Cablegate: South Africa Economic News Weekly Newsletter Septmeber 12,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER SEPTMEBER 12,
2008 ISSUE

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1. (U) Summary. This is Volume 8, issue 37 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- Reserves Fall on Gold Revaluations
- Business Confidence Plunges Further
- SA Leaps in Business-Friendly Rankings
- Old Mutual CEO Quits on U.S. Subprime Loss
- Light on Distant Horizon for Cargo Transport
between South Africa and Maputo
- Carmakers Poised to Shift Maritime
Transport Focus to Maputo
- Johannesburg Signs MOU for Bus System
- Limpopo Chosen for Coal-to-Liquids Project
- Mining Production Declines
- Slow Pace of Mining Right Conversions
Worries Government
- Death is Stalking the Workplace
- Government Seeks ICT Advice
- ICASA Moves to Issue New Licenses
- Cable-laying Company to Profit from ICASA
Decision to Issue New Licenses
- SA Firm Acquires Stake in Indian Distributor
End Summary.

----------------------------------
Reserves Fall on Gold Revaluations
----------------------------------

2. (U) South Africa's net gold and foreign exchange reserves fell by
$669 million (2%) to $33.5 billion in August 2008. The decline is
attributed to the depreciation of the Rand and a sharp decline in
the price of gold, and not due to intervention practices. The gold
price is continuing to trade at lower levels indicating the
potential for further declines in reserves, should current levels
persist at the end of September. Due to the decline in net reserves
and the growth in imports, South Africa's import coverage has
declined from 5.5 to 4.0 weeks of import coverage. (ABSA
Newsletter, September 9, 2008)

-----------------------------------
Business Confidence Plunges Further
-----------------------------------

3. (U) The Rand Merchant Bank and Bureau for Economic Research
(RMB/BER) Business Confidence Index declined by a further 11 index
points during the third quarter of 2008, after falling 22 index
points in the first half of 2008. Business confidence declined in
all five sectors covered by the index during the third quarter,
while it declined in only two of the five sectors during the second
quarter survey. "The persistent decline in business confidence is
another indication that the second quarter rebound in GDP growth was
a mere technical recovery following the negative impact electricity
outages had on the mining and manufacturing sectors during the first
quarter. The large third quarter drop in confidence indicates that
the underlying economic slowdown has become even more marked.
However, as interest rates have probably already peaked, and are
likely to start declining in the first half of next year, and as the
oil price has fallen by nearly one third, an outright contraction in
economic activity is unlikely," said the survey analysts. The RMB
and BER researchers noted that most businesses found themselves
squeezed between rapidly rising costs and weak domestic and foreign
demand. The domestic political environment also remained a source
of uncertainty and concern for business confidence. (Business Day,
September 11, 2008)

--------------------------------------
SA Leaps in Business-Friendly Rankings
--------------------------------------
Q--------------------------------------

4. (U) The World Bank's annual Doing Business Index found that South
Africa's efforts to make it easier for businesses to start-up and
pay taxes have lifted its ranking from 35 to 32 out of 181
countries. South Africa ranked 28 in 2005, but fell behind
economies that were faster to reform in recent rankings. The index
tracks how business friendly the regulatory environment is in each
country, especially for small and medium-sized businesses. It is
based on 10 indicators, which measure the time and cost required to
start and operate a business, trade across borders, pay taxes, and

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close a business. South Africa's recovery in the rankings is
attributed to the Companies Act Amendments, which made it easier to
register a new business. The removal of the regional services
council levies and the reduction in the rate of secondary tax on
companies also helped. South Africa is ranked second in the world
on ease of getting credit. It also ranks well for protecting
investors and paying taxes, but is ranked very low for ease of
employing workers and trading across borders. (Business Day,
September 11, 2008)

------------------------------------------
Old Mutual CEO Quits on U.S. Subprime Loss
------------------------------------------

5. (U) Old Mutual CEO Jim Sutcliffe became South Africa's first
sub-prime casualty when he resigned amid large write-downs and
urgent cash injections linked to the insurer's U.S. Life business.
U.S. Life recently reported that a product from its Bermuda unit had
incurred liabilities and had been withdrawn. A downgrade of Freddie
Mac and Fannie Mae bonds tipped the scale for Old Mutual. It was
holding bonds through one of its affiliates, and recorded a
write-down of $135 million. Old Mutual's Head of Skandia business
Julian Roberts was immediately named as the replacement, but Old
Mutual's stock dropped 8%, when the news first broke. No other
South African companies have reported crises related to the
sub-prime crisis yet. Investec said it had "absolutely no exposure
to Fannie Mae and Freddie Mac". Nedbank, which is owned by Old
Mutual, said it had no exposure and that its parent company's woes
would not affect it. (Business Day, September 11, 2008)

