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TREASURY FOR TRINA RAND 
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 12, 2009 
ISSUE 
 
PRETORIA 00001192  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 9, issue 23 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- South Africa's Reserves Rise 
- No Tax Money to Bail Out Firms 
- Minister Confident South Africa Will Weather Recession 
- Indian Auto Manufacturer to Begin Production in South Africa 
- ICASA Criticized for Delays in Spectrum Allocation 
- State Support Triggers Eskom Outlook 
Revision by Fitch 
- Denying Eskom Tariff Hikes Could Put Utility at Risk - Minister 
Hogan 
- AngloGold Ashanti Forms Alliance Focused on Middle East/ North 
Africa 
- South Africa's Mercury in Water Not the World's Worst 
End Summary. 
 
 
------------------------------- 
South Africa's Reserves Rise 
------------------------------- 
 
¶2. (U) South Africa's gross gold and foreign reserves rose to $35.84 
billion in May, an increase of $1.79 billion.  The hefty gains 
sparked speculation that the South African Reserve Bank (SARB) may 
have stepped up the pace of its purchases of foreign currency after 
SARB Governor Tito Mboweni warned that the rand's strength may be 
"unwelcome" for the shrinking economy.  Proceeds from the country's 
recent $1.5 billion bond issue, along with the revaluation effects 
of a stronger rand and gold price were the likelier buoy of the 
reserves.  The gold price increased by 10.4% in May and boosted the 
value of gold reserves by $366 million, while the rand has 
appreciated by 19% against the dollar and 15% against a 
trade-weighted basket of currencies so far this year.  Analysts 
expect reserves to come under pressure over the next few months, as 
global market volatility restrains the SARB's pace of foreign 
exchange accumulation.  (Business Day, July 8, 2009) 
 
 
------------------------------ 
No Tax Money to Bail Out Firms 
------------------------------ 
 
¶3. (U) President Jacob Zuma said South Africa's stable 
macro-economic environment is not going to change, and the 
government had no intention of using taxpayer money for general 
company bailouts. "As we indicated, we are working with development 
finance institutions such as the Industrial Development Corporation 
to identify such companies and, where appropriate, mobilize 
assistance," Zuma said.  He emphasized the importance of ensuring 
that the government remains focused on its longer-term 
socio-economic objectives.  Zuma also repeated the government's 
intention to create about 500,000 work opportunities this year, as 
part of its goal of creating about 4 million such opportunities by 
the end of his five-year term. "Let me emphasize that these measures 
are not a substitute for the permanent jobs that must be created and 
sustained in the economy," Zuma said.  (Fin24, June 9, 2009) 
 
 
------------------------------- 
Minister Confident South Africa 
Will Weather Recession 
------------------------------- 
 
¶4. (U) Trade and Industry Minister Rob Davies presented an upbeat 
scenario of South Africa's economic future to world leaders gathered 
at the World Economic Forum in Cape Town.  Davies expressed 
confidence in the robustness of the domestic economy, but he 
cautioned that the domestic response to the global economic crisis 
could not be "one-size-fits-all."  The South African government 
Qcould not be "one-size-fits-all."  The South African government 
believed that trade policy should be subordinate to industrial 
policy, he reiterated, and the country could not afford to lose the 
industrial capacity it had gained so far.  South Africa would 
therefore set tariffs on a case-by-case basis, and could even raise 
some tariffs.  Davies argued that the developed world's bailout 
packages were linked to messages about "buying local," which was 
protectionist.  South Africa could not compete with such measures, 
 
PRETORIA 00001192  002.2 OF 003 
 
 
he added, and the government would seriously consider reversing some 
of its tariff cuts to protect the gains made by the country's 
industrial policy.  (Business Day and Engineering News, June 11, 
2009) 
 
--------------------------------- 
Indian Auto Manufacturer to Begin 
Production in South Africa 
--------------------------------- 
 
¶5. (U) Mahindra South Africa, a subsidiary of Indian vehicle 
manufacturer Mahindra & Mahindra, announced that it would soon start 
local assembly in South Africa.  The company sells the Bolero, 
Scorpio, and Xylo models in South Africa and plans to begin selling 
its Thar off-road vehicle in late 2009.  Mahindra officials noted 
that local assembly in South Africa would serve an expanded range of 
key markets in Central, Western, Eastern, and Southern Africa. 
Another benefit for local assembly in South Africa would include 
access to the U.S. market under the African Growth and Opportunity 
Act.  Mahindra South Africa sold between 1,500-2,000 vehicles into 
the local market last year, and sales are expected to remain around 
the same number this year.  Mahindra sales reached roughly 5,000 
units per year in South Africa before the recession.  (Engineering 
News, June 8, 2009) 
 
--------------------------------------------- ----- 
ICASA Criticized for Delays in Spectrum Allocation 
--------------------------------------------- ----- 
 
