SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 30,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 30,
2009 ISSUE

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1. (U) Summary. This is Volume 9, issue 5 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- Big Rate Cut Expected as Inflation Plummets
- South Africa's Leading Indicator Confirms Dismal Growth
Outlook
- Sharp Rise in Company Failures
- SARS Seizes Huge Haul of Illegal Imports
- Emirates to Fly Direct to Durban by October
- MTN and Neotel Team Up to Build National Cable
Infrastructure to Connect to the Undersea Cable
Projects in Time for 2010
- Beyond Eskom - Nuclear was too Big for State Utility
Alone
- PBMR Nuclear Fuel Breakthrough
- Ferrochrome - Decimating Production
- National Space Agency Bill Passed into Law

End Summary.


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Big Rate Cut Expected as Inflation Plummets
--------------


2. (U) The annual increase in the CPIX inflation (CPI less mortgage
cost) eased from 12.1% in November to 10.3% in December, its lowest
level in nine months. The lower inflation rate was driven primarily
by a sharp fall in fuel prices. Government bonds and banking shares
rallied on the news, which fanned speculation that the South African
Reserve Bank (SARB) will cut rates this year in a bid to keep South
Africa's flagging economy out of the global recession. At its
December meeting, the SARB's Monetary Policy Committee cut the
policy interest rate by half a percentage point. That marked the
start of an easing cycle in local interest rates, which climbed by
five percentage points between June 2006 and June 2008 as the SARB
fought soaring inflation. Since then, slowing domestic demand and a
steep plunge in prices for commodities that make up more than 60% of
South Africa's exports have curbed growth to a decade low.
(Business Day, January 29, 2009)

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South Africa's Leading Indicator
Confirms Dismal Growth Outlook
--------------


3. (U) South Africa's leading indicator of economic activity posted
its lowest fall in over four years (-14.3% year-on-year (y/y)). The
fall marks the 17th consecutive month of y/y declines and confirms
the dismal growth outlook for the South African economy. South
Africa's economic growth slowed to just 0.2% quarter-on-quarter
(q/q) in Q3 08, the slowest q/q growth in a decade and looks set to
continue its downward trend. Experts speculate the South African
economy may already be in the midst of a technical recession, with
the latest projections pointing to negative q/q growth rates in Q4
08 and Q1 09. Given slowing global and domestic activity as evident
in many high frequency indicators, experts forecast the South
African economy's average growth rate will decline from a 3.3%
average for 2008 to a sub-1% average growth rate for 2009. (ABSA
Newsletter, January 27, 2009)

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Sharp Rise in Company Failures
--------------


4. (U) Company failures soared by more than 68% in December, taking
the overall increase last year to 4.7% as more firms buckled under
the pressure of slowing demand and steep debt costs. Personal
bankruptcies also leaped 51.5% in the first 11 months of last year,
Qbankruptcies also leaped 51.5% in the first 11 months of last year,
although there was a small decline in November, according to
Statistics South Africa. Companies should come under more pressure
this year as consumers continue to rein in their spending. Consumer
spending, which is the economy's main engine, shrank by 0.8% in the
third quarter of 2008, its first contraction in a decade.
(Business Day, January 28, 2009)

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SARS Seizes Huge Haul of Illegal Imports
--------------


5. (U) The South African Revenue Service (SARS) has confiscated more
than 100 tons of clothing imports since the mid-December launch of a
customs crackdown on goods imported illegally from Asia. The value
of the goods has not yet been established. Since the launch of the
campaign, customs monitoring has increased. Up to 15% of shipments
have been examined since the beginning of the crackdown, in contrast
to only 2-3 % in the past. The increased scrutiny has bumped up
shipping costs and lead times on delivery by about a week. SARS
cracked down on imports after discovering large-scale
under-invoicing of clothing imports from China. Trade statistics
showed that textiles and apparel worth R15.3 billion ($1.5 billion)
were exported from China to South Africa last year. However,
invoices reflected imports worth only R6.1 billion ($614 million),
representing a 60% shortfall in invoicing and a sign of large-scale
fraud, the Department of Trade and Industry said at the end of last
year. (Business Day, January 28, 2009)

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Emirates to Fly Direct to Durban by October
--------------


6. (U) Dubai-based Emirates Airlines (Emirates) has announced its
intention to resume plans to launch direct flights to Durban.
Emirates resolved the aircraft shortage problem that caused it to
suspend its flight plans late last year. Emirates Southern Africa
Regional Manager Fouad Caunhye announced that beginning in October
2009 Emirates will begin to serve Durban along with Johannesburg and
Cape Town. Durban's geographical location on the east coast of
South Africa makes it a natural hub for trade with the Indian Ocean
and Asia Pacific countries. Durban handles 50% of the country's
break-bulk cargo and 65% of its containerized traffic. The Airports
Company of South Africa is building a new international airport in
Durban to accommodate increased traffic for the 2010 FIFA World Cup
and larger, long-haul aircraft. (Travel Hub, January 22, 2009)

-------------- --
MTN and Neotel Team Up to Build National Cable
Infrastructure to Connect to the Undersea Cable
Projects in Time for 2010
-------------- --


