Cablegate: Scene-Setter for Codel Lewis' November 8-13, 2008

DE RUEHSA #2316/01 2961457
R 221457Z OCT 08




E.O. 12958: N/A

1. (SBU) Ambassador Bost warmly welcomes the visit of your
delegation to South Africa. The Mission stands ready to do
everything it can to make your trip a success. You are
visiting South Africa at a particularly interesting time,
less than two months after Thabo Mbeki resigned as President
under pressure from the ruling African National Congress
(ANC) and Parliament elected Kgalema Motlanthe to serve as
caretaker president until the 2009 elections.

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:
reducing the gap between the historically privileged and
disadvantaged communities -- primarily through government-
provided housing, electricity, and water to the poor -- and
creating educational, skills development, employment and
business opportunities.

3. (SBU) South Africa continues to face daunting challenges,
including a lack of public sector capacity, a thirty percent
shortfall in mid-to-upper-level public sector managers,
skills shortages in all sectors, growing infrastructure
bottlenecks, energy shortages, income inequality, less than
adequate educational opportunities, massive unemployment,
entrenched rural and urban poverty, violent and widespread
crime, xenophobic riots, and a severe HIV/AIDS pandemic.
These problems intensify political tensions within the ruling
coalition and with other political, civil society, and
private sector groups.

4. (SBU) Despite its many challenges, South Africa remains
the continent's best prospect for establishing a successful
democratic society with expanding prosperity. South Africa
is a leader of aid-recipient countries in their dialogue with
donor nations. It plays a key role in promoting peace and
stability in Africa, and is an important voice on global
trade, human rights, conflict resolution, 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. Additionally, ANC President (and
presumptive future national President) Jacob Zuma will visit
the U.S. October 19-28, 2008. We share common objectives
with the SAG on the African continent and beyond, and we work
closely on many of them.


5. (SBU) The ANC dominates the political scene in South
Africa but is showing signs of internal strife. The ANC won
70 percent of the vote and 279 of 400 seats in the National
Assembly in the April 14, 2004 elections. Subsequent "floor
crossing" periods, where parliamentarians were allowed to
switch parties, boosted the ANC's total to 297. The ANC also
won 66 percent of the national vote in the March 2006 local
elections. The Democratic Alliance (DA) is the largest of
several small opposition parties in parliament, with 47
seats. The ANC leads administrations in all nine provinces
and in the vast majority of the municipalities. The DA's
control of the Cape Town municipality is the most visible
exception to this country-wide ANC domination. There have
been multiple attempts by the ANC to unseat the DA-led,
Qbeen multiple attempts by the ANC to unseat the DA-led,
multi-party coalition, and each unsuccessful attempt has
increased the local stature of the DA.

6. (SBU) The December 2007 ANC National Conference in
Polokwane, Limpopo shifted power within the ruling party.
New ANC President Jacob Zuma defeated incumbent national
President Thabo Mbeki by a vote of 2,329 to 1,505. Zuma's
allies swept the other top five ANC positions. The Zuma camp
dominated the elections for the ANC's 86-member National
Executive Council (NEC) with sixteen Mbeki Cabinet members
(out of 28) losing their NEC seats. Zuma's victory makes him
the front-runner to become national President following the
2009 parliamentary elections. Zuma's successful court
challenge to his 2007 indictment on corruption and fraud
charges formed the pretext for the ANC decision to recall
Thabo Mbeki as President. Zuma's political allies, who have
consistently alleged that the corruption case was
politically-motivated, found in the court ruling what they
needed to claim Mbeki had engineered a politically-motivated

PRETORIA 00002316 002 OF 007

case against Zuma.

7. (SBU) The tense debate at the party's December 2007 ANC
National Conference and defeat of incumbent Mbeki reflected
the growing impatience with the pace of socio-economic change
and laid the groundwork for the recent Mbeki 'recall' and
resignation. It is also in large part a reflection of the
growing restlessness and dissatisfaction with the ANC's
inability to deliver a better life for everyone.

8. (SBU) It is too soon to tell whether the results of the
ANC National Conference will lead to changes in SAG policy.
Motlanthe's presidency ends with the 2009 elections. ANC
President Zuma stresses that as president he will not make
radical policy changes and that he respects the party's
previous policy consensus. However, many new ANC leaders --
and Zuma's strongest coalition supporters -- come from the
left wing of South African politics. The Congress of South
African Trade Unions (COSATU) and the South African Communist
Party (SACP) are formal members of the ANC-led tripartite
alliance. These groups are pressuring Zuma to embrace more
leftist or perhaps even populist positions in the interests
of the working-class poor. On issues like HIV/AIDS and
Zimbabwe, this could lead to SAG policies more closely in
line with U.S. interests. However, on other issues -- like
fiscal management, nationalization of industry/resource
sectors, and trade liberalization -- the shifts in policy
might be less positive from a U.S. perspective. It seems
likely that the new ANC leaders will be more focused on
domestic rather than continental or global issues, which
could reduce the SAG's activist role in international affairs.

