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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 000487 
 
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 00000487  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 9, issue 11 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Business Confidence Hits 10-Year Low on Slowdown 
- State 'Will Not Give Up' on Car Industry 
- South Africa Needs a Homegrown Response to Economic Crisis, Says 
 
  Motlanthe 
- Procter & Gamble Invests 
  In South African Manufacturing Plant 
- SAA Fires CEO 
- SAA's Financial Woes 
- Sasol Trims Spending Budget to Save Cash 
- New Energy Laws May Scare off Green Investors 
- DWAF to Acknowledge Towns with the Cleanest Tap Water 
 
End Summary. 
 
 
------------------------ 
Business Confidence Hits 
10-Year Low on Slowdown 
------------------------ 
 
¶2. (U) The Bureau for Economic Research (BER) business confidence 
index dropped by six points to 27 points, its lowest level in 10 
years, as the local economy follows the global economy into slowdown 
or recession.  The index is calculated from an average of confidence 
levels in five sectors including manufacturing, retail, wholesale, 
motor trade, and building, and is now more than 20 points below the 
level it had been at this time last year, when the index started its 
plunge.  With economic growth contracting during the first quarter, 
the BER expects dismal growth in 2009, or even a contraction.  The 
benefits of a more relaxed monetary policy are likely to filter 
through to sectors sensitive to interest rates and fixed investment 
in about 12 months' time.  The decline in business confidence in 
South Africa is not as pronounced as in other countries and is still 
above the lows South Africa saw as recently as 1993 and 1999. 
Confidence levels were prevented from dropping further due to the 
stimulatory national budget that was announced last month, relative 
stability in the exchange rate, a reduction of R2.35/liter in the 
price of petrol since November, and the 150 basis point cut in 
interest rates since December.  (Business Day, March 12, 2009) 
 
---------------------------------------- 
State 'Will Not Give Up' on Car Industry 
---------------------------------------- 
 
¶3. (U) The automotive industry was vital to the economy and would 
have to be supported through the global economic crisis, Minister of 
Trade and Industry Mandisi Mpahlwa announced.  The slump in consumer 
demand has seen car sales nosedive, threatening the survival of a 
host of supplier industries and the jobs of thousands of workers. 
Last month's new vehicle sales plunged to their lowest level in more 
than two decades.  Representatives of the industry have met the 
government to discuss ways of supporting investment and a task team 
has been set up.  Mpahlwa would not specify the kind of assistance 
that could be extended.  The industry requested a R10 billion ($1 
billion) rescue package which should include bridge finance to deal 
with the credit freeze.  Mpahlwa commented that the motor industry 
is very important for exporting value-added goods which would help 
South Africa's balance of payments position.  (Business Day, March 
11, 2009) 
 
--------------------------------------- 
South Africa Needs a Homegrown Response 
 To Economic Crisis, Says Motlanthe 
---------------------------------------- 
Q---------------------------------------- 
 
¶4. (U) South Africa was not going to copy the United States' 
stimulus package, President Kgalema Motlanthe told businesspeople in 
KwaZulu-Natal.  "Our response to the economic crisis must be home 
grown and not just copy stimulus packages of the US.  Our problem is 
different," said Motlanthe.  He pointed out that South Africa has to 
deal with the issue of unemployment exacerbated by layoffs caused by 
the economic crisis.  The South African government will invest in 
infrastructure and education.  "Government planned to invest in the 
 
PRETORIA 00000487  002.2 OF 003 
 
 
construction of roads, clinics, schools and it expected the upcoming 
Confederation Cup this year and the soccer World Cup next year to 
boast the economy," noted Motlanthe.  Motlanthe highlighted that 
South African banks were "doing fairly well" compared to the ones in 
other countries because of the country's sound credit control 
regulations. "One of the difficulties of dealing with the economic 
crisis was that although it had been declared that some countries 
were facing recession, the extent of the crisis was not clear yet," 
he added.  (Fin24, March 7, 2009) 
 
------------------------------------ 
Procter & Gamble Invests 
In South African Manufacturing Plant 
------------------------------------ 
 
¶5. (U) Consumer goods giant Procter & Gamble plans to invest more 
than R200 million ($20 million) in a diaper manufacturing plant near 
Johannesburg.  The International Trade Administration Commission's 
(ITAC) decision to grant rebates on the import duties of materials 
needed for the manufacture of the diapers helped clinch the 
investment.  ITAC granted rebates on a variety of textile fabrics 
coated with plastics and used in the manufacture of disposable 
diapers.  None of the necessary materials are manufactured in the 
Southern African Customs Union countries.  Production at the plant, 
which will ultimately employ over 200 people, is in its pilot phase. 
 With annual turnover in excess of $83 billion, Procter & Gamble is 
the world's top producer of consumer goods.  However, its 
manufacturing footprint on the African continent is limited to its 
plants in Egypt, Nigeria, and Morocco.  Procter & Gamble Managing 
Director for South Africa Andrew Peterson commented last year that 
trade facilitation efforts between countries in the Southern African 
Development Community could encourage expanded investment by the 
group.  (Business Day, March 10, 2009) 
 
