SCENE-SETTER FOR CODEL LEWIS' NOVEMBER 8-13, 2008

UNCLAS SECTION 01 OF 07 PRETORIA 002316 SENSITIVE SIPDIS AF/S FOR RUSH MARBURG, H FOR DIANE RICH E.O. 12958: N/A TAGS: ECON ETRD EINV PREL PGOV SF SUBJECT: SCENE-SETTER FOR CODEL LEWIS' NOVEMBER 8-13, 2008 VISIT TO SOUTH AFRICA ¶1. (SBU) Ambassador Bost warmly welcomes the visit of your delegation to South Africa. The Mission stands ready to do everything it can to make your trip a success. You are visiting South Africa at a particularly interesting time, less than two months after Thabo Mbeki resigned as President under pressure from the ruling African National Congress (ANC) and Parliament elected Kgalema Motlanthe to serve as caretaker president until the 2009 elections. ¶2. (SBU) South Africa is an anchor country in U.S.-Africa policy. Since the end of apartheid in 1994, the ANC-led South African Government (SAG) has made major progress toward establishing a vibrant democracy and market-based economy. The SAG has focused on political and economic transformation: reducing the gap between the historically privileged and disadvantaged communities -- primarily through government- provided housing, electricity, and water to the poor -- and creating educational, skills development, employment and business opportunities. ¶3. (SBU) South Africa continues to face daunting challenges, including a lack of public sector capacity, a thirty percent shortfall in mid-to-upper-level public sector managers, skills shortages in all sectors, growing infrastructure bottlenecks, energy shortages, income inequality, less than adequate educational opportunities, massive unemployment, entrenched rural and urban poverty, violent and widespread crime, xenophobic riots, and a severe HIV/AIDS pandemic. These problems intensify political tensions within the ruling coalition and with other political, civil society, and private sector groups. ¶4. (SBU) Despite its many challenges, South Africa remains the continent's best prospect for establishing a successful democratic society with expanding prosperity. South Africa is a leader of aid-recipient countries in their dialogue with donor nations. It plays a key role in promoting peace and stability in Africa, and is an important voice on global trade, human rights, conflict resolution, and nonproliferation issues. U.S.-South African relations are stable, as reflected by President Bush's July 2003 visit to South Africa and President Mbeki's June 2005 and December 2006 trips to Washington. Additionally, ANC President (and presumptive future national President) Jacob Zuma will visit the U.S. October 19-28, 2008. We share common objectives with the SAG on the African continent and beyond, and we work closely on many of them. -------------- RECENT POLITICAL OVERVIEW -------------- ¶5. (SBU) The ANC dominates the political scene in South Africa but is showing signs of internal strife. The ANC won 70 percent of the vote and 279 of 400 seats in the National Assembly in the April 14, 2004 elections. Subsequent "floor crossing" periods, where parliamentarians were allowed to switch parties, boosted the ANC's total to 297. The ANC also won 66 percent of the national vote in the March 2006 local elections. The Democratic Alliance (DA) is the largest of several small opposition parties in parliament, with 47 seats. The ANC leads administrations in all nine provinces and in the vast majority of the municipalities. The DA's control of the Cape Town municipality is the most visible exception to this country-wide ANC domination. There have been multiple attempts by the ANC to unseat the DA-led, Qbeen multiple attempts by the ANC to unseat the DA-led, multi-party coalition, and each unsuccessful attempt has increased the local stature of the DA. ¶6. (SBU) The December 2007 ANC National Conference in Polokwane, Limpopo shifted power within the ruling party. New ANC President Jacob Zuma defeated incumbent national President Thabo Mbeki by a vote of 2,329 to 1,505. Zuma's allies swept the other top five ANC positions. The Zuma camp dominated the elections for the ANC's 86-member National Executive Council (NEC) with sixteen Mbeki Cabinet members (out of 28) losing their NEC seats. Zuma's victory makes him the front-runner to become national President following the 2009 parliamentary elections. Zuma's successful court challenge to his 2007 indictment on corruption and fraud charges formed the pretext for the ANC decision to recall Thabo Mbeki as President. Zuma's political allies, who have consistently alleged that the corruption case was politically-motivated, found in the court ruling what they needed to claim Mbeki had engineered a politically-motivated PRETORIA 00002316 002 OF 007 case against Zuma. ¶7. (SBU) The tense debate at the party's December 2007 ANC National Conference