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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9119
INFO RUEHZO/AFRICAN UNION COLLECTIVE IMMEDIATE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE IMMEDIATE
RUEHTN/AMCONSUL CAPE TOWN IMMEDIATE 7000
RUEHDU/AMCONSUL DURBAN IMMEDIATE 1112
RUEHJO/AMCONSUL JOHANNESBURG IMMEDIATE 9368
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RHEFDIA/DIA WASHINGTON DC IMMEDIATE

UNCLAS SECTION 01 OF 06 PRETORIA 001482 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
FOR AF/S AND S/EX 
 
E.O. 12958: N/A 
TAGS: ECON ETRD MCAP OVIP PGOV PREL SF EINV
SUBJECT: SCENE-SETTER FOR SECRETARY OF STATE VISIT TO SOUTH 
AFRICA 
 
PRETORIA 00001482  001.2 OF 006 
 
 
¶1.  (SBU) Charge La Lime warmly welcomes your visit to South 
Africa.  The Mission stands ready to do everything it can to 
make your trip a success.  You are visiting South Africa at a 
particularly interesting time, following South Africa's 
fourth successful democratic election. 
 
¶2.  (SBU) The African National Congress-led (ANC) South 
African Government (SAG) has made major progress toward 
establishing a vibrant democracy and a market-based economy 
since the end of apartheid in 1994.  The SAG has focused on 
political and economic transformation, i.e., reducing the gap 
between the historically privileged and disadvantaged 
communities.  It has accomplished this primarily by 
delivering government-provided housing, electricity, and 
water to the poor, and by creating educational, skills 
development, employment, and business opportunities for the 
previously disadvantaged. 
 
¶3.  (SBU) South Africa continues to face daunting challenges, 
including a lack of public sector capacity, a thirty percent 
shortfall in mid-to-upper-level public sector managers, 
skills shortages in all sectors, infrastructure bottlenecks, 
income inequality, less than adequate educational 
opportunities, massive unemployment, entrenched rural and 
urban poverty, violent and widespread crime, episodes of 
xenophobic riots, and a severe HIV/AIDS pandemic.  These 
problems intensify political tensions within the ruling 
coalition and between the coalition and other political, 
civil society, and private sector groups. 
 
¶4.  (SBU) South Africa remains the continent's best prospect 
for establishing a successful democratic society with 
expanding prosperity despite its many challenges. 
Approximately 77 percent of registered voters participated in 
the April 22 national elections, indicating a popular will to 
build a democratic society.  South Africa is a leader of 
aid-recipient countries in their dialogue with donor nations. 
 It plays a key role in promoting peace and stability in 
Africa, and is an important voice on international finance, 
global trade, human rights, conflict resolution, and 
nonproliferation issues.  The USG shares common objectives 
with the SAG on the African continent and beyond, and the two 
governments work closely on many of them. 
 
--------------------------------------------- --- 
RECENT POLITICAL CHANGES INCREASE DOMESTIC FOCUS 
--------------------------------------------- --- 
 
¶5.  (SBU) The ANC dominates the political scene in South 
Africa but showed signs of internal strife in the last year. 
The strife led to a lessening of support from the electorate. 
 In the April 2009 national and provincial election, the ANC 
won 66 percent of the vote and 264 National Assembly seats, 
earning the right to govern for the fourth consecutive time 
since 1994.  The opposition, meanwhile, has steadily 
benefited from ANC turmoil.  The Democratic Alliance (DA) is 
the largest of several small opposition parties in the 
National Assembly, winning 47 seats in 2004 and 67 seats in 
¶2009.  In 2009, the DA earned 51 percent of the vote in the 
Western Cape to win an outright governing majority in the 
province.  A new opposition party that broke from the ANC, 
the Congress of the People (COPE), gained 30 seats in the 
Qthe Congress of the People (COPE), gained 30 seats in the 
National Assembly in the 2009 election and is now the third 
largest national party as well as the official opposition in 
three of the nine provinces. 
 
