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Cablegate: South Africa Economic News Weekly Newsletter September 4,

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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 SEPTEMBER 4,
2009 ISSUE

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1. (U) Summary. This is Volume 9, issue 34 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- South African Consumers in Debt Trouble
- Outlook for Vehicle Sales Brightens
- National Broadband Policy Expected "Shortly"
- Government Backs MTN-Bharti Deal to Promote South-South
Cooperation
- Energy Bordering on Crisis Again
- Minerals Export Stymied by Logistical Challenges
- Public Enterprise Boss May Be Headed for SAA
- South Africa and Italy to Expand Trade Relationship


End Summary.


--------------------------------------
South African Consumers in Debt Trouble
---------------------------------------

2. (U) The National Credit Regulator (NCR) has warned that at least
150,000 South Africans could be under debt review by Christmas as
the effects of the economic crisis take hold. Consumers under debt
review work with credit counselors to reschedule payments to
creditors. Consumer Assist Chief Executive Officer Andre Snyman
said there are already 100,000 consumers in credit counseling. They
owe a combined R20 billion ($2.5 billion) of which R12 billion ($1.5
billion) is owed on mortgages. People who were seeking assistance
had used all of their reserves and investments, commented Snyman.
Almost 1.3 million South Africans had fallen into arrears from June
2007 to July 2009. (Fin24, September 1, 2009)


------------------------------------
Outlook for Vehicle Sales Brightens
------------------------------------
3. (U) The National Association of Automobile Manufacturers of South
Africa (Naamsa) reported on September 2 that total new vehicle sales
for August declined 26.2% when compared to new vehicle sales in
August 2008. However, the decline had continued to be "less
negative" than in previous months, reinforcing the underlying
bottoming-out trend evident over the past three months, reported
Naamsa. Volkswagen SA spokesman Bill Stephens said market demand
remained subdued, as unemployment had grown and household real
incomes had fallen steeply, keeping households under financial
pressure and the household debt-to-income ratio at sustained high
levels. Naamsa said the revival of the domestic motor vehicle
industry depends on an improvement in consumer spending, lower
interest rates and stimulatory government expenditure. (Business
Day, September 3, 2009)
-------------------------------------------
National Broadband Policy Expected "Shortly"
-------------------------------------------

4. (U) Minister of Communications Siphiwe Nyanda addressed the
Southern African Telecommunications Networks and Application
Conference (SATNAC) in Swaziland, which focused on the convergence
of the information technology and telecommunications sectors.
Nyanda announced that the South African Department of Communications
(DOC) was finalizing the national broadband policy. He said there
was increasing pressure for integrated, affordable, and mobile
communications solutions that spurred the need for migration to
Internet Protocol (IP) based platforms. The South African
government hopes to deploy ICT to stimulate socioeconomic growth,
and thus seeks to encourage more undersea, fiber-optic cables
Qand thus seeks to encourage more undersea, fiber-optic cables
connecting the country to international networks, as well as
extending terrestrial fiber-optic networks. He noted that South
Africa's lack of infrastructure precludes the need to adapt from
aged legacy systems. Nyanda said convergence of the sectors could
"reverse the skills gap," and he contemplated using voice over IP
for education, health care, and service delivery in rural areas.
(Engineering News, August 31, 2009)

-----------------------------------
Government Backs MTN-Bharti Deal to
Promote South-South Cooperation

PRETORIA 00001808 002.2 OF 003


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

5. (U) South Africa's government has backed the proposed merger
between domestic mobile operator MTN Group and India's Bharti Airtel
that could lead to the creation of the world's No. 3 mobile firm.
While a combined MTN/Bharti would be the third-biggest mobile
operator based on subscribers behind China Mobile and Vodafone, its
annual sales of $20 billion would be dwarfed by China Mobile's $60
billion and Vodafone's $65 billion. The two companies have been
working to conclude a $23 billion cross-ownership deal since May.
Under the proposal, MTN would take a 36% stake in Bharti and Bharti
would take a 49% stake in MTN, with the possibility of a full-blown
merger to follow. South-South cooperation is a key mechanism for
the development agenda of India, Brazil, and South Africa under a
trilateral initiative aimed at unlocking economic opportunities that
exist between the three countries. (Engineering News, August 31,
2009)

--------------------------------
Energy Bordering on Crisis Again
--------------------------------

