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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 16, 
2009 ISSUE 
 
PRETORIA 00000088  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 9, issue 3 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- South African Economy to "Feel Pressure" 
- Manufacturing Output, Business Confidence Dive 
- South Africa's House Prices Fall 
- Stadiums on Track for World Cup, But Economic Downturn - 
  Could Reduce Regional Impact of Games 
- Nuclear a Distant Solution for South Africa 
- South Africans Concerned About Climate Change 
 
End Summary. 
 
 
---------------------------------------- 
South African Economy to "Feel Pressure" 
---------------------------------------- 
 
¶2. (U) Investment Solutions Economist Chris Hart said forecasts for 
South Africa's economic growth have been cut back, with 1% GDP 
growth expected for 2009, although the pace will pick up towards the 
end of the year.  "The first half of the year will be characterized 
by recessionary conditions," he said, "while the second half will be 
a recovery phase where we will see economic growth."  Hart's 
forecast correlates with that of Barclays Capital.  Barclays Capital 
reported in a research note that depressed business and consumer 
confidence levels, political and policy uncertainty, continued risk 
aversion, and a bleak outlook for the global economy in the first 
half of the year are likely to weigh on South Africa's growth 
performance for most of the year.  (Fin24, January 15, 2009) 
 
 
--------------------------------------------- - 
Manufacturing Output, Business Confidence Dive 
--------------------------------------------- - 
 
¶3. (U) Manufacturing output dived 4.4% in November, adding to 
evidence that the South African economy's second-biggest sector is 
in recession.  The drop in output was the biggest annual fall in 
more than nine years.  Manufacturing activity edged higher in 
December, but remained near a record low.  The Investec Purchasing 
Manager's Index (PMI) was 39.5 in November, and rose to 40.1 in 
December.  "Purchasing managers' expectations ... recovered somewhat 
after the sharp downward adjustment and record low in November, but 
on the whole, they remain negative and the outlook for the 
manufacturing sector continues to be uncertain," explained Investec 
Asset Management Portfolio Manager Mokgatla Madisha.  The 
manufacturing sector also shed 19,000 jobs in the third quarter, and 
continues to be pummeled by falling domestic demand and the 
deepening global recession, which has eroded demand for exports. 
JPMorgan Economist Kgotso Radira commented, "With most of South 
Africa's trade partners in recession, we expect business conditions 
in the sector to deteriorate further in the first half of 2009." 
 
The South African Chamber of Commerce and Industry's (SACCI) 
Business Confidence Index slipped from 86.7 basis points in November 
to 83.8 basis points in December, its lowest level since June 2003. 
SACCI attributed the fall in confidence to weaker domestic and 
global economic conditions.  SAACI's report speculated that 
confidence is likely to remain subdued until international economic 
conditions improved and the local economy showed signs of recovery. 
South African consumer spending has cooled sharply in response to a 
QSouth African consumer spending has cooled sharply in response to a 
500-basis-point hike in interest rates between June 2006 and June 
¶2008.  The South African Reserve Bank began unwinding the rate 
increases with a 50-basis-point cut in December.  SAACI predicted 
that lower household spending and slower economic growth, a large 
current account deficit and the need for inflows to finance it, and 
falling commodity prices would continue to weigh on sentiment in 
¶2009.  South Africa's current account deficit stood at 7.9% of gross 
domestic product in the third quarter of 2008, and fewer portfolio 
inflows due to global market turmoil has left it more difficult to 
finance.  (Engineering News, January 15, 2009; Business Day, January 
9, 2009; and Fin24, January 13, 2009) 
 
-------------------------------- 
South Africa's House Prices Fall 
-------------------------------- 
 
PRETORIA 00000088  002.2 OF 003 
 
 
 
¶4. (U) The Absa house price index showed house prices increased by 
only 4% in 2008, the lowest growth rate since 1996.  ABSA expects 
the 2009 outlook for residential property to "remain bleak, with the 
market bottoming at mid-year followed by a gradual improvement. 
However, some estate agents believe there will be further severe 
falls in house prices and private property developments might be 
curtailed.  This is good news for house buyers and property 
investors, but the number of homes repossessed by banks will also 
increase.  Some property analysts expect the number of homes to be 
repossessed this year to triple to around 150,000.  These 
"distressed" sales often are negotiated at up to 40% below the real 
value of a house.  Institute of Estate Agents of South Africa Chief 
Executive Ben Pillay speculated that even if interest rates fall 
again in February, it could take up to nine months for this to 
filter through to the residential property market.  He added that 
house prices were "so badly overvalued that they would have to come 
down dramatically."  (Business Times, January 10, 2009) 
 
