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Cablegate: South Africa Economic News Weekly Newsletter March 30, 2006

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RUEATRS/DEPT OF TREASURY WASHDC
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DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 30, 2006
ISSUE

1. (U) Summary. This is Volume 7, issue 13 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Private Sector Growth Rate at 7 percent
- Automotive Component Revenue Thrives
- New Plans to Ease Skills Shortage
- Eskom's New Power Stations - Five Year Plan
- New Proposal to Boost Textile Industries
- Chinese Textile Quota Causes Controversy
- Bilateral Trade Continues Despite Zim Woes
- 2010 World Cup Soccer Airport Expansions

End Summary.

Private Sector Growth Rate at 7 percent
---------------------------------------

2. (U) Employment in medium and large private business grew 7% last
year, according to a Grant Thornton index that forms part of the
Grant Thornton international business report. Last year's
employment growth was only 3% growth due to hampered growth in the
manufacturing sector. Sixty-three percent of privately held
businesses in SA increased their staff in 2006. The outlook for
next year is also positive as 53% of South African companies taking
part in the study indicated they expected to increase their staff
complement next year. All major industry sectors in SA reported an
increase in employment: manufacturing up 5%, services 8%, and retail
growth 4%. (Business Day, March 27, 2007)

Automotive Component Revenue Thrives
------------------------------------

3. (U) The local motor industry continues to thrive under the
protection of the Motor Industry Development Program (MIDP). The
revival of the industry has extended to car-part exports, which
increased 32% in 2006, boosting industry revenues to 30.3 billion
rand ($4.3 billion). Exported parts that were up by more than 50%
included catalytic converters, exhausts, radiators, and axles.
According to the National Association of Automotive Component
Manufacturers, this wide range of parts is confirmation that SA can
manufacture components locally and that SA vehicle assemblers have
significant opportunity to increase local content. Local production
has fallen gradually during the past three years. (Business Day,
March 28, 2007)

New Plans to Ease Skills Shortage
---------------------------------

4. (U) The Joint Initiative on Priority Skills Acquisition (JIPSA)
has been unable to counter the current skills shortage in the first
year following JIPSA's implementation. Targeting engineers and
artisans, the government intends to increase the number of qualified
engineers and artisans to 12,000 and 50,000, respectively, by 2010.
Currently, SA only produces about 5,000 artisans each year, but
needs to raise this number to at least 12,500 to reach its goals.
One stumbling block is the need to streamline legislation on artisan
training and the apprenticeship system. According to Business Unity
SA, JIPSA "missed the boat" by failing to get its proposals for
amending the legislation on artisan training before the cabinet this
year. Under the new plans, the National Qualification Framework has
been widened to recognize more foreign qualifications for artisans.
Education and training programs are also to be improved. JIPSA has
detailed plans for other priority areas including development of
call center staff via Department of Trade and Industry training
subsidies, and the funding of training for tourism industry
employees by the National Skills Fund. Other targeted areas include
city and urban planning, infrastructure development, mathematics,
science, and information and communications technology. (Business
Day, March 27, 2007)

Eskom's New Power Stations - Five Year Plan
-------------------------------------------

5. (U) State-owned power utility Eskom unveiled on March 20 the new
official names for the four new power stations that are to be built
over the next five years in its latest R150 billion ($20 billion),
five-year capacity building program. Eskom proposes to build a
4,500 MW coal-fired station, called 'Medupi', (meaning "the rain
that soaked the lands, giving economic relief") near Lephalale

PRETORIA 00001137 002 OF 003


(previously Ellisras) in Limpopo Province. This station will be
near to the existing Matimba power station and will also source its
coal from the Waterberg deposit. The second station is a
pumped-storage peaking capacity plant named Ingula (referring to the
creamy contents at the top of a milk calabash). Ingula will be
located in the Drakensberg, near Ladysmith in KwazuluNatal
Province.

6. (U) An open cycle gas turbine (OCGT) station is to be named
"Ankerlig" -- an Afrikaans term signifying a community rising from
poverty to achieve growth and prosperity. This station will be
located at Atlantis in the Western Cape Province. A second OCGT
station will be known as Gourikwa, which is the name of the ethnic
group that once lived in the area. This station will be located at
Mossel Bay, also in the Western Cape Province. Collectively, the
two OCGT power stations will add another 1,050 MW to the national
grid. Eskom has stated that it plans to add more units to the two
power stations that will increase the total output of the two
gas-fired power plants to 2,100 MW. Additionally, Eskom is bringing
back into service three previously mothballed plants that will add
3,800 MW to the system. These plants are being largely rebuilt.
Four units at the Camden plant are already in operation and a fifth
unit will be ready by winter. The Grootvlei plant will have one
unit operational by winter and the Komati plant will have one unit
by September. All should be fully operational within five years.
Eskom is also to launch a pilot cogeneration project in April as it
moves towards achieving at least 900 MW from cogeneration by 2011.