and defeat of incumbent Mbeki reflected the growing impatience with the pace of socio-economic change and laid the groundwork for the recent Mbeki 'recall' and resignation. It is also in large part a reflection of the growing restlessness and dissatisfaction with the ANC's inability to deliver a better life for everyone. ¶8. (SBU) It is too soon to tell whether the results of the ANC National Conference will lead to changes in SAG policy. Motlanthe's presidency ends with the 2009 elections. ANC President Zuma stresses that as president he will not make radical policy changes and that he respects the party's previous policy consensus. However, many new ANC leaders -- and Zuma's strongest coalition supporters -- come from the left wing of South African politics. The Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP) are formal members of the ANC-led tripartite alliance. These groups are pressuring Zuma to embrace more leftist or perhaps even populist positions in the interests of the working-class poor. On issues like HIV/AIDS and Zimbabwe, this could lead to SAG policies more closely in line with U.S. interests. However, on other issues -- like fiscal management, nationalization of industry/resource sectors, and trade liberalization -- the shifts in policy might be less positive from a U.S. perspective. It seems likely that the new ANC leaders will be more focused on domestic rather than continental or global issues, which could reduce the SAG's activist role in international affairs. ¶9. (SBU) The ANC is showing increasing signs of strain after former president Thabo Mbeki was recalled on September 21, ¶2008. Reasons for Mbeki's forced resignation were personality-driven leadership competition, the polarization of ANC factions supporting Zuma and Mbeki, the Zuma-led faction's belief that Mbeki abused executive power by interfering with the state prosecutor's decision to file corruption charges against Zuma, and disagreements regarding the party's operations and future direction. Zuma's supporters interpreted a recent court ruling ending the recent corruption case against Zuma as proof that Mbeki led a conspiracy to deny Zuma's presidential ambitions. They acted immediately to 'recall' Mbeki in the belief that his removal would end the threat of a future prosecution against Zuma. Rumors of a new ANC-breakaway party are rife as is speculation that many voters might not want Motlanthe to make way for Zuma to be South Africa's next president. This is a critical and fluid period in the political development of South Africa -- potentially as critical as the transition from apartheid. -------------- -------------- APARTHEID ERA TERRORISM AND A NEW EXEMPTION FROM VISA INELIGIBILITIES -------------- -------------- ¶10. (SBU) Visa ineligibilities related to past terrorist and criminal activity in opposition to the apartheid-era regime have posed a significant strain on the U.S.-S.A. bilateral relationship. The need for Nelson Mandela and other South African leaders, considered heroes of the anti-apartheid movement, to travel on visa waivers undercut our efforts to influence SAG policy on issues such as the designation of terrorist supporters and financiers at the United Nations Qterrorist supporters and financiers at the United Nations Security Council. Earlier this year, Congress took action to remedy this situation and the result was Public Law 110-257, enacted in July. This law gives discretion to either the Secretary of State or the Secretary of Homeland Security, after consultations involving the Departments of State, Homeland Security, and Justice, to exempt persons from terrorist and criminal grounds of ineligibility with respect to activities undertaken in association with the African National Congress in opposition to apartheid rule in South Africa. Exemptions for an initial list of seven individuals including Nelson Mandela and Jacob Zuma have been provisionally approved by working-level officials at State, and we are waiting for DHS and DOJ to follow suit in order that the Secretary of State can formally grant the exemptions. -------------- FOREIGN POLICY - FOCUS ON PROMOTING AFRICA -------------- PRETORIA 00002316 003 OF 007 ¶11. (U) South Africa under Mbeki took a high-profile role promoting Africa's interests -- the African Renaissance. South Africa served as the first chair of the African Union until July 2003 and helped establish continental institutions such as the Pan-African Parliament (which sits in South Africa) and the AU Peace and Security Council. Mbeki was the driving force behind the New Partnership for Africa's Development (NEPAD),an African-developed program based on international best practices and continental peer review to strengthen economic and political governance across the continent. NEPAD is also a