6. (U) Eskom's Andrew Etzinger recently commented that the utility's
reserve margin was back to the crisis levels of January 2008, when
Eskom shared available electricity on a rotating basis and cut power
supplies to mines. Etzinger emphasized the need to pursue energy
efficiency in earnest. He said significant new power production
from Eskom would be available only in 2012. Electricity supply
until then "would be very tight." South Africa is experiencing its
first recession in nearly two decades, but Etzinger argued, "Demand
for electricity has continued almost as though there was no
recession. We have, in a sense, two economies. There is the real
economy, where recession reduces growth and opportunity. Then there
is the energy economy, where demand continues its upward trajectory
seemingly independent of what pain consumers and taxpayers may be
experiencing. It appears that negative economic growth does not
offer a respite from energy demand." Prior to the crisis, South
Africa had the least expensive electricity in the world. The
electricity regulator NERSA has since approved two generous price
increases, 27.5% and 31.1%, but demand is up by 10% from when the
power conservation program was implemented 18 months ago. Etzinger
noted, "Cheap electricity had worked nicely for the economy in the
past, but that it was now a negative, and there was no way out of
the mess without tariffs rising drastically." (Mail and Guardian,
August 31, 2009)


-------------------------------------
Minerals Export Stymied by Logistical
Challenges
-------------------------------------

7. (U) African Rainbow Minerals (ARM) Executive Patrice Motsepe said
South Africa was running the risk of losing business to rival
countries because of logistics ineptitude. Motsepe noted that "this
is not just an industry-specific issue, but it's about the country
as a whole, and our global competitiveness." Work is being done to
look into a new lower-cost, higher-capacity transport route for the
export of manganese from South Africa's rich Kalahari manganese
field. ARM Ferrous Executive Director Jan Steenkamp said ARM, with
Qfield. ARM Ferrous Executive Director Jan Steenkamp said ARM, with
its partner Assmang, and rival diversified miner BHP Billiton,
sponsored a feasibility study to look at all the manganese export
alternatives on the eastern and western corridors. State-controlled
transport logistics company Transnet "is currently working with the
producers to look at long-term export capacity," Steenkamp said.
(Mining Weekly, August 31, 2009)

--------------------------------------------
Public Enterprise Boss May Be Headed for SAA
--------------------------------------------
8. (U) Department of Public Enterprises (DPE) Director General
Portia Molefe has resigned and industry speculation is that she is a
contender for the CEO post at South African Airways (SAA). DPE
declined to comment on Molefe's resignation. Former Minister of
Public Enterprises Alec Erwin, who appointed Molefe, remarked that
Molefe was "an effective and innovative Director General, and if she
is leaving government it would be a huge loss." Despite
long-standing funding problems at SAA, Molefe has argued that the
airline is a strategic asset providing vital business and tourism

PRETORIA 00001808 003.2 OF 003


links to the rest of the world and so should remain under government
control. (Comment: the former SAA CEO was forced to resign earlier
this year amidst reports of financial mismanagement and corruption
and the process of appointing a new CEO is well under way.)
However, there are some signs that Molefe might be out of favor
politically. Before the April elections, she had floated the idea
of corralling state entities into a single agency not headed by a
cabinet minister. The implication was that Molefe herself would
head the agency, but the Zuma administration rejected the proposal.
It has also become clear that she and DPE Minister Barbara Hogan do
not always see eye-to-eye. (Business Day, September 2, 2009)


--------------------------------
South Africa and Italy to Expand
Trade Relationship
--------------------------------

9. (U) South African Trade and Industry Minister Dr. Rob Davies and
Italian Economic Development Minister Claudio Scajola met in
Pretoria to discuss small enterprise development and cooperation on
trade within South Africa's industrial policy. Davies noted that
there were complementary opportunities for Italian firms and
organizations, especially in South Africa's agroindustries and the
furniture-making sector. South Africa imported about R17 billion
($2.1 billion) worth of goods from Italy in 2008, mainly machinery,
electrical equipment and appliances. South Africa exported about
R13 billion ($1.6 billion) worth of goods to Italy, most of which
were precious metals, coal, and metallurgical products. Davies said
that South Africa mostly exported primary or raw materials and
imported manufactured goods. South Africa was aiming to shift the
balance increasingly towards value-added products. (Engineering
News, August 31, 2009)

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