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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7986
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJO/AMCONSUL JOHANNESBURG 9056
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RUEHDU/AMCONSUL DURBAN 0832

UNCLAS SECTION 01 OF 03 PRETORIA 000658 
 
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 APRIL 3, 2009 
ISSUE 
 
PRETORIA 00000658  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 9, issue 14 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Manufacturing Activity Slumps to Record Low 
- Vehicle Sales, Exports Continue to Plummet 
- South Africa Must Try to Save 'Distressed' Sectors - BUSA 
- Zuma Promises Smooth Transition; SARB, BEE to Remain the Same 
- Dramatic Reversal in Trade Gap 
- Revamped OR Tambo Can Handle 25 Million Visitors 
- ArcelorMittal SA Cuts Prices Again 
- Eskom to Apply for 34% Tariff Increase 
- South Africa's Environmental Protection Vessel Patrols East 
African Coast 
 
End Summary. 
 
 
---------------------- 
Manufacturing Activity 
Slumps to Record Low 
---------------------- 
 
¶2. (U) The Investec Purchasing Managers' Index (PMI) decreased from 
39.2 points in February to 36 points in March, a record low. 
Manufacturing has been hit hard by the global downturn, with a 
severe recession in most of South Africa's main trading partners 
eroding demand for local exports.  Analysts believe the sector's 
woes led to another fall in output during the first quarter of this 
year.  The Bureau for Economic Research (BER), which conducts the 
PMI survey, is revising down its forecasts for the economy this year 
after projecting a contraction of 0.5% last month.  "At this stage 
it seems like we will be going lower with our forecast for this year 
for a fall of between 0.5% and 0.7%," BER economist Christelle 
Grobler predicted.  All five of South Africa's biggest banks are 
predicting the economy will shrink this year.  A shrinking economy 
means the government's huge infrastructure spending program is 
unlikely to be enough to compensate for the slowdown in consumer 
spending and exports.  (Business Day, April 2, 2009) 
 
------------------------------------------ 
Vehicle Sales, Exports Continue to Plummet 
------------------------------------------ 
 
¶3. (U) New vehicle sales in South Africa continued its downward 
spiral in March, declining by 30.3%.  These figures confirmed "the 
depressed and increasingly desperate state of the domestic market," 
commented an official from the National Association of Automobile 
Manufacturers of South Africa (NAAMSA).  Passenger car sales fell 
24.9% in March, reaching the lowest level for March in the past six 
years.  Light-commercial vehicle and medium and heavy truck sales 
also dropped, suggesting a downturn in investment spending by the 
private sector.  Exports of South African manufactured motor 
vehicles also declined.  Mercedes-Benz exports its C-Class sedan to 
the U.S.  The C-Class was Mercedes-Benz USA's top seller in March, 
but sales of the C-Class were down 30% on a year-to-date basis 
compared with 2008.  The softening market in the U.S. had lead to 
extended shutdown periods at Mercedes' East London plant. 
(Engineering News, April 2, 2009) 
 
---------------------------- 
South Africa Must Try to Save 
'Distressed' Sectors - BUSA 
---------------------------- 
 
¶4. (U) Business Unity South Africa (BUSA) warned the South African 
government that it should do everything in its power to rescue 
"distressed" sectors of the economy to prevent "huge" job losses. 
The economy may grow this year despite the global recession, 
QThe economy may grow this year despite the global recession, 
according to BUSA, but growth would require speedy implementation of 
planned support measures.  Concern is mounting about the fallout 
from the global financial crisis and a cyclical slowdown in the 
domestic economy.  Finance Minister Trevor Manuel has lambasted a 
proposed bail-out for the beleaguered motor industry, saying the 
focus should be on jobs.  Analysts have predicted the economy could 
shed 250,000 jobs this year.  Mining and manufacturing, particularly 
the vehicle industry, have been hit hardest.  (Business Day March 
31, 2009) 
 
PRETORIA 00000658  002.2 OF 003 
 
 
 
-------------------------------- 
Zuma Promises Smooth Transition; 
SARB, BEE to Remain the Same 
-------------------------------- 
 
¶5. (U) ANC President Jacob Zuma has promised a "smooth transition" 
after a new administration takes office in May.  Speaking at a 
business breakfast in Johannesburg, Zuma said that underperforming 
ministers would be removed from office, some cabinet departments 
would be split, and a planning commission would be established in 
the Presidency to oversee policy.  Responding to a question on the 
mandate of the South African Reserve Bank, Zuma said:  "The role of 
the Reserve Bank will continue to be the same.  The Bank has been 
doing very well.  I don't think it will change."  While 
acknowledging flaws in the implementation of affirmative action, 
Zuma said he saw no need for a "sunset clause" for black employment 
targets.  (Business Day, April 1, 2009) 
 
------------------------------ 
Dramatic Reversal in Trade Gap 
------------------------------ 
 