9. (SBU) The ANC is showing increasing signs of strain after
former president Thabo Mbeki was recalled on September 21,
2008. Reasons for Mbeki's forced resignation were
personality-driven leadership competition, the polarization
of ANC factions supporting Zuma and Mbeki, the Zuma-led
faction's belief that Mbeki abused executive power by
interfering with the state prosecutor's decision to file
corruption charges against Zuma, and disagreements regarding
the party's operations and future direction. Zuma's
supporters interpreted a recent court ruling ending the
recent corruption case against Zuma as proof that Mbeki led a
conspiracy to deny Zuma's presidential ambitions. They acted
immediately to 'recall' Mbeki in the belief that his removal
would end the threat of a future prosecution against Zuma.
Rumors of a new ANC-breakaway party are rife as is
speculation that many voters might not want Motlanthe to make
way for Zuma to be South Africa's next president. This is a
critical and fluid period in the political development of
South Africa -- potentially as critical as the transition
from apartheid.

--------------------------------------------- --------
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10. (SBU) Visa ineligibilities related to past terrorist and
criminal activity in opposition to the apartheid-era regime
have posed a significant strain on the U.S.-S.A. bilateral
relationship. The need for Nelson Mandela and other South
African leaders, considered heroes of the anti-apartheid
movement, to travel on visa waivers undercut our efforts to
influence SAG policy on issues such as the designation of
terrorist supporters and financiers at the United Nations
Qterrorist supporters and financiers at the United Nations
Security Council. Earlier this year, Congress took action to
remedy this situation and the result was Public Law 110-257,
enacted in July. This law gives discretion to either the
Secretary of State or the Secretary of Homeland Security,
after consultations involving the Departments of State,
Homeland Security, and Justice, to exempt persons from
terrorist and criminal grounds of ineligibility with respect
to activities undertaken in association with the African
National Congress in opposition to apartheid rule in South
Africa. Exemptions for an initial list of seven individuals
including Nelson Mandela and Jacob Zuma have been
provisionally approved by working-level officials at State,
and we are waiting for DHS and DOJ to follow suit in order
that the Secretary of State can formally grant the exemptions.


PRETORIA 00002316 003 OF 007

11. (U) South Africa under Mbeki took a high-profile role
promoting Africa's interests -- the African Renaissance.
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. Mbeki was the
driving force behind the New Partnership for Africa's
Development (NEPAD), an African-developed program based on
international best practices and continental peer review to
strengthen economic and political governance across the
continent. NEPAD is also a framework for African partnerships
with the international community. These initiatives are early
in their evolution and have not yet become effective
mechanisms for development.

12. (SBU) South Africa believes that, by virtue of its
history and regional political, economic, and military clout,
it has a responsibility to lead African conflict resolution
efforts and participate in peace support operations. South
Africa continues to play a lead role in conflict resolution
in Burundi and contributes troops to UN Peace Keeping
missions in the Democratic Republic of Congo (DRC) and Sudan.
South Africa has approximately 3,000 personnel deployed in
peace support operations in Africa. The U.S. has a strong
interest in helping South Africa expand and enhance its
peacekeeping and disaster assistance capabilities. South
Africa participates in the African Contingency Operations
Training and Assistance program (ACOTA) to enhance the South
African National Defence Force's (SANDF) capacity to
participate in multilateral peace support operations. The
U.S. uses International Military Education and Training
(IMET) funds to support professional military education and
technical training of future military leaders. With the
January 2008 repeal of the American Servicemen's Protection
Act (ASPA) prohibitions on provision of military assistance,
we hope to resume Foreign Military Financing (FMF) programs
supporting the South African Air Force's C-130 fleet which
South Africa is using to support troops deployed to the DRC,
Sudan, and Burundi. While South African officials have been
openly critical of U.S. Africa Command, they continue to
engage with the U.S. in a wide range of military-to-military
activities. This month the U.S. completed the successful
first visit by a U.S. Navy aircraft carrier to South Africa
since 1967. Some observers believe that this visit could
mark a turning point in military-to-military relations.

