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Cablegate: South Africa Economic News Weekly Newsletter December 21,

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 21,
2007 ISSUE


1. (U) Summary. This is Volume 7, issue 51 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Zuma Voted ANC President
- Economy Holds Steady after Zuma Wins Election
- Coal Prices Sharply Increase
- Eskom Receives Substantial Rate Increase
- New MIDP Not To Be Released Until August
- SA Joins WTO Case on US Farm Subsidies
- SA May Terminate Anti-Dumping Duties
- Inflation to Peak Above 8 Percent
- Retail Sales Slow To Five-Year Low

End Summary.

------------------------
Zuma Voted ANC President
------------------------

2. (U) Jacob Zuma was elected President of the African National
Congress (ANC) at an ANC national conference on December 18th,
ousting current ANC President Thabo Mbeki. Zuma's win of 2,329
votes against 1,505 votes for Mbeki leaves the party facing the need
to restore unity amid unprecedented rivalry for the office. Zuma,
whose reputation has been shrouded in controversy following years of
legal battles with charges of corruption and rape, will now govern
the ANC party while Mbeki continues to serve as President of South
Africa. (Business Day, December 19, 2007)

---=-----------------------------------------
Economy Holds Steady after Zuma Wins Election
---------------------------------------------

3. (U) According to the top three global rating agencies, Fitch,
Moody's and Standard and Poor's, South Africa's fiscal and monetary
policy framework will stay in place and its credit ratings have not
been put at risk by Zuma's election as ANC president. Standards
noted that it does not expect a sharp or immediate change in
policies. Moody's said that Zuma's efforts to ease investor concern
in recent months stood him in good stead. Fitch and Moody's
upgraded their outlook on South Africa to "positive" this year,
while S&P maintained a "stable" outlook, taking a "wait and see
approach" due to the uncertainty about the ANC succession and the
possibility of continued political turmoil ahead of the 2009
national presidential elections. (Business Day, December 20, 2007)

----------------------------
Coal Prices Sharply Increase
----------------------------

4. (U) Coal for shipment from Richard's Bay, site of the world's
largest export terminal for the fuel, has been rising in price as
Indian power companies replenish stockpiles. The price has risen 84
percent so far this year, and last week advanced 2.7 percent to
reach $93.75 per ton, according to McCloskey data. India will need
500-million tons of coal in the year to March 2008, with an
estimated domestic production of only 461 million, said PS
Battacharyya, chairman of Coal India. The Richard's Bay terminal is
owned by South Africa's biggest coal exporters, including Anglo
American, BHP Billiton and Xstrata. More than 25 percent of the
coal burned in Europe is shipped through Richard's Bay. (Business
Day, December 18, 2007)

----------------------------------------
Eskom Receives Substantial Rate Increase
----------------------------------------

5. (U) State power company Eskom has received permission to levy a
14.2 percent electricity tariff hike for the 2008-2009 financial
year from National Energy Regulator of SA (Nersa). This is below
Qyear from National Energy Regulator of SA (Nersa). This is below
the 18.7 percent increase that Eskom requested, but is still
significantly higher than the 6.2 percent that Nersa had previously
approved. Nersa added that Eskom's application for a further 17
percent tariff hike for the 2009-2010 financial year would be
considered in September 2008 when the next round of three-year price
increases is determined. Nersa's public consultation paper on
Eskom's proposed tariff increases also states that electricity
tariffs would increase by double digits from now until 2019.
Municipal tariff increases would also increase by an average of 12

PRETORIA 00004240 002 OF 003


percent from July 1 next year. Eskom needs the tariff increases to
both cover rising fuel costs and fund its R150 billion ($22.3
billion) revised capital investment program over the next five
years. The program proposes to increase the country's power
generating capacity from slightly less than 40GW to 80GW by 2025.
Approximately 20GW of the 40GW increase is expected to come from a
fleet of pressure water reactor (PWR) nuclear power plants. The
tariff increases will place additional pressure on inflation, which
is already under pressure from higher food, fuel and wage costs,
growing capacity constraints brought about by the sustained growth
of the economy and the government's large infrastructure program,
and rising inflation expectations. Business Unity SA said the
2008-2009 increase would add 0.5 percent to CPIX (consumer inflation
excluding mortgage costs) next year. The tariff increases will also
create another argument for the South African Reserve Bank's
Monetary Policy Committee to raise the policy interest rate once
again when it meets on January 31. Finally, the announced intention
to increase tariffs over the next 12 years will make South Africa a
less attractive destination for foreign investment, especially
energy-intensive users such as aluminum and steel plants, given that
South Africa's relatively low tariffs had been a major attraction
for foreign investors. (Business Day, December 21, 2007)

----------------------------------------
New MIDP Not To Be Released Until August
----------------------------------------


6. (U) The new Motor Industry Development Programme (MIDP) will not
be released for at least another seven months. The existing MIDP
expires in 2009 while the new program will run until 2010. The
Department of Trade and Industry (DTI) provided hints that the new
MIDP will likely take the form of a production subsidy. The
specific level of support is to be determined through a cost-benefit
analysis that will be announced once the details of the new MIDP are
finalized by August. Currently, the motor industry contributes 4
percent to gross domestic product and employs about 39,000 people.
DTI said that in light of the achievements of the MIDP, the
government will maintain reasonable support of the industry.
(Business Day, December 19, 2007)

--------------------------------------
SA Joins WTO Case on US Farm Subsidies
--------------------------------------

7. (U) South Africa has joined a WTO case seeking to challenge U.S.
agricultural subsidies. As a major corn producer, South Africa has
significant interest in the case, the first it has ever joined since
the WTO was created. A local trade lawyer said that the likelihood
of the case going against the US was "quite good," given the success
Brazil had litigating against the U.S. on cotton subsidies. The
original claim was filed by Canada and Brazil, but a number of
countries, including South Africa, have joined as third parties.
(Business Day, December 20, 2007)

------------------------------------
SA May Terminate Anti-Dumping Duties
------------------------------------

8. (U) South Africa's International Trade Administration Commission
(ITAC) has recommended the termination of anti-dumping duties on
Q(ITAC) has recommended the termination of anti-dumping duties on
several products, including several from the U.S. (Lysine,
Acetaminophenol, suspension PVC, and chicken meat portions). ITAC's
recommendation is based on a recent South Africa Supreme Court of
Appeal decision, which ruled that sunset reviews needed to be
initiated five years from the date the duties retroactively went
into effect, not the date the notice of duties was issued. The
court found that several ITAC sunset reviews were initiated after
the five-year newly established deadline. ITAC's proposal to
terminate the duties is open to industry comments prior to ITAC's
issuance of a final recommendation. (ITAC Notice No. 1773 of
Government Gazette No. 30602)

---------------------------------
Inflation to Peak Above 8 Percent
---------------------------------

9. (U) CPIX inflation (CPI minus mortgage interest) rose to an
annualized rate of 7.9 percent in November, well above the South
African Reserve Bank's 3 percent-6 percent target range. Many

PRETORIA 00004240 003 OF 003


analysts expect CPIX to peak above 8 percent early next year.
(Business Day, December 19, 2007)

----------------------------------
Retail Sales Slow To Five-Year Low
----------------------------------

10. (U) Retail sales slowed to a five-year low with an annual growth
rate of 1.5 percent in October, providing evidence that South
African Reserve Bank (SARB) interest rate hikes are hitting
consumers. The drop in retail sales will off-set some of the
pressure to hike the policy interest rate when the SARB's Monetary
Policy Committee meets on January 31. (Business Day, December 20,
2007)


BOST

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