SOUTH AFRICA: DEPUTY PRESIDENT MEETS OPIC DURING

UNCLAS SECTION 01 OF 02 PRETORIA 002022 SIPDIS SENSITIVE SIPDIS DEPT PLEASE PASS TO DEPT OF HUD DEPT PLEASE PASS TO OPIC E.O. 12958: N/A TAGS: EINV EFIN PGOV PREL EAID SF SUBJECT: SOUTH AFRICA: DEPUTY PRESIDENT MEETS OPIC DURING HOUSING AFRICA CONFERENCE REF: A. PRETORIA 109 (NOTAL) ¶B. PRETORIA 698 (NOTAL) ¶C. PRETORIA 955 (NOTAL) (U) This cable is Sensitive But Unclassified. Not for Internet Distribution. ¶1. (SBU) Summary. On May 4, Deputy President Phumzile Mlambo-Ngcuka met with OPIC President and CEO Robert Mosbacher, Jr. and Executive VP John Simon to discuss how OPIC could assist with the Accelerated and Shared Growth Initiative for South Africa (ASGISA). The meeting focused on two potential areas of OPIC assistance -- offering low-income home loans and securitizing pools of micro credit loans to boost the small business sector. The Deputy President expressed her frustration with the South African banking sector's unwillingness to bear the risk of extending housing finance to the low-income market. OPIC would like to assist in this effort, but would prefer to wait until the banks and government have determined how the risk will be divided among them. Post encourages OPIC to explore micro credit loan options without delay. The Deputy President also sought assistance for a mentoring program to boost the skills development of South Africans. This meeting took place on the margins of OPIC's Housing Africa Conference, held May 2-4 in Cape Town. End Summary. Deputy President Meets OPIC -------------- ¶2. (U) Meeting attendees included: -- Ms. Phumzile Mlambo-Ngcuka, Deputy President, Republic of South Africa -- Ms. Nonhlanhla Mjoli-Mncube, Economic Advisor to the Deputy President -- Mr. Robert Mosbacher, Jr., President and CEO, Overseas Private Investment Corporation (OPIC) -- Mr. John Simon, Executive Vice President, OPIC -- Mr. Jan van Vollenhoven, Director: USA Directorate, Department of Foreign Affairs -- Mr. Angus September, Deputy Director: USA Directorate, Department of Foreign Affairs -- Mr. Christian Merkling, Director, Lazare Kaplan Africa (arranged meeting on behalf of Maurice Tempelsman) -- Ms. Kary Hintz-Tate, Economic Officer, Embassy Pretoria ¶3. (SBU) On May 4, OPIC President and CEO Robert Mosbacher, Jr. and OPIC Executive VP John Simon met with South Africa's Deputy President Phumzile Mlambo-Ngcuka. They discussed how OPIC could assist with the Accelerated and Shared Growth �A;Initiative for South Africa's (ASGISA) 6% growth target (Refs A - C). Two potential areas of assistance emerged: (1) offering low-income home loans for those who do not qualify for the full government housing subsidy, but cannot secure financing from banks; and (2) securitizing pools of new micro credit loans to boost the small business sector. Mosbacher empathized with South Africa's need for financing solutions while stating OPIC's view that "low income does not mean high risk." Simon added that OPIC is looking to increase its micro lending capacity and is working with institutions who already have good track records in this area. ¶4. (SBU) The Deputy President went on to detail the specifics of where assistance is needed. She noted that South Africans who earn between R1,500 and R7,500 per month ($250 - $1,250) comprise the population that does not qualify for the full housing subsidy (R31,929 or $5,300),and are generally unable to secure a loan from a formal banking institution for houses under R250,000 ($42,000). The Deputy President also welcomed any innovations in the small business arena (i.e., loans from R10,000 to R250,000 or $2,000 to $42,000) that could give a large group of people a "starting chance," as the government is not looking for smaller, "boutique" solutions. ¶5. (SBU) The Deputy President expressed frustration with the banking industry's initiative to fulfill its obligations under the Financial Sector Black Economic Empowerment (BEE) Charter, signed in 2003. South Africa's "Big 4" banks (Standard, Barclays/ABSA, FirstRand, and Nedcor, which together control 85% of the market) and the financial services industry agreed to offer low-income home loans totaling R42 billion ($7 billion) by 2008 under the Charter. PRETORIA 00002022 002 OF 002 The banks and government, however, have reached an impasse over who should bear the risk of offering this financing. The Deputy President said that government might have to "crack the whip" on the industry to fulfill its Charter obligations and shoulder the associated risk, while the banks are looking to government to share the risk in line with international practice. ¶6. (SBU) The Deputy President's final plea was to seek assistance with mentoring programs to contribute to the skills development of South Africans. She explained that South Africa has ambitious infrastructure plans, but lacks the people with skills to implement the plans. Government has identified 500 people at the entry and mid level who they would like to send abroad to receive on the job training and mentoring in the next 18 months. Mosbacher noted that he was not aware of any OPIC projects that could assist in this effort. (Note: CDA Teitelbaum recently met with the Deputy President's Economic Advisor Mjoli-Mncube on this issue and will follow up on this request.) ¶7. (SBU) Overall, the meeting was relaxed and cordial. The Deputy President was candid about the challenges facing South Africa. On two separate occasions, she expressed her appreciation for OPIC's innovative Housing for HIV project which provides HIV/AIDS treatment for homeowners which are insured against mortgage default by South Africa's Home Loan Guaranty Company. The Deputy President said it is crucial to keep parents alive and provide shelter, as medication cannot provide shelter. Mosbacher thanked the Deputy President for her appreciation and also briefly described other work OPIC is doing with South Africa's National Urban Reconstruction and Housing Agency (NURCHA),Zambia, Ghana, Kenya, as well as two recently approved private equity funds which will operate in Southern and West Africa. Housing Africa Conference -------------- ¶8. (U) On May 2-4 in Cape Town, OPIC hosted a successful Africa-wide conference to promote investment in housing construction, finance, and infrastructure on the continent. Over 250 participants attended from the public and private sectors of Africa and the United States. Topics included: Africa's investment climate, housing construction, mortgage financing, capital markets/securitization, land/legal issues, infrastructure systems, and private equity. The Special Advisor to South Africa's Housing Minister, Mr. Saths Moodley, opened the conference alongside Mosbacher, Simon, and CDA Teitelbaum. Comment -------------- ¶9. (SBU) This meeting was one of many meetings the Deputy President has led in efforts to seek assistance with her ASGISA initiative. The SAG is hopeful that this meeting will lead to additional OPIC programs in South Africa. OPIC would like to assist with low-income home loans discussed during the meeting, but is hesitant about getting involved before the banks and government have sorted out their disagreement on the risk sharing issue. Once this issue is resolved, we encourage OPIC to explore personal home loan opportunities. We hope OPIC is able to evaluate without delay any micro credit options that could boost the small business sector in South Africa. ¶10. (U) OPIC President and CEO Rob Mosbacher cleared this cable. TEITELBAUM