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Cablegate: Scenesetter for Special Advisor Robert J.

DE RUEHSA #1697/01 2360803




E.O. 12958: N/A

PRETORIA 00001697 001.2 OF 006

1. (SBU) Ambassador Gips warmly welcomes your visit to South
Africa. The Mission stands ready to do everything it can to
help make your trip a success. The Control Officers for the
visit are Acting Political Counselor Madeline Seidenstricker
and Energy Officer David Young, who can be reached at
27-12-431-4173 and 27-12-431-4810 respectively.

2. (SBU) You are visiting South Africa at a particularly
interesting time, following Secretary Clinton's visit on
August 6-9 and the bilateral meeting between Presidents Obama
and Zuma on the margins of the recent G-8 summit in Italy, at
which the two presidents agreed to begin a high-level
dialogue on disarmament, nonproliferation, and nuclear
cooperation. The Secretary underscored President Obama's
commitment to this dialogue in her meeting with Minister of
International Relations and Cooperation Nkoane-Mashabane.
This commitment was part of the Secretary's broader message
on increased bilateral cooperation to sustain the remarkable
progress South Africa has made since the end of apartheid in
establishing a vibrant market-based democracy.

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3. (SBU) In extending an invitation to dialogue on nuclear
issues, Ambassador Abdul Minty, South Africa's leading voice
on nuclear energy, has offered an opportunity to develop the
themes introduced in the President's and Secretary's
discussions and to address divisions between South Africa and
the U.S., as well as between some developed and some
developing countries, which were highlighted during Minty's
unsuccessful campaign for IAEA Director General. While not
the specific focus of this meeting, increasing nuclear energy
cooperation is significant on our bilateral agenda. We hope
to sign a bilateral agreement for cooperation in nuclear
energy R&D on the margins of the IAEA General Conference in
Vienna in September. We are cooperating on a number of
border and port initiatives for increasing capacity to detect
radiological materials. We strongly support Westinghouse as
a potential supplier of new nuclear power plants, based on
its experience in technology transfer.

4. (SBU) The African National Congress-led (ANC) South
African Government (SAG) has made major progress toward
establishing a vibrant democracy and a market-based economy
since the end of apartheid in 1994. The SAG has focused on
political and economic transformation, i.e., reducing the gap
between the historically privileged and disadvantaged
communities. It has accomplished this primarily by
delivering government-provided housing, electricity, and
water to the poor, and by creating educational, skills
development, employment, and business opportunities for the
previously disadvantaged.

5. (SBU) South Africa continues to face daunting challenges,
including a lack of public sector capacity, a thirty percent
shortfall in mid-to-upper-level public sector managers,
skills shortages in all sectors, infrastructure bottlenecks,
income inequality, less than adequate educational
opportunities, massive unemployment, entrenched rural and
urban poverty, violent and widespread crime, episodes of
xenophobic riots, and a severe HIV/AIDS pandemic. These
problems intensify political tensions within the ruling
coalition and between the coalition and other political,
civil society, and private sector groups.
Qcivil society, and private sector groups.

6. (SBU) South Africa remains the continent's best prospect
for establishing a successful democratic society with
expanding prosperity despite its many challenges.
Approximately 77 percent of registered voters participated in
the April 22 national elections, indicating a popular will to
build a democratic society. South Africa is a leader of
aid-recipient countries in their dialogue with donor nations.
It plays a key role in promoting peace and stability in
Africa, and is an important voice on international finance,
global trade, human rights, conflict resolution, and
nonproliferation issues. The USG shares common objectives
with the SAG on the African continent and beyond, and the two
governments work closely on many of them.

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7. (SBU) The ANC dominates the political scene in South
Africa but showed signs of internal strife in the last year.
The strife led to a lessening of support from the electorate.
In the April 2009 national and provincial election, the ANC

PRETORIA 00001697 002.2 OF 006

won 66 percent of the vote and 264 National Assembly seats,
earning the right to govern for the fourth consecutive time
since 1994. The opposition, meanwhile, has steadily
benefited from ANC turmoil. The Democratic Alliance (DA) is
the largest of several small opposition parties in the
National Assembly, winning 47 seats in 2004 and 67 seats in
2009. In 2009, the DA earned 51 percent of the vote in the
Western Cape to win an outright governing majority in the
province. A new opposition party that broke from the ANC,
the Congress of the People (COPE), gained 30 seats in the
National Assembly in the 2009 election and is now the third
largest national party as well as the official opposition in
three of the nine provinces.

