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Cablegate: Scenesetter for Secretary Paulson's Visit to South

VZCZCXRO1015
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3903/01 3120536
ZNR UUUUU ZZH
O 080536Z NOV 07
FM AMEMBASSY PRETORIA
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 2604
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RUEATRS/NATIONAL SCTY AFFAIRS WASHINGTON DC

UNCLAS SECTION 01 OF 05 PRETORIA 003903

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR SECRETARY HENRY PAULSON FROM AMBASSADOR ERIC
BOST, TREASURY FOR MATTHEW LANGSTON, MATT EVERSON, DAN
PETERS AND TRINA RAND

E.O. 12958: N/A
TAGS: ECON PREL PGOV SF
SUBJECT: SCENESETTER FOR SECRETARY PAULSON'S VISIT TO SOUTH
AFRICA

1. (SBU) Secretary, I warmly welcome your upcoming visit to
South Africa. My staff and I stand ready to do everything we
can to make your trip a success. You are visiting South
Africa at a particularly interesting time, only weeks before
the African National Congress (ANC) elects its new
leadership. Because the ANC has overwhelming support in the
country (70 percent in the last election), the person who
wins the ANC election in December will likely become the next
president. If President Mbeki wins, although
constitutionally barred from a third term, he will be in a
position to strongly influence the choice of the next
president of the country. I look forward to discussing the
evolving political situation with you, as well as the other
key elements of the U.S.-South Africa relationship. I know
our staffs are in touch on the details of your visit, but
please feel free to contact me directly if you have questions
or special requests.

2. (SBU) South Africa is an anchor country in U.S. Africa
policy. Since the end of apartheid in 1994, the ANC-led
South African Government (SAG) has made major progress toward
establishing a vibrant democracy and market-based economy.
The SAG has focused on political and economic transformation:
closing the gap between the historically privileged and
disadvantaged communities -- primarily through
government-provided housing, electricity, and water to the
poor -- and creating employment and business opportunities.
South Africa, however, continues to face daunting challenges,
including skills shortages in all sectors of the economy,
growing infrastructure bottlenecks, income inequality between
haves and have-nots, massive unemployment, entrenched poverty
in both rural and urban areas, violent crime, and a severe
HIV/AIDS pandemic. These problems are intensifying political
tensions within the ANC-led ruling coalition. The next ANC
president will be selected at the party's December 16-20,
2007 national conference. While the likely victor is still
unclear, current SAG President Thabo Mbeki and ANC Deputy
President Jacob Zuma are the leading candidates.

3. (SBU) Despite its challenges, South Africa remains the
continent's best prospect for establishing a successful
democratic society with widespread prosperity. South Africa
plays a key role in promoting peace and stability in Africa,
and is an important voice on global trade and
nonproliferation issues. U.S.-South African relations are
stable, as reflected by President Bush's July 2003 visit to
South Africa and President Mbeki's June 2005 and December
2006 trips to Washington. We share objectives on the African
continent and work together closely on many of them.

------------------
POLITICAL OVERVIEW
------------------

4. (SBU) The African National Congress (ANC) dominates the
political scene in South Africa. President Thabo Mbeki began
his current five-year term on April 27, 2004. The ANC won 70
percent of the vote, and 279 of 400 seats in the National
Assembly at the April 14, 2004 poll. A subsequent "floor
crossing" period in September 2005, in which parliamentarians
were allowed to switch parties, boosted the ANC's total to
293. The ANC also won 66 percent of the vote nationally in
March 2006 local elections. The Democratic Alliance (DA) is
QMarch 2006 local elections. The Democratic Alliance (DA) is
the largest of several opposition parties in parliament, with
47 seats. The ANC leads the administrations in all nine of
South Africa's provinces and in the vast majority of its
municipalities. The most visible exception to this
country-wide ANC domination is the DA's control of the Cape
Town municipality where there have been multiple attempts to
unseat the DA-led, multi-party municipal government.

5. (SBU) The ANC is part of a tripartite alliance whose other
members are the South African Communist Party (SACP) and the
Congress of South African Trade Unions (COSATU). The ANC-led
alliance has developed schisms in recent years, largely based
on the SACP's and COSATU's more populist styles, as well as
opposition to the government's more business-friendly
economic policies. However, the alliance is likely to hold
together, at least in the short term. Despite their
dissatisfaction with many ANC policies, most SACP and COSATU
leaders remain intensely loyal to the ruling party and prefer
to lobby for change from within. Splitting from the alliance
and fielding candidates independently could have catastrophic
electoral results for SACP and COSATU.

