SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 23,

UNCLAS SECTION 01 OF 03 PRETORIA 000136

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 JANUARY 23,
2009 ISSUE

PRETORIA 00000136 001.2 OF 003



1. (U) Summary. This is Volume 9, issue 4 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- Manuel: First Wave of Unemployment Being Seen in Africa
- Retail Nosedive Raises Clamor for Big Rate Cut
- Tata Increases Stake in Neotel
- Fitch Downgrades ACSA
- ICASA Awards Licenses to Altech
- Westinghouse to Open Office in Cape Town
- Eskom Pursues Development in 2009
- DWAF Takes Steps to Avoid Water Supply Shortage

End Summary.


-------------- --------------
Manuel: First Wave of Unemployment Being Seen in Africa
-------------- --------------


2. (U) The first wave of unemployment is being seen in Africa as
many foreign direct investors scale back or shut down their
operations, remarked Finance Minister Trevor manual at the
first-ever meeting of the African "Committee of 10" (a group of five
Finance Ministers and five Central Bank governors organized under
the auspices of the African Union). Speaking in Cape Town, Manuel
observed that African states are encountering significant fiscal
pressures as their revenue sources dry up, expenditures rise to meet
the most elementary levels of service provision, and they battle to
retain expenditure levels in the face of "significantly reduced GDP
growth." Manual remarked, "We are witnessing that the export
markets developed with enormous sacrifice are suddenly closed to
imports from our countries, as a result of falling consumer demand
and increased protectionism ... we are living through intense
liquidity pressures as our domestic banking sector battles to secure
the finance to on-lend. Many countries are witnessing the drying up
of remittance flows which have, over the past number of years, been
a reliable source of finance which offsets impact to the skills
drain." Manuel also noted that the mainstays of recent developments
in sectors such as tourism are already in decline, and that Africa
has not yet recovered from the severe impact of high food and fuel
prices that the continent has lived through over the past 15 months.
(Business Times, January 16, 2009)

-------------- -
Retail Nosedive Raises Clamor for Big Rate Cut
-------------- -


3. (U) Statistics South Africa figures showed retail sales tumbled
4% in November, falling for the seventh successive month. This poor
performance backs the case for more interest rate cuts to boost the
flagging economy and help shield it from the global recession.
Sales of durable goods, which are hardest hit by high interest
rates, decreased by 8.4% y/y in November. News that the South
African Reserve Bank (SARB) had brought its monetary policy
committee meeting next month forward by a week to avoid clashing
with the national budget fanned speculation SARB may cut rates more
aggressively than usual. Local markets have priced in a cumulative
four percentage point fall in local lending rates this year, after
SARB began its easing cycle last month with a half-percentage-point
cut. Consumer spending is not expected to improve in the next few
months as fears of job losses compound the burden of steep debt
Qmonths as fears of job losses compound the burden of steep debt
costs and slowing income growth. (Business Day, January 22, 2009)

--------------
Tata Increases Stake in Neotel
--------------


4. (U) State-owned Eskom and Transnet agreed to sell their combined
30% stake in telecoms operator Neotel to Bombay-listed Tata
Communications. Tata has owned a 26% stake in Neotel since 2001.
Neotel CEO Ajay Pandey commented that the sale would strengthen
Neotel's position as a stable player in the local market and allow
Neotel to capitalize on Tata's vast international network. Pandey
was encouraged that a global telecoms giant was investing in South
Africa and Neotel in particular, given the economic climate. "Such
transactions reinforce international investors' confidence in the
country and more specifically in South Africa's telecommunications

PRETORIA 00000136 002.2 OF 003


mark," he noted. Neotel's other shareholders are the black
empowerment group Nexus (with 19%) and CommuniTel and Two Telecom
Consortium (12.5% each). (Business Day, January 20, 2009)

