SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MAY 22, 2009

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MAY 22, 2009
ISSUE

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1. (U) Summary. This is Volume 9, issue 21 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- Moody's Upbeat on South Africa's Growth after 'Brief' Recession
- Strong Vote of Confidence as Largest South African Bond is Snapped

Up
- Fertilizer Hits Fan for Top Bosses at Sasol
- Gordhan Asserts Treasury's Leading Role
- South Africa's Exports Down 9.1%
- Strong JSE Debut for Vodacom
- Eskom's Belated Bid for Tariff Hikes
- Optimism for Independent Power Producers in South Africa
- Uranium Holds Growing Allure for South African Gold Miners
- Zuma Appoints First Woman Science and Technology Minister

End Summary.


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Moody's Upbeat on South Africa's
Growth after 'Brief' Recession
--------------


2. (U) Credit rating agency Moody's predicted the South African
recession was likely to be "brief," with the economy returning to
growth as early as the third quarter of 2009. Government's
infrastructure spending, the 2010 Soccer World Cup, lower interest
rates, and possible recommitment to some of the capital expenditure
projects put on hold because of the global recession would drive the
recovery. Absa Capital's Head of Research Jeff Gable speculated the
slowdown in output was likely to be mild compared with recessions in
other countries. Gable thought the economy would shrink by between
0.5% and 1% this year. GDP shrank 1.8% in the fourth quarter of
last year, its first contraction in a decade. South African Reserve
Bank (SARB) Governor Tito Mboweni predicted that the economy
contracted for a second consecutive quarter, pushing South Africa
into its first recession in 17 years. The SARB has cut the repo
rate four times since December to 8.5% in a bid to boost flagging
output, and it is expected to trim rates again next week. (Business
Day, May 21, 2009)

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Strong Vote of Confidence as Largest
South African Bond is Snapped Up
--------------


3. (U) International investors have given South Africa a big vote of
confidence by snapping up its largest dollar-denominated bond to
date, despite the severe global lending crisis. South Africa raised
the amount on a 10-year issue from $1 billion to $1.5 billion after
it was oversubscribed more than five times, according to National
Treasury officials. It was the largest dollar-denominated issue
since South Africa re-entered global markets in 1995. The annual
coupon for the bond was 6.875%, which was South Africa's
third-lowest on record (the lower the coupon, the less expensive the
bond is for the government). The new issue was priced at a spread of
375 basis points over US Treasuries, tighter than the guidance of
387.5 basis points initially offered by banks. The size of this new
issue will help take pressure off of domestic capital markets, which
the government will tap to finance its budget deficit this year.
The budget deficit is expected to reach 3.8% this financial year.
The capital raised would also ease pressure on funding South
Africa's current account deficit. The increase in appetite for
QAfrica's current account deficit. The increase in appetite for
South African debt is remarkable in the context of its newly elected
government, which is perceived to be more left-leaning with more
leaders from trade unions and the South African Communist Party.
(Fin24 & Business Day, May 20, 2009)

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Fertilizer Hits Fan for Top Bosses at Sasol
--------------


4. (U) The board of petrochemicals giant Sasol has put management
under a microscope in an effort to curb the anticompetitive behavior
that has earned Sasol two record fines in the past year. The board
had instituted a review of Sasol's competition law and compliance

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systems, according to Chairwoman Hixonia Nyasulu. Sasol CEO Pat
Davies made presentations to the Competition Tribunal on May 20,
which confirmed a R250 million ($30 million) fine for collusion in
the fertilizer industry. The fine stems from fertilizer company
Nutri-Flo's complaint that Sasol and competitors Omnia and Yara
(formerly Kynoch) had divided markets and fixed prices. Davies
apologized for the violations of competition regulations, and
commented that Sasol expected some of the affected customers to
institute civil claims against it. (Business Day, May 21, 2009)

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Gordhan Asserts Treasury's Leading Role
--------------


5. (U) Finance Minister Pravin Gordhan continued to make clear to
markets that there would be certainty in economic policy, saying
that the Treasury is still the "national guardian of economic
policy," but would remain "consultative" and "co-operative." The
Finance Minister also reiterated that President Zuma has mandated "a
faster pace of delivery and a greater sense of urgency," and
therefore greater rigor, planning, and execution in government are
necessary. Gordhan noted the fiscal constraints brought about by
the global economic downturn, but he stressed "reprioritization" of
fiscal resources to achieve the goals of the newly elected
government. The new government is unlikely to make substantial
changes in economic policy, analysts believe, and Gordhan's comments
about continuity and certainty in policy are likely to be viewed in
a positive light by markets. (Absa Capital Research Morning Sheet,
May 19, 2009)

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South Africa's Exports Down 9.1%
--------------


6. (U) A decline in exports represents the most important channel of
impact of the international crisis on the South African economy,
according to Bureau for Economic Research (BER) Director Ben Smit.
The BER foresees an expected decline of 9.1% in total exports of
goods and services in 2009. "Given a share of 27% of constant price
GDP, this expected decline in exports contributes substantially to
the expected decline in overall GDP in 2009," said Smit. (Business
Day, May 21, 2009)

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Strong JSE Debut for Vodacom
--------------