PRETORIA 00003903 002 OF 005

6. (SBU) Mbeki had a 77 percent public approval rating in
January 2006, but his popularity within the party is lower.
Mbeki is currently embroiled in managing internal party
tensions related to succession and his centralized
decision-making style. Supporters of Jacob Zuma accuse Mbeki
of conspiring against his party deputy; using charges of rape
(on which Zuma was acquitted in May 2006) and corruption
(state prosecutors continue to investigate Zuma) to ensure
Zuma does not become the next ANC president. Many within the
party's grassroots also think Mbeki does not consult with ANC
structures before making decisions, such as when he overrode
the selection of several hundred local candidates by ANC
branches to ensure gender parity on party lists for the March
2006 local elections. Mbeki's legacy will depend in large
part on who is elected ANC President at the December party
conference. Mbeki, who is also the current party president,
has not formally declared his candidacy, but is widely
expected to run. If he wins, he will remain safely at the
helm until his state presidential term expires in 2009. If
he loses, he faces lame-duck status.

------------------------------------------
FOREIGN POLICY - FOCUS ON PROMOTING AFRICA
------------------------------------------

7. (U) South Africa has taken a high-profile role in
promoting Africa's development. 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. President Mbeki is the driving force
behind the New Partnership for Africa's Development (NEPAD),
an African-developed program to strengthen economic and
political governance across the continent and a framework for
productive partnership with the international community.

8. (SBU) South Africa recognizes that, by virtue of its
regional political, economic, and military clout, it has a
responsibility to participate in conflict resolution and
peace support operations. South Africa played a leading role
in negotiations that ended the conflicts in Burundi and the
Democratic Republic of Congo. Approximately 3,000 personnel
are deployed in UN, African Union and bilateral peace support
operations in Sudan, Burundi, DRC, Ethiopia/Eritrea, and
Comoros. While the U.S. has a strong policy interest in
seeing South Africa expand and enhance its peace support
capabilities, our ability to support these efforts has been
limited by the suspension of FMF military assistance because
of the lack of an Article 98 agreement with South Africa.
South Africa participates in the African Contingency
Operations Training and Assistance program (ACOTA) to enhance
the capacity of the South African National Defense Force
(SANDF) for participation in multilateral peace support
operations.

9. (SBU) Zimbabwe remains a continuing challenge and
increasing concern for President Mbeki. In March, regional
SADC leaders appointed Mbeki as official mediator between
Zimbabwean President Robert Mugabe and the opposition
Movement for Democratic Change (MDC). Negotiations are
ongoing, but human rights abuses against the opposition
continue. While South Africa wants political and economic
Qcontinue. While South Africa wants political and economic
reform in Zimbabwe, SAG officials argue that additional
pressure, such as imposing sanctions, would have little
effect on President Mugabe and could destabilize Zimbabwe
with spillover effects in South Africa. South Africa already
hosts between 1 and 2 million Zimbabwean refugees.

10. (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. As a non-permanent UN
Security Council member, and former chair of the G-77 and the
Non-Aligned Movement (NAM), South Africa has taken up the
cause of a greater "South" voice in international
institutions, increased development assistance, an expanded
UN Security Council, and lower trade barriers (for
manufactured and agricultural exports to developed countries).

-----------------------------------------
THE ECONOMY AND THE STRUGGLE TO TRANSFORM
-----------------------------------------

11. (SBU) As the dominant and most developed economy in

PRETORIA 00003903 003 OF 005


sub-Saharan Africa, South Africa is markedly different from
other countries of the region. It is a middle income,
emerging market economy with GNI per capita of $5,209 (2006),
akin to Chile, Malaysia, or Thailand. The South African
government's fiscal and monetary policies are excellent. The
ANC government steadily reduced the fiscal deficit from
nearly 6 percent of GDP in 1994-95 to a small surplus (0.3
percent of GDP) in 2006-07. The South African Reserve Bank
(SARB) is independent and committed to CPIX inflation (CPI
minus mortgage cost) within a target band of 3.0 to 6.0
percent. Inflation fell from 12.4 percent at the beginning
of 2003 to 4.8 percent in June 2006, but has recently crept
back up to 6.7 percent (September 2007). Real GDP growth in
2006 fell slightly to 5.0 percent from 5.1 percent in 2005.
The South African Department of Finance expects growth to
slow to 4.9 percent in 2007 and 4.5 percent in 2008.

