Cablegate: South Africa Economic News Weekly Newsletter May 9, 2008

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1. (U) Summary. This is Volume 8, issue 19 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- Manufacturing Activity Rebounds
- Credit Data Points to a Further Rate Hike
- Business Confidence Dips Again
- Ford SA Secures Africa Export Contract
- Vehicle Sales Still Sagging
- Potential Buyers for Nationwide
- Eskom Issues New Tender for 2,100 MW of Independent Base-Load
- Eskom Suspends New DSM Projects
- Mining for Safety
- SA to Benchmark ICT Costs
- Asian Companies Eye SA Mobile Market
- Durban Trade Port Project Launched to Boost Provincial Economy
- Emirates to Start Direct Service to Durban
- Cape Town Focuses on Climate Change

End Summary.
Manufacturing Activity Rebounds
2. (U) Manufacturing activity rebounded unexpectedly last month
after plunging to a five-year low in March, easing fears of a
recession in the economy's second-biggest sector. The purchasing
managers index (PMI) rebounded from 43.7 in March to 54.1 in April.
The rebound follows three consecutive months where the index was
below the neutral level of 50, signaling a contraction in the
manufacturing sector during the first quarter. However, the latest
PMI reading suggests some manufacturing resilience to the
generalized slowdown in economic activity. (Business Day, May 7,

Credit Data Points to a Further Rate Hike
3. (U) Statistics South Africa (StatsSA) reported that credit
extensions to the private sector (PSCE) increased from 20.8% y/y in
February to 22.6% y/y in March, well above Bloomberg's consensus
expectations of a 20.5% increase. The higher PSCE growth is a
further disappointment following poor inflation numbers in April and
together with a slowdown in the real economy, it is unlikely that
the inflation-targeting Monetary Policy Committee (MPC) would leave
rates on hold at its June 12 meeting. Most economists now agree
that a further 50 basis-points interest rate hike at the June
meeting looks highly likely. (Fin24, May 5, 2008)
Business Confidence Dips Again
4. (U) The South African Chamber of Commerce and Industry (SACCI)
Business Confidence Index (BCI) declined slightly from 93.9 index
points in March to 93.4 index points in April 2008. "Although this
is the lowest level thus far in 2008, the pace of decline in the BCI
appears to have slowed," noted SACCI. The BCI has dropped by 8.5
index points, or 8.3%, since April 2007 and the average for the
SACCI BCI in the first four months of 2008 is 93.8 index points
compared with the average of 100.9 index points in the first four
months of 2007. "Strong relative price adjustments on a global
scale on basic items such as food and crude oil further complicate
decision-making by business and exert increasing pressures,"
concluded SACCI. (I-Net Bridge, May 7, 2008)
Ford SA Secures Africa Export Contract
5. (U) Ford Motor Company of Southern Africa (FMCSA) has secured an
export contract to supply the Ford Ranger pickup to African markets
outside South Africa. FMCSA, which already produces the Ford Ranger
at its Pretoria plant, began exporting right-hand-drive Rangers to
sub-Saharan markets in April. This will be followed by
left-hand-drive units in July. FMCSA expects to produce around
10,000 Rangers for export during the remainder of 2008. This will
increase to 24,000 Rangers for export in 2009, and approximately
40,000 by 2010, raising FMCSA's total export volume to 60,000 units
per year. Producing at this level should enable FMCSA to qualify
for the benefits due to flow from a revised Motor Industry Support
Program (MIDP). This SAG program is currently the subject of a
review, with the final details to be announced in August 2008. The

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Department of Trade and Industry (DTI) has indicated that it is set
to introduce significant change to its automotive policy from 2012,
with the emphasis to shift from export incentives to
volume-production support. In a document published in December
2007, the DTI noted that SAG "intends to support production
platforms/investment plans that intend to reach a minimum volume of
output per platform of 50,000 units per year within a reasonable
period of time". FMCSA President and CEO Hal Feder said the move
"further highlights Ford's ongoing commitment to expanding its
operations and export component in South Africa." (Engineering
News, May 6, 2008)
Vehicle Sales Still Sagging

