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Cablegate: South Africa Economic News Weekly Newsletter October 12,

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DE RUEHSA #3602/01 2851320
ZNR UUUUU ZZH
R 121320Z OCT 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2254
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 7609
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UNCLAS SECTION 01 OF 03 PRETORIA 003602

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DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN

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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 12,
2007 ISSUE

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1. (U) Summary. This is Volume 7, issue 41 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- SA Foreign Reserves Past $30 Billion
- Higher-Than-Expected Budget Surplus
- Euro's Held In Gross Reserves Increase
- SA No Magnet For Talent
- Cathay Poaches SAA Pilots
- Delta Flies Smarter
- SA and China Propose Trade Swap Deal
- Safety Audit For All SA Mines
- Electricity Shortages And Rolling Black-Outs
End Summary.

------------------------------------
SA Foreign Reserves Past $30 Billion
------------------------------------

2. (U) According to the South African Reserve Bank (SARB), gross
gold and foreign exchange reserves exceeded the $30 billion barrier,
climbing from $29.8 billion in August to $30,5 billion in September.
The SARB's foreign exchange accumulation was prompted by a
relatively weaker rand and plenty of foreign investment in the
equity and bond markets. The South African Treasury has also put
its excess cash on deposit at the SARB, where it earns hard
currency-related, not rand-related, interest. Four years ago,
before the SARB began accumulating reserves by buying dollars in the
market at appropriate moments, gross reserves were stuck below $10
billion. In response to the improvement in the reserve position,
the international rating agencies have upgraded South Africa's
sovereign rating which has lowered the cost of borrowing on
international markets. Although Moody's external vulnerability
indicator for South Africa shows a spectacular improvement, it still
lags other emerging markets. According to the International
Monetary Fund's (IMF) measure that takes into account the current
account deficit, as well as short-term foreign debt, South Africa's
reserves still look fairly weak, at 74%, compared with an emerging
market average of 112%. The IMF's recent staff report on South
Africa recommended "that some further accumulation would be
beneficial". The SARB has said it will continue to build its
reserves during periods when the rand is strong, without affecting
the value of the rand. That may well imply that the Treasury would
have to continue running a fiscal surplus to support the
accumulation. (Business Day, October 9, 2007)

-----------------------------------
Higher-Than-Expected Budget Surplus
-----------------------------------

3. (U) The South African Government is expected to achieve a
higher-than-expected budget surplus of about 1% of GDP in the
current financial year, according to Efficient Research economist
Fanie Joubert. This would be higher than the surplus of 0.6% of GDP
projected at the time of the February budget. Ahead of Finance
Minister Trevor Manuel's medium-term budget policy statement on
October 30, Joubert predicted that revenue inflows should continue
to dampen the need for financing for the rest of the financial year.
This will relieve pressure on long-term interest rates, Joubert
said. (Pretoria News, October 4, 2007)

--------------------------------------
Euro's Held In Gross Reserves Increase
--------------------------------------

4. (U) The South African Reserve Bank (SARB) has boosted the Euro
component of its gold and foreign exchange reserves, bringing it
more in line with South Africa's trade flows, foreign debt
composition, and the Euros' growing role in global markets. Over
the last two years, SARB's Euro holdings have nearly quadrupled to
R40.1 billion ($5.7 billion), while the proportion of Euros held in
its gross reserves has doubled to 21%. Over the same period, SARB's
holdings of U.S. dollars declined from 72.5% of total reserves to
64%, largely because of the declining value of the dollar. SARB
research head Johan van den Heever said, "If you look at the change
in Euros, you can see there has been some conscious decision." He
noted that Europe is South Africa's main trading partner. (Business
Day, October 4, 2007)


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-----------------------
SA No Magnet For Talent
-----------------------

5. (U) According to a study by the Economist Intelligence Unit,
South Africa ranks lowest among 30 countries around the world in
terms of attracting skilled people, a trend that does not bode well
for the economy. "Being ranked last in the survey when it comes to
attracting talent from the local talent pool is a very serious
problem, especially when countries higher up the ladder are
continuing to suck our own talent out of the country." said Derick
Boshard from executive search firm Heidrick and Struggles in
Johannesburg. The SAG has identified a gaping skills shortage as a
constraint to faster economic growth, with the shortfall also
curbing job creation, keeping the official jobless rate stuck at
25.5%. Poor education has been cited as one of the main stumbling
blocks to skills development. "Less than 2% of learners achieve
higher grade mathematics, inadequate for South Africa," Boshard
said. (Business Day, October 10, 2007)

