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Cablegate: South Africa Economic News Weekly Newsletter December 26,

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 26,
2008 ISSUE

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1. (U) Summary. This is Volume 8, issue 52 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- No House Price Recovery in '09'
- Third of South African Firms Plan Layoffs
- Markets End Bad Year
- European Commission Offers Tariff Deal
- Independent Peaking Power Plant Negotiations Ongoing
- Not all Doom and Gloom in Mining - Harmony Gold Raises
Capital
- Unilever Company Abandons the Hoodia Plant Initiative

End Summary.

-------------------------------
No House Price Recovery in '09'
-------------------------------

2. (U) More than 100,000 homeowners are two months behind in their
mortgage payments and more than 30,000 are four months behind,
reports the Alliance Group. The homeowners' payments are tardy
despite the South African Reserve Bank's (SARB) recent interest-rate
cut of 50 basis points. Analysts do not expect that the situation
will improve soon unless interest rates are aggressively reduced.
Alliance Group Chief Executive Rael Levitt said it would take a rate
cut of more than four percentage points to rectify the situation.
He points out that since the middle of 2008 the residential property
market has been in freefall, becoming flooded with houses, and
resulting in lower house values. In the third quarter of 2008 banks
tightened their lending criteria, particularly for new housing
finance, and the number of homeowners in a negative-equity situation
increased. Levitt expects 5% of all homeowners will experience
negative equity by the middle of next year. According to Rode &
Associates economist Erwin Rode, this applies largely to first-time
buyers who bought a house after 2006. Rode expects no dramatic
improvement in either the demand for residential property or its
pricing in 2009. He foresees a fairly extended recession with
demand for residential property only beginning to improve in 2010.
(Fin24, December 23, 2008)

-----------------------------------------
Third of South African Firms Plan Layoffs
-----------------------------------------

3. (U) According to a KPMG survey of 120 leading South African
businesses, more than 35% are likely to lay off workers as higher
interest rates and slowing local economy eat into their profits.
The survey further found that 65% planned to encourage their workers
to take voluntary attrition. Almost 23% of the survey respondents
felt that, in the current economic circumstances, the interest rate
should be significantly lower; 60% supported a moderate lowering of
rates. Respondents also believe that government should focus its
infrastructure spending on energy in 2009, and that energy spending
would have the most advantageous effect on the South African
economy. But in general the survey found that business people are
confident about the country economic outlook, with respondents
quoted as saying, "South Africa will get out of the starting blocks
better and quicker than most other countries. I am very positive
about this country." (I-Net Bridge, December 23, 2008)

--------------------
Markets End Bad Year
--------------------

4. (U) South African markets were hit hard by global economic
Q4. (U) South African markets were hit hard by global economic
turmoil in 2008. The Johannesburg Stock Exchange (JSE) shed 28%
over the course of the year, dropping 37% since its high point in
May. The rand also weakened by 30% against the dollar over 2008, as
investors dumped emerging market currencies and assets in a flight
to safety. More bad news is likely in 2009, as companies and
consumers feel the real effect of high interest rates in South
Africa and recession in export markets. However, the worst may be
over for the JSE, according to Simon Hudson-Peacock, head of
equities at Cadiz African Harvest Asset Management. He said that
negative emotion in the market has pushed asset valuations well
below fair value: "I really do think we could look for 20 percent
out of the equity market next year. It doesn't sound very large,

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but it's a good deal when you think that inflation will go below 10
percent." Jeremy Gardiner, a director at Investec Asset Management,
agreed. He said that stock markets traditionally rise during
recessions, and he predicted a broad-based recovery during the first
half of 2009. (Business Day, December 23, 2008)

--------------------------------------
European Commission Offers Tariff Deal
--------------------------------------