6. (U) The National Association of Automobile Manufactures of South
Africa (NAAMSA) reported that new vehicle sales fell by 2.8% y/y, or
1,204 units, to 43,536 units in April 2008, an improvement on the
previous month's fall of 17.6%. However, analysts said the trend
was still a sign of a sagging market. "Domestic new car and light
commercial vehicle sales had reflected further weakness during
April, 2008, while aggregate industry sales had received support
from above-average sales of medium and heavy commercial vehicles,"
NAAMSA said. Demand in the new car market had weakened
substantially in recent months as a result of the cumulative effect
of interest rate increases, pressure on disposable income due to
rising energy and food costs, and negative consumer sentiment and
business confidence. Supported by strong investment sentiment and
infrastructural spending, sales of vehicles in the medium and heavy
truck segments of the industry maintained their upward momentum with
increased sales of 17.9% y/y in the case of medium commercials, and
34.8% y/y in the case of heavy trucks and buses in April 2008.
NAAMSA said the new domestic car and light commercial vehicle
sectors were expected to remain under pressure as a result of tight
monetary conditions, rising inflationary pressures, high levels of
household debt and a further modest slowdown in economic activity,
while the medium and heavy truck segments should continue to perform
relatively well, registering positive growth during 2008. (I-Net
Bridge, May 7, 2008)

Potential Buyers for Nationwide
7. (U) Nationwide's Provisional Liquidator Hannes Muller met with
two potential buyers on May 6, but received no firm offers. More
than 30 buyers had shown an interest since the airline stopped
flying in April. Muller said the two potential buyers were local
companies with foreign interests and neither was an existing
airline. If Muller can not find a buyer within a week there will be
little of Nationwide to sell, with staff leaving in droves. Both
Comair and 1Time confirmed yesterday that they were likely to employ
some Nationwide staff. Muller said that potential buyers would have
to reach some agreement with creditors, as the airline's liabilities
would make it virtually impossible to revive. According to
Nationwide's documents, total liabilities are R218 million ($29
QNationwide's documents, total liabilities are R218 million ($29
million), including R71 million ($9.3 million) in outstanding
tickets. Any potential buyer would have to acquire new aircraft as
Nationwide's fleet of 10 fuel-heavy Boeing 737-200s and three Boeing
727-200s are no longer viable. "With fuel prices at record highs,
it will be difficult for any investor to make a return using the
existing fleet," Muller says. Nationwide's leased Boeing 767-300,
used on the London route, has been returned to its owner in Ireland.
(Business Day, May 7, 2008)
Eskom Issues New Tender for 2,100 MW of Independent Base-Load
8. (U) State power company Eskom released its long-awaited
expression of interest for new base-load independent power producers
(IPPs) to fill an anticipated gap of some 2,100 MW ahead of the
possible deployment of large-scale nuclear capacity. In an
advertisement in Business Day, Eskom invited interested parties to
bid to supply "new, multiple-site, base-load IPPs" with a minimum
capacity of 400 MW and indicated that requests for proposals to
pre-qualified bidders could be issued in July. Eskom anticipates a
supply gap of 4,000 MW while waiting for new coal-fired plants to
come on line between 2012 and 2017 (new nuclear capacity is expected
to come on stream in later years). It is widely expected that half

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of the supply shortfall could be filled by the much-anticipated
Mmamabula power project, which is being advanced by Toronto-listed
CICF Energy in Botswana. Eskom's tender states that the offer is in
line with South Africa's stated policy of having 30 percent of its
new generation capacity provided by IPPs and Eskom would extend a
40-year purchase agreement to winning bidders as single buyer. The
base-load tender is over and above the earlier tender for
co-generation and IPP options up to 3,000 MW for the medium term, as
well as the pilot national cogeneration program tender, which closes
on May 31. According to Engineering News, Eskom has not received a
single firm cogeneration offer, despite earlier suggestions that
potential for as much as 5,000 MW existed. (Engineering News, April
30, 2008)
Eskom Suspends New DSM Projects
9. (U) Eskom Demand-side-management (DSM) Manager Monkwe Mpye said
Eskom has suspended new DSM projects because of "cash flow issues"
stemming from soaring coal and diesel prices, but it is confident
that it would begin signing new projects starting in June. Eskom's
DSM programs include offering incentives to replace older, less
efficient equipment with high-efficiency units, including light
bulbs, solar water heaters, pumps, motors, and compressors. Under
its DSM program, Eskom was hoping to trim 3,000 MW of South Africa's
consumption by 2012 and 8,000 MW by 2025. Eskom is depending on
future funding from its application for a tariff increase under
review by the national regulator and an $8.5 billion shareholder
injection from the SA government. Eskom expects to receive a term
sheet from Treasury over the next few weeks regarding the loan, as
well as an outline of various scenarios for the actual transfer of
funds. Eskom will also need significant funds for its ambitious
capital expansion program. (Engineering News, May 5, 2008)
Mining for Safety

