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UNCLAS SECTION 01 OF 03 PRETORIA 000294 
 
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 
 
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER FEBRUARY 13, 
2009 ISSUE 
 
PRETORIA 00000294  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 9, issue 7 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Budget 2009 - Finance Minister Cushions the Blow 
- Factories Put in Worst Performance in a Decade 
- Trade Conditions Survey Shows Cautious Improvement 
- Transnet Re-Issues Locomotive Tender to Three Bidders 
- Second Transnet Executive Announces Departure 
- Department of Minerals and Energy to Split 
- Anglo Platinum to Cut 10,000 Jobs 
- Manuel Acknowledges Environmental Issues in Budget Speech 
 
End Summary. 
 
 
------------------------------ 
Budget 2009 - Finance Minister 
Cushions the Blow 
------------------------------ 
 
¶2. (U) Finance Minister Trevor Manuel announced in his 2009-10 
budget speech before Parliament that government plans to aid 
state-owned utility company Eskom, the embattled mining industry, 
and struggling national airline South African Airways (SAA) by 
extending support worth billions at a time when the economy is 
suffering a dramatic slowdown.  Government had undertaken to provide 
Eskom with a guarantee of R176 billion ($17.7 billion) for its 
massive financial R343 billion ($34.4 billion) infrastructure 
investment program, announced Manuel.  The guarantee would help to 
lower the cost of borrowing for the utility in the tight capital 
market.  He also signaled a delay in the introduction of the mining 
royalties tax regime from April to next year, in effect giving the 
mining industry tax relief of R1.8 billion ($180.9 million), which 
he noted would assist in minimizing job losses.  SAA would receive 
R1.6 billion ($161 million) to support its turnaround strategy and 
bolster its financial sustainability.  The economy was expected to 
grow only 1.2% this year, Manuel predicted, but would strengthen to 
3% in 2010 and 4% in 2011.  He commented that trading conditions are 
tough and are likely to deteriorate further in the short-term. 
Manual did not offer a direct fiscal stimulus package, but his 
budget was an expansionary, counter-cyclical instrument with 
incentives to industry and support to the poor.  "Policy adjustments 
need to reinforce macroeconomic stability in the context of a 
deteriorating international environment and provide a temporary 
cushion to the domestic economy," Manuel explained.  The budget 
review added that "a lower tax burden combined with strong growth in 
public spending signals a strong fiscal stimulus to the economy over 
the period ahead."  (Business Day, February 11, 2009) 
 
--------------------------------------------- - 
Factories Put in Worst Performance in a Decade 
--------------------------------------------- - 
 
¶3. (U) Factory output plunged at its fastest pace in a decade in 
December as demand for exports fell, backing the case for more 
aggressive interest rate cuts to protect South Africa from the 
global recession.  Manufacturing declined by 7% compared to December 
2007, its biggest fall since October 1998.  The figures show South 
Africa's manufacturing sector is in a deepening recession, and 
likely to have restrained overall growth in the fourth quarter of 
last year.  "It looks pretty disappointing," said ETM Economist 
George Glynos. "The numbers suggest we are looking at a downturn far 
QGeorge Glynos. "The numbers suggest we are looking at a downturn far 
more severe than many private sector economists have picked up." 
Nedbank Chief Economist Dennis Dykes speculated, "I think what we 
are starting to see now is the dual effect of the slowdown 
domestically and on top of that the delayed effects of what has 
happened internationally coming through."   Motor manufacturing had 
been hit by a double whammy because both local and export demand 
have slowed.  Industries such as iron and steel were also hard hit. 
It was likely that the economy shrank in the fourth quarter.  "The 
retail sector is under pressure. Mining will be down.  Even prior to 
this number we were predicting a small decline in GDP in the fourth 
quarter and now it looks a certainty," Dykes warned.  (Business Day, 
February 11, 2009) 
 
--------------------------------------------- ----- 
Trade Conditions Survey Shows Cautious Improvement 
 
PRETORIA 00000294  002.2 OF 003 
 
 
--------------------------------------------- ----- 
 
¶4. (U) The Trade Activity Index (TAI) improved in January, announced 
the South African Chamber of Commerce and Industry (SAACI).  The TAI 
measures current trade conditions.  This is the first time the TAI 
has improved since October, SAACI reported in its latest monthly 
Trade Conditions Survey.  SAACI cautioned that the trade environment 
is still uncertain, but said that January showed improvements in 
current sales volumes and new orders.  An improvement in household 
spending stimulated by lower interest rates should assist a recovery 
in the trade environment, which was currently being weighed down by 
low economic expectations, SAACI noted.  The Trade Expectations 
Index (TEI), which surveyed trade conditions six months ahead, also 
improved in January.  The improvements in the outlook for trade may 
be attributable to recent monetary policy easing and anticipated 
further relief in the course of 2009.  (Engineering News, February 
10, 2009) 
 
--------------------------------------------- -------- 
Transnet Re-Issues Locomotive Tender to Three Bidders 
--------------------------------------------- -------- 
 
