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RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 04 PRETORIA 000436 
 
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 MARCH 6, 2009 
ISSUE 
 
PRETORIA 00000436  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 9, issue 10 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Government Still Sees Growth in 2009 
- Job Growth Data Sparks Disbelief 
- South Africa's House Prices Still Falling 
- New Vehicle Sales Continue to Tumble 
- No Basic Income Grant, Says ANC's 
  Gwede Mantashe 
- Trade Expert Derides South Africa's 
  Response to Economic Crisis 
- Transnet Names Acting CEO 
- Vodacom to Make JSE Debut 
- Energy Minister Says South Africa Faces 
  Imminent Power Distribution Crisis 
- Ferrochrome Producer Closes Furnaces but Keeps Staff 
 
End Summary. 
 
 
------------------------------------ 
Government Still Sees Growth in 2009 
------------------------------------ 
 
¶2. (U) Deputy Minister of Trade and Industry Rob Davies expected the 
South African economy to grow in 2009 despite a contraction in the 
fourth quarter of last year.  The bottom of the global economic 
crisis was not yet visible, remarked Davies, adding that the main 
macroeconomic challenge for South Africa is its current account 
deficit.  South Africa announced a record trade deficit for January 
and its first drop in gross domestic product (GDP) for a decade in 
the fourth quarter of last year, as the global crisis hammered 
manufacturers.  Davies predicted that the trade deficit would start 
to correct itself in the next few months as a result of slowing 
consumer demand and a weaker rand, which is depressing imports.  The 
decline in export earnings largely reflects falling earnings for 
mineral exports.  The price of many minerals has declined, with 
demand for platinum, hit especially hard as car sales slump.  South 
Africa's economy is well-cushioned against the worldwide crisis 
because of a recently re-affirmed R787 billion ($78 billion) 
infrastructure program over the next three years.  (Fin 24, March 2, 
2009) 
 
-------------------------------- 
Job Growth Data Sparks Disbelief 
-------------------------------- 
 
¶3. (U) Employment rose while the economy contracted in the fourth 
quarter of 2008, surprising analysts.  The unemployment rate fell 
from 23.2% in the third quarter to 21.9% in the fourth quarter. 
South Africa's official jobless rate is the lowest in a decade, with 
189,000 new jobs created, according to Statistics SA.  Employment 
rose by 34,000 in two of the economy's most embattled sectors - 
manufacturing and mining, which together make up more than a fifth 
of overall output.  Given that factory production plunged by a 
record 21.8% in the fourth quarter and mining companies have 
announced plans to cut more than 20,000 jobs, the falling 
unemployment rate was unexpected.  With a technical recession under 
way and demand shriveling, the pace of job creation is likely to be 
soft in 2009.  The narrowing of the unemployment rate in Q4 2008 is 
unlikely to be carried through as contagion from the global economy 
affects the South African economy.  (Standard Bank Newsletter, 
Business Day, March 2, 2009) 
 
----------------------------------------- 
South Africa's House Prices Still Falling 
----------------------------------------- 
 
¶4. (U) Data released by two South African banks confirm that house 
Q4. (U) Data released by two South African banks confirm that house 
prices are in negative territory. First National Bank (FNB) reported 
a 4.0% decline for January in its latest house price index, while 
Standard Bank reported a 3.6% decline during the same month. 
Weakness in the property market is likely to continue throughout 
2009, although decreases in inflation and interest rates may help 
improve property market conditions.  Standard Bank expects a further 
250 basis-point reduction in the repo rate (the rate at which banks 
borrow money from the Reserve Bank) over the rest of 2009.  Although 
 
PRETORIA 00000436  002.2 OF 004 
 
 
interest rates may decrease, housing price inflation trends lag 
behind changes in demand trends, which supports the expectation that 
house price might only recover in 2010. (Fin 24, March 3, 2009) 
 
------------------------------------ 
New Vehicle Sales Continue to Tumble 
------------------------------------ 
 
