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Cablegate: South Africa Economic News Weekly Newsletter October 3,

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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5906
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
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USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR TRINA RAND
USTR FOR COLEMAN

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER OCTOBER 3,
2008 ISSUE

PRETORIA 00002183 001.2 OF 006


1. (U) Summary. This is Volume 8, issue 40 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- New President Addresses Investor's Fears
- Current Account Outlook Bleak Despite
Narrower Trade Deficit
- PMI Data Shows Some Signs of
Improvement in Manufacturing Activity
- Large Businesses Bear Brunt of Tax Burden
- SA Begins Preferential Trade Talks with India
- Transnet Port Terminals Appoints
New Operations Chief
- Cape Town Firm Launches Africa's
First All-Electric Vehicle
- Opposition Party Seeks an End
to the SAA Bottomless Pit
- Africa Airline Passenger Volume Expected to Rise
Despite Global Downturn
- Government Change Clouds Eskom Projects
- Reserve Margin Remains Low as Eskom
Starts its Summer Maintenance Season
- SA Ponders Business Spin-offs from Solar
- Dow Jones Sustainability Index Lists Sasol
- No Plan for State-owned Mining
Company "at the Moment"
- MTN Acquires Firms in the Ivory Coast
End Summary.

----------------------------------------
New President Addresses Investor's Fears
----------------------------------------

2. (U) New South African President Kgalema Motlanthe reiterated
government's commitment to economic growth, employment creation, and
poverty reduction following the ousting of President Mbeki.
Motlanthe said that government would remain "true to the course that
we have set", suggesting that there are unlikely to be any
significant changes to economic policies in the near- term.
However, policies such as inflation-targeting and running a budget
surplus may come under increasing pressure after next year's
elections (scheduled for next April-July). In fact, some policies
are already under the spotlight from some of the ANC alliance
partners. For instance, South African Communist Party (SACP)
General Secretary Blade Nzimande said that the party would use an
alliance economic summit this week to press for changes, adding that
"those who say there won't be any policy change - sorry, we don't
agree". (ABSA Capital, September 29, 2008)

-------------------------------------
Current Account Outlook Bleak Despite
Narrower Trade Deficit
-------------------------------------

3. (U) South Africa's trade balance narrowed from -R14.3 billion
(-$1.7 billion) in July to -R5.1 billion (-$638 million) during the
month of August. The improvement was largely a result of positive
developments in the minerals sector. Petroleum imports fell by R8.7
billion ($1.1 billion) from July to August after rising R8.1 billion
($1 billion) from June to July. Despite the August improvement, a
large current account deficit for 2008 is still expected.
Economists estimate that the current account deficit will widen from
7.3% of gross domestic product in 2007 to close to 8% for 2008.
From a fundamental perspective, the large current account deficit
continues to pose a depreciation risk to the rand, but for now the
focus is on global developments. Potential FDI inflows in the ICT
and steel industries, coupled with the recent uptick in the gold
price, could be supportive for the rand with a bias towards strength
in the near-term. (ABSA Capital, October 1, 2008)
Qin the near-term. (ABSA Capital, October 1, 2008)

-------------------------------------
PMI Data Shows Some Signs of
Improvement in Manufacturing Activity
-------------------------------------


4. (U) The Purchasing Managers Index (PMI), which measures business
conditions in the manufacturing sector, remained unchanged at 47 in
September. This marks the fifth consecutive month when the index

PRETORIA 00002183 002.2 OF 006


has remained below 50 (a below-50 reading suggests a contraction in
manufacturing activity). The PMI continues to point to lackluster
manufacturing activity, but there are some signs that other business
indicators may be deteriorating at a slower pace. The business
activity sub-index, which tends to be a leading indicator of
production trends, fell from 44.4 in August to 42.6 in September.
However, inventory levels rose and purchasing managers' expect
business conditions to improve in six month's time. The new sales
orders sub-index rose from 44 in August to 45.3 in September. On
balance, the report suggests that manufacturing activity remains
under pressure as domestic and international economic conditions
continue to worsen. (ABSA Capital, October 2, 2008)


-----------------------------------------
Large Businesses Bear Brunt of Tax Burden
-----------------------------------------

5. (U) South African Revenue Service (SARS) Chief Operations
Officer Edward Kieswetter said South Africa remains very dependent
on large business for direct and indirect taxes. Speaking at a
recent tax administration conference in Johannesburg, Kieswetter
said that 60-70% of SARS revenue is collected from large businesses
every year. SARS' large business center collected R150 billion
($18.3 billion) for the 2006-07 financial year. Since its
establishment in September 2004, the center has grown from 9,100
taxpayers to 20,900 taxpayers. (Business Day, September 30, 2008)


