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Cablegate: South Africa Economic News Weekly Newsletter

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER
FEBRUARY 22, 2008 ISSUE


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1. (U) Summary. This is Volume 8, issue 7 of U.S.
Embassy Pretoria's South Africa Economic News Weekly
Newsletter.

Topics of this week's newsletter are:
- Budget Unveiled
- Rand Weakens After Budget Speech
- SA Looks to Indian Skills Development Model
- SA Launches Diaspora Networking Program
- Skills Shortage to Stymie Watchdog Group
- Coal Markets Rocked by Ambitious Plan
for Coal Purchases
- Proposal to Streamline
Environmental Assessments
- Coal Mining Threatens Fresh Water
End Summary.

---------------
Budget Unveiled
---------------

2. (U) South African Finance Minister Trevor Manuel delivered his
annual Budget Speech before Parliament on February 20, 2008.
According to Manuel, South Africa continues to have a positive
fiscal outlook despite global economic turmoil. Gross domestic
product (GDP) growth was projected at 4% with the government posting
a budget surplus of 1.0% of GDP for 2007/2008 and an estimated 0.8%
in 2008/2009. Proposed spending plans support further economic
growth and expanded social welfare including additional incentive
funding for the industrial policy framework and increased social
grants. Power utility Eskom will receive a R60 billion ($7.8
billion) infusion of funds to assist with power generation projects.
Manuel proposed tax relief for corporations while he revealed plans
to impose a levy on revenue from electricity generated by
non-renewable sources. In line with past gradual relaxation of
exchange controls, Manuel announced that exchange controls on
institutional investors will be removed and replaced with prudential
regulation.

--------------------------------
Rand Weakens After Budget Speech
--------------------------------

3. (U) The rand weakened more than 3% against the dollar after
Finance Minister Trevor Manuel's Budget speech on February 20. It
reached a 16-month low of R7.9225 against the dollar. Traders
predicted a further weakening to above R8 per dollar. Traders said
it was difficult to pinpoint the exact reason for the rand's fall,
but said it could be attributable to concerns as to how the
government plans to finance a widening current account deficit.
Standard Chartered Bank Regional Research Director Razia Khan said
that no one could be surprised by the projections for the current
account deficit (staying high this year and widening further the
next). Concerns have also been expressed about the fact that the
government needs to provide up to R60 billion ($7.6 billion) to the
electricity utility Eskom over the next five years. (Business
Report, February 20, 2008)

-------------------------------------------
SA Looks to Indian Skills Development Model
-------------------------------------------

4. (U) Public Works Minister Thoko Didiza acknowledged that although
the Extended Public Works Program had created 854,460 job
opportunities, many were of a temporary nature and often did not
allow for skills development. Didiza said South Africa was looking
to India as an example on how to improve the government's flagship
jobs creation program. She told reporters that India had a program
guaranteeing 100 days of work at a certain pay level, and the South
Qguaranteeing 100 days of work at a certain pay level, and the South
African government was weighing this option. "We have been looking
at different countries. How the system works in India is that
various governing authorities such as infrastructure departments
will guarantee work at a particular pay band." Public Works is
testing some of these new ideas, including targeting the youth in
the OR Tambo municipality in Eastern Cape. (Business Day, February
15, 2008)

---------------------------------------
SA Launches Diaspora Networking Program

PRETORIA 00000371 002.2 OF 003


---------------------------------------

5. (U) South Africa's International Marketing Council announced the
launch of Global South Africans (GSA). GSA is a pilot "brain bank"
for linking the South African diaspora. Approximately two million
South Africans are thought to live abroad and among them is a
contingent of top achievers who have made it big in business,
finance, medicine and academia. Spokesperson Simon Barber stated
that "SA's best brains need not be lost to it completely". GSA's
goal is to harness "human capital" and connect it to opportunities
in South Africa. One hundred and fifty people have been recruited
since April 2007. "The network is expected to make an important
contribution to skills development," says Barber. "Members will get
the chance to adopt schools, place South African students in U.S.
universities, offer internships in their companies and help
graduates from disadvantaged backgrounds develop connections." It is
hoped the network will also be able to help promote entrepreneurs
and innovators, give advice and build partnerships. Barbers added
that members who sign up to join GSA "will be actively engaged with
carefully targeted requests for knowledge and ideas from
stakeholders in SA." (Financial Mail, February 8, 2008)