7. (U) Mobile operator Vodacom made a strong debut on the
Johannesburg Stock Exchange (JSE) after the Pretoria High Court
rejected a bid by the Congress of South African Trade Unions
(COSATU) and the Independent Communications Authority of South
Africa (ICASA) to stop state-owned Telkom from selling a 15% stake
in Vodacom to British mobile giant Vodafone. COSATU and ICASA
argued that Telkom's 50% stake in South Africa's biggest cellular
operator was a public asset that should not be sold off to a foreign
company. More than R100 million ($12 million) in Vodacom shares were
traded in the first hour after its market debut. Vodacom's total
value moved between R88 billion ($10.5 billion) and R93 billion
($11.1 billion),making it about the 11th biggest company on the JSE
by market value. The listing was part of a R22.5 billion ($2.7
billion) deal that increased Vodafone's share in Vodacom from 50% to
Qbillion) deal that increased Vodafone's share in Vodacom from 50% to
65%. (South Africa Info, May 19, 2009)

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Eskom's Belated Bid for Tariff Hikes
--------------


8. (U) State-owned utility Eskom submitted an interim power tariff
increase proposal of 34% to the National Energy Regulator of South
Africa (Nersa) on May 15. Eskom excused its late request as caused
by the financial crisis and uncertainty about government support.
The general elections and installation of a new government also
contributed to the lateness of the request. Trade union
confederation COSATU slammed the request and urged Nersa to reject
it. Electricity consumers have been given two weeks to comment.
Eskom characterized the proposed increase as a stop-gap measure that
would soften the effect of a bigger increase that it will require
later to meet financial requirements. Eskom said it was working
with the government on an appropriate funding model for its

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ambitious capital expenditure program, which is aimed at augmenting
shortages in supply capacity. Many observers note that tariffs are
too low to reflect the true cost of producing electricity and to
encourage electricity efficiency. But, there are concerns that the
interim application deprives businesses and consumers of certainty
on future electricity prices. (Business Times, Business Day,
Financial Mail, May 15-20, 2009)

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Optimism for Independent Power
Producers in South Africa
--------------


9. (U) International engineering consultancy Hatch believes that the
prospects for independent power producer (IPPs) projects in South
Africa are "closer than ever," despite frustration among potential
IPPs, many of which have had their project plans set back by a
series of regulatory and Eskom tender delays. Hatch expressed this
optimism at an IPP workshop it hosted in Johannesburg on May 19.
Principal consultant Dieter Matzner noted that IPP developers must
come to grip with the requirements surrounding the procurement
process of a power purchase agreement (PPA),particularly since
Eskom has been designated as the 'single buyer' and the rules were
still evolving. In March, Eskom extended its postponement of the
release of a request for proposals for its base-load IPP program,
saying that it required greater certainty on the regulatory
framework before it could proceed. Its cogeneration programs had
also stalled, purportedly for Nersa to finalize its power purchase
cost recovery guidelines. At the heart of the dilemma for Nersa and
Eskom was a mismatch between tariffs, which were extremely low, and
the need to encourage private investment - a dilemma that was
particularly acute in South Africa, owing to the fact that tariffs
of around 22 Rand c/kWh were substantially below the cost of new
utility and IPPs production. Eskom and the regulator were seemingly
satisfied that the proposed rules for power purchase cost recovery
would provide the basis for the utility to pursue long-awaited PPAs
with IPPs. However, potential IPP developers appear confused about
how to secure a PPA and unsure about whether the rules provided
sufficient protection in what would come down to commercial
discussions with a powerful utility such as Eskom. Adding to the
concern was an emerging fear that Nersa, government and Eskom might
seek to limit the number of IPPs. (Engineering News, May 20, 2009)

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Uranium Holds Growing Allure for
South African Gold Miners
--------------


10. (U) An uptick in uranium prices is encouraging South Africa's
big three gold producers to realize greater value from the uranium
associated with gold in the Witwatersrand reef west of Johannesburg.
Uranium prices have moved over $50 per pound, substantially above
the doldrums pricing of $10 per pound in the 1990's, but below the
commodity boom peak of $135 per pound in June 2007. New uranium
projects are based on realistic long-term contract price
expectations of $65-70 per pound, according to AngloGold Ashanti and
Rand Uranium. For many years, AngloGold Ashanti's Moab Khotsong
QRand Uranium. For many years, AngloGold Ashanti's Moab Khotsong
mine and plant was South Africa's only significant producer.
AngloGold Ashanti is now planning a significant increase in uranium
output from about 1.2 million pounds last year to over 2 million
pounds this year by expanding its Kopanang plant. Last year,
Harmony Gold Mining formed a joint venture with Pamodzi Resources
Fund, called Rand Uranium, aimed to turn its Randfontein gold and
uranium tailings dumps into the world's ninth-largest uranium
producer. Rand Uranium is investigating project feasibility and
funding options. Gold Fields CEO Nick Holland recently said Gold
Fields had 13 tailings dams containing gold and uranium, which were
under investigation for reprocessing. The company was still
evaluating environmental issues and was considering cooperation with
other producers. (Business Day, May 20, 2009)

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Zuma Appoints First Woman
Science and Technology Minister
--------------


11. (U) President Jacob Zuma appointed former Minister of Education
Naledi Pandor to his cabinet as Minister of Science and Technology.
Pandor replaced Dr. Mosibudi Mangena, who had held the position

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since the formation of the Department of Science and Technology
(DST) in 2002. Pandor is the first female science and technology
minister. (The Times, May 10, 2009)