12. (SBU) South Africa's single greatest economic challenge
is to accelerate growth. GDP growth averaged 3.0 percent per
year between 1994 and 2004, and was not sufficient to address
widespread unemployment and reduce poverty. The official
unemployment rate, currently 25.5 percent, has only recently
begun to decline, and is significantly higher among black
South Africans than among whites. Income inequality between
haves and have-nots remains high. Poverty is widespread.
Fifty-six percent of black South Africans, but only four
percent of whites, live in poverty. Nevertheless, the
government has made strides in the areas of transfer payments
and public services to close the gap. Nearly 1.9 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. Eleven million people were benefiting from
social grants in 2006 (compared to the country's five million
individual taxpayers). The government's broad-based Black
Economic Empowerment (BEE) program provides ownership and
employment opportunities to blacks and has helped the black
middle class double to an estimated two million since 1994.
The black middle class now exceeds the size of the white
middle class and is driving consumer demand.

13. (U) The success in preparing for and carrying off the
2010 Soccer World Cup to be held in South Africa 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, expanding and
improving infrastructure, providing services, and developing
tourism.

-----------------------------
U.S. SUPPORT FOR SOUTH AFRICA
-----------------------------

14. (U) Since 1994, the United States Government has
contributed approximately $1.217 billion toward South
Africa's development, plus $201 million in credit guarantees.
Currently, our development assistance program focuses on
HIV/AIDS and strengthening the healthcare system, addressing
unemployment through job-skills training and education,
creating models for efficient service delivery, and reducing
gender-based violence as part of the President's Women's
Justice and Empowerment Initiative (WJEI). A wide range of
U.S. private foundations and NGOs are also at work in South
QU.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), and the Rockefeller
Foundation (adult education).

15. (U) Twenty-eight U.S. government entities are represented
at our Mission in South Africa (Embassy Pretoria and the
three Consulates in Cape Town, Durban, and Johannesburg).
The Mission has 281 U.S. employees, and 564 local employees.
More than 40 percent of Mission staff provide regional
services to other U.S. embassies in Africa. The Mission has
embarked on an ambitious program to build safe office
facilities. In FY 2005, we completed the new Consulate
compound in Cape Town, and in FY 2006 broke ground on a new
Consulate building in Johannesburg. In FY 2009, we intend to
break ground on a new 155-desk office annex in Pretoria.

------------------------------
U.S.-S.A. TRADE AND INVESTMENT
------------------------------

16. (SBU) U.S.-South Africa trade grew 23 percent in 2006,

PRETORIA 00003903 004 OF 005


totaling $11.7 billion. U.S. exports were up 16 percent at
$4.2 billion, while South African exports to the United
States increased 28 percent at $7.5 billion. In 2006, South
Africa was the 37th largest trading partner of the United
States, equivalent to Turkey or Chile. It is the largest
U.S. export market in sub-Saharan Africa, twice the size of
Nigeria and equal to Russia or Argentina. South Africa was
the third largest beneficiary of AGOA in 2006, and the
largest beneficiary of non-oil products. Its AGOA exports
totaled 21 percent of the country's total exports in 2006.
An impressive 99.6 percent of South Africa's exports entered
the U.S. with zero import duties in 2005 as a result of
normal trading relations (NTR), GSP and AGOA benefits. Only
0.4 percent of the value of South Africa's exports to the
U.S. was subject to duty, or $26 million out of $5.9 billion
in exports in 2005. Over 600 U.S. firms have a presence in
South Africa with 85 percent using the country as a regional
or continental center. South Africa's stable government,
sound fiscal and monetary policy management and, by African
standards, its large market are the primary attractions for
U.S. businesses. South Africa has, however, failed to
attract a proportionate share of foreign direct investment
since 1994. Reasons include: slow growth, high unit labor
costs, crime, regulatory uncertainty and the impact of Black
Economic Empowerment policies, labor regulations, HIV/AIDS,
and the slow process of privatization. The U.S. was the
largest portfolio investor and the second largest foreign
direct investor in South Africa ($5.1 billion at year-end
2005).