8. (SBU) The ANC's internal problems stem from the fallout
of the December 2007 ANC congress in Polokwane, Limpopo.
Jacob Zuma defeated incumbent Mbeki by a vote of 2,329 to
1,505 for the party presidency. Zuma's allies swept the
other top five ANC positions. The Zuma camp dominated the
elections for the ANC's 86-member National Executive Council
(NEC), with sixteen Mbeki Cabinet members (out of 28) losing
their NEC seats. Zuma's victory positioned him as the
front-runner to become national President following the 2009
election. The tense debate at the party's December 2007 ANC
National Conference and defeat of incumbent Mbeki reflected
the growing impatience with the pace of socio-economic
change. It was also in large part a reflection of the
growing restlessness and dissatisfaction with the ANC's
inability to deliver a better life for everyone.

9. (SBU) Zuma has stressed that as president he will not
make radical policy changes and that he respects the party's
previous policy consensus. His Cabinet selections,
particularly the re-appointment of former Health Minister
Barbara Hogan as Minister of Public Enterprises and former
Finance Minister Trevor Manuel as Minister of Planning in the
Presidency, show that the ANC wants to improve policy
implementation in certain areas without drastic overhauls.
Despite such signals, many of the new Cabinet appointments --
and some of Zuma's strongest coalition supporters -- come
from the left wing of South African politics. The Congress
of South African Trade Unions (COSATU) and the South African
Communist Party (SACP) are members of the ANC-led tripartite
alliance. These groups are pressuring Zuma to embrace more
leftist or perhaps even populist positions in the interests
of the working-class poor, and they supported the appointment
of many of their members to the Cabinet. On issues like
HIV/AIDS and Zimbabwe, this could lead to SAG policies more
closely in line with U.S. interests. However, on other
issues -- like fiscal management, nationalization of
industry/resource sectors, and trade liberalization -- the
shifts in policy might be less positive from a U.S.
perspective. It seems likely that the new ANC leaders will be
more focused on domestic rather than continental or global


10. (U) South Africa under Mbeki took a high-profile role
promoting Africa's interests and Mbeki was successful in
getting African issues onto a host of multilateral agendas,
Qgetting African issues onto a host of multilateral agendas,
including the G-20. South Africa served as the first chair
of the African Union until July 2003 and helped establish
continental institutions such as the Pan-African Parliament
(which sits in South Africa) and the AU Peace and Security

11. (SBU) U.S.-South Africa bilateral relations are overall
positive, but South Africa has taken positions in
multilateral for that run counter to U.S. interests. South
Africa advocated for a greater voice for the "South"
relative to the "North" in an expanded UN security Council
and in the governance financial institutions, along with
increased development assistance and lower trade barriers.
South Africa under Mbeki believed it had a responsibility to
lead African conflict resolution efforts and participate in
peace support operations by virtue of its history and
regional political, economic, and military clout. South
Africa plays a lead role in conflict resolution in Burundi
and contributes troops to UN Peace Keeping missions in the
Democratic Republic of Congo (DRC), Burundi, and Sudan.
South Africa is, however, in the process of down-sizing its
forces in Burundi to a small 100-man security force. South
Africa has approximately 3,000 personnel deployed in peace

PRETORIA 00001697 003.2 OF 006

support operations in Africa (DRC and Sudan) and the U.S. has
a strong interest in helping South Africa expand and enhance
its peacekeeping and disaster assistance capabilities. South
Africa participates in the U.S. African Contingency
Operations Training and Assistance program (ACOTA) to enhance
the South African National Defense Force's (SANDF) capacity
to participate in multilateral peace support operations.
Motivated, in part, by lingering suspicions of the U.S.
dating to the cold war, South African defense officials have
been openly critical of U.S. Africa Command in the past, but
the Embassy has been making progress in engaging with the SAG
on this issue and continues to engage in a wide range of
military-to-military activities. Last year the U.S.
completed the first visit by a U.S. Navy aircraft carrier to
South Africa since 1967. This marked a turning point in
military-to-military relations although occasional hiccups
are still happening.