New Proposal to Boost Textile Industries
----------------------------------------

7. (U) A new proposal to boost the clothing and textile industry is
expected to enhance the sector's competitiveness. With SACU's
Textile and Clothing Industry Development Program (TCIDP) ending
this month, the clothing and textile business associations have
proposed an incentive scheme for eligible manufacturers in the
region. The proposed benefit under the new program is a customs
duty credit based on a percentage of the value of goods made by a
participant. The previous scheme placed emphasis on the percentage
of the value of the participant's exports. In the interim, the
associations have lobbied the government to extend the TCIDP until
March 2009. The current program has been unsuccessful to date in
enabling SA manufacturers to compete with the low-cost Chinese
garment industry, which has had a negative impact on this sector and
resulted in the imposition of a textile quota on Chinese imports.

Chinese Textile Quota Causes Controversy
----------------------------------------

8. (U) The quota on Chinese textile imports has been surrounded by
controversy and resistance since its inception in late 2006.
Private sector manufacturers and retailers were not consulted before
the quota agreement with China was signed. The government had to
push back the implementation date until the beginning of 2007 to
accommodate retailers with orders already being shipped. Many
retailers have skirted the quota by purchasing from other low-cost
producers in Southeast Asia, instead of from local manufacturers.
The quota has again made the news due to an unintended negative
consequence for local manufacturers, the entities it was intended to
protect. Some manufacturers have been prevented from importing
fabric not available locally, which has had a dire effect on
factories and threatens jobs. The government has stated that it
would consider written requests from importers to increase their
quotas under special circumstances, notably where products were
manufactured only in China or not locally in SA. However, this
concession for an allowance will only be granted if the
manufacturers commit to measure that help develop the local
industry. (Business Day, March 30, 2007)

Bilateral Trade Continues Despite Zim Woes
------------------------------------------

9. (U) Despite its deepening economic crisis and exorbitant
inflation rate, Zimbabwe's trade with SA continued at a strong pace
in 2006, with platinum exports to South Africa jumping sharply.
Zimbabwe remained SA's biggest African market until 2006, when
Zambia slightly nudged ahead. SA continues to be Zimbabwe's lead
trade partner, providing more than half of Zimbabwe's imports and
absorbing one third of its exports. SA Revenue Service reports that
SA trade with Zimbabwe in 2006 totaled 11.92 billion rand ($1.7

PRETORIA 00001137 003 OF 003


billion), including exports of 7.26 billion ($1 billion) and imports
of 4.46 billion rand ($637 million). (Compared to 4.79 billion rand
($684 million) and 3.54 billion rand ($506 million) in 2000,
respectively). Some local economists say SA has benefited from
Zimbabwe's pariah status, becoming the supplier of choice as global
goodwill evaporates. Some of SA's expanding exports to Zimbabwe
center on fuel, electricity, and food, essentials that were not
traded just a few years ago. The informal market is also expanding,
driven by the estimated three million Zimbabweans abroad who provide
foreign exchange for goods needed by relatives at home. It is
estimated that approximately 10,000 people cross the border between
SA and Zimbabwe each day carrying goods for their own use or to sell
in the black market. (Financial Mail, March 30, 2007)


2010 World Cup Soccer Airport Expansions
----------------------------------------

10. (U) Airline Companies South Africa (ACSA), which owns and
operates all of South Africa's major airports, announced that even
with significant expansions at the Cape Town, Johannesburg and
Durban airports, peak demand for the 2010 World Soccer Cup will
exceed capacity. To meet the temporary surge in passengers, ACSA is
also upgrading and expanding secondary airports (e.g., the Lanseria
airport near Pretoria). The announcement was made by ACSA executive
Mr. Andre ver Meulen at the Board of Airline Representatives South
Africa (BARSA) annual conference held March 23-25 near Cape Town.
ACSA is engaged in a 19.3 billion rand ($2.76 billion) capital
expansion plan aimed at increasing total airport capacity by 40%
from the current 33 million passengers per year to 45 million by
2012. At O.R. Tambo International Airport (formerly Johannesburg
International Airport), ACSA will open a new international pier on
June 1 and expects to complete a new central terminal building there
by the end of 2008.

TEITELBAUM

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