------------- 
SAA Fires CEO 
------------- 
 
¶6. (U) Embattled South African Airways (SAA) CEO Khaya Ngqula has 
agreed to leave the airline.  Ngqula had been on special leave while 
being investigated for alleged mismanagement.  SAA confirmed that 
the investigation into mismanagement would continue.  KPMG's 
forensic unit is conducting an audit into allegations surrounding 
issues of retention premiums, conflicts of interest, and 
procurement.  The South African Transport and Allied Workers' Union 
had alleged wrongdoing by senior members of SAA management, Ngqula 
in particular, in a document given to the Department of Public 
Enterprises.  The Department demanded urgent action by SAA's board. 
Chris Smyth will continue to act as CEO while a search is undertaken 
for a replacement.  (Business Day, March 11, 2009) 
 
-------------------- 
SAA's Financial Woes 
-------------------- 
 
¶7. (U) SAA is engaged in a financial struggle as fears have emerged 
of an impending technical insolvency [similar to that of the 2004 
crisis when a R6 billion ($605 million) hedging loss wiped out the 
airline's share capital].  SAA Chief Financial Officer Kaushik Patel 
told the press that the airline remains undercapitalized, even 
though it has received more than $1.1 billion in taxpayers' bailouts 
since 2004.  SAA has a 110% debt-to-turnover ratio, one of the 
Qsince 2004.  SAA has a 110% debt-to-turnover ratio, one of the 
highest in the world (compared with Cathay Pacific +-67%, Lufthansa 
+-23%, Qantas +-47%, British Airways +-43%, and Air Canada +-63%). 
(Travel Hub, March 5, 2009) 
 
------------------- 
Sasol Trims Spending 
Budget to Save Cash 
-------------------- 
 
¶8. (U) Oil and chemicals group Sasol has slashed its capital 
spending budget for the three years to June 2011 to R48 billion 
($4.8 billion), a 40% decrease from earlier plans.  The budget cut 
is designed to conserve cash in anticipation of volatile market 
conditions, according to Chief Executive Pat Davies.  Sasol had not 
finalized where the cuts would be made. The company has, however, 
announced a delay in the Mafutha coal-to-liquids project in Limpopo. 
 Davies reported that the completion of the prefeasibility study for 
 
PRETORIA 00000487  003.2 OF 003 
 
 
the 80,000 barrels per day plant had been postponed.  The project is 
under development in partnership with the Industrial Development 
Corporation, which will hold a 49% share in the project. 
State-owned PetroSA has announced plans for an ambitious 400,000 
barrels per day refinery at Coega in the Eastern Cape.  It is not 
clear how Sasol's announcement might affect its gas-to-liquids 
project under construction in Qatar and proposed coal-to-liquids and 
gas-to-liquids projects in China, India, the U.S., and Uzbekistan. 
(Business Report, Business Day, Engineering News, March 10, 2009) 
 
 
---------------------------- 
New Energy Laws May Scare off 
Green Investors 
---------------------------- 
 
¶9. (U) Green lobbyists fear that the South African government's 
draft regulations on electricity generation may undermine investment 
in renewable energy.  The regulations promote competitive pricing 
intended to facilitate independent power producers.  They also 
appear to conflict with an initiative by National Energy Regulator 
of South Africa (NERSA) to set up preferential tariffs to promote 
new, clean energy technologies.  WWF local representative Richard 
Worthington appealed to the government to withdraw the regulations 
because they were not compatible with the government's stated 
commitment to promote renewable energy and combat climate change. 
Parliamentarian Ruth Rabinowitz, head of the environmental group 
Renewable Energy Activists, questioned whether the government had 
any clear vision around renewable energy.  NERSA had held hearings 
on establishing renewable energy feed-in tariffs, but critics fear 
that they are not high or long-term enough to attract investment. 
(Mail & Guardian, March 6, 2009) 
 
---------------------------------- 
DWAF to Acknowledge Towns with the 
Cleanest Tap Water 
---------------------------------- 
 
¶10. (U) Department of Water Affairs and Forestry (DWAF) Minister 
Lindiwe Hendricks launched an incentive-based regulation program 
which would acknowledge municipalities with excellent drinking 
water.  The Blue Drop Certification Program would assess the 
drinking water in all municipalities in South Africa, and award 
those with the highest scores "Blue Drop Status."  DWAF plans to 
publish the program's inaugural assessments in mid-2009.  Minister 
Hendricks emphasized that South Africa's drinking water is among the 
best in the world.  The Blue Drop Certification Program launch 
coincided with the launch of the National Water Week (NWW) 
celebrations.  The NWW is celebrated every year to raise awareness 
and educate South Africans about the importance of utilizing water 
in an environmentally friendly and sustainable manner.  (BuaNews, 
March 2, 2009)