----------------------------
SA Begins Preferential Trade
Talks with India
----------------------------

6. (U) South Africa and India have begun talks on a preferential
trade agreement. This is in line with South Africa's ambitions to
remap patterns traditionally centered on North-South trade
relationships and to promote closer South-South ties. However, some
trade commentators have said that despite political commitments, the
level of ambition of the negotiations is too low to draw in
exporters. The agreement would supposedly open 1,000 additional
product lines for tariff liberalization, but there are doubts that
even this ambition would be achieved. The South African Department
of Trade and Industry announced the launch of the trade talks last
week, urging industry to make inputs in the compilation of the list
of goods of export interest to the country. Trade Expert Danie
Jordaan said the Southern African Customs Union (SACU) has already
compiled a tentative list, which includes agricultural and
agri-processed goods, chemicals, automotive parts and metals,
machinery, and engineering equipment. India is working on a similar
list. (Tralac Newsletter, October 1, 2008)

--------------------------------
Transnet Port Terminals Appoints
New Operations Chief
--------------------------------

7. (U) State-owned transport and logistics group Transnet recently
appointed Solly Letsoalo to the position of Port Terminals (TPT)
Chief of Operations, and made a number of other management changes.
Letsoalo will oversee a team of divisional executive managers, who
will oversee the container, bulk, multi-purpose, and automotive
sectors. Siyabulela Mhlaluka, who currently holds the position of
Qsectors. Siyabulela Mhlaluka, who currently holds the position of
Development Executive at the Ngqura container terminal (Eastern Cape
province), has been appointed Divisional Executive Manager for the
container sector. Terminals Transformation Executive Zeph Ndlovu
will head the bulk sector division; and Victor Mkhize has been
promoted from his position as Business Unit Executive at the
Richards Bay multi-purpose terminal to Divisional Executive Manager
for the multi-purpose and automotive sectors. Lastly, Graham Braby,
who served as Chief of Operations for the bulk and automotive
sectors at TPT since 2005, has been appointed General Manager for
Transnet Group's Richards Bay corridor. The Richards Bay corridor
is one of four intermodal routes of port-rail integration where
Transnet has specifically committed to improving productivity and
efficiency to meet the future long-term demand for freight
transport. A Transnet spokesperson said, "these individuals have
played a key role in many of the strategic and operational successes
we have enjoyed at TPT in the recent past and we look forward to

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their continued problem-solving and visionary leadership as they
assume their new roles." (Engineering News, September 29, 2008)

--------------------------------
Cape Town Firm Launches Africa's
First All-Electric Vehicle
--------------------------------

8. (U) Cape Town-based transport firm Optimal Energy will launch
Africa's first all-electric, zero-emission vehicle. The six-seater,
multipurpose vehicle named "Joule" has been hailed as a celebration
of South African engineering ingenuity and will make its global
debut at the Paris Motor Show in October. Optimal CEO Kobus Meiring
said the sector must seek out long-term environmentally sustainable
solutions to address issues of energy resource depletion and climate
change from dependence on finite fossil fuels. The Joule's chassis
has been designed to accommodate two, large-cell, lithium ion
battery packs. It will take about seven hours to recharge a Joule
pack for a 200 kilometer driving range, with two packs providing a
400 kilometer range. Meiring said he decided to locate the
production facility in South Africa because the country is a
cost-effective manufacturer and exporter of cars. The project
received funding and support from the Department of Science and
Technology and the Industrial Development Corporation (Engineering
News and Business Day, October 1, 2008)

-----------------------------
Opposition Party Seeks an End
to the SAA Bottomless Pit
-----------------------------


9. (U) Opposition Democratic Alliance (DA) public enterprises
spokesman Manie van Dyk said government should finally put the lid
on the bottomless pit of South African Airways (SAA), which imposed
a heavy and seemingly limitless burden on taxpayers. He was
responding to a briefing provided by the Department of Public
Enterprises (DPE), which noted that SAA had absorbed R12 billion
($1.5 billion) in government financial support since 2004. SAA's
losses totaled R13.7 billion ($1.7 billion) between 2002 and 2008.
The $1.7 billion in losses exclude restructuring costs of R1.3
billion ($212 million) and interest paid on loans raised from
financial institutions with government guarantees. Van Dyk blamed
poor management for the airline's woes, and called for it to be
privatized to spare taxpayers any further burden. Poor management,
he said, was the reason for 240 technician vacancies and 53 pilot
and 217 technician resignations last year. He also called for an
independent forensic investigation into SAA's finances.
Newly-appointed DPE Minister Brigitte Mabandla disagreed with Van
Dyk's criticism and expressed strong support for SAA CEO Khaya
Ngqula and his team. No consideration was being given to replacing
the CEO, whose contract expires in 2010. Instead, she commended the
CEO and current management team on the implementation of a
comprehensive and challenging restructuring program that has enabled
the airline to post an operating profit (prior to restructuring
costs) of $15 million at the end of 2007-08. Government officials
have confirmed media reports that the airline has asked for R2-3
billion ($250-375 million) from the National Treasury this financial
year to offset losses sustained in the last financial year.
Qyear to offset losses sustained in the last financial year.
(Business Day and Business Report, October 2, 2008)