¶5. (U) State-controlled transport logistics group Transnet has 
reportedly invited only three international original equipment 
manufacturers (OEMs) to bid to supply 100 diesel locomotives.  The 
tender was issued recently following Transnet's decision to withdraw 
an earlier tender for 212 diesel locomotives.  The initial tender 
was issued on September 2006.  U.S.-based Electromotive Diesel (EMD) 
was named as the preferred bidder for the R6 billion ($598.5 
million) agreement to supply 212 trains in August 2007.  However, 
Transnet Spokesperson John Dludlu confirmed that a new "confined 
tender" had been issued and would close on February 17.  He did not 
confirm the names of those OEMs invited to participate, but 
Engineering News has established that EMD, GE Transportation, and 
Siemens all received the tender documentation.  Dludlu said the 100 
locomotives will be deployed primarily for use by its general 
freight business, but declined to disclose further details until 
after the adjudication and evaluation processes are completed.  It 
is understood that Transnet will seek to ensure that a portion of 
the value of the contract is placed with South African industrial 
suppliers.  It is also believed that the 100 locomotives purchase 
program is viewed by the utility as part of a larger 
recapitalization of Transnet Freight Rail, which could position the 
winning OEM strongly to supply into subsequent tenders.  The 
decision to reissue the tender is also in line with an earlier 
indication given by Transnet that it is hoping to pursue a "more 
commercial approach" to the acquisition of new traction power, in 
light of the "breathing space" created by the slowdown in the 
international and domestic economies.  (Engineering News, February 
9, 2009) 
 
 
--------------------------------------------- 
Second Transnet Executive Announces Departure 
--------------------------------------------- 
 
¶6. (U) Transnet Chief Operation Officer Louis van Niekerk has 
announced that he plans to leave the state-controlled transport 
Qannounced that he plans to leave the state-controlled transport 
logistics group at the end of March.  Transnet CEO Maria Ramos had 
announced her resignation last November and would depart at the end 
of February.  Van Niekerk joined Transnet in 2005 soon after Ramos 
took over.  He had been asked to join Transnet to assist with a 
far-reaching re-engineering and asset recapitalization plan. 
Transnet spokesperson John Dludlu did not indicate whether a 
replacement would be sought for Van Niekerk, or whether any other 
senior executives were contemplating resignation.  Dludlu was also 
unable to provide an update on finding a replacement for Ramos, who 
would be taking over as CEO at banking group Absa on March 1. 
(Engineering News, February 9, 2009) 
 
------------------------------------------ 
Department of Minerals and Energy to Split 
------------------------------------------ 
 
¶7. (U) South Africa's Minister of Minerals and Energy Buyelwa 
Sonjica expects her department to be split into two separate 
ministries if the ruling African National Congress wins the April 22 
election.  Sonjica said both energy and minerals were vital to the 
country's economy and having two separate ministries would allow 
 
PRETORIA 00000294  003.2 OF 003 
 
 
more time and energy to be devoted to each.  "Both energy and 
minerals are very complex ... it makes sense if the two very 
important sectors of the economy would be given separate focus; it 
can only improve performance," Sonjica remarked.  Mining experts 
expect the new Energy Ministry to be responsible for implementing a 
clear energy strategy, while the Mines Ministry would have more 
scope to tackle issues still unresolved many years after the 1994 
Mining Charter.  Such issues would include ensuring a genuine 
transfer of more control of the mining industry and the export of 
mined commodities to black management and ownership.  (Reuters, 
February 10, 2009) 
 
--------------------------------- 
Anglo Platinum to Cut 10,000 Jobs 
--------------------------------- 
 
¶8. (U) Anglo Platinum (Angloplat) would cut about 8,000 contractor 
jobs and shed another 2,000 posts this year through natural 
attrition, but would do what it could to avoid laying-off permanent 
employees, CEO Neville Nicolau announced.  Angloplat is the world's 
largest platinum producer.  The decision to lay off workers follows 
the collapse in commodities prices.  Permanent job cuts could be 
inevitable if prices continued to fall, Nicolau warned.  Nicolau 
expected platinum would average about $1,000/oz this year, assuming 
a market in balance or slight deficit.  There could be a slight 
improvement at the end of the year, he said, although it was 
difficult to forecast when prices would recover.  Angloplat was 
trying to create sufficient flexibility in its operations to be able 
to ramp production up or down in response to market conditions. 
Every mine had to be profitable, Nicolau commented.  Those that were 
posting losses would be fixed, sold, or closed. (Business Day, 
February 10, 2009) 
 
--------------------------------- 
Manuel Acknowledges Environmental 
Issues in Budget Speech 
--------------------------------- 
 
¶9. (U) Finance Minister Trevor Manuel proposed introducing 
incentives for company investment in energy-efficient equipment 
during his February 11 budget speech.  Such incentives would take 
the form of a supplementary depreciation allowance.  Manuel 
encouraged South African companies to take advantage of the Kyoto 
Protocols' clean development mechanism (CDM), and commented that the 
National Treasury would introduce a favorable tax treatment for the 
recognition of income derived from the sale of emission reductions 
through the CDM mechanism.  The Minister also noted that the tax on 
plastic shopping bags would be increased from 3 cents to 4 cents. 
(www.treasury.gov.za, February 12, 2009)