--------------------------------------------
Light on Distant Horizon for Cargo Transport
between South Africa and Maputo
--------------------------------------------

6. (U) Maputo Development Corridor (MDC) Director Blessing Manale
announced that an agreement between South Africa and Mozambique
regarding the movement of cargo between the two countries moved
forward this week. Finalization of an agreement is crucial to the
development of the Port of Maputo in Mozambique. Manale indicated
that the negotiations, which began three-years ago, should be
finalized by September 2009. He noted that the South African
Department of Transport has been recruited to push state-owned
transport and logistics group Transnet towards a final agreement.
The agreement to improve the exchange of cargo at the common border
between the two countries relies on speeding up rail transport,
which is controlled by Transnet. Industry analysts blame the delay
on Transnet's ability to negotiate due to the fact that it also has
vested interests in South African ports. (Port and Ship News,
September 5, 2008)

----------------------------------
Carmakers Poised to Shift Maritime
Transport Focus to Maputo
----------------------------------

7. (U) The construction of a $30 million car terminal at the Port of
Maputo comes as Transnet rejected a proposal to build a new R2.6
billion ($325 million) car terminal at the Port of Durban last
month. Transnet opted instead for a R460 million ($57 million)
expansion of its existing car terminal in Durban. Shipping
Qexpansion of its existing car terminal in Durban. Shipping
specialist Grindrod emphasized that the expansions at Maputo do not
compete with Durban, as "all ports are choking at the moment." He
added that expansions were needed in both South Africa and
Mozambique. The Port of Maputo is roughly the same distance from
Gauteng as the Port of Durban, which currently handles most of South
Africa's vehicle imports and exports. Grindrod has just completed
the first phase of its Maputo car terminal, which will have a
capacity to handle 50,000 to 60,000 vehicles a year. Further
expansions could raise the potential capacity to 250,000 units a
year. "We're talking to (manufacturers), especially Rosslyn-based
(Gauteng Province) companies to do their vehicle exports and imports
through Maputo," said Grindrod Freight Division Director Dave
Rennie. He noted that the first South Africa-based manufacturer
will transport its vehicles through Maputo starting October, but
declined to name the manufacturer. Trials have been run to test the
corridor, which includes a recently up-graded rail-link to Maputo.
Other projects at the Port of Maputo include a $50 million expansion
of the coal terminal and the development of a bulk-liquid facility.

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The coal terminal will be expanded to an export capacity of
six-million tons of coal a year. Grindrod CEO Alan Olivier believes
it would be possible for the port to move eight-million tons of
goods in 2008, compared to six-million tons in 2007. Grindrod
increased its shareholding in the consortium that manages the Port
of Maputo from 12% to 25% last year. The Mozambique government
controls 50%, and the remaining 25% is held by Dubai Port World.
(Engineering News, September 8, 2008)

-------------------------------------
Johannesburg Signs MOU for Bus System
-------------------------------------

8. (U) The City of Johannesburg and bus operators Johannesburg
Metropolitan Bus Services (Metrobus) and Putco signed a memorandum
of understanding (MOU) outlining the framework for the first phase
of the planned Rea Vaya bus-rapid transit (BRT) system. The city
aims to have 43 new buses move along the BRT system's newly-widened
streets by the time the FIFA Confederations Cup kicks-off in June
2009. Johannesburg Mayor Amos Masondo said engagement with
operators was vital to the timely and successful implementation of
the BRT system, which would "vastly improve" the city's public
transport. The city confirmed that the BRT system would be
available to provide bus services for the Confederations Cup,
concentrating on areas that would ensure that the BRT could provide
services around and between the key soccer stadia, as well as
looking to satisfy the need for enhanced public transport for
commuters travelling from Soweto and surrounding areas.
(Engineering News, September 10, 2008)

------------------------------------------
Limpopo Chosen for Coal-to-Liquids Project
------------------------------------------

9. (U) Coal-to-Liquids (CTL) champion Sasol has selected a coalfield
in the western part of Limpopo province as part of its
pre-feasibility study into the proposed Mafutha CTL project. Sasol
and the Industrial Development Corporation may need to find up to
$16 billion to construct the 80,000 barrel-per-day project,
according to a Sasol spokesperson. One analyst described this
figure as "crazy", noting that it would cost one-half this amount
for a comparable facility under investigation in China. An
anonymous analyst did not expect Mafutha to proceed as it appeared
that Sasol had agreed to investigate the project as a result of the
Treasury's inquiry into a possible windfall tax on the company.
Sasol announced that its operating profit soared 32% to a record $4
billion in 2007. The energy security master plan released last
September shows that the state has ambitions to meet 50% of local
liquid fuels demand through synthetic production from coal and gas
(currently 35%). Sasol is taking steps to reduce its emission and
carbon footprint, given its ignoble label as the world's largest
single-point source of greenhouse gases. (Engineering News and
Business Report, September 8-11, 2008)

