SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER

UNCLAS SECTION 01 OF 03 PRETORIA 000371 SIPDIS DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND TREASURY FOR TRINA RAND USTR FOR COLEMAN SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB, SENV, PGOV, SF SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER FEBRUARY 22, 2008 ISSUE PRETORIA 00000371 001.2 OF 003 ¶1. (U) Summary. This is Volume 8, issue 7 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Budget Unveiled - Rand Weakens After Budget Speech - SA Looks to Indian Skills Development Model - SA Launches Diaspora Networking Program - Skills Shortage to Stymie Watchdog Group - Coal Markets Rocked by Ambitious Plan for Coal Purchases - Proposal to Streamline Environmental Assessments - Coal Mining Threatens Fresh Water End Summary. -------------- Budget Unveiled -------------- ¶2. (U) South African Finance Minister Trevor Manuel delivered his annual Budget Speech before Parliament on February 20, 2008. According to Manuel, South Africa continues to have a positive fiscal outlook despite global economic turmoil. Gross domestic product (GDP) growth was projected at 4% with the government posting a budget surplus of 1.0% of GDP for 2007/2008 and an estimated 0.8% in 2008/2009. Proposed spending plans support further economic growth and expanded social welfare including additional incentive funding for the industrial policy framework and increased social grants. Power utility Eskom will receive a R60 billion ($7.8 billion) infusion of funds to assist with power generation projects. Manuel proposed tax relief for corporations while he revealed plans to impose a levy on revenue from electricity generated by non-renewable sources. In line with past gradual relaxation of exchange controls, Manuel announced that exchange controls on institutional investors will be removed and replaced with prudential regulation. -------------- Rand Weakens After Budget Speech -------------- ¶3. (U) The rand weakened more than 3% against the dollar after Finance Minister Trevor Manuel's Budget speech on February 20. It reached a 16-month low of R7.9225 against the dollar. Traders predicted a further weakening to above R8 per dollar. Traders said it was difficult to pinpoint the exact reason for the rand's fall, but said it could be attributable to concerns as to how the government plans to finance a widening current account deficit. Standard Chartered Bank Regional Research Director Razia Khan said that no one could be surprised by the projections for the current account deficit (staying high this year and widening further the next). Concerns have also been expressed about the fact that the government needs to provide up to R60 billion ($7.6 billion) to the electricity utility Eskom over the next five years. (Business Report, February 20, 2008) -------------- SA Looks to Indian Skills Development Model -------------- ¶4. (U) Public Works Minister Thoko Didiza acknowledged that although the Extended Public Works Program had created 854,460 job opportunities, many were of a temporary nature and often did not allow for skills development. Didiza said South Africa was looking to India as an example on how to improve the government's flagship jobs creation program. She told reporters that India had a program guaranteeing 100 days of work at a certain pay level, and the South Qguaranteeing 100 days of work at a certain pay level, and the South African government was weighing this option. "We have been looking at different countries. How the system works in India is that various governing authorities such as infrastructure departments will guarantee work at a particular pay band." Public Works is testing some of these new ideas, including targeting the youth in the OR Tambo municipality in Eastern Cape. (Business Day, February 15, 2008) -------------- SA Launches Diaspora Networking Program PRETORIA 00000371 002.2 OF 003 -------------- ¶5. (U) South Africa's International Marketing Council announced the launch of Global South Africans (GSA). GSA is a pilot "brain bank" for linking the South African diaspora. Approximately two million South Africans are thought to live abroad and among them is a contingent of top achievers who have made it big in business, finance, medicine and academia. Spokesperson Simon Barber stated that "SA's best brains need not be lost to it completely". GSA's goal is to harness "human capital" and connect it to opportunities in South Africa. One hundred and fifty people have been recruited since April 2007. "The network is expected to make an important contribution to skills development," says Barber. "Members will get the chance to adopt schools, place South African students in U.S. universities, offer internships in their companies and help graduates from disadvantaged backgrounds develop connections." It is hoped the network will also be able to help promote entrepreneurs and innovators, give advice and build partnerships. Barbers added that members who sign up to join GSA "will be actively engaged with carefully targeted requests for knowledge and ideas from stakeholders in SA." (Financial Mail, February 