SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 5, 2009

UNCLAS SECTION 01 OF 04 PRETORIA 001139 DEPT FOR AF/S/; AF/EPS; EB/IFD/OMA USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND TREASURY FOR TRINA RAND USTR FOR JACKSON 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 JUNE 5, 2009 ISSUE PRETORIA 00001139 001.2 OF 004 ¶1. (U) Summary. This is Volume 9, issue 22 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Zuma Lays Out Ambitious Program - Recession Adds More Strain to Motor Industry - Mboweni in Bid to Talk Down Currency - South Africa Refuses to Sign Interim Economic Partnership Agreement With E.U. - Gautrain Rapid Rail Development Proceeding As Scheduled,But May Not Be Ready for 2010 - Transnet Sources Equipment for New Port from China - Zuma to Focus on Safety, Black Ownership in Mining - No Longer a Gold Mine - Illegal Mining a Problem in the Free State - Death Toll Reaches 76 at Harmony Shaft - DST Hunt for Space Agency Board Members End Summary. -------------- Zuma Lays Out Ambitious Program -------------- ¶2. (U) President Zuma's first State of the Nation Address highlighted "10 priority areas," which form part of the current administration's Medium Term Strategic Framework (2009-2014). These priority areas include employment creation, skills development, poverty alleviation, healthcare, and infrastructure investment. There were also a number of ambitious targets given the current economic downturn and the expectation of a slow recovery. Chief among these is the creation of 500,000 jobs by the end of 2009 and 4 million jobs by 2014. The government also aims to reduce the rate of new HIV infections by 50% by 2011 and "to reach 80% of those in need of ARV treatment also by 2014." (Absa Capital Research Morning Sheet, June 5, 2009) -------------- Recession Adds More Strain to Motor Industry -------------- ¶3. (U) The National Association of Automobile Manufacturers of South Africa (NAAMSA) reported that new vehicle sales plunged 34.7% y/y in May to 25,819 units. In the year to date, new vehicle sales have plummeted 35.8%, compared with the corresponding period last year. New passenger car sales dropped 27.2% in May, new light commercial vehicles suffered a decline of 43.5%, and medium commercial and heavy truck sales fell by 41.9% and 54.9%, respectively. "The �0A;continuing weakness in medium and heavy commercial vehicle sales reflected lower investment spending by the private sector," NAAMSA said. The latest vehicle sales figures suggested domestic demand remained "very weak," with plunging commercial vehicle sales implying that conditions in some areas of the economy got worse in the second quarter, according to one Nedbank report. Moreover, vehicle exports plunged 41.3% in May due to low demand in South Africa's major export markets (the Euro zone, Japan and the US). The cuts in interest rates had not yet improved consumer confidence, observed ABSA Vehicle and Asset Finance Unit Managing Executive Marcel de Klerk. (Business Day, June 3, 2009) -------------- Mboweni in Bid to Talk Down Currency -------------- ¶4. (U) South African Reserve Bank (SARB) Governor Tito Mboweni took the unusual step of intervening personally to halt a sustained rand rally, warning its strength might be "unwelcome" for South Africa's Qrally, warning its strength might be "unwelcome" for South Africa's shrinking economy. There was no "preferred level" for the rand, he said, but "many might argue that its elevated levels were unwelcome ... if for example we look at the impact on manufacturing." A strong rand could derail a recovery in local factory exports when the global economy eventually starts to recover. Citigroup economist Jean-Francois Mercier noted, "It may be the speed of the rand's move rather than the level which has concerned the Governor. If you want exports to help growth in your economy, this kind of PRETORIA 00001139 002.2 OF 004 rand strength is not sustainable in the longer term." Mboweni's remarks helped to slow the latest spurt in the rand, which scaled a nine-month peak at R7.86/$ on June 1. (Business Day, June 2, 2009) -------------- South Africa Refuses to Sign Interim Economic Partnership Agreement With E.U. -------------- ¶5. (U) Botswana, Lesotho, and Swaziland broke ranks with South Africa and signed an interim economic partnership agreement (EPA) with the European Union (EU). In response, Trade and Industry Minister Rob Davies warned that South Africa was prepared to set up trade barriers to stop cheap imports entering the country. Davies' warning is the strongest sign yet that the almost 100-year-old Southern African Customs Union (SACU) is in jeopardy, as its rules prevent signatories from entering separate trade agreements with other countries. Talks on the interim EPA, marked by bitter recrimination within SACU, have led to a deep rift among members. SACU would have to reassess the distribution of revenues from the customs revenue pool, noted South African Department of Trade and Industry Chief Trade Negotiator Xavier Carim. Such a change may hurt the countries that have signed the interim EPA because of their dependence on SACU customs revenue to prop up national income. (Business Day, June 5, 2009) -------------- -------------- Gautrain Rapid Rail Development Proceeding As Scheduled, But May Not Be Ready for 2010 -------------- -------------- ¶6. (U) Gautrain Management Agency CEO Jack van der Merwe said the Gautrain rapid-rail link project is around 60% complete. The first phase is still scheduled to be up and running by the end of June ¶2010. However, the decision on whether to accelerate completion of the first phase by May 2010 (in time for the 2010 FIFA World Cup) is still pending. This initial phase includes the rail network between OR Tambo International Airport and Sandton (with stations at OR Tambo, Rhodesfield, Marlboro and Sandton). The second phase will link Sandton and Park stations in Johannesburg with Pretoria. It is to be completed in 2011. Van der Merwe says the R25 billion ($3 billion) project is running largely on schedule. The Gautrain project is being constructed for the Gauteng provincial government by the Bombela consortium, which will also operate the rail system for a 15-year period. (Engineering News, May 29, 2009) -------------- -------------- Transnet Sources Equipment for New Port from China -------------- -------------- ¶7. (U) The State-owned