--------------
Fitch Downgrades ACSA
--------------


5. (U) Fitch Ratings (Fitch) downgraded the national long-term
rating of Airports Company South Africa (ACSA) from AA to AA-,
saying that rising capital spending and a decline in passenger
numbers would increase ACSA's use of borrowed money beyond levels
considered proper for its previous rating. Fitch affirmed ACSA's
short-term rating at F1+. The ratings take into account ACSA's
prospective, rather than existing, leverage. ACSA's planned capital
expenditure spend from 2008 to 2012 totals R17.8 billion ($1.6
billion). Fitch explained, "ACSA's current regulatory regime does
not remunerate capital expenditure until it is completed and
operational. Thus, the substantial capital expenditure is a burden
upon the group's financial profile." Near- and long-term passenger
forecasts, current capacity constraints, and the 2010 World Cup
tournament require ACSA to expand at all of its airports. Funding
requirements for the capital expenditure program were expected to
peak in the 2010 financial year. (Engineering News, January 20,
2009)


--------------
ICASA Awards Licenses to Altech
--------------


6. (U) JSE-listed Allied Technologies (Altech) has been granted
electronic communications network service (I-ECNS) and electronic
communications service (I-ECS) licenses by the Independent
Communications Authority of South Africa (ICASA). "The issuance of
the licenses is not only a victory for Altech, but also for the
South African telecommunications industry as a whole. We eagerly
look forward to participating in the new competitive environment
that will result," remarked Altech CEO Craig Venter. The licenses
were granted after Altech successfully opposed the government's
legal appeal against a judgment that Altech and about 300 other
value-added network services (VANS) could build their own
telecommunications networks. The Pretoria High Court ruled the
company was entitled to convert its existing Value Added Network
Service (VANS) license to an I-ECNS license. (Engineering News,
January 20, 2009)

--------------
Westinghouse to Open Office in Cape Town
--------------


7. (U) International electrical company Westinghouse plans to open a
branch in Cape Town to deal with to the increased demand for nuclear
energy and business growth resulting from its relationship with
State-owned power utility Eskom. The office would supply Eskom's
Koeberg nuclear power station with technology, integrated services,
and fuel solutions. Westinghouse Vice President for Engineering
Services for Component and Global Plant Engineering Tim Collier
remarked that the establishment of the Cape Town office solidified
the Westinghouse commitment to South Africa and to Eskom by
providing direct local support for continued successful operation of
the Koeberg power station. (Engineering News, January 21, 2009)

--------------
Q --------------
Eskom Pursues Development in 2009
--------------



8. (U) This year Eskom plans to pursue an aggressive planning and
development schedule for a third new-generation coal-fired power
station as well as other base-load projects, including nuclear,
despite a marked slowdown in demand. Eskom Chief Generation Officer
Brian Dames remarked that Eskom is also prioritizing the independent
power producer program as part of a plan to close future supply-side
gaps. Dames stressed that Eskom would continue to pursue all of its
current projects except for the Nuclear 1 and the R19 billion ($1.9
billion) second pumped storage project in Limpopo. Eskom assumes
there will be "marginal to zero" growth for 2009. Dames indicated
that growth in 2010 could also well be flat to modest, but noted

PRETORIA 00000136 003.2 OF 003


that "because future demand is so unclear, we need to continue with
our project development work. We need to identify the next
coalfield - do the design, find a site and move through all the
environmental and regulatory project development phases." Dames
affirmed that Eskom would continue to advance its nuclear program
and would seek to firm up site selection, environmental clearances
and future government support. (Engineering News, January 20,
2009)

--------------
DWAF Takes Steps to Avoid
Water Supply Shortage
--------------


9. (U) Department of Water Affairs and Forestry (DWAF) Minister
Lindiwe Hendricks announced the government's plan to avoid a
potential water shortage on the Vaal river system, which supplies
about 40% of South Africa's population with water. Government
officials worry that demand for water from the river system will
outstrip supply by 2013 unless the government diversifies its water
supply, prevents pollution, and stops water theft. The DWAF plans
to spend R7.3 billion ($709 million) to build a dam to increase the
amount of water in the Vaal river system mix. The government has
earmarked R550 million ($55 million) to improve sewage treatment
plants on the Vaal river system. The government also plans to
prosecute farmers who allegedly divert as much as 180 million cubic
liters of water per year. (Engineering News, January 19, 2009)