¶6.  (SBU) The ANC's internal problems stem from the fallout 
of the December 2007 ANC congress in Polokwane, Limpopo. 
Jacob Zuma defeated incumbent Mbeki by a vote of 2,329 to 
1,505 for the party presidency.  Zuma's allies swept the 
other top five ANC positions.  The Zuma camp dominated the 
elections for the ANC's 86-member National Executive Council 
(NEC) with sixteen Mbeki Cabinet members (out of 28) losing 
their NEC seats.  Zuma's victory positioned him to be the 
front-runner to become national President following the 2009 
election.  The tense debate at the party's December 2007 ANC 
National Conference and defeat of incumbent Mbeki reflected 
the growing impatience with the pace of socio-economic 
change.  It was also in large part a reflection of the 
growing restlessness and dissatisfaction with the ANC's 
inability to deliver a better life for everyone. 
 
 
PRETORIA 00001482  002.2 OF 006 
 
 
¶7.  (SBU) It is too soon to tell whether the results of the 
2009 election will lead to changes in SAG policy.  Interim 
president Kgalema Motlanthe's seven month tenure ended with 
the May 2009 inauguration of Zuma, and the newly appointed 
Cabinet is only months old.  Zuma has stressed that as 
president he will not make radical policy changes and that he 
respects the party's previous policy consensus.  His Cabinet 
selections, particularly the re-appointment of former Health 
Minister Barbara Hogan as Minister of Public Enterprises and 
former Finance Minister Trevor Manuel as Minister of Planning 
in the Presidency, show that the ANC wants to improve policy 
implementation in certain areas without drastic overhauls. 
Despite such signals, many of the new Cabinet appointments -- 
and some of Zuma's strongest coalition supporters -- come 
from the left wing of South African politics.  The Congress 
of South African Trade Unions (COSATU) and the South African 
Communist Party (SACP) are members of the ANC-led tripartite 
alliance. These groups are pressuring Zuma to embrace more 
leftist or perhaps even populist positions in the interests 
of the working-class poor, and they supported the appointment 
of many of their members to the Cabinet.  On issues like 
HIV/AIDS and Zimbabwe, this could lead to SAG policies more 
closely in line with U.S. interests.  However, on other 
issues -- like fiscal management, nationalization of 
industry/resource sectors, and trade liberalization -- the 
shifts in policy might be less positive from a U.S. 
perspective. It seems likely that the new ANC leaders will be 
more focused on domestic rather than continental or global 
issues. 
 
------------------------------------------ 
FOREIGN POLICY PROMOTING AFRICAN INTERESTS 
------------------------------------------ 
 
¶8.  (U) South Africa under Mbeki took a high-profile role 
promoting Africa's interests and he was successful in getting 
African issues on a host of multilateral agendas, including 
the G-20.  South Africa served as the first chair of the 
African Union until July 2003 and helped establish 
continental institutions such as the Pan-African Parliament 
(which sits in South Africa) and the AU Peace and Security 
Council. 
 
¶9.  (SBU) South Africa under Mbeki believed it had a 
responsibility to lead African conflict resolution efforts 
and participate in peace support operations by virtue of its 
history and regional political, economic, and military clout. 
 South Africa plays a lead role in conflict resolution in 
Burundi and contributes troops to UN Peace Keeping missions 
in the Democratic Republic of Congo (DRC), Burundi, and 
Sudan.  South Africa is, however, in the process of 
down-sizing its forces in Burundi to a small 100-man security 
force that will provide security to FNL leaders.   South 
Africa has approximately 3,000 personnel deployed in peace 
support operations in Africa (DRC and Sudan) and the U.S. has 
a strong interest in helping South Africa expand and enhance 
its peacekeeping and disaster assistance capabilities.  South 
Africa participates in the U.S. African Contingency 
Operations Training and Assistance program (ACOTA) to enhance 
the South African National Defense Force's (SANDF) capacity 
Qthe South African National Defense Force's (SANDF) capacity 
to participate in multilateral peace support operations. 
Motivated, in part, by lingering suspicions of the U.S. 
dating to the cold war, South African defense officials have 
been openly critical of U.S. Africa Command in the past, but 
the Embassy has been making progress in engaging with the SAG 
on this issue and continues to engage in a wide range of 
military-to-military activities.  Last year the U.S. 
completed the first visit by a U.S. Navy aircraft carrier to 
South Africa since 1967.  This marked a turning point in 
military-to-military relations although occasional hiccups 
are still happening. 
 