10. (U) The deaths of nine workers at Gold Fields' South Deep mine
on May 1 Workers Day brought the issue of mine safety to the fore
yet again. Last year ended with mineworkers' trade unions going on
a national strike over safety. The strike came after some
high-profile accidents that saw the number of fatalities reach 220
for the year, up from 201 in the previous year. Anglo's Cynthia
Carroll and Minister of Minerals and Energy Buyelwa Sonjica have
made a big issue of mine safety. Official statistics indicated that
some progress had been made this year: in the 12 months to February,
the fatality rate fell to 0.19 per million hours worked, from 0.20
in the previous 12 months - and to 0.41 per 1000 persons at work,
from 0.44. The May 1 accident - which brought Gold Fields' deaths
to 14 during one week - has generated particularly strong protests,
because it was due to a snapped lift cable, rather than a rock fall
or random event. A Business Day editorial called for caution to
wait for the results of the investigation, as well as the results of
the safety audit ordered by President Mbeki, before making too many
angry accusations. Effective mine safety requires strong
Qangry accusations. Effective mine safety requires strong
partnerships between the mining companies, trade unions, and the
government. That is especially so as South African gold mining is
going ever deeper and becoming ever more risky because of the age
and nature of the ore bodies. South Deep itself is a new mine that
is still in development and has a rather fraught history. (Business
Day, May 8, 2008)

SA to Benchmark ICT Costs

11. (U) Minister of Public Enterprises Alec Erwin announced that a
comparative study into the respective costs, availability, access
and usage of telecommunications infrastructure and services between
South Africa and five other emerging markets is under way and would
be completed by June 2008. The countries selected for the
benchmarking exercise included South Korea, Malaysia, India, Brazil
and Chile, and the process to collate the data was "in motion", said
Erwin in a prepared statement. The study came amidst rising anxiety
about the cost of telecoms in South Africa, and against an
aspiration by SAG to materially enlarge the size of the business
process-outsourcing sector. President Thabo Mbeki had raised the
issue on several occasions and South Africa's competition
authorities were also keen to probe allegations of excessive pricing
by state-owned Telkom, which previously had a fixed-line monopoly.

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However, Telkom had mounted a court action challenging the SA
Competition Commission's jurisdiction over the industry, given that
it had its own economic regulator in the form of the Independent
Communications Authority of South Africa. (Engineering News, May 8,

Asian Companies Eye SA Mobile Market

12. (U) Speculation that mobile-operator MTN was in talks with
Bharti Airtel of India was confirmed in the press. MTN issued a
cautionary statement emphasizing that "talks were exploratory in
nature and may or may not lead to any transaction". Bharti Airtel's
Chairman Sunil Bharti Mittal told the press that he had "been
approached by bankers in the last few months in a much more frenzied
manner", but had not formally discussed any bid for MTN with his own
board." The Financial Times reported that Bharti Airtel would "move
pretty quickly" if MTN's board put it up for sale. Bloomberg quoted
analysts as saying MTN had been on most firms' shopping list for the
past two years, and whoever bought the company was expected to pay a
huge premium per share. MTN had aggressively built its assets in
the past six years by acquiring and winning licenses in
poorly-penetrated countries on the African continent. MTN's
acquisition of Investcom two years ago gave it access to 10
additional countries including Afghanistan, Yemen and Ghana. MTN
now has more than 21 operations in Africa and the Middle East. Its
other operations are in countries including Nigeria, Iran,
Swaziland, Syria, Sudan and Botswana. If Bharti's bid went through,
analysts said it would expose MTN to a culture of low-cost
operations, as Bharti had expertise in running networks at minimal
costs. China Mobile Ltd, the world's biggest mobile carrier, said
it is also interested in the South Africa market but has not bid for
MTN. "China Mobile has not joined the MTN bidding, but we are
interested in the South African market and we are looking at various
opportunities for entering that market," CEO Wang Jianzhou told
reporters. China Mobile dominates its domestic market with roughly
400 million subscribers, more than three times the combined customer
base of Bharti and MTN, but has a mixed track record of
acquisitions. An analyst with Daiwa Institute of Research said that
if China Mobile were to bid for MTN, it would likely do so at the
parent company level - an approach often taken by Chinese
State-controlled companies when making acquisitions. (Business
Report, May 5, 2008 and Engineering News, May 8, 2008)