8, 2008) -------------- Skills Shortage to Stymie Watchdog Group -------------- ¶6. (U) Johannesburg Stock Exchange CEO Russell Loubser expressed concerns about who would sit on a new financial watchdog panel. Analysts worried that there might not be enough people with the required skills to manage the new Department of Trade and Industry panel on a full-time basis. The Corporate Laws Amendment Act provided wider investigative powers to the panel. Under the act, the new investigation panel would have to monitor documents such as interim financial results, annual reports, prospectuses, and circulars. However Loubser said," it is questionable as to where the government is going to find the required number of professionals to monitor thousands of financial reports issued annually by companies". GAAP Monitoring Panel Chairman Harvey Weiner reported that companies issued more than 3,000 reports a year and "appropriate people with skills, such as chartered accountants, should preferably sit on the monitoring team." However, there were only 26,803 chartered accountants in South Africa. "It was a worrying factor," Weiner said. (Business Day, February 15, 2008) -------------- Coal Markets Rocked by Ambitious Plan for Coal Purchases -------------- ¶7. (U) Eskom's plan to buy an additional 45 million tons of coal to replenish depleted stockpiles has been met with skepticism internationally, with analysts saying it overlooks severe global coal supply constraints, logistical challenges, and price concerns. The emergency move could cost the utility as much as R11 billion ($1.5 billion),but Eskom says it has no choice if it is to make headway in relieving South Africa's power crisis. The 45 million tons would be above Eskom's running requirements, which are 125 million tons per year, and would be added systematically over the Qmillion tons per year, and would be added systematically over the next two years in a bid to raise coal reserves at power stations to at least 20-days supplies (reporting has indicated that some plants' reserves have decreased to hardly a few days). A Business Day editorial notes that South Africa will have to adjust from its days of enjoying the cheapest electricity in the world as Eskom copes with the need to replenish coal stocks and finance a capital expansion program of $45 billion over the next five years. Analysts have long argued for market pricing of electricity, even though this will necessitate painful price increases, but this would offer a more reliable mechanism to manage demand rather than rationing. Another editorial called for the energy regulator and the government to create realistic tariff mechanisms to allow co-generation projects to move forward. (Business Day, February 18, 2008) -------------- Proposal to Streamline Environmental Assessments -------------- ¶8. (U) Department of Environmental Affairs and Tourism (DEAT) Deputy Director-General Joanne Yawitch said that the mining industry could PRETORIA 00000371 003.2 OF 003 look forward to a streamlined environmental authorization process under the proposed National Environmental Management Act (Nema). Environmental impact assessment applications are currently managed by the Department of Minerals and Energy (DME) under the Mineral and Petroleum Resources Development Act (MPRDA). However, the mining industry has complained about delays and called for "one system where one department has authority". She reported that the departments "are moving towards a much more rational system." Chamber of Mines environmental adviser Nikisi Lesufi concurred, stating that there was a backlog of applications awaiting environmental or water-use approval. The question of jurisdiction over the mining industry's environmental impact assessments has been a thorny one. In a briefing to Parliament's environmental affairs and tourism committee this week, the two departments had worked out a proposal, which would be presented to their respective ministers for approval shortly. (Business News, February 15, 2008) -------------- Coal Mining Threatens Fresh Water -------------- ¶9. (U) Wits School of Geoscience Professor Terence McCarthy warned mining houses not to proceed with coal mining plans near the Vaal River in Ermelo in the Mpumalanga province due to the environmental impacts. McCarthy argued that the river water could be polluted and its quality could deteriorate to a point where it could no longer be fit for human consumption. Acid water pollution resulting from coal mining in the region has already destroyed the Wilge River which flows through a nature reserve in Mpumalanga. He added that the pollution caused the death of fish, crocodiles and some marine plants in the area. McCarthy and other environmental groups demanded that the coal mining proposal tabled by Xstrata and other mining houses should not proceed. Angus Burns of the Enkagala Grassland Project added that there was more coal in less sensitive areas of the escarpment and there was "no need to mine for it an ecologically precious area, which could yield only 15% of what the miners require". (The Sunday Independent, February 10, 2008) END TEXT BOST