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