SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER SEPTEMBER 4,

UNCLAS SECTION 01 OF 03 PRETORIA 001808 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 SEPTEMBER 4, 2009 ISSUE PRETORIA 00001808 001.2 OF 003 ¶1. (U) Summary. This is Volume 9, issue 34 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - South African Consumers in Debt Trouble - Outlook for Vehicle Sales Brightens - National Broadband Policy Expected "Shortly" - Government Backs MTN-Bharti Deal to Promote South-South Cooperation - Energy Bordering on Crisis Again - Minerals Export Stymied by Logistical Challenges - Public Enterprise Boss May Be Headed for SAA - South Africa and Italy to Expand Trade Relationship End Summary. -------------- South African Consumers in Debt Trouble -------------- ¶2. (U) The National Credit Regulator (NCR) has warned that at least 150,000 South Africans could be under debt review by Christmas as the effects of the economic crisis take hold. Consumers under debt review work with credit counselors to reschedule payments to creditors. Consumer Assist Chief Executive Officer Andre Snyman said there are already 100,000 consumers in credit counseling. They owe a combined R20 billion ($2.5 billion) of which R12 billion ($1.5 billion) is owed on mortgages. People who were seeking assistance had used all of their reserves and investments, commented Snyman. Almost 1.3 million South Africans had fallen into arrears from June 2007 to July 2009. (Fin24, September 1, 2009) -------------- Outlook for Vehicle Sales Brightens -------------- ¶3. (U) The National Association of Automobile Manufacturers of South Africa (Naamsa) reported on September 2 that total new vehicle sales for August declined 26.2% when compared to new vehicle sales in August 2008. However, the decline had continued to be "less negative" than in previous months, reinforcing the underlying bottoming-out trend evident over the past three months, reported Naamsa. Volkswagen SA spokesman Bill Stephens said market demand remained subdued, as unemployment had grown and household real incomes had fallen steeply, keeping households under financial pressure and the household debt-to-income ratio at sustained high levels. Naamsa said the revival of the domestic motor vehicle industry depends on an improvement in consumer spending, lower interest rates and stimulatory government expenditure. (Business Day, September 3, 2009) -------------- National Broadband Policy Expected "Shortly" -------------- ¶4. (U) Minister of Communications Siphiwe Nyanda addressed the Southern African Telecommunications Networks and Application Conference (SATNAC) in Swaziland, which focused on the convergence of the information technology and telecommunications sectors. Nyanda announced that the South African Department of Communications (DOC) was finalizing the national broadband policy. He said there was increasing pressure for integrated, affordable, and mobile communications solutions that spurred the need for migration to Internet Protocol (IP) based platforms. The South African government hopes to deploy ICT to stimulate socioeconomic growth, and thus seeks to encourage more undersea, fiber-optic cables Qand thus seeks to encourage more undersea, fiber-optic cables connecting the country to international networks, as well as extending terrestrial fiber-optic networks. He noted that South Africa's lack of infrastructure precludes the need to adapt from aged legacy systems. Nyanda said convergence of the sectors could "reverse the skills gap," and he contemplated using voice over IP for education, health care, and service delivery in rural areas. (Engineering News, August 31, 2009) -------------- Government Backs MTN-Bharti Deal to Promote South-South Cooperation PRETORIA 00001808 002.2 OF 003 -------------- ¶5. (U) South Africa's government has backed the proposed merger between domestic mobile operator MTN Group and India's Bharti Airtel that could lead to the creation of the world's No. 3 mobile firm. While a combined MTN/Bharti would be the third-biggest mobile operator based on subscribers behind China Mobile and Vodafone, its annual sales of $20 billion would be dwarfed by China Mobile's $60 billion and Vodafone's $65 billion. The two companies have been working to conclude a $23 billion cross-ownership deal since May. Under the proposal, MTN would take a 36% stake in Bharti and Bharti would take a 49% stake in MTN, with the possibility of a full-blown merger to follow. South-South cooperation is a key mechanism for the development agenda of India, Brazil, and South Africa under a trilateral initiative aimed at unlocking economic opportunities that exist between the three countries. (Engineering News, August 31, 2009) -------------- Energy Bordering on Crisis Again -------------- ¶6. (U) Eskom's Andrew Etzinger recently commented that the