12. (SBU) Zimbabwe remains a continuing challenge for South
Africa. SADC leaders appointed Mbeki in March 2007 as the
mediator between Zimbabwean President Robert Mugabe and the
opposition Movement for Democratic Change (MDC), with the
goal of leveling the electoral field before the March 2008
elections. Negotiations made some progress, but human rights
abuses against the opposition accelerated. The MDC won a
small majority of seats in the Parliament. Tsvangirai
dropped out of the race on June 22 as a result of the
political instability and the violence against MDC
supporters. A September 2008 SADC-brokered power-sharing
agreement was reconfigured as a power-sharing unity
government and implemented in February 2009. The SAG and
SADC asked former President Mbeki to stay on in his role as
SADC's chief Zimbabwe negotiator following his departure from

--------------------------------------------- -----------
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13. (SBU) South Africa is a middle-income, emerging market
economy with purchasing power parity GNI per capita of $3,206
(2008), akin to Chile, Malaysia, or Thailand. The SAG has
pursued prudent monetary and fiscal policies, which turned a
fiscal deficit of 6 percent of GDP in 1994-05 to a small
surplus of 0.9 percent of GDP in 2007-08. However, the
government announced in February 2009 a fiscal deficit of 3.9
percent of GDP for 2009-10, citing the need for stimulus in
the face of a deteriorating economic environment. The South
African Reserve Bank (SARB) is independent. It targets an
inflation rate of 3-6 percent, but is currently struggling
with inflation of about 8.5 percent. Real GDP growth averaged
5 percent per year between 2005 and 2007, but fell to 3.1
percent in 2008 because of higher interest rates, power
shortages and weakening commodities prices. GDP contracted
6.4 percent in the first quarter of 2009, owing to slumps in
commodity prices and manufactured exports. South Africa is
now in official recession, and analysts forecast a fall in
GDP of about 1.0 percent in 2009.

14. (SBU) South Africa's financial system has not been
directly affected by recent turmoil in global financial
markets. The local banking system is well-capitalized and
strictly-regulated, and banks and other financial
Qstrictly-regulated, and banks and other financial
institutions have relatively little exposure to sub-prime
debt or other contagion. Banks raise most of their capital
domestically. However, South Africa depends on portfolio
inflows to finance its large current account deficit (about 8
percent of GDP).

15. (SBU) South Africa's single greatest economic challenge
is to accelerate growth in a slowing global economy in order
to address widespread unemployment and reduce poverty. The
official unemployment rate, currently 23.5 percent, is
significantly higher among black South Africans than among
whites. Income inequality between haves and have-nots
remains one of the highest rates in the world. Fifty-six
percent of black South Africans, but only four percent of
whites, live in poverty. The lack of capacity and service
delivery at the provincial and municipal levels fueled the
recent xenophobic attacks on refugees from neighboring
countries as South Africans from lower socioeconomic strata
feared that jobs, houses, and other services were being given
to non-South African immigrants. Other obstacles exacerbating
South Africa's economic growth and service delivery problems
are skill shortages, a brain and skills drain, and education
system weaknesses.

PRETORIA 00001697 004.2 OF 006

16. (SBU) The SAG has made strides in the areas of transfer
payments and public services to close the gap. Nearly 2.5
million low-cost homes have been built to provide shelter to
7.6 million people, 3.5 million homes have been provided with
electricity, and nine million people have been connected to
clean water. Almost 13.4 million people were benefiting from
social grants in 2008, and this figure is projected to
increase to 20 million in the next several years as benefits
are extended to broader categories of recipients. The SAG's
broad-based Black Economic Empowerment (BEE) program provides
ownership and employment opportunities to blacks and other
historically (or previously) disadvantaged and has helped the
black middle class double in size to an estimated two million
since 1994.

17. (U) The success in preparing for and carrying off the
FIFA 2010 Soccer World Cup to be held in South Africa in
mid-June 2010 is regarded by many as a bellwether of the
country's commitment to continued progress in a variety of
social and economic areas, among these being the fight
against crime, providing services, expanding and improving
infrastructure, and developing tourism. South Africa's
successful hosting of the FIFA Confederations Cup in June
2009 strengthened confidence that the World Cup in 2010 will
also be managed effectively.

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

18. (SBU) The U.S. is South Africa's third-largest trading
partner, after Germany and China. U.S.-South Africa trade
grew 12 percent in 2008, totaling $16.1 billion. U.S.
exports rose 18 percent to $6.2 billion, while South African
exports to the United States increased 9 percent to $9.9
billion. South Africa was the third largest beneficiary of
total exports (after Nigeria and Angola) and the largest
beneficiary of non-oil exports under the African Growth
Opportunity Act (AGOA) in 2008. The U.S. was South Africa's
largest export market in 2007 and an impressive 98.1 percent
of South Africa's exports entered the U.S. with zero import
duties in 2007 as a result of normal trading relations (NTR),
GSP, AGOA and other benefits. Japan displaced the U.S. as
South Africa's largest export market in 2008.