13. (SBU) Zimbabwe remains a continuing challenge and
increasing concern for South Africa. In March 2007, SADC
leaders appointed Mbeki as the mediator between Zimbabwean
President Robert Mugabe and the opposition Movement for
Democratic Change (MDC) with the goal of leveling the
electoral field before the March 2008 elections.
Negotiations made some progress, but human rights abuses
against the opposition accelerated. In the March 2008
elections, the MDC won a small majority of seats in the
Parliament. MDC leader Morgan Tsvangirai won a plurality of
the vote (47 percent) but not enough to avoid a presidential
runoff. Presidential runoff elections planned for June 27,
2008 were preceded by a campaign of state-sponsored violence
and intimidation that undermined the atmosphere for a fair
electoral contest. Some critical observers contend that the
Qelectoral contest. Some critical observers contend that the
election may have been stolen before any votes were cast. As
a result of the political instability and violence against
MDC supporters, Tsvangirai dropped out of the race on June
22. A SADC-brokered power-sharing agreement in September
remains to be implemented as the Zimbabwe African National
Union' Patriotic Front (ZANU-PF) refuses to give up key
ministries and governorships. Following Mbeki's 'recall' as
President of South Africa, the SAG and SADC asked him to stay
on in his role as SADC's chief Zimbabwe negotiator.

14. (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 advocates for a
greater voice for the "South" relative to the 'North' in
global finance and international institutions, increased
development assistance, an expanded and reformed UN Security
Council, and lower trade barriers (for manufactured and
agricultural exports to developed countries).


PRETORIA 00002316 004 OF 007

15. (SBU) South Africa is a middle-income, emerging market
economy with GNI per capita of $5,670 (2007), akin to Chile,
Malaysia, or Thailand. The SAG has pursued prudent monetary
and fiscal policies, which turned a fiscal deficit of 6
percent of GDP in 1994-05 to a small surplus of 0.9 percent
of GDP in 2007-08. The South African Reserve Bank (SARB) is
independent. It targets an inflation rate of 3-6 percent, but
is currently struggling to contain an inflation rate of 13
percent (August 2008), caused by global food and fuel
inflation and reinforced by a weakening rand and increased
inflation expectations. SARB has lifted interest rates by 5
basis points since 2006. Analysts do not expect inflation to
fall back within the target band until 2010. Real GDP growth
averaged 5 percent per year between 2005 and 2007, but is
expected to drop to about 3.5 percent in 2008 because of
higher interest rates, serious power shortages and weakening
commodities prices.

16. (SBU) South Africa's financial system has not been
directly affected by recent turmoil in global financial
markets. The local banking system is well-capitalized and
strictly-regulated, and banks and other financial
institutions have relatively little exposure to sub-prime
debt or other contagion. Banks raise most of their capital
domestically. However, South Africa depends on portfolio
inflows to finance its large current account deficit (about 8
percent of GDP). The recent global 'flight to safety' has
taken a heavy toll on the Johannesburg Stock Exchange and the
rand. Many analysts fear that recession in the U.S. and
Europe will have a significant impact on South African
manufactured, agricultural, and commodity exports.

17. (SBU) South Africa's single greatest economic challenge
is to accelerate growth in a slowing global economy in order
to address widespread unemployment and reduce poverty. The
official unemployment rate, currently 23.0 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 one of the highest rates
in the world. Fifty-six percent of black South Africans, but
only four percent of whites, live in poverty. The lack of
capacity and service delivery at the provincial and municipal
levels fueled the recent xenophobic attacks on refugees from
neighboring countries as South Africans from lower
socioeconomic strata feared that jobs, houses, and other
services were being given to non-South Africans. Other
obstacles exacerbating South Africa's unemployment and
economic problems are skill shortages, a brain and skills
drain, and education system weaknesses. Nevertheless, the
SAG has made strides in the areas of transfer payments and
public services to close the gap. Nearly 2.5 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. Almost 12.4 million people were benefiting from
social grants in 2007. The SAG'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.

