Identifier
Created
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09PRETORIA1139
2009-06-05 15:09:00
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Embassy Pretoria
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SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 5, 2009

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 5, 2009
ISSUE

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USTR FOR JACKSON

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 5, 2009
ISSUE

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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
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)