19. (SBU) Over 600 U.S. firms have a presence in South
Africa, with 85 percent using the country as a regional
center. South Africa's stable government, sound fiscal and
monetary policies, transportation infrastructure,
sophisticated financial sector, and, by African standards,
large market are the primary attractions for U.S. businesses.
Nevertheless, South Africa has failed to attract a
proportionate share of global foreign direct investment since
1994. Reasons include a volatile exchange rate, distance
from developed country markets, high unit labor costs, strong
unions, skills shortages, crime, HIV/AIDS, regulatory
uncertainty, and the impact of Black Economic Empowerment
policies. The U.S. was the largest portfolio investor and
the second largest foreign direct investor in South Africa
after the U.K. ($6.6 billion at year-end 2007). General
Motors, Ford, and Timken are among the top industrial
investors in South Africa. Teletech recently opened a large
call center in Cape Town and has plans to open smaller
Qcall center in Cape Town and has plans to open smaller
centers in other parts of the country. Westinghouse is
competing for a $60 billion dollar contract to build a fleet
of AP1000 nuclear reactors in the Western and Eastern Cape
provinces. Lockheed recently signed a contract with
state-owned aviation manufacturer and services provider Denel
for Denel to open a licensed service center to repair,
maintain and overhaul Lockheed C-130s from Africa and the
Middle East.

20. (SBU) The U.S. and the Southern African Customs Union
(SACU: South Africa, Botswana, Lesotho, Namibia, and
Swaziland) suspended free trade agreement negotiations after
three years and six rounds of negotiations in April 2006.
Negotiators agreed to pursue a Trade, Investment and
Development Cooperative Agreement (TIDCA) in an effort to
preserve some of the progress made in the FTA talks. A
framework agreement for the TIDCA was signed at the AGOA
Forum in Washington on July 14, 2008. South Africa has
recently expressed interest in stepping up the pace on TIDCA,
and negotiators may begin work soon on agreements to promote
private sector contacts and reduce existing barriers to
bilateral trade. There may be movement on TIDCA in the

PRETORIA 00001697 005.2 OF 006

run-up to the AGOA Forum in August.


21. (U) The USG has contributed approximately $1.9 billion
toward South Africa's development, including $250 million in
credit guarantees, since 1994, and $100 million in education,
$120 million in economic growth, and $88 million in democracy
and governance since 1998. Our current development
assistance program focuses on: supporting South Africa's
response to HIV/AIDS and TB through the U.S. President's
Emergency Plan for AIDS Relief (PEPFAR); addressing
unemployment through financing and business development
services for SMEs, job-skills training and education;
reducing gender-based violence as part of the President's
Women's Justice and Empowerment Initiative (WJEI); enhancing
the quality of education through teacher training; and
partnering with the SAG in third countries engaged in
post-conflict rebuilding. South African NGOs have also
received Trafficking in Persons (TIP) grants over the past
few years to assist in the global fight against trafficking
in persons. A wide range of U.S. private foundations and
NGOs are also at work in South Africa. Among them are the
Gates Foundation (HIV/AIDS), the Ford Foundation (higher
education), the Rockefeller Foundation (adult education), and
the Clinton Foundation (HIV/AIDS and Climate Change).

22. (U) Twenty-eight U.S. government entities are
represented at the U.S. Mission in South Africa (Embassy
Pretoria and the three Consulates in Johannesburg, Cape Town
and Durban). The Mission has 292 Direct Hire (USDH)
positions and 608 local employees. More than 40 percent of
Mission staff provides regional services to other U.S.
embassies in Africa. The Mission has embarked on an
ambitious program to build safe office facilities. The
Mission completed the new consulate compound in Cape Town in
2005 and a new consulate building in Johannesburg in April
2009. Future projects include construction of a new annex
for USAID and CDC. The construction of a much-needed,
155-desk office annex on the Embassy compound in Pretoria was
deferred by the Office of Buildings Operations (OBO) from
2009 to 2022.

