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USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
USTR FOR JACKSON 
 
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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 19, 2009 
ISSUE 
 
PRETORIA 00001247  001.2 OF 004 
 
 
¶1. (U) Summary.  This is Volume 9, issue 24 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- Weak Exports Put Pressure on Current Account Deficit 
- Consumers Avoid Spending 
- Employment Outlook Still Weak 
- Zuma and Manuel Scold COSATU for Threats of Labor Unrest 
- Minister Holds Out Olive Branch to White Commercial Farmers 
- Trade and Industry Minister Discusses Future of South African 
Trade 
  Policy 
- Delta Suspends Cape Town Flight 
- South African Tourism Resilient During Tough Times 
- Gold Firms and Unions Meet Over Wages 
- Westinghouse Expert to Highlight Chinese Localization Model 
  During Visit to South Africa 
- Poverty and Dropout Rates 
 
End Summary. 
 
 
--------------------------------------------- ------- 
Weak Exports Put Pressure on Current Account Deficit 
--------------------------------------------- ------- 
 
¶2. (U) South Africa's deficit on the current account widened from 
5.8% of GDP in the fourth quarter of 2008 to 7% of GDP in the first 
quarter of 2009, way above consensus forecasts for a deficit of 6% 
of GDP.  The key driver of the deterioration in the current account 
deficit was the worsening in the trade balance, which widened from 
0.8% of GDP in fourth quarter to 2.3% of GDP in the first quarter, 
with exports diving by an annualized rate of 19.4%, the fastest on 
record.  Analysts believe that weak domestic demand conditions, some 
improvement in the global outlook in the second quarter of 2009, and 
downward pressure on interest and dividend payments to non-residents 
owing to weak company profits should keep the deficit in check for 
the remainder of 2009.  As for financing the current account 
deficit, analysts believe that the global South Africa economic 
environment has improved, and is likely to improve further, as 
investors become more willing to purchase South African equity and 
securities.  (Business Day & ABSA Newsletter, June 19, 2009) 
------------------------ 
Consumers Avoid Spending 
------------------------ 
 
¶3. (U) Retail sales dropped by 6.7% year-on-year (y/y) in April as 
the economic climate put the brakes on consumer spending, according 
to Statistics South Africa figures.  This follows a 4.9% decline in 
March.  South Africa has now entered its first recession in 17 years 
and households' unhealthy finances combined with job losses and 
concerns about job security are weighing heavily on consumers. 
April's retail sales figure was partly due to the Easter holidays 
and the national elections falling in April this year and 
contributing to weak demand.  Economists are expecting retail sales 
to stabilize towards the end of the year as lower interest rates 
work their way through the country's economy.  (Fin24, June 17, 
2009)? 
----------------------------- 
Employment Outlook Still Weak 
----------------------------- 
 
¶4. (U) The overall environment for employment in South Africa has 
become much more negative, according to the latest Adcorp Employment 
Index.  The index showed a decline of 12.9% quarter-on-quarter (q/q) 
in the first quarter of 2009, influenced by the decline in 
macro-economic activity (-17.1%) and demand for labor (-5.7%).  This 
Qmacro-economic activity (-17.1%) and demand for labor (-5.7%).  This 
trend is expected to continue until the second or third quarter of 
¶2010.  Construction, logistics and warehousing, communications and 
information technology, government, and personal services sectors 
remained robust and were showing net employment growth, according to 
the index.  "The sectors that are under substantial strain and show 
employment losses are mining, manufacturing, retail and wholesale 
trade as well as finance, real estate and business services," stated 
Adsorb Holdings Chief Executive Richard Pike.  Certain skills 
remained in high demand, he noted, particularly in the financial 
services, engineering, natural and physical sciences, medical and 
health, education, and information and communication technology 
 
PRETORIA 00001247  002.2 OF 004 
 
 
sectors.  The remuneration index was also down by 5.6%.  Salary 
increases were tracking at between 8% and 9%, but were expected to 
decline to between 6% and 8% by the end of 2009.  Some companies are 
in their third round of employment cuts as they struggle to remain 
afloat in the face of lower demand, and other cuts are still to 
come.  (Fin24, June 17, 2009) 
 
-------------------------------- 
Zuma and Manuel Scold COSATU for 
Threats of Labor Unrest 
-------------------------------- 
 
¶5. (U) South African President Jacob Zuma and Minister in Charge of 
National Planning Trevor Manuel questioned the motives and 
effectiveness of persistent strike threats made by the Congress of 
South African Trade Unions (COSATU) at the World Economic Forum 
meeting that took place in Cape Town June 12-14.  Zuma criticized 
COSATU's multiple threats of labor unrest, including planned strikes 
against Cape Town Premier Helen Zille's all-male cabinet, the South 
African Reserve Bank's interest rate policies, government-supported 
bus rapid transit implementation, and low public sector wages.  Zuma 
argued that strikes may exacerbate the effects of the global 
economic downturn and deter foreign investment.  Manuel further 
suggested that businesses should take a more active role in standing 
up to industrial action, and warned labor that excessive striking 
would limit its effectiveness as a tool.  A COSATU delegation met 
with members of government to discuss the tension that has escalated 
between the government and labor.  COSATU characterized the meetings 
as positive but declines to back down.  The trade union federation 
issued a press statement noting the distinction between Zuma's and 
Manuel's remarks.  COSATU praised Zuma for emphasizing negotiation 
but criticized Manuel because they believe he is attempting to 
marginalize of the role of organized labor.  COSATU's push for power 
in the new Zuma administration is being heavily monitored by the 
South African press.  (Business Times - June 13, 2009; The Star - 
June 16, 2009; Business Report - June 17, 2009; COSATU Press 
Statement, June 15, 2009) 
 
