 00000178  003.2 OF 004 
 
 
look for a partner that would co-develop the nuclear industry in 
South Africa and assist in the broadening of the nuclear base, which 
currently consists of only the Koeberg power station.  The task team 
would be led by Department of Minerals and Energy acting Deputy 
Director General for hydrocarbons and energy planning Tseliso 
Maqubela, and would include representatives from the Department of 
Public Enterprises and Eskom.  DPE Director General Portia Molefe 
said the task team effort should take about one year.  The two 
preferred candidates for the cancelled tender, Westinghouse and 
Areva, have announced their continued commitment to South Africa and 
its nuclear potential. Westinghouse Regional Vice President Rita 
Bowser said, "We believe that the AP1000 is ideal for South Africa 
as it combines proven power generation systems and components with 
advanced, passive safety systems.  We will nevertheless continue our 
current nuclear business interests in South Africa that include our 
work at Koeberg and our support for development of the Pebble Bed 
Modular Reactor."  Westinghouse just opened up an office in Cape 
Town to service Koeberg.  (Engineering News, January 16, 2009) 
 
------------------------------ 
PBMR Nuclear Fuel Breakthrough 
------------------------------ 
 
¶9. (U) Nuclear design company Pebble Bed Modular Reactor (PBMR) has 
successfully manufactured coated fuel particles, which would form 
the basis of high temperature reactor fuel, containing 9.6% enriched 
uranium.  PBMR manufactured the particles in December and shipped 
them to the Oak Ridge National Laboratory and the Idaho National 
Laboratory in the U.S. to undergo irradiation testing.  CEO Jaco 
Kriek noted that this achievement would give PBMR credibility as a 
participant in the Next Generation Nuclear Plant project.  He also 
noted that the manufacturing of fuel particles was a key driver of 
the company's partnership in the consortium that includes 
Westinghouse.  The fuel design consists of low-enriched uranium and 
triple-coated isotropic particles contained in a molded graphite 
sphere.  Kriek said, "We have conducted extensive development work 
and we are satisfied that the coated particles that were produced 
for testing will provide proof and assurance that the PBMR will 
perform to its predicted best-in-the-world safety capabilities in 
the process heat and electricity markets, as well as cogeneration 
applications."  (Engineering News, January 16, 2009) 
 
----------------------------------- 
Ferrochrome - Decimating Production 
----------------------------------- 
 
¶10. (U) Demand and prices for ferrochrome have fallen so low that 
the Xstrata-Merafe chrome venture is producing at only 20% of its 
capacity - but it has retained its employees who operate its 
suspended furnaces.  The Xstrata-Merafe venture has decimated its 
output, but is holding onto its operations personnel to enable it to 
snap back into action when demand increases.  Skills shortages are a 
problem in South Africa, so many companies are trying to avoid 
laying-off skilled employees during the global commodities slowdown. 
 An analyst asserted that Chinese ferrochrome producers are being 
supported by state entities and believed that substantial stocks of 
Qsupported by state entities and believed that substantial stocks of 
chrome ore may still exist in China.  South Africa is the world's 
leading producer of chromium ferroalloy production, used in 
stainless steel production, which has been impacted by the global 
slowdown.  The shutdown of chromium and manganese ferroalloy 
furnaces has provided temporary relief to electricity supply 
shortfalls in South Africa.  (Mining Weekly, January 23, 2009) 
 
------------------------------------------ 
National Space Agency Bill Passed into Law 
------------------------------------------ 
 
¶11. (U) President Kgalema Motlanthe of South Africa signed into law 
the South African National Space Agency Act, which allows for the 
establishment of a South African National Space Agency (NSA). 
Minister Mosebudi Mangena of the Department of Science and 
Technology emphasized the role satellite images play in minerals 
prospecting, city planning, precision farming, and weather 
predictions. Mangena noted that South Africa was already spending 
over R600 million ($60 million) per year on space related 
operations. South Africa operates two civilian satellites, the 
SunSat, which was launched in 1999 and is still orbiting, and the 
Sumbandilasat, which is yet to be launched.  Sumbandilasat is 
tentatively scheduled to launch in March 2009.  (The Star, January 
 
PRETORIA 00000178  004.2 OF 004 
 
 
16, 2009)