Cablegate: South Africa Economic News Weekly Newsletter November 28,

DE RUEHSA #2590/01 3330845
R 280845Z NOV 08




E.O. 12958: N/A
2008 ISSUE

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1. (U) Summary. This is Volume 8, issue 48 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- South Africa's Growth "Lowest in a Decade"
- Liquidations Increase
- Regional Integration Critical to Africa's
Economic Competitiveness
- Shippers Reroute Fleets to Cape of Good Hope; Pirates
Might Help South African Economy
- SAA to Launch Johannesburg-Buenos Aires Route
- Cape Town Faces a Long, Slow Summer
- Voice and Data Carriers Free at Last to Build Their Own
- Telecom Advisory Firm to Invest in South Africa
- Eskom and the Economic Dimness
- Regulator Still Waiting for Eskom's Tariff Request
- A Passes New Mine Safety Bill
- DEAT Targets Acquisition of CDM Regulatory Authority

End Summary.

South Africa's Growth "Lowest in a Decade"

2. (U) South Africa's economic growth rate slowed from an upwardly
revised 5.1% growth in the second quarter of 2008 to 0.2% in the
third quarter on a seasonally adjusted and annualized basis. The
third quarter figure was the lowest in a decade. A Reuters poll of
economists last week forecast the economy growing by an annualized
0.3% in the third quarter. On an unadjusted basis, South Africa's
economy grew by 2.9% compared to the third quarter of 2007, against
forecasts of 3.0%. Economists said the slower growth is an
indication that the economy is under significant strain. Efficient
Group Economist Lorett Els said, "The economic driver, from the
expenditure side, is the consumer, and it shows that consumers have
been under a lot of strain and so has business confidence. It
signals that we are in for a period of significantly slower growth,
and we could perhaps see a quarter of negative growth." (Reuters &
I-Net Bridge, November 25, 2008)

Liquidations Increase

3. (U) Statistics South Africa (StatsSA) data showed the total
number of liquidations increased from 328 in September to 348 in
October, with year-on-year (y/y) growth in liquidations rising to
21.7%. The latest liquidations figures are just another source of
evidence that the real economy in SA is responding noticeably to
tighter monetary policy. The SA Reserve Bank is increasingly
mindful of the strain that firms and individuals are under, and the
inflation and third-quarter 2008 gross domestic product (GDP)
numbers are likely to strengthen the argument for reducing interest
rates sooner rather than later. However, the most worrying aspect
is the depreciating rand, which is likely to keep inflationary
pressures elevated. (News24, November 26, 2008)?

Regional Integration Critical to Africa's
Economic Competitiveness

4. (U) Africa could benefit a great deal through intraregional trade
because it would allow the continent easier access to enter global
markets and improve its competitiveness said Lesotho's Deputy Prime
Minister Lesao Lehohla this week. Lehohla spoke at the Africa
Investment Forum 2008 held on November 25 in a Johannesburg suburb.
QInvestment Forum 2008 held on November 25 in a Johannesburg suburb.
Lehohla noted that African states have realized the need for
economic integration, as demonstrated by the tripartite summit held
by the Southern African Development Community, the East African
Community and the Common Market for Eastern and Southern Africa in
October. African governments should make regional integration a
priority as a "fundamental step" for these economies to enter global
markets, Lehohla said. He asserted that the continent's economies

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must adopt liberalized strategies and policies to maintain an
environment conducive to facilitating trade and investment. Lehohla
suggested that African countries eliminate all barriers to trade and
"harmonize trade and investment policies" while also "exploring
their comparative advantages" to improve the attractiveness of the
continent as a regional investment destination and a powerful
trading bloc. African countries must integrate their transport
systems to reduce costs, he insisted, because the cost of
transporting products to the export market often exceeds 50% or more
of overall production costs in certain African countries. Transnet
Group official Vuyo Kahla agreed that a regional approach is
required to build economies of scale. South African ports could
play a role as a regional hub for sub-Saharan Africa and as an
alternative trade route between Asia and South America, Kahla
believes. Meanwhile, East African Business Council vice-chairperson
Keli Kiilu announced preliminary plans to construct a rail system
between East and Central African countries in an effort to integrate
transportation systems. The first phase of the project, which would
connect Mombasa, Kampala, Kigali, and Bujumbara would cost between
$5-billion and $8.5-billion to develop. Another two phases would be
considered at a later stage, depending on the success of the first
phase. (Engineering News, November 26, 2008)