---------------------------------- 
Minister Holds Out Olive Branch to 
White Commercial Farmers 
---------------------------------- 
 
¶6. (U) Minister of Agriculture Tina Joemat-Pettersson has offered an 
olive branch to organized agriculture by acknowledging that without 
white commercial farmers, neither transformation nor food security 
can be achieved in South Africa.  The Department of Agriculture's 
mandate was to turn South Africa into a net exporter of food, 
Joemat-Pettersson stated.  She added, "We recognize that without 
organized agriculture we cannot have a turnaround strategy for 
agriculture in this country."  Joemat-Pettersson reassured the 
agricultural sector that assistance would not be confined to 
subsistence farmers and that commercial agriculture was vital to the 
turnaround strategy.  Creative solutions for white farmers would be 
sought in the form of joint ventures with black farmers.  "If 30% of 
agricultural land is to be in black hands, then there has to be an 
alternative for white farmers because we do not seek to drive them 
from the land," Joemat-Pettersson insisted.  Joemat-Pettersson's 
Qfrom the land," Joemat-Pettersson insisted.  Joemat-Pettersson's 
predecessor Lulu Xingwana had earned the ire of white farmers for 
accusing them of brutalizing farm workers.  Not all white farmers 
abused the human rights of their workers, Joemat-Pettersson 
countered, and the government would be strict in enforcing the 
security of tenure of farm workers and their conditions of 
employment.  Joemat-Pettersson said she intended to bring all of the 
agricultural unions closer to one another and closer to the 
government because there was too much distance between them. 
(Business Day, June 19, 2009) 
 
------------------------------------- 
Trade and Industry Minister Discusses 
Future of South African Trade Policy 
------------------------------------- 
 
¶7. (U) Trade and Industry Minister Rob Davies expressed "grave 
concerns" about some of the clauses in the interim economic 
partnership agreement (EPA) between the European Union and three 
members of the Southern African Customs Union (SACU), but he 
emphasized that the EPA should not be allowed to undermine SACU. 
"We don't want the EPA process to create tension in SACU ... South 
 
PRETORIA 00001247  003.2 OF 004 
 
 
Africa is in favor of deeper integration in SACU."   Davies also 
commented on the restructuring of the Department of Trade and 
Industry (DTI).  He does not plan to dismember the DTI, but rather 
to create a department that could give greater predictability.  The 
department would consider redrafting the industrial policy action 
plan but not the national industrial policy framework, Davies noted. 
 The new plan would be a three-year plan linked to the mid-term 
expenditure framework.  (Business Day, June 17, 2009) 
 
------------------------------- 
Delta Suspends Cape Town Flight 
------------------------------- 
 
¶8. (U) Delta Airlines has confirmed plans to suspend its Cape 
Town-Atlanta service at the end of August.  "Given projected demand 
levels, Delta confirms that it will be suspending its Cape 
Town-Atlanta service via Dakar," said Delta Africa, Middle East, and 
India Sales Director Jimmy Eichelgruen.  The last service from 
Atlanta to Dakar will operate on August 28 and from Dakar to Cape 
Town on August 29.  The last service from Cape Town to Atlanta, via 
Dakar will depart on August 29.  Delta remains committed to the 
South Africa market and operates a daily, year-round, non-stop 
service between Johannesburg and Atlanta.  (Travel Hub, June 14, 
2009) 
 
 
------------------------------- 
South African Tourism Resilient 
During Tough Times 
------------------------------- 
 
¶9. (U) South Africa's tourism sector would suffer from the global 
economic downturn, but it had proved more resilient than other 
sectors with 6.4% more foreign arrivals in January 2009 than in 
January 2008.  This data compares favorably with international 
trends.  Provisional figures from the United Nations World Tourism 
Organization indicated a fall of 8% in global international arrivals 
for the first two months of 2009 against a 2% rise in 2008.  South 
Africa has bucked the negative global trend before.  There was a 
5.5% y/y increase in foreign arrivals and 23.5% growth in foreign 
direct spending in 2008.  South Africa has been "spared the worst," 
stated Minister of Tourism Marthinus Van Schalkwyk.  Opportunities 
created by the 2010 Soccer World Cup would stimulate a more rapid 
recovery in foreign tourism demand in Southern Africa and would help 
the local tourism sector build greater resilience against future 
external economic shocks, he added.  More could be done, Van 
Schalkwyk said, to diversify South Africa's tourism products, 
develop skills, reduce long visa processing times, ensure affordable 
and more competitive air access, and develop rural tourism 
infrastructure.  Van Schalkwyk urged the tourism industry to not 
price itself out of the market, especially during 2010.  (Business 
Day, June 19, 2009) 
 
