SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 20, 2007

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 20, 2007
ISSUE



1. (U) Summary. This is Volume 7, issue 16 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Slow Progress Towards AsgiSA Goals
- US Equity Giant Bain Snares Edcon for R25bn
- High Commodity Prices Up SA-US Export Value
- SA Considering Second, Cheaper Undersea Telecommunications Cable
- Below Market Value Sale of a Marine Vessel Sets Scene for an
Investigation
- First BEE Private Equity Fund Launched
- Johannesburg Mine Dumps Disappear

End Summary.

Slow Progress Towards AsgiSA Goals
--------------


2. (U) The Accelerated and Shared Growth Initiative for South Africa
(AsgiSA),the SA government's one-year old initiative to accelerate
and spread economic growth, requires a new approach, according to
Deputy President Phumzile Mlambo-Ngcuka. Although the "economy is
pumping," with positive macroeconomic indicators and a massive
infrastructure program underway, Mlambo-Ngcuka's recently released
first annual report for AsgiSA noted that behind-target spending,
especially in provinces and municipalities, and delayed social
service projects were a particular problem. Some projects that were
reportedly begun over three years ago had still not been
implemented. She also pointed out that inter-departmental turf wars
were blocking crucial coordination between government departments
and has caused delays in aligning funds with AsgiSA's sectoral
targets for skills development. Mlambo-Ngcuka acknowledged that she
had underestimated the challenge of unemployment among the youth
with no marketable skills and the government had overestimated the
markets' role in creating jobs. To redress this problem, she said
the government needed to re-frame its policies based on the current
workforce. She said she would press for new initiatives on youth
unemployment, manufacturing, small-business development, information
technology, the creative arts and government capacity. AsgiSA also
aims to relieve "binding constraints" to faster economic growth.
She criticized the information, communications and technology sector
for failing to bring down prices and to expand opportunities, and
delivered harsh words against private-sector resistance to Black
Economic Empowerment. (Business Times, April 15, 2007)

US Equity Giant Bain Snares Edcon for R25bn
--------------


3. (U) In SA's largest private equity deal to date, U.S. equity
giant Bain Capital won 80% of shareholder votes for its takeover bid
of Edcon for 25 billion rand ($3.57 billion). Edcon, a prized
Johannesburg Securities Exchange (JSE) listed retail conglomerate,
owns popular outlets including Edgars, CNA, Boardmans, and
Temptations. International private equity groups have been sizing
up other local listed assets, but only one other smaller valued
transaction has been made. The Edcon vote may be an impetus to push
forward other deals during this period of strong consumer spending
and credit growth. Although the takeover still requires regulatory
approvals by the High Court, the SA Reserve Bank and the Competition
Commission, commentators expect it to clear the remaining hurdles
without difficulty. Bain will keep Edcon's Black Economic
Empowerment initiatives intact and none of its 20,000 staff jobs are
under threat. Edcon will be delisted from the JSE on May 18.
(Business Day and Pretoria News, April 17, 2007)

High Commodity Prices Up SA-US Export Value
--------------


4. (U) The value of South African exports to the US surged in the
first two months of 2007 due to high and rising commodity prices.
Exports for January and February 2007 rose 32% from the same period
last year to nearly $1.4 billion. Historically, mineral and metal
exports are by far the biggest component of exports to the U.S.
With the platinum prices ranging from $1,160 to $1,240 per ounce in
January and February compared to $1,080 for the same period in 2006,
the chief economist from the Chamber of Mines says that rising
commodity prices, rather than volumes, were responsible for the
higher values. Other metals showed similar price trajectories;
Rhodium was at $5,600 to $6,000 in January and February from $3,500
for the same period last year and palladium was at $330 to $350

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compared with less than $290 last year. The second largest export
sector, passenger motor vehicles, was up 126% to $101 million in the
first two months of 2007, largely owing to the recovery of
interrupted BMW production in 2005. (Pretoria News and Business
Day, April 17, 2007)