¶6. (U) South African Revenue Service (SARS) trade data showed that 
South Africa's trade deficit narrowed from R17.4 billion ($1.8 
billion) in January to R571 million ($61 million) in February. 
Exports increased by 21.5% month-on-month (m/m) in February, driven 
by a brief, seasonal uptick in vehicle exports and a rebound in 
precious metals, and stones.  Imports decreased 17% m/m, fueled by a 
plunge in machinery and electrical appliances, while lower oil 
prices also cut the value of mineral imports.  Exports decreased by 
6% compared with the same month last year, while imports plunged 
15.4%.  The deficit on South Africa's current account is likely to 
narrow from 7.4% in 2008 to less than 6% of gross domestic product 
(GDP) this year.  Exports are expected to decline more than imports 
during the course of the year.  (Business Day, April 1, 2009) 
 
---------------------------- 
Revamped OR Tambo Can Handle 
25 Million Visitors 
---------------------------- 
 
¶7. (U) OR Tambo International Airport has opened a combined domestic 
and international departures hall and launched a state-of-the-art 
baggage handling system.  The new facilities would easily 
accommodate up to 25 million visitors each year - including the 
expected 400,000 Soccer World Cup fans - that the Airports Company 
SA (ACSA) expects to pass through the airport next year.  Only 18 
million visitors passed through the airport in 2008, down 5% from 
the previous year.  The baggage handling system allows ACSA to 
handle up to 8,000 bags per hour, more than doubling its previous 
capacity.  The integrated system will now handle both domestic and 
international baggage and boasts the ability to track bags 
throughout the airport.  OR Tambo is close to being 
construction-free.  The new international arrivals hall is scheduled 
to open in May.  (Business Day, April 2, 2009) 
 
---------------------------------- 
ArcelorMittal SA Cuts Prices Again 
---------------------------------- 
 
¶8. (U) Steel giant ArcelorMittal South Africa notified its customers 
that beginning on April 1 steel prices would fall between 5% and 8%. 
 These cuts were over and above the average 40% price reduction that 
had been implemented since domestic steel prices peaked in August 
Qhad been implemented since domestic steel prices peaked in August 
¶2008.  ArcelorMittal sets its domestic selling prices using a 
pricing model that includes a basket of domestic prices in a range 
of markets around the world.  The price decline coincided with the 
release of the group's annual report, in which the company expressed 
uncertainty about markets, demand, pricing, and the future economic 
landscape.  ArcelorMittal took the unprecedented step of shutting 
54% of its capacity during the fourth quarter of 2008, and sustained 
production cuts of about 35%.  Second-largest South African steel 
producer Highveld Steel & Vanadium announced in mid-March that it 
would produce only on orders received, but put no figure on the 
extent to which production would be cut during 2009.  (Engineering 
News, April 1, 2009) 
 
--------------------- 
 
PRETORIA 00000658  003.2 OF 003 
 
 
Eskom to Apply for 34% 
Tariff Increase 
--------------------- 
 
¶9. (U) State-owned utility Eskom is likely to apply to the National 
Energy Regulator of South Africa (NERSA) for a 34% increase in 
electricity tariffs for the coming year.  The 34% increase would be 
used to cover operating costs rather than the cost of Eskom's build 
program.  Eskom's board is due to meet this week on its application 
for the increase, which was supposed to have been submitted to NERSA 
in October 2008.  NERSA must hold public hearings before deciding on 
the next tariff determination.  Eskom is seeking a price for 
electricity that would recover the full operating cost of providing 
it, noted Eskom chairperson Bobby Godsell.  "We think that is 
important, not only for Eskom itself, but also to allow independent 
power producers to produce electricity and co-generators to sell in 
the market at a realistic price.  (Mail & Guardian, March 30, 2009) 
 
 
 
--------------------------------------- 
South Africa's Environmental Protection 
Vessel Patrols East African Coast 
--------------------------------------- 
 
¶10. (U) South Africa's environmental protection vessel, the Sarah 
Baartman, returned to Cape Town yesterday after a 31-day patrol 
along the east African coast.  Fisheries inspectors from South 
Africa, Tanzania, Kenya, and Mozambique were on board; they arrested 
six vessels and inspected more than 40 others within Southern 
African Development Community (SADC) territorial waters.  The patrol 
was aimed at "improving and strengthening fisheries surveillance and 
law enforcement within the SADC region," according to the Department 
of Environmental Affairs.  In waters off Tanzania the inspectors 
chased a fishing boat because it ignored calls to allow inspectors 
to board.  More than 290 tons of blue fin tuna was found onboard the 
vessel, which did not have a legitimate fishing permit or license. 
The vessel and crew were arrested. Other arrests included two South 
African hake vessels off Mossel Bay, and a prawn fishing boat off 
Mozambique which was illegally fishing in a restricted zone. 
(Pretoria News, March 27, 2009)