framework for African partnerships with the international community. These initiatives are early in their evolution and have not yet become effective mechanisms for development. ¶12. (SBU) South Africa believes that, by virtue of its history and regional political, economic, and military clout, it has a responsibility to lead African conflict resolution efforts and participate in peace support operations. South Africa continues to play a lead role in conflict resolution in Burundi and contributes troops to UN Peace Keeping missions in the Democratic Republic of Congo (DRC) and Sudan. South Africa has approximately 3,000 personnel deployed in peace support operations in Africa. The U.S. has a strong interest in helping South Africa expand and enhance its peacekeeping and disaster assistance capabilities. South Africa participates in the African Contingency Operations Training and Assistance program (ACOTA) to enhance the South African National Defence Force's (SANDF) capacity to participate in multilateral peace support operations. The U.S. uses International Military Education and Training (IMET) funds to support professional military education and technical training of future military leaders. With the January 2008 repeal of the American Servicemen's Protection Act (ASPA) prohibitions on provision of military assistance, we hope to resume Foreign Military Financing (FMF) programs supporting the South African Air Force's C-130 fleet which South Africa is using to support troops deployed to the DRC, Sudan, and Burundi. While South African officials have been openly critical of U.S. Africa Command, they continue to engage with the U.S. in a wide range of military-to-military activities. This month the U.S. completed the successful first visit by a U.S. Navy aircraft carrier to South Africa since 1967. Some observers believe that this visit could mark a turning point in military-to-military relations. ¶13. (SBU) Zimbabwe remains a continuing challenge and increasing concern for South Africa. In March 2007, SADC leaders appointed Mbeki as the mediator between Zimbabwean President Robert Mugabe and the opposition Movement for Democratic Change (MDC) with the goal of leveling the electoral field before the March 2008 elections. Negotiations made some progress, but human rights abuses against the opposition accelerated. In the March 2008 elections, the MDC won a small majority of seats in the Parliament. MDC leader Morgan Tsvangirai won a plurality of the vote (47 percent) but not enough to avoid a presidential runoff. Presidential runoff elections planned for June 27, 2008 were preceded by a campaign of state-sponsored violence and intimidation that undermined the atmosphere for a fair electoral contest. Some critical observers contend that the Qelectoral contest. Some critical observers contend that the election may have been stolen before any votes were cast. As a result of the political instability and violence against MDC supporters, Tsvangirai dropped out of the race on June ¶22. A SADC-brokered power-sharing agreement in September remains to be implemented as the Zimbabwe African National Union' Patriotic Front (ZANU-PF) refuses to give up key ministries and governorships. Following Mbeki's 'recall' as President of South Africa, the SAG and SADC asked him to stay on in his role as SADC's chief Zimbabwe negotiator. ¶14. (SBU) Overall U.S.-South African relations are positive, but South Africa sometimes takes positions on global issues that run counter to U.S. interests. As a non-permanent UN Security Council member, and former chair of the G-77 and the Non-Aligned Movement (NAM),South Africa advocates for a greater voice for the "South" relative to the 'North' in global finance and international institutions, increased development assistance, an expanded and reformed UN Security Council, and lower trade barriers (for manufactured and agricultural exports to developed countries). -------------- THE ECONOMY AND THE STRUGGLE TO TRANSFORM -------------- PRETORIA 00002316 004 OF 007 ¶15. (SBU) South Africa is a middle-income, emerging market economy with GNI per capita of $5,670 (2007),akin to Chile, Malaysia, or Thailand. The SAG has pursued prudent monetary and fiscal policies, which turned a fiscal deficit of 6 percent of GDP in 1994-05 to a small surplus of 0.9 percent of GDP in 2007-08. The South African Reserve Bank (SARB) is independent. It targets an inflation rate of 3-6 percent, but is currently struggling to contain an inflation rate of 13 percent (August 2008),caused by global food and fuel inflation and reinforced by a weakening rand and increased inflation expectations. SARB has lifted interest rates by 5 basis points since 2006. Analysts do not expect inflation to fall back within the target band until 2010. Real GDP growth