Identifier
Created
Classification
Origin
09PRETORIA1192
2009-06-15 08:09:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 12, 2009

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USTR FOR JACKSON

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JUNE 12, 2009
ISSUE

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UNCLAS SECTION 01 OF 03 PRETORIA 001192

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 12, 2009
ISSUE

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1. (U) Summary. This is Volume 9, issue 23 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- South Africa's Reserves Rise
- No Tax Money to Bail Out Firms
- Minister Confident South Africa Will Weather Recession
- Indian Auto Manufacturer to Begin Production in South Africa
- ICASA Criticized for Delays in Spectrum Allocation
- State Support Triggers Eskom Outlook
Revision by Fitch
- Denying Eskom Tariff Hikes Could Put Utility at Risk - Minister
Hogan
- AngloGold Ashanti Forms Alliance Focused on Middle East/ North
Africa
- South Africa's Mercury in Water Not the World's Worst
End Summary.


--------------
South Africa's Reserves Rise
--------------


2. (U) South Africa's gross gold and foreign reserves rose to $35.84
billion in May, an increase of $1.79 billion. The hefty gains
sparked speculation that the South African Reserve Bank (SARB) may
have stepped up the pace of its purchases of foreign currency after
SARB Governor Tito Mboweni warned that the rand's strength may be
"unwelcome" for the shrinking economy. Proceeds from the country's
recent $1.5 billion bond issue, along with the revaluation effects
of a stronger rand and gold price were the likelier buoy of the
reserves. The gold price increased by 10.4% in May and boosted the
value of gold reserves by $366 million, while the rand has
appreciated by 19% against the dollar and 15% against a
trade-weighted basket of currencies so far this year. Analysts
expect reserves to come under pressure over the next few months, as
global market volatility restrains the SARB's pace of foreign

exchange accumulation. (Business Day, July 8, 2009)


--------------
No Tax Money to Bail Out Firms
--------------


3. (U) President Jacob Zuma said South Africa's stable
macro-economic environment is not going to change, and the
government had no intention of using taxpayer money for general
company bailouts. "As we indicated, we are working with development
finance institutions such as the Industrial Development Corporation
to identify such companies and, where appropriate, mobilize
assistance," Zuma said. He emphasized the importance of ensuring
that the government remains focused on its longer-term
socio-economic objectives. Zuma also repeated the government's
intention to create about 500,000 work opportunities this year, as
part of its goal of creating about 4 million such opportunities by
the end of his five-year term. "Let me emphasize that these measures
are not a substitute for the permanent jobs that must be created and
sustained in the economy," Zuma said. (Fin24, June 9, 2009)


--------------
Minister Confident South Africa
Will Weather Recession
--------------


4. (U) Trade and Industry Minister Rob Davies presented an upbeat
scenario of South Africa's economic future to world leaders gathered
at the World Economic Forum in Cape Town. Davies expressed
confidence in the robustness of the domestic economy, but he
cautioned that the domestic response to the global economic crisis
could not be "one-size-fits-all." The South African government
Qcould not be "one-size-fits-all." The South African government
believed that trade policy should be subordinate to industrial
policy, he reiterated, and the country could not afford to lose the
industrial capacity it had gained so far. South Africa would
therefore set tariffs on a case-by-case basis, and could even raise
some tariffs. Davies argued that the developed world's bailout
packages were linked to messages about "buying local," which was
protectionist. South Africa could not compete with such measures,

PRETORIA 00001192 002.2 OF 003


he added, and the government would seriously consider reversing some
of its tariff cuts to protect the gains made by the country's
industrial policy. (Business Day and Engineering News, June 11,
2009)

--------------
Indian Auto Manufacturer to Begin
Production in South Africa
--------------


5. (U) Mahindra South Africa, a subsidiary of Indian vehicle
manufacturer Mahindra & Mahindra, announced that it would soon start
local assembly in South Africa. The company sells the Bolero,
Scorpio, and Xylo models in South Africa and plans to begin selling
its Thar off-road vehicle in late 2009. Mahindra officials noted
that local assembly in South Africa would serve an expanded range of
key markets in Central, Western, Eastern, and Southern Africa.
Another benefit for local assembly in South Africa would include
access to the U.S. market under the African Growth and Opportunity
Act. Mahindra South Africa sold between 1,500-2,000 vehicles into
the local market last year, and sales are expected to remain around
the same number this year. Mahindra sales reached roughly 5,000
units per year in South Africa before the recession. (Engineering
News, June 8, 2009)

-------------- --------------
ICASA Criticized for Delays in Spectrum Allocation
-------------- --------------