7. (U) Telecommunications companies MTN South Africa and Neotel
announced plans to collaborate on a 5,000 kilometer fiber-optic
cable to service South Africa's major cities. The cable would be
installed within the next two years, and would cost between R1.7
billion ($171 million) and R2 billion ($200 million). MTN South
Africa Managing Director Tim Lowry said this was a landmark
agreement and was the largest collaboration in the South African ICT
industry to date. The two-year project's costs would be equally
shared between MTN and Neotel. Lowry estimated that by combining
the two companies' resources, each company would be saving between
R400 million ($40 million) and R500 million ($50 million). The
project would be divided into several phases, with the first phase
offering connectivity between Johannesburg and Durban, and linking
Qoffering connectivity between Johannesburg and Durban, and linking
up to Richards Bay where the under-sea East African Submarine Cable
System (EASSY) and SEACOM will be landed. The first phase would
likely take about seven months to complete, and would cost an
estimated R200 million ($20 million). Construction for this phase
would start in the first week of March, with the completion date
scheduled before the start of the 2010 FIFA World Cup. Other phases
would link Durban with Port Elizabeth, Port Elizabeth with Cape
Town, Ladysmith with Polokwane, and Polokwane with Pretoria.
(Engineering News, January 15, 2009)


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Beyond Eskom - Nuclear was too Big
for State Utility Alone
--------------


8. (U) The South African government has established a nuclear task
team to develop a framework for procuring a nuclear technology
partner to support both the nuclear power station build program and
the associated industrialization process. This came after Eskom
cancelled the tender for a 3,000 megawatt nuclear power station,
based on funding and affordability concerns. The task team plans to

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look for a partner that would co-develop the nuclear industry in
South Africa and assist in the broadening of the nuclear base, which
currently consists of only the Koeberg power station. The task team
would be led by Department of Minerals and Energy acting Deputy
Director General for hydrocarbons and energy planning Tseliso
Maqubela, and would include representatives from the Department of
Public Enterprises and Eskom. DPE Director General Portia Molefe
said the task team effort should take about one year. The two
preferred candidates for the cancelled tender, Westinghouse and
Areva, have announced their continued commitment to South Africa and
its nuclear potential. Westinghouse Regional Vice President Rita
Bowser said, "We believe that the AP1000 is ideal for South Africa
as it combines proven power generation systems and components with
advanced, passive safety systems. We will nevertheless continue our
current nuclear business interests in South Africa that include our
work at Koeberg and our support for development of the Pebble Bed
Modular Reactor." Westinghouse just opened up an office in Cape
Town to service Koeberg. (Engineering News, January 16, 2009)

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PBMR Nuclear Fuel Breakthrough
--------------


9. (U) Nuclear design company Pebble Bed Modular Reactor (PBMR) has
successfully manufactured coated fuel particles, which would form
the basis of high temperature reactor fuel, containing 9.6% enriched
uranium. PBMR manufactured the particles in December and shipped
them to the Oak Ridge National Laboratory and the Idaho National
Laboratory in the U.S. to undergo irradiation testing. CEO Jaco
Kriek noted that this achievement would give PBMR credibility as a
participant in the Next Generation Nuclear Plant project. He also
noted that the manufacturing of fuel particles was a key driver of
the company's partnership in the consortium that includes
Westinghouse. The fuel design consists of low-enriched uranium and
triple-coated isotropic particles contained in a molded graphite
sphere. Kriek said, "We have conducted extensive development work
and we are satisfied that the coated particles that were produced
for testing will provide proof and assurance that the PBMR will
perform to its predicted best-in-the-world safety capabilities in
the process heat and electricity markets, as well as cogeneration
applications." (Engineering News, January 16, 2009)

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Ferrochrome - Decimating Production
--------------


10. (U) Demand and prices for ferrochrome have fallen so low that
the Xstrata-Merafe chrome venture is producing at only 20% of its
capacity - but it has retained its employees who operate its
suspended furnaces. The Xstrata-Merafe venture has decimated its
output, but is holding onto its operations personnel to enable it to
snap back into action when demand increases. Skills shortages are a
problem in South Africa, so many companies are trying to avoid
laying-off skilled employees during the global commodities slowdown.
An analyst asserted that Chinese ferrochrome producers are being
supported by state entities and believed that substantial stocks of
Qsupported by state entities and believed that substantial stocks of
chrome ore may still exist in China. South Africa is the world's
leading producer of chromium ferroalloy production, used in
stainless steel production, which has been impacted by the global
slowdown. The shutdown of chromium and manganese ferroalloy
furnaces has provided temporary relief to electricity supply
shortfalls in South Africa. (Mining Weekly, January 23, 2009)

--------------
National Space Agency Bill Passed into Law
--------------


11. (U) President Kgalema Motlanthe of South Africa signed into law
the South African National Space Agency Act, which allows for the
establishment of a South African National Space Agency (NSA).
Minister Mosebudi Mangena of the Department of Science and
Technology emphasized the role satellite images play in minerals
prospecting, city planning, precision farming, and weather
predictions. Mangena noted that South Africa was already spending
over R600 million ($60 million) per year on space related
operations. South Africa operates two civilian satellites, the
SunSat, which was launched in 1999 and is still orbiting, and the
Sumbandilasat, which is yet to be launched. Sumbandilasat is
tentatively scheduled to launch in March 2009. (The Star, January

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16, 2009)