----------------------------------- 
Stadiums on Track for World Cup, 
But Economic Downturn -Could Reduce 
Regional Impact of Games 
----------------------------------- 
 
¶5. (U) South Africa's Local Organizing Committee (LOC) for the 2010 
FIFA World Cup expressed confidence that preparations were 
continuing to progress well and that the economic downturn would not 
affect foreigners' decision to attend the tournament.  FIFA World 
Cup Organizing Committee Communications Officer Rich Mkhondo 
announced that construction on all ten stadiums would be completed 
before the end of 2009.  He also downplayed suggestions that the 
economic downturn could have a major impact on the number of 
visitors coming to South Africa for the World Cup.  Mkhondo 
remarked, "The FIFA World Cup is a once-in-a-lifetime event ... with 
the fanaticism of football fans around the world, we do not expect a 
major drop in visitor numbers."  Efficient Group Analyst Fanie 
Joubert agreed that neither the economic turmoil nor the events in 
Zimbabwe would prevent tourists from attending the World Cup.  He 
predicted that tourists likely would not visit all the attractions 
they formerly would have, either because they would not be able to 
afford to, or because of the fear of health threats such as cholera 
coming from Zimbabwe into South Africa.  The LOC also expressed 
assurances that the four stadiums to be used in the June 2009 FIFA 
Confederations Cup would be ready on time.  The Confederations Cup 
would be a test of South Africa's readiness to host the World Cup. 
All the major refurbishments to the Ellis Park Stadium in 
Johannesburg, the Loftus Versfeld stadium in Pretoria, the Free 
State stadium in Bloemfontein, and the Royal Bafokeng stadium in 
Rustenburg have been completed.  These four stadiums would also be 
used in the World Cup.  A further five stadiums under construction 
and to be used in the 2010 games would be completed by the end of 
October.  The 68,000-seater Cape Town Green Point stadium is 
expected to be handed over to FIFA in December.  (Engineering News, 
January 12, 2009) 
QJanuary 12, 2009) 
 
------------------------------------------- 
Nuclear a Distant Solution for South Africa 
------------------------------------------- 
 
¶6. (U) South Africa expects its next nuclear power plant to come on 
stream by 2019, two years later than initially planned by utility 
Eskom, which has dropped plans to build the facility due to 
financial woes.  Eskom was hoping nuclear energy would supply one 
quarter or 20,000 megawatts (MW) of South Africa's expanded 
generating capacity by 2025.  The government now says a target of 
6,000 MW in the same period is more feasible.  South Africa will 
have to keep reverting to more coal to supply its growing demand in 
the meantime.  "We appreciate what Eskom had as a plan, but we need 
to be practical and see what can be done in that time -- 6,000 MW 
seems much more feasible," commented Department of Minerals and 
Energy Deputy Director General Nelisiwe Magubane.  Eskom operates 
Africa's sole nuclear power plant, Koeberg, with a total capacity of 
1,800 megawatts.  Magubane said an additional 3,200 MW of the 
planned 6,000 MW is due in 2019.  The government, which took over 
after Eskom bowed out, said the two-year delay was needed to 
properly initiate the process.  The government would revise its 
nuclear plans taking into account the economic slowdown, but the 
decision to expand South Africa's nuclear supply was not based on 
 
PRETORIA 00000088  003.2 OF 003 
 
 
choice, Magubane asserted.  "In the next 20 years we need to 
decommission quite a number of coal fired power plants, so we need 
to have a plan on what it would be that would replace that ageing 
fleet," she cautioned.  The cost, coupled with the long lead time of 
some 7-10 years to build a new nuclear plant, means the country will 
have to pump up its coal production in the meantime, even though 
that will undercut its ambition to reduce the country's carbon 
footprint.  The 6,000 MW nuclear capacity target is still a 
substantial target, with an estimated cost of $35 billion. 
(Engineering News, January 12, 2009) 
 
--------------------------------------------- 
South Africans Concerned About Climate Change 
--------------------------------------------- 
 
 
¶7. (U) Accenture reported that 95% of South African respondents to a 
survey on climate change said that they were concerned about climate 
change, and 97% felt that it would have a direct impact upon their 
lives.  The survey canvassed some 11,000 people worldwide, and found 
that people in emerging markets expressed greater optimism in the 
ability to combat climate change.  Seventy percent of emerging 
market consumers were optimistic about their ability to combat 
climate change, compared with only 48% in developed markets. 
(Engineering News, January 15, 2009) 
 
BOST