transport logistics company Transnet has taken delivery of R72 million ($9 million) of components and equipment bound for the new Ngqura container terminal in the Eastern Cape Province. The consignment from China included two fully erect rail-mounted gantry cranes, as well as small assembly parts, tools, consumables, and break-bulk cargo. Port of Ngqura Business Unit Executive Hector Danisa said the investment would assist in getting more cargo volumes off the road and onto rail, as well as offering Qmore cargo volumes off the road and onto rail, as well as offering faster, cheaper alternatives to customers. "The cranes will certainly assist us in meeting ... promised port-rail turnaround of under six hours. They offer double the handling rate of reach stackers, which are used in some of our port terminals," he added. The cranes were expected to be fully operational by mid-June 2009. Transnet announced that the majority of Ngqura's container terminal infrastructure was in already place for the commercial launch in October. Transnet has invested more than R10 billion ($1.3 billion) to date to develop the facility as a high-performance terminal. (Engineering News, May 29, 2009) -------------- -------------- Zuma to Focus on Safety, Black Ownership in Mining -------------- -------------- PRETORIA 00001139 003.2 OF 004 ¶8. (U) President Jacob Zuma said he plans to focus on enforcing safety measures to curb mining deaths which have hurt output and to review black ownership in the mining industry. In a speech delivered May 30 to the National Union of Mineworkers (NUM),the President also committed to ensuring local communities benefited from mining activities in their areas. "We need to vigorously support and entrench a culture of zero harm in this industry ... the safety record of our mines has become a central issue that will be placed under the scrutiny of government," he told the union members. In 2008, the total fatality figure amounted to 168 workers, and a recent safety audit showed mine safety compliance in South Africa was below target at just 66%. Mining companies have suffered production losses after fatalities due to routine shutdowns ordered by the government for investigations, and work stoppages by union members who have vowed to stop work for a day to mark the death of colleagues. Zuma split the minerals and energy portfolio when forming his cabinet earlier this month in a bid to give more focus to the issues facing each industry. New Mining Minister Susan Shabangu will oversee the first major review of the Mining Charter, a five-year-old agreement meant to bring more black ownership in mining, reversing decades of exclusion under white apartheid rule. Zuma lamented that only a few of the black economic empowerment initiatives had been successful and he urged the unions, industry, and the local communities to engage in the review. (Engineering News, June 2, 2009) -------------- No Longer a Gold Mine -------------- ¶9. (U) Old Mutual Investment Group South Africa recently pointed out challenges facing gold mining stocks in South Africa. "We believe gold shares in South Africa are poor-quality businesses that will battle to earn returns above their cost of capital," the fund manager group said. AngloGold Ashanti, Gold Fields, and Harmony Gold all have poor safety records that cause loss of life and gold production, which means less revenue and profit. AngloGold has sold part of its output forward at less than the spot price of gold and its acquisition of Ashanti Goldfields mines in Ghana and Tanzania has faced challenges. Gold Fields is battling with the troublesome South Deep mine in the Northwest Province of South Africa. Harmony has high-cost mines and will battle to turn a profit if the gold price moves into a bear phase. (Business Day, JuQ, 2009) -------------- Illegal Mining a Problem in the Free State Death Toll Reaches 76 at Harmony Shaft -------------- ¶10. (U) A rising death toll from an illegal mining incident has prompted concern and calls for a probe and new measures to combat illegal mining. Criminal charges have been made against 294 illegal miners brought to surface at one of South African gold major Harmony Gold's old shafts, while 76 bodies had been recovered at the same shaft. The miners had reportedly died following an underground fire in an abandoned area of the shaft. Harmony Gold South Region COO Tom Smith said the shaft was no longer in operation, with only the QTom Smith said the shaft was no longer in operation, with only the shaft barrel operating to pump water out of the shaft. Harmony said in a statement that it was not certain if any other illegal miners had died underground at the shaft, adding that it would not deploy its own employees to search the areas where the illegal miners were working, as these areas were "extremely dangerous." "We continue to address the issue of criminal mining on a daily basis, together with the South African Police Services (SAPS),the Department of Justice, the National Prosecuting Authority and other affected mining companies," Harmony CEO Graham Briggs added. The company has implemented a number of initiatives to combat the problem, including tightening security at shaft heads, conducting daily search operations underground and improving access control measures. A Harmony spokesperson said, "Our first priority is the safety of our workers, and we have daily inspections to make sure that the areas where our workers are active, are safe, and their safety is not affected by criminal miners. Gold junior Pan African Resources also reported the death of 20 illegal miners at its Baberton mines earlier this year. (Mining Weekly, Business Report, Business Day, The Times, June 2-3, 2009) PRETORIA 00001139 004.2 OF 004 -------------- DST Hunt for Space Agency Board Members -------------- ¶11. (U) The Department of Science and Technology has started to recruit board members of South Africa's National Space Agency (SANSA). The board would consist of 10-15 members, with backgrounds in finance, law, management, and technical expertise. The board will also be responsible for the governance and control of the agency. SANSA would serve to provide and regulate the promotion and use of space and co-operation in space related activities. The agency is expected to be operational by the beginning of the State's financial year in April 2010. (Engineering News, May 29-June4, 2009)