¶6. (U) Companies in the ICT sector expressed frustration at the 
delays by the industry regulator, the Independent Communications 
Authority of South Africa (ICASA), in dividing up the spectrum 
needed to provide wireless broadband services, such as WiMax.  U.S. 
micro-chip processor developer Intel has joined the chorus of 
complaints and has called on ICASA to auction the spectrum as soon 
as possible.  Intel Sub-Saharan WiMax Development Manager Gavin 
Coetzer said, "ICASA is constantly explaining to the market that it 
is protecting consumers, but by delaying, the regulator is harming 
consumers by limiting choice and not allowing new competition to 
develop."  Internet service providers, which until recently were not 
allowed to build their own networks, regard WiMax as a way to 
compete against Telkom and established mobile operators in providing 
broadband.  Naspers' MWeb and Dimension Data's Internet Solutions 
are keen to build networks using WiMax.  Coetzer explained that the 
sector has been waiting for almost three years for this simple 
process to be completed.  Intel is a key backer of WiMax, and hopes 
WiMax chipsets will become standard issue in notebook computers in 
the next few years.  ICASA has the task of deciding who should get 
access to the scarce spectrum.  Assuming the spectrum is divided 
into chunks of 30 Megahertz (MHz), only three operators can be 
licensed in the valuable 2.5 Gigahertz (GHz) band.  ICASA must 
decide who should get that spectrum, and whether incumbent operators 
should be excluded from the process in favor of new players.  The 
best approach is to have a fixed-price auction and those who do not 
have sufficient capital to build a national network would 
automatically be excluded, according to Coetzer.  Coetzer emphasized 
that companies receiving the spectrum must "have resources to roll 
Qthat companies receiving the spectrum must "have resources to roll 
out networks and offer consumers choice."  (Financial Mail, June 5, 
2009) 
 
------------------------------------ 
State Support Triggers Eskom Outlook 
Revision by Fitch 
------------------------------------ 
 
¶7. (U) Fitch Ratings revised Eskom's national long-term rating from 
"negative" to "stable." Fitch's decision to revise Eskom's rating 
hinged on signs that the government would support any funding gaps 
that may occur.  Eskom was forecasting a funding shortfall of R52 
billion ($6.4 billion) for its expansion program, but it was working 
on an integrated funding model, which it hoped would enable it to 
source adequate finance from equity, debt and tariff sources.  Fitch 
alluded to these "signs of enhanced coordination," including with 
government and the National Energy Regulator of South Africa, in its 
statement.  (Engineering News, June 11, 2009) 
------------------------------------ 
Denying Eskom Tariff Hikes Could Put 
Utility at Risk - Minister Hogan 
------------------------------------ 
 
PRETORIA 00001192  003.2 OF 003 
 
 
 
¶8. (U) Denying Eskom higher tariffs could put the power supply to 
the whole nation at risk, Public Enterprises Minister Barbara Hogan 
warned Parliament's portfolio committee on public enterprises. 
"Eskom is essential to all of us.  If we lose Eskom we might as well 
kiss the country good-bye," Hogan added.  "Can we afford to have 
electricity so cheap that the electricity provider loses its 
economic viability?  In South Africa we have been very spoilt.  The 
age of cheap electricity is over."  Hogan was responding to warnings 
that granting Eskom the 34% tariff hike it is seeking would put 
untenable pressure on the poor.  Public Enterprises Director General 
Portia Molefe countered that if the tariff hike application were 
rejected, Eskom's infrastructure investment program would be at 
risk.  The comments came as Eskom Chief Executive Jacob Maroga was 
defending the application at a hearing of the National Electricity 
Regulator of South Africa in Pretoria, where Eskom was accused of 
having failed to justify the increase.  The company wants to 
complete a R343 billion ($50 billion) capital expansion program by 
March 2013, of which R87 billion ($10.8 billion) would be spent this 
financial year.  Molefe said it would be irresponsible of Eskom to 
continue to invest in new infrastructure if it did not secure the 
price hike to fund the program.  Molefe said low-income households 
have been assured that they will get a tariff that is linked to the 
inflation rate, leaving more affluent South Africans to shoulder 
most of the burden of higher prices.  South Africa has the second 
lowest electricity prices in the world and Eskom is expected to ask 
for further tariff increases for the next three years as it pursues 
its expansion goals.  (Business Day, Engineering News, June 9, 
2009) 
 
 
------------------------------------ 
AngloGold Ashanti Forms Alliance 
Focused on Middle East/ North Africa 
------------------------------------ 
 
¶9. (U) South African gold major AngloGold Ashanti has formed a 
strategic alliance with United Arab Emirates gold exploration 
company Thani Dubai Mining to explore, develop, and operate mines 
across the Middle East and in parts of North Africa.  Each company 
would own a 50% stake in the alliance, which would pursue gold, 
precious metals, and base-metals projects.  The strategic importance 
of the Middle East and North Africa region lies in the fact that 
these regions have not previously been widely explored for gold, 
precious metals, or base-metals, and had the potential for 
development, noted AngloGold Ashanti spokesperson Julia Schoeman. 
The majority of AngloGold's current operations are in South Africa, 
with a few other projects in Africa and elsewhere. It currently has 
no operations in North Africa or the Middle East.  Project 
acquisitions and exploration programs would be equally funded by the 
two partners up to and including the completion of the project 
prefeasibility study.  AngloGold would then develop, manage, and 
operate any subsequent mining operations.  (Mining Weekly, June 11, 
2009) 
 
--------------------------------------------- -------- 
South Africa's Mercury in Water Not the World's Worst 
--------------------------------------------- -------- 
Q-------------------------------------------- --------- 
 
¶10. (U) The Council for Scientific and Industrial Research (CSIR) 
plans to release a comprehensive national study of mercury in South 
Africa's water sources.  CSIR lead researcher Vernon Somerset 
explained, "The project is an attempt to understand the conditions 
of South Africa's water and atmosphere in terms of mercury released 
into the environment, how it builds up into aquatic food chains and 
how it impacts on water resources and human health."  The report may 
allay fears that South Africa is one of the world's worst emitters 
of trace mercury.  The CSIR study shows the levels of the trace 
metal being within the World Health Organization's acceptable 
limits, according to Somerset.  Water Research Commission researcher 
Stanly Liphadzi noted that CSIR's research results would assist in 
identifying mercury emissions hotspots where intervention needs to 
be directed.  (Business Day, June 3, 2009)