------------------------
Africa Airline Passenger
Volume Expected to Rise
Despite Global Downturn
------------------------


10. (U) Africa has emerged as one of the three strongest markets in
the latest data released by the International Air Transportation
Association (IATA), as the struggling airline industry battles to
keep afloat amid the smallest growth in international passenger
volumes in five years. IATA's third quarter data on passenger
growth found that the number of people flying internationally had
increased 0.7%, compared with 4.2% growth in the second quarter, and
8% in the previous year. IATA is forecasting anticipated losses in
the sector of about $5.2 billion this year and further airline
failures. In contrast, Africa's internal passenger growth was 18%
during the same period. Growth in travel between Africa and the

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Middle East continued to be strong at 6.9%, and travel between
Africa and the Southwest Pacific was 9.7%. According to IATA, the
strongest markets in July were within South America and markets
connected to the Middle East and Africa. This is positive news for
South Africa's cash-strapped national carrier South African Airways
(SAA), which has focused expansion plans on Africa. SAA CEO Khaya
Ngqula believes that there is room for future growth, especially on
routes to Western Africa. SAA said part of its restructuring plans
would involve expanding services into the rest of Africa with Star
Alliance's assistance. Ngqula said the two biggest challenges
facing the airline were rising fuel prices and obtaining approval
from the government for access to some African countries. (Business
Day, September 30, 2008).

------------------------
Government Change Clouds
Eskom Projects
------------------------

11. (U) A change at the helm of the Department of Public Enterprise
(DPE), which runs state-owned power utility Eskom, may delay
projects to expand electricity generation and mitigate the power
crisis gripping the country. New South African President Kgalema
Motlanthe surprised analysts by naming former Department of Justice
Minister Brigitte Mabandla as the new DPE Minister. Analysts said
Mabandla would have to get to grips with plans to build a slew of
new power stations and help Eskom raise cash internationally, in the
midst of a global credit squeeze. Her term will last six-eight
months before the scheduled general elections, leaving little time
for meaningful changes and the possibility of further change in the
leadership of the DPE. One of the key tasks for Mababandla will be
approval of huge deals to expand power generation, including a new
nuclear power plant, contested by Westinghouse and Areva of France.
Areva said it expected a decision soon, but added that Mbeki's exit
could have pushed back the timing. Mabandla has not publicly spoken
of her plans since being sworn in September 26, but analysts do not
expect her to radically change current policies. (Engineering News,
September 30, 2008)

------------------------------------
Reserve Margin Remains Low as Eskom
Starts its Summer Maintenance Season
------------------------------------

12. (U) State-owned power utility Eskom's spokesman Fani Zulu
affirmed that South African electricity supplies remained strained
and vulnerable, because of a low reserve margin. Zulu said Eskom
found itself at present in a "bit of a tricky situation because
South Africans had instituted savings following the pronouncement of
the electricity crisis. As a result, there were no black-outs
during the (southern hemisphere) winter. This has given consumers a
false sense of comfort." Department of Minerals and Energy
spokesman Bheki Khumalo said at the last electricity stakeholder
advisory council meeting that South Africa was "not out of the woods
yet," as far as the electricity crisis is concerned. Khumalo said
if demand was not reduced, Eskom would be forced to embark on
emergency measures such as planned and unplanned power outages.
Eskom has started its summer maintenance season, already shutting
QEskom has started its summer maintenance season, already shutting
down some units. Zulu said for now Eskom had enough money for the
needed maintenance, but securing financing for the multi-billion
rand expansion program, including nuclear power, was proving
difficult. (The Sunday Independent, September 28, 2008)

--------------------
SA Ponders Business
Spin-offs from Solar
--------------------