¶10.  (SBU) Zimbabwe remains a continuing challenge for South 
Africa.  SADC leaders appointed Mbeki in March 2007 as the 
mediator between Zimbabwean President Robert Mugabe and the 
opposition Movement for Democratic Change (MDC), with the 
goal of leveling the electoral field before the March 2008 
elections.  Negotiations made some progress, but human rights 
abuses against the opposition accelerated.  The MDC won a 
small majority of seats in the Parliament.  MDC leader Morgan 
Tsvangirai won a plurality of the vote (47 percent) but not 
enough to avoid a presidential runoff.  Presidential runoff 
 
PRETORIA 00001482  003.2 OF 006 
 
 
elections planned for June 27, 2008 were preceded by a 
campaign of state-sponsored violence and intimidation that 
undermined the atmosphere for a fair electoral contest. 
Tsvangirai dropped out of the race on June 22 as a result of 
the political instability and the violence against MDC 
supporters.  A September 2008 SADC-brokered power-sharing 
agreement was reconfigured as a power-sharing unity 
government and implemented in February 2009.  The SAG and 
SADC asked former President Mbeki to stay on in his role as 
SADC's chief Zimbabwe negotiator following his departure from 
office. 
 
¶11.  (SBU) Overall U.S.-South African relations are positive, 
but South Africa sometimes takes positions on global issues 
that run counter to U.S. interests.  South Africa advocates 
for a greater voice for the "South" relative to the "North" 
in an expanded and reformed UN Security Council, in the 
governance of international financial institutions, increased 
development assistance, and lower trade barriers. 
 
--------------------------------------------- ----------- 
THE NEED TO ACCELERATE GROWTH IN A SLOWING GLOBAL ECONOMY 
--------------------------------------------- ----------- 
 
¶12.  (SBU) South Africa is a middle-income, emerging market 
economy with purchasing power parity GNI per capita of $3,206 
(2008), akin to Chile, Malaysia, or Thailand.  The SAG has 
pursued prudent monetary and fiscal policies, which turned a 
fiscal deficit of 6 percent of GDP in 1994-05 to a small 
surplus of 0.9 percent of GDP in 2007-08.  However, the 
government announced in February 2009 a fiscal deficit of 3.9 
percent of GDP for 2009-10, citing the need for stimulus in 
the face of a deteriorating economic environment.  The South 
African Reserve Bank (SARB) is independent.  It targets an 
inflation rate of 3-6 percent, but is currently struggling 
with inflation of about 8.5 percent. Real GDP growth averaged 
5 percent per year between 2005 and 2007, but fell to 3.1 
percent in 2008 because of higher interest rates, power 
shortages and weakening commodities prices.  GDP contracted 
6.4 percent in the first quarter of 2009, owing to slumps in 
commodity prices and manufactured exports.   South Africa is 
now in official recession, and analysts forecast negative 
growth of about 1.0 percent in 2009. 
 
¶13.  (SBU) South Africa's financial system has not been 
directly affected by recent turmoil in global financial 
markets.  The local banking system is well-capitalized and 
strictly-regulated, and banks and other financial 
institutions have relatively little exposure to sub-prime 
debt or other contagion.  Banks raise most of their capital 
domestically.  However, South Africa depends on portfolio 
inflows to finance its large current account deficit (about 8 
percent of GDP). 
 
¶14.  (SBU) South Africa's single greatest economic challenge 
is to accelerate growth in a slowing global economy in order 
to address widespread unemployment and reduce poverty.  The 
official unemployment rate, currently 23.5 percent, is 
significantly higher among black South Africans than among 
whites.  Income inequality between haves and have-nots 
remains one of the highest rates in the world.  Fifty-six 
percent of black South Africans, but only four percent of 
Qpercent of black South Africans, but only four percent of 
whites, live in poverty.  The lack of capacity and service 
delivery at the provincial and municipal levels fueled the 
recent xenophobic attacks on refugees from neighboring 
countries as South Africans from lower socioeconomic strata 
feared that jobs, houses, and other services were being given 
to non-South African immigrants. Other obstacles exacerbating 
South Africa's economic growth and service delivery problems 
are skill shortages, a brain and skills drain, and education 
system weaknesses. 
 