utility's reserve margin was back to the crisis levels of January 2008, when Eskom shared available electricity on a rotating basis and cut power supplies to mines. Etzinger emphasized the need to pursue energy efficiency in earnest. He said significant new power production from Eskom would be available only in 2012. Electricity supply until then "would be very tight." South Africa is experiencing its first recession in nearly two decades, but Etzinger argued, "Demand for electricity has continued almost as though there was no recession. We have, in a sense, two economies. There is the real economy, where recession reduces growth and opportunity. Then there is the energy economy, where demand continues its upward trajectory seemingly independent of what pain consumers and taxpayers may be experiencing. It appears that negative economic growth does not offer a respite from energy demand." Prior to the crisis, South Africa had the least expensive electricity in the world. The electricity regulator NERSA has since approved two generous price increases, 27.5% and 31.1%, but demand is up by 10% from when the power conservation program was implemented 18 months ago. Etzinger noted, "Cheap electricity had worked nicely for the economy in the past, but that it was now a negative, and there was no way out of the mess without tariffs rising drastically." (Mail and Guardian, August 31, 2009) -------------- Minerals Export Stymied by Logistical Challenges -------------- ¶7. (U) African Rainbow Minerals (ARM) Executive Patrice Motsepe said South Africa was running the risk of losing business to rival countries because of logistics ineptitude. Motsepe noted that "this is not just an industry-specific issue, but it's about the country as a whole, and our global competitiveness." Work is being done to look into a new lower-cost, higher-capacity transport route for the export of manganese from South Africa's rich Kalahari manganese field. ARM Ferrous Executive Director Jan Steenkamp said ARM, with Qfield. ARM Ferrous Executive Director Jan Steenkamp said ARM, with its partner Assmang, and rival diversified miner BHP Billiton, sponsored a feasibility study to look at all the manganese export alternatives on the eastern and western corridors. State-controlled transport logistics company Transnet "is currently working with the producers to look at long-term export capacity," Steenkamp said. (Mining Weekly, August 31, 2009) -------------- Public Enterprise Boss May Be Headed for SAA -------------- ¶8. (U) Department of Public Enterprises (DPE) Director General Portia Molefe has resigned and industry speculation is that she is a contender for the CEO post at South African Airways (SAA). DPE declined to comment on Molefe's resignation. Former Minister of Public Enterprises Alec Erwin, who appointed Molefe, remarked that Molefe was "an effective and innovative Director General, and if she is leaving government it would be a huge loss." Despite long-standing funding problems at SAA, Molefe has argued that the airline is a strategic asset providing vital business and tourism PRETORIA 00001808 003.2 OF 003 links to the rest of the world and so should remain under government control. (Comment: the former SAA CEO was forced to resign earlier this year amidst reports of financial mismanagement and corruption and the process of appointing a new CEO is well under way.) However, there are some signs that Molefe might be out of favor politically. Before the April elections, she had floated the idea of corralling state entities into a single agency not headed by a cabinet minister. The implication was that Molefe herself would head the agency, but the Zuma administration rejected the proposal. It has also become clear that she and DPE Minister Barbara Hogan do not always see eye-to-eye. (Business Day, September 2, 2009) -------------- South Africa and Italy to Expand Trade Relationship -------------- ¶9. (U) South African Trade and Industry Minister Dr. Rob Davies and Italian Economic Development Minister Claudio Scajola met in Pretoria to discuss small enterprise development and cooperation on trade within South Africa's industrial policy. Davies noted that there were complementary opportunities for Italian firms and organizations, especially in South Africa's agroindustries and the furniture-making sector. South Africa imported about R17 billion ($2.1 billion) worth of goods from Italy in 2008, mainly machinery, electrical equipment and appliances. South Africa exported about R13 billion ($1.6 billion) worth of goods to Italy, most of which were precious metals, coal, and metallurgical products. Davies said that South Africa mostly exported primary or raw materials and imported manufactured goods. South Africa was aiming to shift the balance increasingly towards value-added products. (Engineering News, August 31, 2009)