SA Considering Second, Cheaper Undersea Telecommunications Cable
--------------


5. (U) Department of Communications (DOC) Director-General Lyndall
Shope-Mafole confirmed that SA may take the lead in building a
second undersea telecommunications cable along Africa's east coast
to compete with the planned East Africa Submarine System (EASSy)
cable. Shope-Mafole said April 4 that EASSy investors, which
include SA parastatal telecommunications monopoly Telkom, are more
interested in profiteering than providing affordable bandwidth. DOC
supports the New Partnership for Africa's Development (NEPAD) which
wants to increase affordable bandwidth and ideally would use the
EASSy cable. EASSy consortium members have complained that African
governments are trying to hijack the project. The opposing NEPAD
group insists that users of the cable pay the same price for
bandwidth access as the private companies that invested in the
infrastructure. Unless a compromise between the groups is reached,
two competing cables may be built. Telkom CEO Papi Molotsane, who
signed the investment agreement with the EASSy consortium despite
DOC's position, resigned April 5. (Business Day, April 4 and 6,
2007)

Below Market Value Sale of a Marine Vessel Sets Scene for an
Investigation
-------------- --


6. (U) The Marine Coastal Management (MCM),a division of the
Department of Environmental Affairs and Tourism (DEAT),has sold a
marine patrol vessel "Eagle Star" at well below market value,
raising concerns within the department, parliament and elsewhere.
MCM sold the Eagle Star for $42,000 through an auction process in
which only two bidders were present in November 2006. Eagle Star
was sold containing $31,900 worth of diesel, which new owner Ruurd
Van der Werf immediately resold. Van Der Werf also stated that the
vessel was headed for Mozambique where he would lease it to the
government for a handsome profit. The main source of controversy in
the sale of the 50-meter long vessel is that it had undergone a
refit recently, costing local taxpayers $486,000. DEAT spokesperson
Blessing Manale said that the controversial sale flabbergasted many
senior government officials and some members of opposition parties
in parliament who are demanding an explanation. In this regard,
DEAT will appoint an external audit verification to investigate how
the auction was conducted, including how it was advertised, the
choice of the auctioneers and how they arrived at the sale price.
Manale said that MCM Deputy Director General Monde Mayekiso, who
gave the approval for the sale in May 2006, was given the mandate to
do so by DEAT because the vessel was considered obsolete and
expensive to keep. He said that Mayekiso did not, however, see it
appropriate to set a reserve price on the vessel for fear that it
would drive away potential bidders. Meanwhile, the finance chief in
MCM reportedly conceded that sale price was too low, which he blamed
on the two disputing auction houses who sold the vessel. Replying
to parliamentary questions, DEAT Minister Marthinus Van Schalkwyk
acknowledged that his department sold the ship after spending money
to convert it from a fishing trawler to a marine patrol training
ship, which was then used for over four years at a cost of $450,000
before it was relinquished. Meanwhile, the Democratic Alliance, an
opposition political party, said that the value of the vessel was
$1.1 million when it was acquired in 2003, and has since been
revamped and fitted with vessel-monitoring systems, radar, IT and
satellite facilities. (Sunday Times, April 1, 2007; and Business
Day, April 3, 2007)

First BEE Private Equity Fund Launched
--------------


7. (U) Sanlam Private Equity has launched a series of four
specialist investment funds aimed at plowing 2.6 billion rand (about
$370 million) into Black Economic Empowerment (BEE) - with 300
million rand (about $40 million) allocated specifically towards
transformation of the small and medium enterprise (SME) sector.
Announcing the project, Sanlam Private Equity Chief Executive Pieter
Kriel said that Sanlam Private Equity would provide a 25% anchor
investment for each fund, and that road shows to raise the remaining

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75% have already begun. Potential investors include European
development agencies, the Industrial Development Corporation of
South Africa, and several major pension funds. Transformation of
the SME sector is widely viewed as critical to the South African
government's job creation and poverty alleviation objectives.
(Business Day, April 17, 2007)

Johannesburg Mine Dumps Disappear
--------------


8. (U) Johannesburg's cityscape has long included huge mounds of
golden sand (known as "slag heaps") made up of the lowest grade ore
from the gold rush days. With gold prices soaring, now even these
dumps of crushed rock and sand that yield only .45 grams of gold per
ton are being reprocessed. The only company that re-treats mine
dumps in Johannesburg, DRDGold, has already removed 203 million tons
of dumps, recovering 90 tons of gold. It is now pressing to lay its
hands on the most famous dump, which has above-average yields.
However, heritage organizations are battling the company from
flattening this "landmark, a symbol of Johannesburg" location that
includes a defunct drive-in movie facility on its top and has
spectacular views of Johannesburg. (Business Day, April 19, 2007)


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