Durban Trade Port Project Launched to Boost Provincial Economy

13. (U) The SAG launched the Dube Trade Port project as a catalyst
for economic growth and the creation of sustainable employment
opportunities in Kwazulu-Natal (KZN) Province. The project, located
about 40 kilometers north of downtown Durban, will include a trade
zone and the new King Shaka international passenger and cargo
airport facility. More than R1.6 billion ($211 million) has been
spent on the design of the R6.8 billion ($907 million) Dube Trade
Qspent on the design of the R6.8 billion ($907 million) Dube Trade
Port project. The King Shaka International Airport is expected to
handle new-generation, long-haul freight and commercial aircraft.
Consulate General Durban staff recently visited the airport and
observed that major construction is underway at the passenger and
cargo terminals, the control tower, access roads, and runways.
Project management admitted that the project is two months behind
schedule, but predicted complete construction by March 2010 in
advance of the FIFA 2010 World Cup. KZN Provincial Minister of
Finance and Economic Development Zweli Mkhize said an "aggressive"
marketing strategy was under way to attract additional airline
services to the new King Shaka International Airport. Mkhize said
2010 had provided the platform for growth and development. He added
that government investment in the Dube Trade Port project and the
local soccer stadium also signaled an improvement in investor
confidence in the KZN province. The project has received
significant interest from a United Arab Emirates-based entity.
(Independent News & Media IOL Online, April 23, 2008)

Emirates to Start Direct Service to Durban

14. (U) Emirates Airlines announced that it will increase its

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presence in South Africa with the introduction of daily flights to
Durban starting December 2008. The direct link is expected to
provide a boost for tourism and the KZN provincial economy. The new
service - Emirates' third direct connection between Dubai and South
Africa - comes close on the heels of the launch of its third-daily
service to Johannesburg in 2007 and daily service to Cape Town in
2008. An Emirates press-release noted that Durban's location on the
east coast of South Africa made it a natural hub for trade with the
Indian Ocean and Asia Pacific countries, boosting its status as
Africa's largest port and the world's ninth busiest. Durban will
play a catalytic role in strengthening trade movement between the
United Arab Emirates and South Africa. Emirates Airlines President
Tim Clark said, "Africa is key to Emirates' global network expansion
strategy. We currently operate 86 flights per week to 15 African
gateways and, owing to the continent's growing economy and
escalating demand for air travel, these flights operate at robust
seat factors of over 80%." Emirates will serve Durban with an
Airbus A330-200 aircraft. The wide-bodied aircraft also offers
about 14 tons of belly-hold cargo capacity that will facilitate
efficient and timely imports of chemicals, petroleum products, and
foodstuff from Germany, United Kingdom, China and the United States.
Dube Tradeport Chief Executive Rohan Persad added that Emirates
vote of confidence in Durban could also lead European and Indian
airlines to begin direct service to Durban. (The Mercury, May 6,
2008, Emirates Press Release, May 5, 2008)

Cape Town Focuses on Climate Change

15. (U) The Western Cape provincial government installed 60
Eskom-accredited solar water geysers in households to combat climate
change and promote sustainable energy use. The project could save
up to 500 MW in electricity, which would ease pressure on the
national electricity supply. The project represents the first phase
of a bigger proposed project through which the Western Cape
provincial government would install 1,000 solar-powered geysers in
local communities. Provincial Premier Ebrahim Rasool said the
project was being implemented among Western Cape's poor communities,
because climate change is a poverty issue, which would affect the
poor the most. According to Rasool, the project is also a means of
bringing renewable energy to the poor. (Engineering News, May 2-8,


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