¶5. (U) Association of Automobile Manufacturers of South Africa 
(NAAMSA) figures showed a 36.3% year-on year (y/y) drop in new 
vehicle sales in February 2009.  The number of new vehicles sold 
dropped from 46,285 in February 2008 to 29,471 in February 2009. 
These grim figures indicated that consumers and businesses had 
reduced spending on new vehicles in response to the high interest 
rate, difficulty in obtaining vehicle financing, and continued 
economic woes.  Sales registered sharp declines across all segments 
of the new vehicle market in February.  Sales of new passenger cars 
dropped by 34.1%, light commercial vehicles by 40.3%, medium 
commercial vehicles by 28.5%, and heavy trucks and buses by 41.4%. 
New vehicle export sales declined by 27.5% in February, NAAMSA 
reported.  The decline was attributable to depressed global demand 
for vehicles because of the global recession.  Improvement in the 
domestic vehicle market depended on a revival of consumer spending, 
aggressive interest rate reductions, and fiscal stimulus.  Export 
sales should improve once the global economic crisis abates.  Prices 
for new vehicles are increasing due to the weak rand against 
stronger currencies including the yen and the dollar.  (Business 
Day, March 4, 2009) 
 
--------------------------- 
No Basic Income Grant, Says 
ANC's Gwede Mantashe 
--------------------------- 
 
¶6. (U) African National Congress (ANC) Secretary-General Gwede 
Mantashe has ruled out adding a basic income grant to South Africa's 
welfare system on the grounds that such a grant would be 
"unsustainable" and "simplistic."  He told a panel discussion hosted 
by the South African Chamber of Commerce and Industry and Old Mutual 
he wanted to see child support extended to 18-year-olds, and he 
disputed the view that South Africa's labor laws were too rigid. 
"It's a question of rands and cents, it's not about what you want to 
do but what you can do," he posited.   It was the first time 
Mantashe had stated that the ANC's new leadership was not keen on a 
basic income grant for which the party's allies - the Congress of 
South African Trade Unions and the South African Communist Party - 
have been vigorously campaigning.  (Business Day, March 5, 2009) 
 
 
----------------------------------- 
Trade Expert Derides South Africa's 
Response to Economic Crisis 
----------------------------------- 
 
¶7. (U) Trade economist Peter Draper has dismissed a proposed South 
African response to the global economic crisis as incoherent and 
unlikely to achieve any realistic outcome. Speaking at an event 
hosted by the Centre for Enterprise Development, Draper commented 
that the National Economic Development and Labour Council's (NEDLAC) 
recently released rescue package was inconclusive and did not 
constitute a coherent policy.  A wide range of measures to bolster 
the ailing economy and to stem job losses in the face of the global 
Qthe ailing economy and to stem job losses in the face of the global 
economic downturn would be initiated.  The package would establish a 
role for the state and development finance institutions in funding 
vulnerable sectors such as clothing and textiles, mining, 
automotives and capital equipment; gearing government spending 
towards local procurement and generally promoting "buy local" 
campaigns; and using trade policy measures to protect local 
industries.  Government should balance monetary and fiscal policy, 
with monetary policy "doing the heavy lifting," Draper remarked. 
"The monetary policy toolbox is nowhere near empty and because there 
is room to maneuver, we should not go with too much gusto to the 
fiscal policy toolbox.  Then we run the risk of heavy-handed 
government."  Draper lamented the lack of capacity in responsible 
government departments and a concurrent lack of transparency in 
policy formulation.  He worried that government was turning to 
fiscal policy - using taxpayers' money - which could give rise to 
"protection by stealth."  Draper called for the government to focus 
instead on sector-wide extension services such as telecommunications 
 
PRETORIA 00000436  003.2 OF 004 
 
 
and adequate transport infrastructure to help advance local 
companies' competitiveness.  (Business Day, March 5, 2009) 
 
 
------------------------- 
Transnet Names Acting CEO 
------------------------- 
 
¶8. (U) State-owned freight and transport logistics group Transnet 
has named Chris Wells as its acting CEO while Transnet continued its 
search for a permanent replacement for Maria Ramos, who began her 
tenure as the CEO of banking group Absa on March 2. Wells joined 
Transnet in 2005; he is Transnet's CFO and he serves as one of two 
executive directors on its board.  Industry experts said that the 
appointment of Wells as the acting CEO should provide immediate 
stability at a time when many are speculating that Transnet's R80 
billion ($7.6 billion) five-year capital program had become 
vulnerable to the slowdown in the global and domestic economies. 
(Engineering News, March 2, 2009) 
 