13. (U) Department of Trade and Industry (DTI) Chief Director of
Industrial Policy Nimrod Zalk said the electricity emergency
presents a sizeable new industrial development opportunity for South
Africa, citing solar water heating (SWH) as a prime example. "We
expect the SWH industry to expand exponentially, deepening its value
chains and industrial structure," he said. Eskom General Manager
Andrew Etzinger says there is vast untapped potential in the SWH
industry, and the training of new SWH installers would result in
thousands of new jobs. Johannesburg City Power Managing Director
Silas Zimu says City Power plans to install SWHs in all the
households in Johannesburg before 2010, introducing tariff

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incentives to promote this goal. Eskom is offering a rebate to
customers who install SWHs through an Eskom-accredited and South
African Bureau of Standards-approved supplier. A number of
processes are under way to create a regulatory environment that
supports energy efficiency initiatives in South Africa, by
implementing SWH and building standards. DTI and Eskom are working
to make SWH installation affordable and to augment the skills base
to make them widely available. (Engineering News, September 26,
2008)

------------------------
Dow Jones Sustainability
Index Lists Sasol
------------------------

14. (U) South African petrochemicals group Sasol's Chief Executive
Pat Davies announced that Sasol was listed on the Dow Jones
sustainability world index at the end of September. Sasol is the
first South African company to be included in the sustainability
index, which covers 2,500 companies and consists of the top 10% of
the largest stocks in the Dow Jones global indexes in terms of their
sustainability and environmental practices. He said that it is a
great achievement for Sasol because their previous goal was to get
to the top 15% of the oil and gas sector in 2007. Sasol is regarded
as one of South Africa's biggest polluters, but the company has an
abatement project at Sasol Nitro that converts greenhouse gas
nitrous oxide into nitrogen and oxygen as a clean development
mechanism. Davies added that Sasol does not sell its carbon
credits. Dow Jones Indexes Editor and Executive Director John
Prestbo stated that several institutional investors were factoring
in sustainability "and a growing number of market participants are
integrating long-term economic, environmental and social factors
into their analysis". (Business Day, September 26, 2008)

------------------------------
No Plan for State-owned Mining
Company "at the Moment"
------------------------------


15. (U) Department of Minerals and Energy spokesperson Sputnik Ratau
said there was no plan "at the moment" for the creation of a
state-owned mining company as the National Union of Mineworkers
(NUM) had proposed at South Africa's Mining Summit in September. He
said, "at the moment it's not government policy" to establish and
control mines. NUM President Senzeni Zokwana said at the Mining
Summit: "Our call is clear and simple. It is for the government to
create a government mining company." Zokwana said he was impressed
to observe that more than 60% of all oil and gas operations were
government-owned during his recent visit to Norway. He added that
there is significant state ownership of mines in Botswana, Namibia,
and Ghana; and NUM wanted to see the creation of a mining company in
South Africa that "not only cared for shareholders, but also for
workers." Zokwana, who drew continual applause at the summit,
emphasized that the establishment of a state-owned mining company
was very urgent. He was not proposing the nationalization of
existing mining companies. However, he noted that the government
could partner with the private sector where there was an abundance
of platinum. The state could take up a shareholding of 51%, and
allow the private sector to take up 49%, in return for providing
Qallow the private sector to take up 49%, in return for providing
infrastructure, finance, and know-how. He noted that diamond miner
De Beers was already in partnership with the state in Botswana.
Zokwana told the summit that the country was at a critical phase of
the Mining Charter review, which was the cornerstone of mining
industry transformation, but "we are very far from achieving the
objectives we set for ourselves." (Mining Weekly, September 29,
2008)

---------------------
MTN Acquires Firms in
the Ivory Coast
---------------------

16. (U) South Africa-based ICT firm MTN announced that it had
acquired Afnet and Arobase Telecom through its Ctte d'Ivoire
subsidiary for an undisclosed amount. The acquisitions were in line
with MTN's stated strategy to provide integrated communications
solutions in all its markets, and followed similar acquisitions in
Nigeria, Cameroon, and Cyprus. "These acquisitions reflect the

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progress we are making towards consolidating our business. We
believe both Afnet and Arobase will add value to MTN and support our
strategy to ensure that the group is well positioned to benefit from
a rapidly converging technology market," said MTN CEO Phuthuma
Nhleko. Afnet is one of the leading Internet service providers in
the Ctte d'Ivoire and offers wireless broadband technology and data
services to the general public. Arobase Telecom is the second
land-line operator in the Ctte d'Ivoire and had signed a concession
agreement with the State of Ctte d'Ivoire, which allows it to offer
data services using fiber optics, wireless local loop, and code
division multiple access (CDMA) technologies. (Engineering News,
October 1, 2008)

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