AMBASSADOR BOST'S COURTESY CALL ON MINISTER OF

UNCLAS SECTION 01 OF 02 PRETORIA 004751

SIPDIS

SENSITIVE BUT UNCLASSIFIED
SIPDIS

DEPARTMENT PASS USTR FOR P.COLEMAN

E.O. 12958: N/A
TAGS: ETRD PREL SF
SUBJECT: AMBASSADOR BOST'S COURTESY CALL ON MINISTER OF
PUBLIC ENTERPRISES ALEC ERWIN



1. (U) Sensitive but unclassified, not for Internet
distribution.


2. (SBU) Summary. The United States wants to strengthen
economic ties with South Africa, even though some voices on
Capitol Hill are beginning to ask hard questions about the
bilateral trade relationship. South Africa believes the Doha
Round will eventually be restarted but that a final deal will
elude negotiators unless Southern views are taken into
account. Plans to upgrade infrastructure and build stadiums
for the 2010 World Cup are underway, although skills
shortages and the rising cost of capital goods may complicate
project implementation. GE is competing against Japanese and
Australian firms to sell locomotives to Transnet.
Soon-to-be-released BEE codes will not require black equity
participation in foreign firms in many cases. End Summary.


3. (SBU) Ambassador Eric Bost paid a courtesy call on
Minister of Public Enterprises Alec Erwin on November 13.
The Ambassador was accompanied by Senior Commercial Officer
and Deputy Economic Section Chief. Minister Erwin was
accompanied by his director of communications and external
liaison.

--------------
Trade Issues
--------------


4. (SBU) The Ambassador opened the meeting by stressing that
President Bush wants to strengthen the already close
relationship between the U.S. and South Africa. Deepening
economic ties is a key mechanism for achieving this goal, the
Ambassador stated, noting that bilateral trade would reduce
unemployment and boost growth rates in South Africa. The
Ambassador warned, however, that some members of Congress are
beginning to ask hard questions about the U.S./South Africa
trade relationship, especially in the aftermath of the failed
free trade agreement (FTA) talks. "People on the Hill see
that South Africa gets AGOA and GSP, and they ask themselves,
'What's in it for the U.S.?'," he said.


5. (SBU) Erwin confirmed that South Africa shares the U.S.
desire for close ties, and he hailed the bilateral trade
relationship as basically healthy, since both countries have
low tariffs. He explained that the broad U.S. approach to
the FTA, which included provisions on labor, the environment,
and IPR, had made it difficult for Pretoria to sell the FTA
to other SACU countries. He also noted that South Africa
normally prefers not to make commitments that could pre-empt
results in WTO negotiations. He predicted that trade talks
between the U.S. and SACU would someday be resumed if for no
other reason than Pretoria's desire to lock in AGOA benefits.


6. (SBU) Erwin was optimistic that the stalled Doha Round of
trade talks would restart eventually, since business groups
in the U.S. and Europe will not allow the negotiations to
fail. However, the U.S. and the EU cannot make a deal over
the heads of the South, Erwin warned. Countries like South
Africa, China, India and Brazil are now key players in the
WTO.

--------------
2010
--------------


7. (SBU) Erwin was confident that preparations for the 2010
World Cup are well in hand: transportation will be upgraded,
stadiums constructed, broadband capacity installed, and extra
resources devoted to fighting crime. Financing projects will
not be a problem, the Minister said, since the SAG is in such
strong fiscal shape. Any obstacles to smooth implementation
are likely to come in the form of skills shortages and the
spiraling cost of capital goods. "China and India are
sucking in capital equipment and making capital goods very
expensive," Erwin said, noting, "Building infrastructure
within budget and on time will be difficult under these
circumstances." The Ambassador noted, "In the U.S., we
gather 100,000 people into different stadiums every Sunday."
He outlined ways the U.S. could share expertise on crowd
management with South Africa.


8. (SBU) Regarding crime, Erwin claimed that criminal
syndicates are behind the recent epidemic of high-profile
bank robberies and armored car heists. This was the second
time since 1994, he said, that South Africa has been under
assault from well-organized crime rings. The police will
once again act decisively to break them up, he predicted.

PRETORIA 00004751 002 OF 002



--------------
Commercial Deals
--------------

9 (SBU) Erwin noted that Transnet (the port and rail
parastatal) has opened a tender for locomotives, which GE has
entered. GE will be competing with Japanese and Australian
firms, Erwin said, stressing that the terms of the
competition were clear and well understood. He noted the
historical ties between Transnet and GE, which used to
operate a locomotive plant in Port Elizabeth. Erwin also
said that South Africa has long had a good relationship with
Westinghouse and that he anticipated a decision on the
building of new nuclear power plants early in 2007. Comment:
The SAG is considering the construction of both a second
conventional pressurized water reactor and its first pebble
bed modular reactor (PBMR). Westinghouse is already an
investor in the PBMR project. GE and Westinghouse both hope
to be short-listed to bid on the SAG's nuclear projects. End
Comment

---
BEE
---


10. (SBU) The Ambassador reiterated U.S. support for Black
Economic Empowerment (BEE). He did indicate, however, that
many potential U.S. investors are taking a wait-and-see
attitude about South Africa until the final BEE Codes are
adopted. Erwin acknowledged that many U.S. companies were
"properly concerned" about the equity participation
requirements of BEE. The final codes will "clarify" these
requirements, he promised, adding that in many cases foreign
multinationals will not be required to sell equity to black
investors. Reflecting on BEE, Erwin explained that South
Africa had a clear choice: either to build a stable society,
or to provide an "easy ride" for foreign investors. He said
that most businesses understand that BEE is an investment in
long-term social stability. He praised the American Chamber
of Commerce for providing valuable input on BEE.

--------------
Comment
--------------


11. (SBU) The overseer of South Africa's huge parastatals,
Erwin is at the center of plans to expand infrastructure in
order to lift economic growth and prepare for the World Cup.
An economist and experienced administrator, there is probably
no one in the SAG better qualified to tackle this complex and
important job. As in past meetings, Erwin impressed post as
fully on top of his brief and confident he can get the job
done.
BOST