------------------------------------- 
Gold Firms and Unions Meet Over Wages 
------------------------------------- 
 
¶10. (U) Labor unions demanding a wage increase warned last week of a 
potential strike in the gold sector after wage negotiations 
deadlocked.  Labor unions sought a 15% increase, while AngloGold 
Ashanti and GoldFields offered 7%.  The current wage agreement would 
lapse on June 30.  South African labor courts have agreed to mediate 
the dispute.  Independent trade union Solidarity spokesperson Jaco 
Qthe dispute.  Independent trade union Solidarity spokesperson Jaco 
Kleynhans commented, "A strike will not be good for the gold 
industry's image right now, but workers cannot be satisfied with not 
earning a living wage and getting an increase below the current 
consumer price index rate."  Kleynhans added, "Some want to 
compensate their workers, reach an agreement and carry on with 
production at the mines. Other producers first want to play a power 
game that stirs up emotions and could result in a possible strike. 
The Chamber of Mines forgets that the mines screeched to a halt for 
five days four years ago when the National Union of Mineworkers and 
Solidarity went on strike."  The Chamber of Mines and labor unions 
reached a similar deadlock over a 7.75% increase in 2007.  The 
National Union of Mineworkers and Solidarity had demanded a 15% 
increase. Labor unions finally accepted increases of between 8.5% 
and 10% for workers in the gold mining sector.  (Mining Weekly, June 
17, 2009) 
 
 
PRETORIA 00001247  004.2 OF 004 
 
 
--------------------------------------------- -- 
Westinghouse Expert to Highlight Chinese 
Localization Model During Visit to South Africa 
--------------------------------------------- -- 
 
¶11. (U) Nuclear equipment vendor Westinghouse Electric Company is 
continuing to emphasize its technology-transfer and localization 
model as the main pillar of a possible bid to the South African 
government and Eskom for the supply of its third-generation pressure 
water reactor (PWR) technology.  Westinghouse's AP1000 technology 
has already been assessed, together with Areva's ERP technology, as 
part of Eskom's 'Nuclear-1' procurement process, which was suspended 
in December due to Eskom's financial constraints.  However, the 
South African government still wishes to pursue nuclear energy as a 
way of diversifying away from coal, which currently comprised about 
90% of the domestic electricity-supply mix.  The Pennsylvania-based 
company hosted a meeting of more than 100 possible South African 
nuclear-industry suppliers this week.  Westinghouse Project Manager 
Consortium Director for AP 1000 Technology Transfer and Localization 
in China Dr. Mark Crump highlighted the localization progress it has 
made in China and South Korea.  Crump also met with South African 
government officials, officials from the U.S. and China, and members 
of the Nuclear Industry Association of South Africa on the model 
approach it has taken in China and South Korea.  Westinghouse has a 
solid record with regard to technology transfer, Crump noted. 
Westinghouse is building four AP1000 reactors in China. 
Westinghouse South Africa Regional Vice President Rita Bowser said 
she was looking forward to greater certainty from the South African 
government as to the future trajectory of South Africa's nuclear 
energy program.    (Engineering News, June 19, 2009) 
 
------------------------- 
Poverty and Dropout Rates 
------------------------- 
 
¶12. (U) Research by the University of Cape Town's Children's 
Institute (CI) indicates that poverty is "unlikely to be a 
sufficient explanation" for the high number of children who drop out 
of school.  This is because the Gauteng and Western Provinces, by 
far the two wealthiest provinces, had the largest percentage of 
children out of school.  Education experts have recently highlighted 
their concern regarding the high drop-out rate after grade 9, when 
compulsory schooling ends.  Other research from University of the 
Witwatersrand's School of Education found that absolute poverty did 
not directly contribute to absence, although it could cause late 
entry and slow progress.  The same research found that relative 
poverty - how children experience poverty in relation to others - 
and social exclusion were key drivers of drop-out rates in grades 
1-9, while the poor quality of education was the key driver for 
grades 10-12.  There was also evidence that the government's no-fee 
schools policy, which this year aims to reach 60% of the country's 
25,000 public schools, went "some way" to improving access to 
education.  CI researcher Katherine Hall said that increased funding 
did not imply sufficient funding, and did not necessarily result in 
an improvement in quality.  This is because school funding does not 
Qan improvement in quality.  This is because school funding does not 
include teacher salaries, which limits the impact of greater school 
funding on student outcomes.  CI Director Prof Shirley Pendlebury 
said that meaningful access to education required well-conceived 
textbooks and other learning materials, competent and prepared 
teachers able to use a range of classroom practices, a curriculum 
that built a strong basis during the foundation phase, teaching 
facilities and resources such as laboratories and well-stocked 
libraries, and a safe and supporting environment.  Gauteng and 
Western Cape Provinces are also the two provinces with the greatest 
loss in ANC support during the April 22 national elections. 
(Business Day, June 19, 2009)