¶15. (SBU) Nevertheless, the SAG has made strides in the areas 
of transfer payments and public services to close the gap. 
Nearly 2.5 million low-cost homes have been built to provide 
shelter to 7.6 million people, 3.5 million homes have been 
provided with electricity, and nine million people have been 
connected to clean water.  Almost 13.4 million people were 
benefiting from social grants in 2008, and this figure is 
projected to increase to 20 million in the next several years 
as benefits are extended to broader categories of recipients. 
 The SAG's broad-based Black Economic Empowerment (BEE) 
 
PRETORIA 00001482  004.2 OF 006 
 
 
program provides ownership and employment opportunities to 
blacks and other historically (or previously) disadvantaged 
and has helped the black middle class double in size to an 
estimated two million since 1994. 
 
¶16.  (U) The success in preparing for and carrying off the 
FIFA 2010 Soccer World Cup to be held in South Africa in 
mid-June 2010 is regarded by many as a bellwether of the 
country's commitment to continued progress in a variety of 
social and economic areas, among these being the fight 
against crime, providing services, expanding and improving 
infrastructure, and developing tourism.  South Africa's 
successful hosting of the FIFA Confederations Cup in June 
2009 strengthened confidence that the World Cup in 2010 will 
also be managed effectively. 
 
--------------------------------------------- ------ 
THE RECENT GROWTH OF U.S.-S.A. TRADE AND INVESTMENT 
--------------------------------------------- ------ 
 
¶17.  (SBU) The U.S. is South Africa's third-largest trading 
partner, after Germany and China.  U.S.-South Africa trade 
grew 12 percent in 2008, totaling $16.1 billion.  U.S. 
exports rose 18 percent to $6.2 billion, while South African 
exports to the United States increased 9 percent to $9.9 
billion.  South Africa was the third largest beneficiary of 
total exports (after Nigeria and Angola) and the largest 
beneficiary of non-oil exports under the African Growth 
Opportunity Act (AGOA) in 2008.  The U.S. was South Africa's 
largest export market in 2007 and an impressive 98.1 percent 
of South Africa's exports entered the U.S. with zero import 
duties in 2007 as a result of normal trading relations (NTR), 
GSP, AGOA and other benefits.  Japan displaced the U.S. as 
South Africa's largest export market in 2008. 
 
¶18.  (SBU) Over 600 U.S. firms have a presence in South 
Africa, with 85 percent using the country as a regional 
center.  South Africa's stable government, sound fiscal and 
monetary policies, transportation infrastructure, 
sophisticated financial sector, and, by African standards, 
large market are the primary attractions for U.S. businesses. 
 Nevertheless, South Africa has failed to attract a 
proportionate share of global foreign direct investment since 
¶1994.  Reasons include a volatile exchange rate, distance 
from developed country markets, high unit labor costs, strong 
unions, skills shortages, crime, HIV/AIDS, regulatory 
uncertainty, and the impact of Black Economic Empowerment 
policies.  The U.S. was the largest portfolio investor and 
the second largest foreign direct investor in South Africa 
after the U.K. ($6.6 billion at year-end 2007).  General 
Motors, Ford, and Timken are among the top industrial 
investors in South Africa.  Teletech recently opened a large 
call center in Cape Town and has plans to open smaller 
centers in other parts of the country.  Westinghouse is 
competing for a $60 billion dollar contract to build a fleet 
of AP1000 nuclear reactors in the Western and Eastern Cape 
provinces.  Lockheed recently signed a contract with 
state-owned aviation manufacturer and services provider Denel 
for Denel to open a licensed service center to repair, 
maintain and overhaul Lockheed C-130s from Africa and the 
Middle East. 
 