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23. (U) The PEPFAR program in South Africa is the largest
recipient of PEPFAR resources to date, having received a
total of $1.45 billion, including $591 million in FY2008.
South Africa has the largest number of HIV-infected citizens
in the world. HIV/AIDS-related illnesses, particularly due
to HIV/tuberculosis (TB) co-infection, are the country's
leading cause of death. Despite South Africa's overall
wealth, life expectancy at birth has decreased from 67 to 52,
the regional average, due to HIV/AIDS and HIV/TB
co-infection. Under-five mortality, with the Millennium
Development Goal (MDG) of 24 per 1,000 in 2015, has increased
from 60 to 67 per 1,000 between 1990 and 2006. Achieving the
MDGs is the SAG's highest priority, but South Africa is
moving further away from these goals in both child and
maternal mortality as a result of HIV/AIDS.

24. (U) An estimated 5.4 million South Africans are
Q24. (U) An estimated 5.4 million South Africans are
HIV-positive including 2.7 million women and about 300,000
children 14 years old or younger. An estimated 18.8 percent
of adults between 15 and 49 are HIV-infected and women in the
age group of 25-29, the most seriously affected, have
prevalence rates of up to 40 percent in some areas. An
estimated 530,000 new infections occur annually. In 2006,
350,000 adults and children died from AIDS; an estimated 1.8
million deaths have occurred since the start of the epidemic;
and 71 percent of all deaths in 15 to 41-year-olds are due to
AIDS. In the last few years, there is an indication that
prevalence may be starting to decline. Prevalence in
antenatal care fell from 29 percent in 2005 to 28 percent in
2008. At least 1.6 million children, approximately 10
percent of South Africa's youth, have had at least one parent
die and 66 percent of these have been orphaned by AIDS.
Continuing AIDS-related mortality will create millions of new
orphans and generate additional social and economic
disruption, in part due to orphans being raised by extended
families or in child-headed households.

PRETORIA 00001697 006.3 OF 006

25. (U) The epidemics of HIV and TB are interlinked. TB is
the most common infectious disease in sub-Saharan Africa and
approximately 50 percent of HIV patients in South Africa also
have TB. A high overall prevalence rate of HIV, HIV/TB
co-infection, and lack of continuity in treatment contribute
to the increasing incidence of active TB, including multi-
and extensive-drug-resistant TB strains (MDR- and XDR-TB).
The piloting of an SAG-approved rapid test for MDR-TB may
allow more rapid identification and initiation of appropriate
treatment, but staff shortages and skills challenges impede
an effective response to TB. Failure to adequately control
and treat TB may undo all the gains South Africa has made in
HIV care and treatment thus far.

26. (U) The South African National Strategic Plan for HIV &
AIDS and Sexually Transmitted Infections 2007-2011 (NSP)
provides a road map for responding to this crisis and sets
out goals of reducing new HIV infections by 50 percent by
2011 and increasing access to anti-retroviral treatment
(ART). The South African public health system has a need
for: expanded clinical and laboratory facilities;
strengthened health care infrastructure, particularly for
chronic disease, which includes HIV and TB; increased
coverage of HIV treatment; HIV prevention; and TB control and
treatment. The country has made impressive progress towards
expanding access to ART, but the current number of people on
ART is less than 30 percent of those who need it. The number
of new infections also greatly exceeds the number of new
people placed on ART.

27. (U) PEPFAR is in its fifth year of implementation and
has recently been re-authorized for a second five-year
period. PEPFAR is implemented in South Africa by five USG
agencies: the U.S. Agency for International Development
(USAID); the U.S. Department of Health and Human Services
(HHS), which includes the Centers for Disease Control and
Prevention (CDC); the U.S. Department of State; the U.S.
Department of Defense; and the Peace Corps.

28. (U) South Africa has the strongest research and training
capacity of any country in the region, making it an important
partner in HIV/AIDS and TB efforts. USG agencies work with
national and provincial health departments, the South Africa
military, universities, and NGOs to strengthen primary health
care, disease surveillance, and research. NIH provides
approximately $300 million in funding to South African
researchers per year, with 90 percent of this focused on
HIV/AIDS and TB research. The U.S. Mission has prepared a
five-year strategic plan in coordination with the SAG for HIV
prevention, care, and treatment for not only adults, but also
for orphans and other vulnerable children (OVCs). South
Africa is moving into a transition phase with an expected 75
percent budget reduction in PEPFAR funding during the next
three years (from $591 million in FY2008 to $150 million in
FY2011. This reduction will correspond with increased
emphasis on technical assistance and human capacity
development coupled with greater funding and program
implementation by the SAG. Although Hogan did not retain the
Health portfolio, Post expects to work cooperatively with new
Health Minister Aaron Motsoaledi on the development and
implementation of this five-year strategy and collaboration.
Qimplementation of this five-year strategy and collaboration.

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