Shippers Reroute Fleets to Cape of Good Hope;
Pirates Might Help South African Economy

5. (U) The world's largest shipping company announced its oil
tankers will make a major detour to avoid the pirate-plagued waters
off the Somali coast. Maersk's decision to reroute its 50-strong
fleet of tankers via the Cape of Good Hope is likely to cause the
embattled company further pain, but may be a boon to South African
port cities, especially because the threat of piracy is causing
other shippers to follow suit. Taiwan shipping company TMT said
this week it is re-routing 20 oil tankers via the same Cape of Good
Hope route. Cape Town Harbor Master Ravi Naicker said the Port of
Cape Town is ready to handle an increase in the number of ships
expected to refuel in Cape Town to avoid the pirate-infested waters
of the Horn of Africa. Naicker said the ports of Durban, Port
Elizabeth and Richards Bay might also see an increase in the number
of ships that require bunker fuel. Cape Town has 61 bunkering
points supplying marine fuel oil, gas oil, and blended fuels. It
takes about 12 hours for a ship to refuel and up to 36 hours if the
ship also needs repairs. Transnet operates two dry docks, a repair
quay and a synchrolift. There were 14 piracy incidents reported
worldwide in the past week, most of them in the Gulf of Aden.
(Business Day, November 24 and 26, 2008)?

SAA to Launch Johannesburg-Buenos Aires Route

6. (U) South African Airways (SAA) will launch a new route to Buenos
Aires, Argentina SAA officials announced this week. Twice-weekly
flights on the route between Johannesburg and Buenos Aires begin in
Qflights on the route between Johannesburg and Buenos Aires begin in
April 2008. SAA plans to add a third service in July 2009. SAA
already provides daily South American service to Sco Paulo in
Brazil. SAA CEO Ngqula says SAA has experienced strong demand on
its Sco Paulo route, which is currently the airline's only South
American destination. The Buenos Aires route would build on the
success of this route and allow SAA to facilitate Southern
Hemisphere traffic flows. According to Ngqula, SAA is negotiating
with Lan Chile and Aeromexico to broaden its service to and from the
Americas. The Buenos Aires route is SAA's first new route following
the airline's restructuring. Ngqula says SAA will emerge from its
restructuring in March 2009 and is now in a position to think about
growth for SAA's future. (Engineering News, November 26, 2008)

Cape Town Faces a Long, Slow Summer

7. (U) Cape Town is likely to have its slowest summer holiday season
in many years as a growing number of tourists, both domestic and
international, opt to stay at home. The city relies heavily on the
busy summer season when many international travelers flock to the
tip of Africa to escape the Northern Hemisphere winter. But in this
year of financial crisis few visitors are making the trip. Southern

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Sun Hotels Director of Sales and Marketing Neil Fraser said, "There
is definite evidence of a slowdown in the inbound leisure business.
All the major tour operators are reporting a drop in forward
business." One hotel manager observed that hotel occupancy is way
down from this time last year, and commented that people are making
last-minute bookings instead of committing early to vacation plans.
ArabellaStarwood Hotels & Resorts SA Sales and Marketing Director
Gary Plourde concurred, saying, "The market slowdown has caused
booking trends to be unpredictable. Unexpected cancellations have
been replaced with unexpected short-lead bookings. This makes
forecasting very difficult... it puts added pressure on everyone in
the industry." It is not only the hotels that are feeling the
pain. Comair, the operator of British Airways and, has
recorded an overall dip in traffic to Cape Town of nearly 10% for
both airlines compared with this time last year. (Business Day,
November 26, 2008)