-------------------------
Cathay Poaches SAA Pilots
-------------------------

6. (U) Cathay Pacific told the South African Airways Pilots
Association (SAAPA) that they would receive applications from SAA
pilots and the SAAPA has passed this information to its members.
The SAAPA will compile a list of interested pilots that it will
submit to Cathay on October 31 and Cathay will follow-up by
contacting the interested pilots directly. Cathay expression of
interest comes at a time when SAA is seeking to retrench a number of
its older pilots and renegotiate the terms of employment for the
remaining pilots. The Cathay move would add to the ongoing exodus
of South African pilots to foreign airlines. (Travel News Weekly,
October 10, 2007)

-------------------
Delta Flies Smarter
-------------------

7 (U) Delta Regional General Manager Jimmy Eichelgruen told the
local press that Delta will coordinate the timing of its recently
announced New York to Cape Town flight, which is to begin on June 3,
so that its passengers can disembark in Dakar and embark on its
existing Atlanta to Johannesburg flight. Similarly, passengers on
the Atlanta to Johannesburg flight will be able to disembark in
Dakar and embark on the future New York to Cape Town flight. The
arrangement will make it possible for U.S. travelers from New York
to reach Johannesburg and for U.S. travelers from Atlanta to reach
Cape Town without the added time and expense of a domestic flight.
Delta Manager for Southern Africa Margaret Copeland added that Delta
will schedule its New York to Nairobi flight to arrive in Dakar at
the same time, facilitating additional combinations. The new
flights are is part of an overall plan to convert Dakar into a new
mini-hub that is able to handle three to four aircraft at the same
time. (Business Report, October 10, 2007)

------------------------------------
SA and China Propose Trade Swap Deal
------------------------------------

8 (U) The South African and Chinese governments are discussing a
trade swap in which China would place manufacturing plants in South
Africa in return for China's greater access to South Africa's
minerals. South African Deputy President Phumzile Mlambo-Ngcuka
commented that China's pollution problem was the impetus for the
talks. "China needs to send some of its polluting industries
elsewhere because it is choking on them," she said. The new
manufacturing agreement would include commodity exports from other
African countries as well as Chinese investment in them. As for
China's access to minerals, the talks had focused primarily on iron
ore, but also included manganese and platinum group metals.
(Business Report, October 1, 2007)

-----------------------------
Safety Audit For All SA Mines
-----------------------------

9 (U) President Thabo Mbeki asked Minerals and Energy Minister

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Buyelwa Sonjica to conduct an audit of the country's mines to
determine whether they are meeting the health and safety standards
in the law. The order comes after 3,200 workers were rescued after
being trapped up to 48 hours 1.5 km underground at Harmony Gold's
Elandsrand mine near Johannesburg. South Africa's mines kill about
200 people every year - and injure about 4,000, despite efforts from
the private sector to move to zero-fatality. At least 23 illegal
miners died in an underground fire in an unused shaft at Harmony's
St Helena Mine in Free State province on October 7. Four miners
died at AngloGold Ashanti's Mponeng mine last month. Minister
Sonjica called for an amendment to the existing mining safety law to
lay down minimum standards at a press conference during the fifth
biennial Mine Health and Safety Council Summit on October 8. In a
separate statement, she noted that the SAG struggles to enforce
compliance given dire staff shortages, unclear legislation, and the
difficulties in prosecuting offenders. A Harmony spokesperson
welcomed the move to audit all local mines, noting that Harmony
employs 54,000 people, and, regrettably, 27 people died in the past
year. (Mining Weekly, October 8, 2007)

--------------------------------------------
Electricity Shortages And Rolling Black-Outs
--------------------------------------------

10 (U) The inadequacy of South Africa's slim electricity reserve
margin of around 8% has been evidenced by significant rolling
black-outs around the country. The combination of cold and wet
weather, planned maintenance at 10 power stations (4,700 MW),
unexpected outages at 3 power stations (2,030 MW), and additional
losses due to wet coal supplies (1,400 MW) has reduced state
electricity supplier Eskom's 42,000 MW of installed capacity by up
to 20% since October 9. As a result, Eskom has enforced
"load-shedding" (enforced rationing or rolling black-outs) in
Pretoria and other municipal areas to cope with the electricity
shortfall. Eskom asked its industrial customers, such as gold mines
and operators of aluminum, ferrochrome, and steel furnaces to share
the power sacrifices. (Business Day and Pretoria News, October
10-11, 2007)

BALL

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