6. (U) Companies in the ICT sector expressed frustration at the
delays by the industry regulator, the Independent Communications
Authority of South Africa (ICASA),in dividing up the spectrum
needed to provide wireless broadband services, such as WiMax. U.S.
micro-chip processor developer Intel has joined the chorus of
complaints and has called on ICASA to auction the spectrum as soon
as possible. Intel Sub-Saharan WiMax Development Manager Gavin
Coetzer said, "ICASA is constantly explaining to the market that it
is protecting consumers, but by delaying, the regulator is harming
consumers by limiting choice and not allowing new competition to
develop." Internet service providers, which until recently were not
allowed to build their own networks, regard WiMax as a way to
compete against Telkom and established mobile operators in providing
broadband. Naspers' MWeb and Dimension Data's Internet Solutions
are keen to build networks using WiMax. Coetzer explained that the
sector has been waiting for almost three years for this simple
process to be completed. Intel is a key backer of WiMax, and hopes
WiMax chipsets will become standard issue in notebook computers in
the next few years. ICASA has the task of deciding who should get
access to the scarce spectrum. Assuming the spectrum is divided
into chunks of 30 Megahertz (MHz),only three operators can be
licensed in the valuable 2.5 Gigahertz (GHz) band. ICASA must
decide who should get that spectrum, and whether incumbent operators
should be excluded from the process in favor of new players. The
best approach is to have a fixed-price auction and those who do not
have sufficient capital to build a national network would
automatically be excluded, according to Coetzer. Coetzer emphasized
that companies receiving the spectrum must "have resources to roll
Qthat companies receiving the spectrum must "have resources to roll
out networks and offer consumers choice." (Financial Mail, June 5,
2009)

--------------
State Support Triggers Eskom Outlook
Revision by Fitch
--------------


7. (U) Fitch Ratings revised Eskom's national long-term rating from
"negative" to "stable." Fitch's decision to revise Eskom's rating
hinged on signs that the government would support any funding gaps
that may occur. Eskom was forecasting a funding shortfall of R52
billion ($6.4 billion) for its expansion program, but it was working
on an integrated funding model, which it hoped would enable it to
source adequate finance from equity, debt and tariff sources. Fitch
alluded to these "signs of enhanced coordination," including with
government and the National Energy Regulator of South Africa, in its
statement. (Engineering News, June 11, 2009)
--------------
Denying Eskom Tariff Hikes Could Put
Utility at Risk - Minister Hogan
--------------

PRETORIA 00001192 003.2 OF 003




8. (U) Denying Eskom higher tariffs could put the power supply to
the whole nation at risk, Public Enterprises Minister Barbara Hogan
warned Parliament's portfolio committee on public enterprises.
"Eskom is essential to all of us. If we lose Eskom we might as well
kiss the country good-bye," Hogan added. "Can we afford to have
electricity so cheap that the electricity provider loses its
economic viability? In South Africa we have been very spoilt. The
age of cheap electricity is over." Hogan was responding to warnings
that granting Eskom the 34% tariff hike it is seeking would put
untenable pressure on the poor. Public Enterprises Director General
Portia Molefe countered that if the tariff hike application were
rejected, Eskom's infrastructure investment program would be at
risk. The comments came as Eskom Chief Executive Jacob Maroga was
defending the application at a hearing of the National Electricity
Regulator of South Africa in Pretoria, where Eskom was accused of
having failed to justify the increase. The company wants to
complete a R343 billion ($50 billion) capital expansion program by
March 2013, of which R87 billion ($10.8 billion) would be spent this
financial year. Molefe said it would be irresponsible of Eskom to
continue to invest in new infrastructure if it did not secure the
price hike to fund the program. Molefe said low-income households
have been assured that they will get a tariff that is linked to the
inflation rate, leaving more affluent South Africans to shoulder
most of the burden of higher prices. South Africa has the second
lowest electricity prices in the world and Eskom is expected to ask
for further tariff increases for the next three years as it pursues
its expansion goals. (Business Day, Engineering News, June 9,
2009)


--------------
AngloGold Ashanti Forms Alliance
Focused on Middle East/ North Africa
--------------


9. (U) South African gold major AngloGold Ashanti has formed a
strategic alliance with United Arab Emirates gold exploration
company Thani Dubai Mining to explore, develop, and operate mines
across the Middle East and in parts of North Africa. Each company
would own a 50% stake in the alliance, which would pursue gold,
precious metals, and base-metals projects. The strategic importance
of the Middle East and North Africa region lies in the fact that
these regions have not previously been widely explored for gold,
precious metals, or base-metals, and had the potential for
development, noted AngloGold Ashanti spokesperson Julia Schoeman.
The majority of AngloGold's current operations are in South Africa,
with a few other projects in Africa and elsewhere. It currently has
no operations in North Africa or the Middle East. Project
acquisitions and exploration programs would be equally funded by the
two partners up to and including the completion of the project
prefeasibility study. AngloGold would then develop, manage, and
operate any subsequent mining operations. (Mining Weekly, June 11,
2009)

-------------- --------------
South Africa's Mercury in Water Not the World's Worst
-------------- --------------
Q -------------- --------------


10. (U) The Council for Scientific and Industrial Research (CSIR)
plans to release a comprehensive national study of mercury in South
Africa's water sources. CSIR lead researcher Vernon Somerset
explained, "The project is an attempt to understand the conditions
of South Africa's water and atmosphere in terms of mercury released
into the environment, how it builds up into aquatic food chains and
how it impacts on water resources and human health." The report may
allay fears that South Africa is one of the world's worst emitters
of trace mercury. The CSIR study shows the levels of the trace
metal being within the World Health Organization's acceptable
limits, according to Somerset. Water Research Commission researcher
Stanly Liphadzi noted that CSIR's research results would assist in
identifying mercury emissions hotspots where intervention needs to
be directed. (Business Day, June 3, 2009)