¶19.  (SBU) The U.S. and the Southern African Customs Union 
Q19.  (SBU) The U.S. and the Southern African Customs Union 
(SACU:  South Africa, Botswana, Lesotho, Namibia, and 
Swaziland) suspended free trade agreement negotiations after 
three years and six rounds of negotiations in April 2006. 
Negotiators agreed to pursue a Trade, Investment and 
Development Cooperative Agreement (TIDCA) in an effort to 
preserve some of the progress made in the FTA talks.  A 
framework agreement for the TIDCA was signed at the AGOA 
Forum in Washington on July 14, 2008.  South Africa has 
recently expressed interest in stepping up the pace on TIDCA, 
and negotiators may begin work soon on agreements to promote 
private sector contacts and reduce existing barriers to 
bilateral trade.  There may be movement on TIDCA in the 
run-up to the AGOA Forum in August. 
 
------------------------------------- 
ONGOING U.S. SUPPORT FOR SOUTH AFRICA 
------------------------------------- 
 
¶20.  (U) The USG has contributed approximately $1.9 billion 
 
PRETORIA 00001482  005.2 OF 006 
 
 
toward South Africa's development, including $250 million in 
credit guarantees, since 1994, and $100 million in education, 
$120 million in economic growth, and $88 million in democracy 
and governance since 1998.  Our current development 
assistance program focuses on:  supporting South Africa's 
response to HIV/AIDS and TB through the U.S. President's 
Emergency Plan for AIDS Relief (PEPFAR); addressing 
unemployment through financing and business development 
services for SMEs, job-skills training and education; 
reducing gender-based violence as part of the President's 
Women's Justice and Empowerment Initiative (WJEI); enhancing 
the quality of education through teacher training; and 
partnering with the SAG in third countries engaged in 
post-conflict rebuilding.  South African NGOs have also 
received Trafficking in Persons (TIP) grants over the past 
few years to assist in the global fight against trafficking 
in persons.  A wide range of U.S. private foundations and 
NGOs are also at work in South Africa.  Among them are the 
Gates Foundation (HIV/AIDS), the Ford Foundation (higher 
education), the Rockefeller Foundation (adult education), and 
the Clinton Foundation (HIV/AIDS and Climate Change). 
 
¶21.  (U) Twenty-eight U.S. government entities are 
represented at the U.S. Mission in South Africa (Embassy 
Pretoria and the three Consulates in Johannesburg, Cape Town 
and Durban).  The Mission has 292 Direct Hire (USDH) 
positions and 608 local employees.  More than 40 percent of 
Mission staff provides regional services to other U.S. 
embassies in Africa.  The Mission has embarked on an 
ambitious program to build safe office facilities.  The 
Mission completed the new consulate compound in Cape Town in 
2005 and a new consulate building in Johannesburg in April 
¶2009.  Future projects include construction of a new annex 
for USAID and CDC.  The construction of a much-needed, 
155-desk office annex on the Embassy compound in Pretoria was 
deferred by the Office of Buildings Operations (OBO) from 
2009 to 2022. 
 
--------------------------------------------- ----------- 
HIV/AIDS AND RELATED ILLNESSES CONSTITUTE A GROWING CRISIS 
--------------------------------------------- ----------- 
 
¶22.  (U) The PEPFAR program in South Africa is the largest 
recipient of PEPFAR resources to date, having received a 
total of $1.45 billion, including $591 million in FY2008. 
South Africa has the largest number of HIV-infected citizens 
in the world.  HIV/AIDS-related illnesses, particularly due 
to HIV/tuberculosis (TB) co-infection, are the country's 
leading cause of death.  Despite South Africa's overall 
wealth, life expectancy at birth has decreased from 67 to 52, 
the regional average, due to HIV/AIDS and HIV/TB 
co-infection. Under-five mortality, with the Millennium 
Development Goal (MDG) of 24 per 1,000 in 2015, has increased 
from 60 to 67 per 1,000 between 1990 and 2006.  Achieving the 
MDGs is the SAG's highest priority, but South Africa is 
moving further away from these goals in both child and 
maternal mortality as a result of HIV/AIDS. 
 