Voice and Data Carriers Free at Last to
Build Their Own Networks

8. (U) ALTECH's landmark high court victory winning liberalization
for the telecommunications sector will stand. Communications
Minister Ivy Matsepe-Casaburri decided not to escalate the issue to
the Supreme Court of Appeal. The Minister's capitulation means
Altech and about 300 other voice and data carriers can build their
own network infrastructure with no further risk of their investment
being legally challenged. The industry has already celebrated its
long-awaited freedom from having to lease networks from a few
dominant operators in the market, but there was a risk
Matsepe-Casaburri would continue to fight to protect her unpopular
policy of managed liberalization. The threat dissolved on November
21 with a statement that she would drop the case "in the interest of
the information and communications technologies sector."
Matsepe-Casaburri's position had been that only she could authorize
the Independent Communications Authority of SA (ICASA) to grant
permission to build telecommunications networks. But the high court
upheld Altech's belief that companies already licensed to provide
value-added network services could automatically convert that into
the new variety of license created by the Electronic Communications
Act. (Business Day, November 21, 2008)

--------------------------------------------- --
Telecom Advisory Firm to Invest in South Africa
--------------------------------------------- --

9. (U) Dubai-based telecommunications advisory firm Delta Partners
(DP) seeks to invest in South Africa by launching a R825 million
($80 million) equity fund. DP expects to invest in one or two South
African companies before turning its attention to the rest of
Africa. The typical deal would be worth between $5 million and $15
million. DP Managing Partner Kristoff Puelinckx said that DP plans
to invest in different types of companies, which could include cable
layers or infrastructure suppliers," and the companies might range
between "established telecoms players, new industry entrants,
Qbetween "established telecoms players, new industry entrants,
alternative telecom operators and industry suppliers that have
proven track-records, solid business models and existing cash
flows." Puelinckx said there was an unprecedented amount of
development taking place that would increase Africa's bandwidth
substantially over the next five to 10 years. "With the continued
liberalization of the local and regional telecoms markets, more
players are expected to enter this market, giving rise to increased
competition and more affordable access to communications technology
for businesses and consumers," he said. DP is the largest
telecommunications advisory and investment firm in Africa and the
Middle East. It operates in 25 countries, and its regional
headquarters is in Johannesburg. (Business Day, November 26, 2008)
Eskom and the Economic Dimness

10. (U) A Business Day Senior Associate Editor wondered this week
why Eskom continues to bemoan tight reserve margins and asks users
to save power when the drooping economy has caused the demand for
electricity to drop. ArcelorMittal has cut steel prices 25-30% and
slashed its production by one-third as demand dries up. At its
peak, the company was drawing 660 megawatts (MW) and was saving
about 10% after the January power crisis. Now its power consumption

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is about 60% of what it used to be. Other steel makers and
commodity producers have also cut power usage, but Eskom argues that
the savings are insignificant and do not relieve it of the pressure
to produce power. Gold and other large industrial and commercial
customers have not cut back, say Eskom officials. Total cutbacks
amount to only enough savings to counter the effect of the unplanned
shut down of one of its Koeberg nuclear power units outside of Cape
Town. Power stations are operating harder than they should have to
in order to meet demand, so unplanned outages are a problem.
Further, Eskom plans maintenance for this time of year, so up to 10%
of its capacity can be out at any given time. The woefully low
reserve margin makes Eskom's system especially vulnerable to spikes
in demand and dips in supply. Observers wonder how the economic
downturn might affect the reserve margin in the near future and
Eskom's build program in over the long haul. Eskom devised its huge
new build program based on the now overly ambitious growth rate of
6%, so the demand slump can give Eskom a breather, but only after it
brings online the two new mega coal-fired plants of Medupi and
Kusile. Eskom is pursuing a tender for a new nuclear power plant,
but the multiple nuclear power stations the government had in mind
are now on the back burner. And the slowdown should open the space
for South Africa to debate what it can afford in the way of new
power capacity and how to phase it in. But, if South Africa had the
choice, it surely would have opted for stronger economic growth and
a tighter electricity market. (Business Day, November 25, 2008)