averaged 5 percent per year between 2005 and 2007, but is expected to drop to about 3.5 percent in 2008 because of higher interest rates, serious power shortages and weakening commodities prices. ¶16. (SBU) South Africa's financial system has not been directly affected by recent turmoil in global financial markets. The local banking system is well-capitalized and strictly-regulated, and banks and other financial institutions have relatively little exposure to sub-prime debt or other contagion. Banks raise most of their capital domestically. However, South Africa depends on portfolio inflows to finance its large current account deficit (about 8 percent of GDP). The recent global 'flight to safety' has taken a heavy toll on the Johannesburg Stock Exchange and the rand. Many analysts fear that recession in the U.S. and Europe will have a significant impact on South African manufactured, agricultural, and commodity exports. ¶17. (SBU) South Africa's single greatest economic challenge is to accelerate growth in a slowing global economy in order to address widespread unemployment and reduce poverty. The official unemployment rate, currently 23.0 percent, has only recently begun to decline and is significantly higher among black South Africans than among whites. Income inequality between haves and have-nots remains one of the highest rates in the world. Fifty-six percent of black South Africans, but only four percent of whites, live in poverty. The lack of capacity and service delivery at the provincial and municipal levels fueled the recent xenophobic attacks on refugees from neighboring countries as South Africans from lower socioeconomic strata feared that jobs, houses, and other services were being given to non-South Africans. Other obstacles exacerbating South Africa's unemployment and economic problems are skill shortages, a brain and skills drain, and education system weaknesses. Nevertheless, the SAG has made strides in the areas of transfer payments and public services to close the gap. Nearly 2.5 million low-cost homes have been built to provide shelter to 7.6 million people, 3.5 million homes have been provided with electricity, and nine million people have been connected to clean water. Almost 12.4 million people were benefiting from social grants in 2007. The SAG's broad-based Black Economic Empowerment (BEE) program provides ownership and employment opportunities to blacks and has helped the black middle class double to an estimated two million since 1994. ¶18. (U) The success in preparing for and carrying off the FIFA 2010 Soccer World Cup to be held in South Africa in QFIFA 2010 Soccer World Cup to be held in South Africa in mid-June 2010 is regarded by many as a bellwether of the country's commitment to continued progress in a variety of social and economic areas, among these being the fight against crime, providing services, expanding and improving infrastructure, and developing tourism. -------------- U.S.-S.A. TRADE AND INVESTMENT -------------- ¶19. (SBU) U.S.-South Africa trade grew 22 percent in 2007, totaling $14.3 billion. U.S. exports rose 23 percent to $5.2 billion, while South African exports to the United States increased 22 percent to $9.1 billion. South Africa was the third largest beneficiary of the African Growth Opportunity Act (AGOA) and the largest beneficiary of non-oil exports to the U.S. under AGOA in 2007. An impressive 98.1 percent of South Africa's exports entered the U.S. with zero import duties in 2007 as a result of normal trading relations (NTR), GSP, and AGOA. The U.S. also replaced Japan as the largest export market in 2007. Western Cape citrus farmers rely on exports to the U.S., without which they claim they could not PRETORIA 00002316 005 OF 007 survive. ¶20. (SBU) Over 600 U.S. firms have a presence in South Africa with 85 percent using the country as a regional or continental center. South Africa's stable government, sound fiscal and monetary policies, transportation infrastructure, sophisticated financial sector, and, by African standards, large market are the primary attractions for U.S. businesses. Nevertheless, South Africa has failed to attract a proportionate share of global foreign direct investment since ¶1994. Reasons include a volatile exchange rate, distance from developed country markets, high unit labor costs, strong unions, skills shortages, crime, HIV/AIDS, regulatory uncertainty, and the impact of Black Economic Empowerment policies such as the mandatory sale of equity to previously disadvantaged persons. The U.S. was the second largest portfolio investor and the second largest foreign direct investor in South Africa after the U.K. ($5.5 billion at year-end 2006). General Motors, Ford, and Timken are among the top industrial investors in South Africa. Westinghouse is