--------------------------
Mining Production Declines
--------------------------

10. (U) Statistics South Africa (StatsSA) reported that total mining
production for the third quarter of 2008 decreased by 6.6% compared
to the third quarter of 2007. The total mining production for the
Qto the third quarter of 2007. The total mining production for the
month of July 2008 decreased by 12.6% compared with July 2007. Gold
production decreased by 16.4%. The platinum group metals recorded a
large decrease in actual production of 32.8% compared with July
2007. StatsSA said the platinum group decline was mainly
attributable to deferred maintenance, whichQd normally have
occurred in the first half of the year. (Business Day, September
11, 2008)

-------------------------------------
Slow Pace of Mining Right Conversions
Worries Government
-------------------------------------

11. (U) Department of Minerals and Energy (DME) Minister Buyelwa
Sonjica reiterated her concern for the "snail's pace of mining
rights conversions," with less than envisaged progress towards
attainment of the objectives of the South Africa's Mining Charter to
date. "Less than 30 % of old-order mining rights have been

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submitted to my department for conversion. While the Mineral and
Petroleum Resources Development Act (MPRDA) provides for security of
tenure, submissions close to the deadline of April 30, 2009 will
create unnecessary bottlenecks in processing of applications," she
said in her address at the South African Mining Summit in
Johannesburg. The summit convened stakeholders to discuss issues of
transformation in preparation for review of the Mining Charter in
2009. "Failure to convert will not be without consequences," she
warned. Sonjica asserted that only a few of the empowerment
transactions embraced "the true spirit of broad-based black economic
empowerment (BEE)". The Minister also urged the mining houses
holding mining rights to find more meaningful ways of participating
and consulting with their local communities, expressing worries
about tension between mining companies and the communities where
they operated. Sonjica said DME had constituted a task team to
investigate reports of disinvestment in the mining sector.
Preliminary findings cited negative factors as: a lack of
infrastructure capacity; a paucity of skills; non-proximity of the
country to new markets, typically the Far East; introduction of the
new mining legislative framework, which created some investor
uncertainty; and currency fluctuations. The Minister claimed the
government had taken many steps to address these challenges.
(Mining Weekly and Business Day, September 10, 2008)

-------------------------------
Death is Stalking the Workplace
-------------------------------

12. (U) Unions have launched a series of costly one-day protests
against a spate of fatalities in the mining, construction, and
manufacturing industries - but they say the government shares the
blame because it does not have enough safety inspectors. National
Union of Mineworkers President Senzeni Zokwana struck hit out at
mining companies during a health and safety summit on September 5.
The death of a miner at DRD Gold's Blyvoor mine the day before took
the death toll in South Africa's mines this year to 116, only
slightly below the pace of last year's fatalities. Minister Sonjica
said mine safety audits ordered by President Mbeki earlier this year
had been completed and would be released after being presented to
the President. A mining industry expert said the audit was not
serious, reflecting skills shortages at the ministry. Official
figures for deaths in other industries are not available, but a
steady stream of fatal accidents on construction sites and in
factories has been reported. (Sunday Times, September 7, 2008)

---------------------------
Government Seeks ICT Advice
---------------------------

13. (U) Appointments of a raft of advisers are expected to help
South Africa utilize ICT more effectively. The announcement follows
a three-day meeting between President Thabo Mbeki and his
Presidential International Advisory Council on Information Society
and Development, which ended on August 7. The council is a
high-level panel made up of 23 advisors, including representatives
from SAP, Microsoft, Nokia, Oracle, and HP. Mbeki said: "The
establishment of the council is born from the fact that there is a
Qestablishment of the council is born from the fact that there is a
lack of a coordinated, coherent and integrated approach for
addressing the ICT skills shortage at all levels in the country."
The meeting focused on developments in ICT and reviewed progress in
areas such as e-government, education, and health. A new, local
CEOs' forum is expected to help implement decisions taken by the
advisory council, now in its seventh year of existence. In
addition, advisers would work with the Department of Trade and
Industry's Trade and Investment South Africa Division to ensure that
South Africa improves its ICT investment. A scorecard would be
developed to measure progress against set goals. Mbeki said "as
government, service providers and operators we need to look into
innovative approaches to expand connectivity in rural areas." The
country's readiness to host the 2010 FIFA World Cup was also
discussed. The country is expected to spend between R2 billion and
R5 billion ($250-625 million) on ICT infrastructure for the games.
This would include event management systems with software to manage
the accreditation of delegates, as well as transportation, travel,
and protocol systems. (Business Day and Engineering News, September
8, 2008)