5. (U) The European Commission (EU) has made a concession in trade
talks with the Southern African Customs Union (SACU. The EU has
proposed a tariff deal that would align SACU's Economic Partnership
Agreement (EPA) with the Trade, Development and Co-operation
Agreement (TDCA), under which South Africa trades with the EU. The
deal would keep SACU intact by allowing SACU to maintain its common
external tariff, while allowing South Africa to balance its
"regional coherence" goals with its desire for market access to the
EU. SACU members Botswana, Lesotho, Namibia and Swaziland signed
the interim pact last November to preserve preferential access to
the EU. South Africa does not want to sign the EPA, and has since
been at loggerheads with the other SACU members. South Africa's
chief trade negotiator Xavier Carim noted that the deal would result
in a "single SACU arrangement" and described it as "a really good
development," but also noted that the deal would not resolve other
concerns that South Africa has. (Business Day, December 22, 2008)

-------------------------------
Independent Peaking Power Plant
Negotiations Ongoing
-------------------------------

6. (U) The much-delayed Department of Minerals and Energy
(DME)-spearheaded independent power producer (IPP) project is
forging ahead, and a new commercial operation date has been set for
mid-2011, announced DME Chief Director of Electricity Ompi Aphane.
Aphane said negotiations with a consortium led by Suez Energy of
France for the construction of two open cycle gas-turbine plants
were proceeding and should be completed by the end of March 2009.
DME received a binding offer from Suez after negotiations with the
designated preferred bidder US power firm AES were terminated in
April 2008 due to reported sticking points on price, commercial
terms, and the dates for generation. Aphane admitted that the
economic landscape had changed since the start of the project, but
he believed that the power plants were an opportune project for
banks to take up. Electricity demand may be lower than originally
projected for 2009, but Aphane asserted that the reduced demand is a
function of the economic climate and South Africa still requires
energy infrastructure. The proposed project would include a 750
megawatt (MW) power station near Durban and a 330 MW plant at Coega,
near Port Elizabeth, both near the Indian Ocean. (Engineering News,
December 19, 2008)

----------------------------------
Not all Doom and Gloom in Mining -
Harmony Gold Raises Capital
----------------------------------

7. (U) Harmony Gold (Harmony) raised R979 million ($98 million) by
selling 10.5 million of its shares on the open market this week and
reaffirmed its capital expenditure plans. The cash would be used to
Qreaffirmed its capital expenditure plans. The cash would be used to
reduce its debt levels as part of a plan to have zero debt by June
2009. Harmony reported that it had paid to Nedbank a substantial
portion of a loan due by the end of December 2008. Harmony plans to
develop its pipeline of projects as planned, despite turbulent
economic conditions and a grim outlook. The third-ranked South
African gold company, Harmony has eleven underground mines and one
opencast operation in South Africa and is currently building and
expanding mines in South Africa and Papua New Guinea. (Mining
Weekly, December 22, 2008)

-----------------------------
Unilever Company Abandons the
Hoodia Plant Initiative
-----------------------------

8. (U) Unilever has abandoned its plan to develop a weight-loss
product based on South Africa's indigenous Hoodia Gordonii plant,
dashing the local San community's hopes that it would soon profit

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from the spiny succulent. Unilever has invested over 20 million
pounds ($29 million) in research on the plant over four years, in
partnership with British company Phytopharm and South Africa's
Council for Scientific and Industrial Research. The hoodia plant
was traditionally used by San and Khoi hunters to suppress hunger
and thirst during extended hunting expeditions, but it might not be
safe or effective for dieters, said Unilever spokesperson Trevor
Gorin. He noted that hoodia has potentially dangerous side effects,
including increased blood pressure. Researchers also found that
hoodia had little or no impact upon the calorie consumption of
participants in a Unilever study. Unilever had since returned the
development rights to Phytopharm. Phytopharm's Functional Foods
Chief Simon MacWilliam is adamant that hoodia might still have
potential as a commercial weight-management aide. Phytopharm is
seeking new partners to continue with the development and marketing
of hoodia. (Business Day, December 22, 2008)

© Scoop Media

 
 
 
 
 
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