--------------------------------------------- -----
Regulator Still Waiting for Eskom's Tariff Request
--------------------------------------------- -----

11. (U) The South African cabinet approved the so-called electricity
pricing policy (EPP) at its meeting November 19, which had been
designed to provide a framework for the determination of electricity
prices. The policy is reported to have emerged from consultation
with stakeholders. Meanwhile, National Energy Regulator of South
Africa (NERSA) is still eagerly awaiting Eskom's tariff adjustment
application under the so-called multi-year price determination (MYPD
2), intended to run from April 2009 until the end of March 2012.
Eskom has asked for more time given the changing global economic
climate. Eskom spokesman Fani Zulu said the delay was not an
attempt to reduce the time available for public consultation. NERSA
granted a 27% tariff hike in June of this year, which was short of
the 53% hike requested by Eskom. In making its determination, NERSA
indicated that price increases of between 20 and 25% would probably
have to be introduced over the next few years. This would
effectively result in a near doubling of the average tariff to 5
U.S. cents per kilowatt hour (kwh), from the current level of 2.5
U.S. cents per kwh. Eskom has justified increases in tariffs as
helping to underpin its ambitious capital expansion program, but it
is now reviewing its tariff plans in light of consumer complaints
and global financial turmoil. (Engineering News, Business Report,
Qand global financial turmoil. (Engineering News, Business Report,
November 20, 2008)

South Africa Passes New Mine Safety Bill

11. (U) South Africa's parliament passed new mine safety laws which
enforce stricter penalties and hold mine CEOs criminally liable for
deaths in some of the world's deepest mines. The mining industry,
represented by the Chamber of Mines, has criticized as "too
punitive" laws which would make provision for heavier penalties to
be levied against companies. The Chamber has also questioned the
insertion of a criminal liability clause allowing chief executives
and managers to be prosecuted should they be found guilty of causing
serious injury or deaths. The new laws, which must still be signed
by President Mothlanthe before becoming effective, also made
provision for mine accident investigations to be held within ten
days and a report completed within 30 days. South Africa
experienced 221 mine deaths in 2007 and the government began
temporarily shutting down mining operations after fatal accidents,
further reducing output in an industry already suffering the effects
of an ongoing power crisis. (Mining Weekly, November 21, 2008)

DEAT Targets Acquisition of
CDM Regulatory Authority

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12. (U) The Minister of Environmental Affairs and Tourism Marthinus
van Schalkwyk announced that South Africa's Designated National
Authority (DNA), which oversees the registration process of Clean
Development Mechanism (CDM) projects in South Africa, could be
transferred to the Department of Environmental Affairs and Tourism
(DEAT). CDM projects allow industrial countries with greenhouse gas
reduction commitments to invest in projects that reduce emissions in
developing countries as an alternative to reducing emissions in
their own countries. South Africa lags far behind other developing
countries like China, India and Brazil in the registration of CDM
projects, and critics say South Africa is losing out on an
environmentally friendly way to create additional revenue streams.
Officials from the National Business Initiative (NBI) agree the CDM
process may be improved by the move to the DEAT. NBI CEO Andre
Fourie said, "We must streamline the CDM process, because we are
struggling with that, and the bureaucracy is killing us." To date,
Only 14 CDM projects are registered in South Africa by companies
such as Sasol, Omnia, PetroSA, Corobrick, PPC, and the City of Cape
Town. (Engineering News, November 21-27, 2008)

© Scoop Media

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