competing for a $10-20 billion nuclear reactor contract which could be awarded before the end of the year. Teletech recently opened a large call center in Cape Town and has plans to open smaller centers in other parts of the country. ¶21. (SBU) Following six rounds of negotiations over three years, the U.S. and the Southern African Customs Union (SACU: South Africa, Botswana, Lesotho, Namibia, and Swaziland) suspended free trade agreement negotiations in April 2006. Negotiators subsequently agreed to deepen the bilateral relationship through a on Trade, Investment and Development Cooperative Agreement (TIDCA). A framework agreement for the TIDCA was signed at the annual AGOA Summit in Washington on July 14, 2008. Negotiators will soon begin work on customs cooperation and technical barriers to trade (TBT) agreements to reduce existing barriers to bilateral trade. -------------- U.S. SUPPORT FOR SOUTH AFRICA -------------- ¶22. (U) Since 1994, the USG has contributed approximately $1.9 billion toward South Africa's development; including $250 million in credit guarantees, and, since 1998, $100 million in education, $120 million in economic growth, and $88 million in democracy and governance. Currently, our development assistance program focuses on: supporting South Africa's response to HIV/AIDS and TB through the U.S. President's Emergency Plan for AIDS Relief (PEPFAR); addressing unemployment through financing and business development services for SMEs, job-skills training and education; reducing gender-based violence as part of the President's Women's Justice and Empowerment Initiative (WJEI); enhancing the quality of education through teacher training; and partnering with the SAG in third countries engaged in post-conflict rebuilding. South African NGOs have also received Trafficking in Persons (TIP) grants over the past few years to assist in the global fight against trafficking in persons. A wide range of U.S. private foundations and NGOs are also at work in South Africa. Among them are the Gates Foundation (HIV/AIDS),the Ford Foundation (higher education),the Rockefeller Foundation (adult education),and the Clinton Foundation (HIV/AIDS and Climate Change). ¶23. (U) Twenty-eight U.S. government entities are represented at the U.S. Mission in South Africa (Embassy Qrepresented at the U.S. Mission in South Africa (Embassy Pretoria and the three Consulates in Cape Town, Durban, and Johannesburg). The Mission has 318 approved U.S. positions (only 241 are filled) and 570 local employees. More than 40 percent of Mission staff provides regional services to other U.S. embassies in Africa. The Mission has embarked on an ambitious program to build safe office facilities. In FY 2005, the Mission completed the new consulate compound in Cape Town. In FY 2009, the Mission will complete a new consulate building in Johannesburg. In FY 2010/2011 the Mission intends to break ground on a new 155-desk office annex in Pretoria. -------------- HIV/AIDS: A CRISIS OF EPIC PROPORTIONS -------------- ¶24. (U) South Africa has the largest number of HIV-infected citizens in the world. HIV/AIDS-related illnesses, PRETORIA 00002316 006 OF 007 particularly due to HIV/tuberculosis (TB) co-infection, are the country's leading cause of death. Despite South Africa's overall wealth, life expectancy at birth has decreased from 67 to 52, the regional average, due to HIV/AIDS and HIV/TB co-infection. Under-five mortality, with the Millennium Development Goal (MDG) of 24 per 1,000 in 2015, has increased from 60 to 67 per 1,000 between 1990 and 2006. While achieving the MDGs is the SAG's highest priority, South Africa is moving further away from these goals in both child and maternal mortality as a result of HIV/AIDS. ¶25. (U) An estimated 5.4 million South Africans are HIV-positive including 2.7 million women and about 300,000 children 14 years old or less. An estimated 18.8 percent of adults between 15 and 49 are HIV-infected and women in the age group of 25-29, the most seriously affected, have prevalence rates of up to 40 percent in some areas. An estimated 530,000 new infections occur annually. In 2006, 350,000 adults and children died from AIDS; an estimated 1.8 million deaths have occurred since the start of the epidemic; and 71 percent of all deaths in 15 to 41-year-olds are due to AIDS. In the last few years, there is an indication that prevalence may be starting to decline. Prevalence in antenatal care fell from 29 percent in 2005 to 28 percent in ¶2008. At least 1.6 million children, approximately 10 percent of South Africa's youth, have had at least one parent die and 66 percent of these have been orphaned by AIDS. Continuing AIDS-related mortality will create millions of new orphans and generate additional social and economic disruption, in part due to