17. (SBU) Following six rounds of negotiations over three
years, the U.S. and the Southern African Customs Union (SACU:
South Africa, Botswana, Lesotho, Namibia, and Swaziland)
agreed in April that they could not conclude negotiations on
a free trade agreement (FTA) by their target date of December
2006. Negotiators subsequently agreed to deepen the
bilateral relationship through a Cooperative Agreement on
Trade, Investment and Development (TIDCA). Negotiations are
currently underway for the signing of a framework agreement
for the TIDCA.

--------------------------------------
HIV/AIDS: A CRISIS OF EPIC PROPORTIONS
--------------------------------------

18. (U) In South Africa, the prevalence rate of HIV
infections is one of the highest in the world. HIV/AIDS is
the country's leading cause of death. South Africa has a
generalized, mature HIV epidemic and HIV-related care and
treatment services are required across the population. An
estimated 5.5 million South Africans are HIV-positive,
including 2.9 million women and approximately 300,000
children aged 14 or less. An estimated 18.8 percent of the
adults between 15 and 49 are infected. Women in the age
group 25-29 are the most badly affected, with prevalence
rates of up to 40 percent. In 2005, an estimated 800,000
more citizens became infected and in 2006, 346,000 adults and
children died from AIDS. An estimated 3.5 million children,
or 18.6 percent of South Africa's children, have had at least
one parent die. Sixty-six percent of these children had been
orphaned as a result of AIDS. The number of AIDS-related
deaths since the start of the epidemic is estimated at 1.8
Qdeaths since the start of the epidemic is estimated at 1.8
million, with 71 percent of all deaths in the 15-41 year old
age group being due to AIDS. Continued AIDS-related
mortality will create millions of new orphans and generate
additional social and economic disruption, including orphans
being raised by extended family members or in child-headed
households.

19. (U) In April 2007, the South African Government released
its National Strategic Plan for HIV, AIDS, & Sexually
Transmitted Infections (STIs) for 2007-2011 (NSP). The NSP
has the goal of reducing new HIV infections by 50 percent by
2011 and also aims to boost provision of anti-retroviral
treatment (ART) in South Africa. However, South African
public health facilities suffer from an acute shortage of
skilled personnel and laboratory and clinical infrastructure.
Considerable investment in human resources and
infrastructure is necessary to meet the NSP's national
anti-retroviral treatment targets. Approximately 230,000
people were receiving anti-retroviral (ARV) treatment as of
2006, while a further 540,000 people needed, but were not
receiving, treatment. The Global Fund has provided major
grants to the Western Cape Health Department and a

PRETORIA 00003903 005 OF 005


public-private consortium in KZN.

20. (SBU) The President's Emergency Plan for AIDS Relief
(PEPFAR) is in its fourth year of implementation working with
public and private sector prevention, treatment, and care
programs. To date, the U.S. has provided almost $460 million
through PEPFAR to support HIV/AIDS programs in South Africa,
with an additional $397.8 million being funded in FY 2007 and
$590 million to be funded in FY 2008, making it the largest
recipient of Emergency Plan resources. The Emergency Plan
directly supported 172,400 people in ARV treatment through
programs in all nine provinces as of June 2007. The USG
PEPFAR team in South Africa includes U.S. Agency for
International Development (USAID), Centers for Disease
Control (CDC), Department of State, Department of Health and
Human Services (HHS), Department of Defense and Peace Corps.
The team works to ensure that the PEPFAR strategic plan is
aligned with the goals of the NSP. The South African
military has expanded prevention programs and collaborates
with the U.S. military and NIH on AIDS treatment research.

21. (U) South Africa has the strongest research and training
capacity of any country in the region, making it an important
partner in the fight against HIV/AIDS. USG agencies work
with national and provincial health departments, the
military, universities and NGOs to strengthen primary health
care, prevention, disease surveillance and research.
President Bush and President Mbeki confirmed a mutual
commitment to expand HIV/AIDS collaboration, particularly
through the Emergency Plan. The mission has prepared, in
coordination with the government, a five-year strategic plan
focused on treatment, prevention, palliative care, and the
provision of care for orphans and other vulnerable children.

22. (U) The epidemics of HIV and tuberculosis (TB) are
interlinked. In Southern Africa, between 50 and 88 percent
of TB patients are HIV positive and TB is the most common
infectious disease associated with HIV in sub-Saharan Africa.
A high overall prevalence rate for HIV in South Africa and
lack of continuity in treatment contributes to the increasing
incidence of active TB disease, including multi-drug
resistant (MDR) strains. In conjunction with HIV, TB is
linked to substantially higher fatality rates, even in the
presence of effective TB chemotherapy.
BOST

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