----------------------------------------
Skills Shortage to Stymie Watchdog Group
----------------------------------------

6. (U) Johannesburg Stock Exchange CEO Russell Loubser expressed
concerns about who would sit on a new financial watchdog panel.
Analysts worried that there might not be enough people with the
required skills to manage the new Department of Trade and Industry
panel on a full-time basis. The Corporate Laws Amendment Act
provided wider investigative powers to the panel. Under the act,
the new investigation panel would have to monitor documents such as
interim financial results, annual reports, prospectuses, and
circulars. However Loubser said," it is questionable as to where the
government is going to find the required number of professionals to
monitor thousands of financial reports issued annually by
companies". GAAP Monitoring Panel Chairman Harvey Weiner reported
that companies issued more than 3,000 reports a year and
"appropriate people with skills, such as chartered accountants,
should preferably sit on the monitoring team." However, there were
only 26,803 chartered accountants in South Africa. "It was a
worrying factor," Weiner said. (Business Day, February 15, 2008)

-------------------------------------
Coal Markets Rocked by Ambitious Plan
for Coal Purchases
--------------------------------------

7. (U) Eskom's plan to buy an additional 45 million tons of coal to
replenish depleted stockpiles has been met with skepticism
internationally, with analysts saying it overlooks severe global
coal supply constraints, logistical challenges, and price concerns.
The emergency move could cost the utility as much as R11 billion
($1.5 billion), but Eskom says it has no choice if it is to make
headway in relieving South Africa's power crisis. The 45 million
tons would be above Eskom's running requirements, which are 125
million tons per year, and would be added systematically over the
Qmillion tons per year, and would be added systematically over the
next two years in a bid to raise coal reserves at power stations to
at least 20-days supplies (reporting has indicated that some plants'
reserves have decreased to hardly a few days). A Business Day
editorial notes that South Africa will have to adjust from its days
of enjoying the cheapest electricity in the world as Eskom copes
with the need to replenish coal stocks and finance a capital
expansion program of $45 billion over the next five years. Analysts
have long argued for market pricing of electricity, even though this
will necessitate painful price increases, but this would offer a
more reliable mechanism to manage demand rather than rationing.
Another editorial called for the energy regulator and the government
to create realistic tariff mechanisms to allow co-generation
projects to move forward. (Business Day, February 18, 2008)

-------------------------
Proposal to Streamline
Environmental Assessments
-------------------------

8. (U) Department of Environmental Affairs and Tourism (DEAT) Deputy
Director-General Joanne Yawitch said that the mining industry could

PRETORIA 00000371 003.2 OF 003


look forward to a streamlined environmental authorization process
under the proposed National Environmental Management Act (Nema).
Environmental impact assessment applications are currently managed
by the Department of Minerals and Energy (DME) under the Mineral and
Petroleum Resources Development Act (MPRDA). However, the mining
industry has complained about delays and called for "one system
where one department has authority". She reported that the
departments "are moving towards a much more rational system."
Chamber of Mines environmental adviser Nikisi Lesufi concurred,
stating that there was a backlog of applications awaiting
environmental or water-use approval. The question of jurisdiction
over the mining industry's environmental impact assessments has been
a thorny one. In a briefing to Parliament's environmental affairs
and tourism committee this week, the two departments had worked out
a proposal, which would be presented to their respective ministers
for approval shortly. (Business News, February 15, 2008)

---------------------------------
Coal Mining Threatens Fresh Water
---------------------------------

9. (U) Wits School of Geoscience Professor Terence McCarthy warned
mining houses not to proceed with coal mining plans near the Vaal
River in Ermelo in the Mpumalanga province due to the environmental
impacts. McCarthy argued that the river water could be polluted and
its quality could deteriorate to a point where it could no longer be
fit for human consumption. Acid water pollution resulting from coal
mining in the region has already destroyed the Wilge River which
flows through a nature reserve in Mpumalanga. He added that the
pollution caused the death of fish, crocodiles and some marine
plants in the area. McCarthy and other environmental groups
demanded that the coal mining proposal tabled by Xstrata and other
mining houses should not proceed. Angus Burns of the Enkagala
Grassland Project added that there was more coal in less sensitive
areas of the escarpment and there was "no need to mine for it an
ecologically precious area, which could yield only 15% of what the
miners require". (The Sunday Independent, February 10, 2008)

END TEXT
BOST

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