¶23.  (U) An estimated 5.4 million South Africans are 
HIV-positive including 2.7 million women and about 300,000 
children 14 years old or younger.  An estimated 18.8 percent 
Qchildren 14 years old or younger.  An estimated 18.8 percent 
of adults between 15 and 49 are HIV-infected and women in the 
age group of 25-29, the most seriously affected, have 
prevalence rates of up to 40 percent in some areas.  An 
estimated 530,000 new infections occur annually. In 2006, 
350,000 adults and children died from AIDS; an estimated 1.8 
million deaths have occurred since the start of the epidemic; 
and 71 percent of all deaths in 15 to 41-year-olds are due to 
AIDS. In the last few years, there is an indication that 
prevalence may be starting to decline.  Prevalence in 
antenatal care fell from 29 percent in 2005 to 28 percent in 
¶2008.  At least 1.6 million children, approximately 10 
percent of South Africa's youth, have had at least one parent 
die and 66 percent of these have been orphaned by AIDS. 
Continuing AIDS-related mortality will create millions of new 
orphans and generate additional social and economic 
disruption, in part due to orphans being raised by extended 
families or in child-headed households. 
 
¶24.  (U) The epidemics of HIV and TB are interlinked.  TB is 
the most common infectious disease in sub-Saharan Africa and 
approximately 50 percent of HIV patients in South Africa also 
 
PRETORIA 00001482  006.2 OF 006 
 
 
have TB.  A high overall prevalence rate of HIV, HIV/TB 
co-infection, and lack of continuity in treatment contribute 
to the increasing incidence of active TB, including multi- 
and extensive-drug-resistant TB strains (MDR- and XDR-TB). 
The piloting of an SAG-approved rapid test for MDR-TB may 
allow more rapid identification and initiation of appropriate 
treatment, but staff shortages and skills challenges impede 
an effective response to TB.  Failure to adequately control 
and treat TB may undo all the gains South Africa has made in 
HIV care and treatment thus far. 
 
¶25.  (U) The South African National Strategic Plan for HIV & 
AIDS and Sexually Transmitted Infections 2007-2011 (NSP) 
provides a road map for responding to this crisis and sets 
out goals of reducing new HIV infections by 50 percent by 
2011 and increasing access to anti-retroviral treatment 
(ART).  The South African public health system has a need 
for: expanded clinical and laboratory facilities; 
strengthened health care infrastructure, particularly for 
chronic disease, which includes HIV and TB; increased 
coverage of HIV treatment; HIV prevention; and TB control and 
treatment.  The country has made impressive progress towards 
expanding access to ART, but the current number of people on 
ART is less than 30 percent of those who need it.  The number 
of new infections also greatly exceeds the number of new 
people placed on ART. 
 
¶26.  (U) PEPFAR is in its fifth year of implementation and 
has recently been re-authorized for a second five-year 
period.  PEPFAR is implemented in South Africa by five USG 
agencies: the U.S. Agency for International Development 
(USAID); the U.S. Department of Health and Human Services 
(HHS), which includes the Centers for Disease Control and 
Prevention (CDC); the U.S. Department of State; the U.S. 
Department of Defense; and the Peace Corps. 
 
¶27.  (U) South Africa has the strongest research and training 
capacity of any country in the region, making it an important 
partner in HIV/AIDS and TB efforts.  USG agencies work with 
national and provincial health departments, the South Africa 
military, universities, and NGOs to strengthen primary health 
care, disease surveillance, and research.  NIH provides 
approximately $300 million in funding to South African 
researchers per year, with 90 percent of this focused on 
HIV/AIDS and TB research.  The U.S. Mission has prepared a 
five-year strategic plan in coordination with the SAG for HIV 
prevention, care, and treatment for not only adults, but also 
for orphans and other vulnerable children (OVCs).  South 
Africa is moving into a transition phase with an expected 75 
percent budget reduction in PEPFAR funding during the next 
three years (from $591 million in FY2008 to $150 million in 
FY2011.  This reduction will correspond with increased 
emphasis on technical assistance and human capacity 
development coupled with greater funding and program 
implementation by the SAG.  Although Hogan did not retain the 
Health portfolio, Post expects to work cooperatively with new 
Health Minister Aaron Motsoaledi on the development and 
implementation of this five-year strategy and collaboration. 
 
CONNERS