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


19. (SBU) U.S.-South Africa trade grew 22 percent in 2007,
totaling $14.3 billion. U.S. exports rose 23 percent to $5.2
billion, while South African exports to the United States
increased 22 percent to $9.1 billion. South Africa was the
third largest beneficiary of the African Growth Opportunity
Act (AGOA) and the largest beneficiary of non-oil exports to
the U.S. under AGOA in 2007. An impressive 98.1 percent of
South Africa's exports entered the U.S. with zero import
duties in 2007 as a result of normal trading relations (NTR),
GSP, and AGOA. The U.S. also replaced Japan as the largest
export market in 2007. Western Cape citrus farmers rely on
exports to the U.S., without which they claim they could not

PRETORIA 00002316 005 OF 007


20. (SBU) 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 policies, transportation infrastructure,
sophisticated financial sector, and, by African standards,
large market are the primary attractions for U.S. businesses.
Nevertheless, South Africa has failed to attract a
proportionate share of global foreign direct investment since
1994. Reasons include a volatile exchange rate, distance
from developed country markets, high unit labor costs, strong
unions, skills shortages, crime, HIV/AIDS, regulatory
uncertainty, and the impact of Black Economic Empowerment
policies such as the mandatory sale of equity to previously
disadvantaged persons. The U.S. was the second largest
portfolio investor and the second largest foreign direct
investor in South Africa after the U.K. ($5.5 billion at
year-end 2006). General Motors, Ford, and Timken are among
the top industrial investors in South Africa. Westinghouse
is competing for a $10-20 billion nuclear reactor contract
which could be awarded before the end of the year. Teletech
recently opened a large call center in Cape Town and has
plans to open smaller centers in other parts of the country.

21. (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)
suspended free trade agreement negotiations in April 2006.
Negotiators subsequently agreed to deepen the bilateral
relationship through a on Trade, Investment and Development
Cooperative Agreement (TIDCA). A framework agreement for the
TIDCA was signed at the annual AGOA Summit in Washington on
July 14, 2008. Negotiators will soon begin work on customs
cooperation and technical barriers to trade (TBT) agreements
to reduce existing barriers to bilateral trade.


22. (U) Since 1994, the USG has contributed approximately
$1.9 billion toward South Africa's development; including
$250 million in credit guarantees, and, since 1998, $100
million in education, $120 million in economic growth, and
$88 million in democracy and governance. Currently, our
development assistance program focuses on: supporting South
Africa's response to HIV/AIDS and TB through the U.S.
President's Emergency Plan for AIDS Relief (PEPFAR);
addressing unemployment through financing and business
development services for SMEs, job-skills training and
education; reducing gender-based violence as part of the
President's Women's Justice and Empowerment Initiative
(WJEI); enhancing the quality of education through teacher
training; and partnering with the SAG in third countries
engaged in post-conflict rebuilding. South African NGOs have
also received Trafficking in Persons (TIP) grants over the
past few years to assist in the global fight against
trafficking in persons. A wide range of U.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), the Rockefeller Foundation (adult
education), and the Clinton Foundation (HIV/AIDS and Climate

23. (U) Twenty-eight U.S. government entities are
represented at the U.S. Mission in South Africa (Embassy
Qrepresented at the U.S. Mission in South Africa (Embassy
Pretoria and the three Consulates in Cape Town, Durban, and
Johannesburg). The Mission has 318 approved U.S. positions
(only 241 are filled) and 570 local employees. More than 40
percent of Mission staff provides 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, the Mission completed the new consulate compound in
Cape Town. In FY 2009, the Mission will complete a new
consulate building in Johannesburg. In FY 2010/2011 the
Mission intends to break ground on a new 155-desk office
annex in Pretoria.


24. (U) South Africa has the largest number of HIV-infected
citizens in the world. HIV/AIDS-related illnesses,

PRETORIA 00002316 006 OF 007

particularly due to HIV/tuberculosis (TB) co-infection, are
the country's leading cause of death. Despite South Africa's
overall wealth, life expectancy at birth has decreased from
67 to 52, the regional average, due to HIV/AIDS and HIV/TB
co-infection. Under-five mortality, with the Millennium
Development Goal (MDG) of 24 per 1,000 in 2015, has increased
from 60 to 67 per 1,000 between 1990 and 2006. While
achieving the MDGs is the SAG's highest priority, South
Africa is moving further away from these goals in both child
and maternal mortality as a result of HIV/AIDS.

25. (U) An estimated 5.4 million South Africans are
HIV-positive including 2.7 million women and about 300,000
children 14 years old or less. An estimated 18.8 percent of
adults between 15 and 49 are HIV-infected and women in the
age group of 25-29, the most seriously affected, have
prevalence rates of up to 40 percent in some areas. An
estimated 530,000 new infections occur annually. In 2006,
350,000 adults and children died from AIDS; an estimated 1.8
million deaths have occurred since the start of the epidemic;
and 71 percent of all deaths in 15 to 41-year-olds are due to
AIDS. In the last few years, there is an indication that
prevalence may be starting to decline. Prevalence in
antenatal care fell from 29 percent in 2005 to 28 percent in
2008. At least 1.6 million children, approximately 10
percent of South Africa's youth, have had at least one parent
die and 66 percent of these have been orphaned by AIDS.
Continuing AIDS-related mortality will create millions of new
orphans and generate additional social and economic
disruption, in part due to orphans being raised by extended
families or in child-headed households.