---------------------------------
ICASA Moves to Issue New Licenses

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---------------------------------

14. (U) ICT regulator Independent Communications Authority of South
Africa (ICASA) has begun issuing new licenses that will permit
operators to build their own networks. The announcement comes just
a week after ICASA lost a legal case that opened the sector up to
increased competition. ICASA will hand out two types of licenses to
replace those that became defunct when the Electronic Communications
Act was promulgated in 2005. The most valuable version should
ultimately be issued to about 300 internet service providers and
other voice and data carriers, thanks to a court case instigated by
Altech. ICASA said it would not challenge the high court verdict,
which declared that every company holding an old Value Added Network
Services (VANS) license was entitled to build its own network. The
verdict was a rebuke for ICASA and Department of Communications
Minister Ivy Matsepe-Casaburri, since they were planning to reserve
the network-building licenses for a handful of select players.
Altech's triumph heralds a new level of competition and the promise
of cheaper calls, as the companies will no longer be forced to lease
their facilities from Telkom. ICASA said it was now ready to issue
the new licenses. However, only 27 companies were included in the
initial list to collect the two types of licenses; one letting them
build their own networks and the other letting them offer electronic
communications services. Those companies can also collect a
separate license giving them access to the spectrum they need in
order to operate. ICASA spokesman Sekgoela Sekgoela said this was
the first part of a process that would eventually reach all players.
ICASA would issue a further notice "in due course" with regard to
the outstanding licenses for those not among the first batch, he
noted. Telkom, Neotel, and the cellular operators can collect their
converted licenses only after ICASA has finalized how much it
intends to charge them in license fees. Industry analysts have
criticized ICASA for the delay in finalizing the fees structure.
Although hundreds of companies will technically have the right to
construct their own networks, only a dozen or so will be able to
afford the estimated R1 billion ($125 million) it would cost to roll
out a national infrastructure. However, just holding a license to
build their own networks will give them substantially more clout in
negotiating the cost of leasing their facilities from the incumbent
players. (Business Day, September 8, 2008)

-----------------------------------------
Cable-laying Company to Profit from ICASA
Decision to Issue New Licenses
-----------------------------------------

15. (U) Cable-laying company Dark Fibre Africa sold a 10% stake in
its business to Absa Capital. Absa would not comment on the value
of the 10% stake, but said the amount is separate from the R950
million ($118 million) pledged by Absa to help Dark Fibre grow its
business. Dark Fibre focuses on the unglamorous part of the ICT
sector, which involves digging up roads and laying cables. Its
prospects have been raised by the Independent Communications
Authority of South Africa's (ICASA) decision to heed a court ruling
QAuthority of South Africa's (ICASA) decision to heed a court ruling
and grant additional ICT licenses, which will allow Value Added
Network Services (VANS) to build their own ICT networks and
infrastructure. These VANS may hire Dark Fibre Africa to do the
dirty work if they decide to take advantage of the ICASA decision.
The company plans to invest R2 billion ($250 million) on rolling out
broadband infrastructure to sell or operate for multiple ICT
players. Absa Capital spokesman Sollie Nortj said Dark Fibre
Africa was South Africa's only fiber-optic specialist to use
trenching technology that installed cables up to three times faster
than traditional methods. Dark Fibre's plans include entering other
lucrative African countries with a lack of ICT infrastructure.
(Business Day, September 11, 2008)

--------------------------------------------
SA Firm Acquires Stake in Indian Distributor
--------------------------------------------

16. (U) South Africa-based ICT group Datatec has acquired a 50.01%
stake in India-based ICT distribution business Inflow Technologies.
The stake in Inflow provides Datatec with an entry point and initial
footprint in India. Inflow has a presence in nine key Indian cities
and has operations in Sri Lanka and Singapore. Datatec CEO Jens
Montanana said: "India is a very large and fast growing market
offering strong prospects in our sector with a lower cost of entry
compared to many other developing markets and potentially higher

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returns and greater organic investment opportunities." He added
that investment in Inflow is another step in Datatec's strategy to
increase its exposure to the world's major emerging markets.
(Engineering News, September 11, 2008)

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