 
 
------------------------- 
Vodacom to Make JSE Debut 
------------------------- 
 
¶9. (U) South African mobile-telecoms giant Vodacom expects to list 
on the main board of the Johannesburg Stock Exchange (JSE) on May 5. 
 Vodacom is owned 50% by South African telecoms group Telkom and 50% 
by the UK's Vodafone, but the companies plan to part ways in 
accordance with a R22.5 billion ($2.1 billion) deal that was 
announced late last year.  Telkom would sell 15% of its stake to 
Vodafone, Vodafone's interest in Telkom to 65%.  Vodacom would then 
be listed, and Telkom would unbundle its remaining 35% interest in 
Vodacom to its shareholders.  The free float would be 21%, with 
government and the Public Investment Corporation retaining the 14% 
balance.  The transactions were subject to various conditions, 
including approval by Telkom shareholders at a general meeting 
scheduled for March 26. (Engineering News, March 3, 2009) 
 
--------------------------------------- 
Energy Minister Says South Africa 
Faces Imminent Power Distribution Crisis 
--------------------------------------- 
 
¶10. (U) South Africa is facing an "imminent" electricity 
distribution network crisis, with the infrastructure investment 
backlog having risen to an estimated R27 billion ($2.5 billion), 
Minister of Minerals and Energy Buyelwa Sonjica warned on March 3. 
Sonjica insisted that the restructuring of the fragmented 
distribution system was urgent, and warned that a collapse in the 
distribution system would "plunge us back into darkness."  EDI 
Holdings has been mandated to oversee the restructuring of the 
industry and the creation of six regional electricity distributors 
(Reds), but it has hit snag upon snag since its creation in July 
¶2003.  Sonjica did not provide any firm timeframes for when the 
program could ultimately be completed, noting that the process, 
which was much debated in the late 1990s, has been under way for 
more than five years.  Legislative obstacles and reticence of 
municipalities to buy into the restructuring for fear of the revenue 
implications were the key reasons behind recent delays.  Sonjica 
insisted that the national government remained committed to the 
creation of the Reds, arguing that delays were imposing significant 
costs related to equipment failures and the investment in private 
Qcosts related to equipment failures and the investment in private 
back-up power systems.  EDI Holdings CEO Phindile Nzimande reported 
that an action plan had been agreed to and would focus on 12 
priority cities.  (Engineering News, Business Day, March 4, 2009) 
 
--------------------------- 
Ferrochrome Producer Closes 
Furnaces but Keeps Staff 
--------------------------- 
¶11.  (U) Ferrochrome producer Xstrata-Merafe is closing more 
furnaces, but retaining permanent staff.  Xstrata-Merafe has shut 17 
of its 20 furnaces, equal to 80% of its capacity.  Holding company 
Merafe Resources CEO Steve Phiri said the three remaining furnaces 
were producing a special type of ferrochrome for which there was 
still a market and were using a special process that kept operating 
costs below current prices.  Phiri predicted that the price of 
 
PRETORIA 00000436  004.2 OF 004 
 
 
ferrochrome would not recover until the second half of 2009 when 
ferrochrome stockpiles should start to normalize.  Benchmark 
ferrochrome prices fell from $1.85 per pound in fourth quarter 2008 
to $0.79 per pound in first quarter 2009, as the global economic 
downturn triggered cutbacks in stainless steel production, the major 
use for ferrochrome.  South Africa is the world's number one 
producer and exporter of ferrochrome with almost one-half of global 
production.  Phiri noted that none of the 6,000 permanent employees 
had been laid off, although 390 contractor jobs were terminated. 
Merafe would not proceed with planned expansions, Phiri remarked. 
Merafe's expansions were first halted because of power shortages, 
and are now on hold because of the global downturn.  (Mining Weekly, 
Business Day, March 4, 2009)