26. (U) The epidemics of HIV and TB are interlinked. TB is
the most common infectious disease in sub-Saharan Africa and
approximately 50 percent of HIV patients in South Africa also
have TB. A high overall prevalence rate of HIV, HIV/TB
co-infection, and lack of continuity in treatment contribute
to the increasing incidence of active TB, including multi-
and extensive drug-resistant TB strains (MDR- and XDR-TB).
The piloting of an SAG-approved rapid test for MDR-TB may
allow more rapid identification and initiation of appropriate
treatment, but staff shortages and skills challenges impede
an effective response to TB. Failure to adequately control
and treat TB may undo all the gains South Africa has made in
HIV care and treatment thus far.

27. (U) The South African National Strategic Plan for HIV &
AIDS and Sexually Transmitted Infections 2007-2011 (NSP)
provides a road map for responding to this crisis and sets
out goals of reducing new HIV infections by 50 percent by
2011 and increasing access to anti-retroviral treatment
(ART). The recall of Mbeki and the subsequent appointment of
Barbara Hogan as the new Minister of Health under Motlanthe
promises new initiatives in health, particularly as they
pertain to HIV and TB. Hogan, unlike her predecessor, Dr.
Manto Tshabalala Msimang, has been outspoken in affirming the
link between HIV and AIDS and has galvanized support from
government and non-governmental organizations (NGOs) to reach
the NSP targets. The South African public health system
suffers from deterioration of the existing health
infrastructure, need for expansion of clinical and laboratory
facilities, and a gthening of the health care infrastructure,
Qfacilities, and a gthening of the health care infrastructure,
particularly for chronic disease, which includes HIV and TB;
increased coverage of HIV treatment; HIV prevention; and TB
control and treatment. Although the country has made
impressive progress towards expanding access to ART, the
current number of people on ART is less than 30 percent of
those who need it.

28. (U) The U.S. President's Emergency Plan for AIDS Relief
(PEPFAR) is in its fifth year of implementation and has
recently been re-authorized for a second five-year period.
PEPFAR is implemented in South Africa by five USG agencies:
the U.S. Agency for International Development (USAID); the
U.S. Department of Health and Human Services (HHS), which
includes the Centers for Disease Control and Prevention
(CDC); the U.S. Department of State; the U.S. Department of
Defense; and the Peace Corps. PEPFAR and its implementing
agencies work with the public and private sector to deliver
programs for HIV prevention, care, and treatment. In doing
this, PEPFAR and its implementing agencies align their goals
with that of the NSP. To date, the PEFPAR program in South
Africa is the largest recipient of PEPFAR resources, i.e., a
total of $1.45 billion, including $591 million in FY08. As
of March 2008, PEPFAR directly supported 305,356 people on

PRETORIA 00002316 007 OF 007

ART through programs in all nine provinces. With PEPFAR
funding, the South African military has expanded HIV
prevention, care, and treatment programs and collaborates
with the U.S. military and the National Institutes of Health
(NIH) on HIV/AIDS and TB research.

29. (U) South Africa has the strongest research and training
capacity of any country in the region, making it an important
partner in HIV/AIDS and TB efforts. USG agencies work with
national and provincial health departments, the South Africa
military, universities, and NGOs to strengthen primary health
care, disease surveillance, and research. NIH provides
approximately $300 million in funding to South African
researchers per year, with 90 percent of this focused on
HIV/AIDS and TB research. The U.S. Mission has prepared a
five-year strategic plan in coordination with the SAG for HIV
prevention, care, and treatment for not only adults, but also
for orphans and other vulnerable children (OVCs). As we move
in the second five-year period of PEPFAR, the USG team will
work with the SAG to develop a Partnership Compact outlining
a joint five-year strategy on mutual financial, operational,
and programmatic commitments. South Africa is moving into a
transition phase with an expected 75 percent budget reduction
in PEPFAR funding during the next three years (from $591
million in FY08 to $150 million in FY2011. This expected
reduction will correspond with increased emphasis on
technical assistance and human capacity development coupled
with greater funding and program implementation by the SAG.
The current change in SAG leadership will greatly facilitate
the development and implementation of this five-year strategy
and collaboration.

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