orphans being raised by extended families or in child-headed households. ¶26. (U) The epidemics of HIV and TB are interlinked. TB is the most common infectious disease in sub-Saharan Africa and approximately 50 percent of HIV patients in South Africa also have TB. A high overall prevalence rate of HIV, HIV/TB co-infection, and lack of continuity in treatment contribute to the increasing incidence of active TB, including multi- and extensive drug-resistant TB strains (MDR- and XDR-TB). The piloting of an SAG-approved rapid test for MDR-TB may allow more rapid identification and initiation of appropriate treatment, but staff shortages and skills challenges impede an effective response to TB. Failure to adequately control and treat TB may undo all the gains South Africa has made in HIV care and treatment thus far. ¶27. (U) The South African National Strategic Plan for HIV & AIDS and Sexually Transmitted Infections 2007-2011 (NSP) provides a road map for responding to this crisis and sets out goals of reducing new HIV infections by 50 percent by 2011 and increasing access to anti-retroviral treatment (ART). The recall of Mbeki and the subsequent appointment of Barbara Hogan as the new Minister of Health under Motlanthe promises new initiatives in health, particularly as they pertain to HIV and TB. Hogan, unlike her predecessor, Dr. Manto Tshabalala Msimang, has been outspoken in affirming the link between HIV and AIDS and has galvanized support from government and non-governmental organizations (NGOs) to reach the NSP targets. The South African public health system suffers from deterioration of the existing health infrastructure, need for expansion of clinical and laboratory facilities, and a gthening of the health care infrastructure, Qfacilities, and a gthening of the health care infrastructure, particularly for chronic disease, which includes HIV and TB; increased coverage of HIV treatment; HIV prevention; and TB control and treatment. Although the country has made impressive progress towards expanding access to ART, the current number of people on ART is less than 30 percent of those who need it. ¶28. (U) The U.S. President's Emergency Plan for AIDS Relief (PEPFAR) is in its fifth year of implementation and has recently been re-authorized for a second five-year period. PEPFAR is implemented in South Africa by five USG agencies: the U.S. Agency for International Development (USAID); the U.S. Department of Health and Human Services (HHS),which includes the Centers for Disease Control and Prevention (CDC); the U.S. Department of State; the U.S. Department of Defense; and the Peace Corps. PEPFAR and its implementing agencies work with the public and private sector to deliver programs for HIV prevention, care, and treatment. In doing this, PEPFAR and its implementing agencies align their goals with that of the NSP. To date, the PEFPAR program in South Africa is the largest recipient of PEPFAR resources, i.e., a total of $1.45 billion, including $591 million in FY08. As of March 2008, PEPFAR directly supported 305,356 people on PRETORIA 00002316 007 OF 007 ART through programs in all nine provinces. With PEPFAR funding, the South African military has expanded HIV prevention, care, and treatment programs and collaborates with the U.S. military and the National Institutes of Health (NIH) on HIV/AIDS and TB research. ¶29. (U) South Africa has the strongest research and training capacity of any country in the region, making it an important partner in HIV/AIDS and TB efforts. USG agencies work with national and provincial health departments, the South Africa military, universities, and NGOs to strengthen primary health care, disease surveillance, and research. NIH provides approximately $300 million in funding to South African researchers per year, with 90 percent of this focused on HIV/AIDS and TB research. The U.S. Mission has prepared a five-year strategic plan in coordination with the SAG for HIV prevention, care, and treatment for not only adults, but also for orphans and other vulnerable children (OVCs). As we move in the second five-year period of PEPFAR, the USG team will work with the SAG to develop a Partnership Compact outlining a joint five-year strategy on mutual financial, operational, and programmatic commitments. South Africa is moving into a transition phase with an expected 75 percent budget reduction in PEPFAR funding during the next three years (from $591 million in FY08 to $150 million in FY2011. This expected reduction will correspond with increased emphasis on technical assistance and human capacity development coupled with greater funding and program implementation by the SAG. The current change in SAG leadership will greatly facilitate the development and implementation of this five-year strategy and collaboration. BALL