SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER FEBRUARY 13,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER FEBRUARY 13,
2009 ISSUE

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1. (U) Summary. This is Volume 9, issue 7 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- Budget 2009 - Finance Minister Cushions the Blow
- Factories Put in Worst Performance in a Decade
- Trade Conditions Survey Shows Cautious Improvement
- Transnet Re-Issues Locomotive Tender to Three Bidders
- Second Transnet Executive Announces Departure
- Department of Minerals and Energy to Split
- Anglo Platinum to Cut 10,000 Jobs
- Manuel Acknowledges Environmental Issues in Budget Speech

End Summary.


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Budget 2009 - Finance Minister
Cushions the Blow
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2. (U) Finance Minister Trevor Manuel announced in his 2009-10
budget speech before Parliament that government plans to aid
state-owned utility company Eskom, the embattled mining industry,
and struggling national airline South African Airways (SAA) by
extending support worth billions at a time when the economy is
suffering a dramatic slowdown. Government had undertaken to provide
Eskom with a guarantee of R176 billion ($17.7 billion) for its
massive financial R343 billion ($34.4 billion) infrastructure
investment program, announced Manuel. The guarantee would help to
lower the cost of borrowing for the utility in the tight capital
market. He also signaled a delay in the introduction of the mining
royalties tax regime from April to next year, in effect giving the
mining industry tax relief of R1.8 billion ($180.9 million),which
he noted would assist in minimizing job losses. SAA would receive
R1.6 billion ($161 million) to support its turnaround strategy and
bolster its financial sustainability. The economy was expected to
grow only 1.2% this year, Manuel predicted, but would strengthen to
3% in 2010 and 4% in 2011. He commented that trading conditions are
tough and are likely to deteriorate further in the short-term.
Manual did not offer a direct fiscal stimulus package, but his
budget was an expansionary, counter-cyclical instrument with
incentives to industry and support to the poor. "Policy adjustments
need to reinforce macroeconomic stability in the context of a
deteriorating international environment and provide a temporary
cushion to the domestic economy," Manuel explained. The budget
review added that "a lower tax burden combined with strong growth in
public spending signals a strong fiscal stimulus to the economy over
the period ahead." (Business Day, February 11, 2009)

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Factories Put in Worst Performance in a Decade
-------------- -


3. (U) Factory output plunged at its fastest pace in a decade in
December as demand for exports fell, backing the case for more
aggressive interest rate cuts to protect South Africa from the
global recession. Manufacturing declined by 7% compared to December
2007, its biggest fall since October 1998. The figures show South
Africa's manufacturing sector is in a deepening recession, and
likely to have restrained overall growth in the fourth quarter of
last year. "It looks pretty disappointing," said ETM Economist
George Glynos. "The numbers suggest we are looking at a downturn far
QGeorge Glynos. "The numbers suggest we are looking at a downturn far
more severe than many private sector economists have picked up."
Nedbank Chief Economist Dennis Dykes speculated, "I think what we
are starting to see now is the dual effect of the slowdown
domestically and on top of that the delayed effects of what has
happened internationally coming through." Motor manufacturing had
been hit by a double whammy because both local and export demand
have slowed. Industries such as iron and steel were also hard hit.
It was likely that the economy shrank in the fourth quarter. "The
retail sector is under pressure. Mining will be down. Even prior to
this number we were predicting a small decline in GDP in the fourth
quarter and now it looks a certainty," Dykes warned. (Business Day,
February 11, 2009)

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Trade Conditions Survey Shows Cautious Improvement

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4. (U) The Trade Activity Index (TAI) improved in January, announced
the South African Chamber of Commerce and Industry (SAACI). The TAI
measures current trade conditions. This is the first time the TAI
has improved since October, SAACI reported in its latest monthly
Trade Conditions Survey. SAACI cautioned that the trade environment
is still uncertain, but said that January showed improvements in
current sales volumes and new orders. An improvement in household
spending stimulated by lower interest rates should assist a recovery
in the trade environment, which was currently being weighed down by
low economic expectations, SAACI noted. The Trade Expectations
Index (TEI),which surveyed trade conditions six months ahead, also
improved in January. The improvements in the outlook for trade may
be attributable to recent monetary policy easing and anticipated
further relief in the course of 2009. (Engineering News, February
10, 2009)

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Transnet Re-Issues Locomotive Tender to Three Bidders
-------------- --------------


5. (U) State-controlled transport logistics group Transnet has
reportedly invited only three international original equipment
manufacturers (OEMs) to bid to supply 100 diesel locomotives. The
tender was issued recently following Transnet's decision to withdraw
an earlier tender for 212 diesel locomotives. The initial tender
was issued on September 2006. U.S.-based Electromotive Diesel (EMD)
was named as the preferred bidder for the R6 billion ($598.5
million) agreement to supply 212 trains in August 2007. However,
Transnet Spokesperson John Dludlu confirmed that a new "confined
tender" had been issued and would close on February 17. He did not
confirm the names of those OEMs invited to participate, but
Engineering News has established that EMD, GE Transportation, and
Siemens all received the tender documentation. Dludlu said the 100
locomotives will be deployed primarily for use by its general
freight business, but declined to disclose further details until
after the adjudication and evaluation processes are completed. It
is understood that Transnet will seek to ensure that a portion of
the value of the contract is placed with South African industrial
suppliers. It is also believed that the 100 locomotives purchase
program is viewed by the utility as part of a larger
recapitalization of Transnet Freight Rail, which could position the
winning OEM strongly to supply into subsequent tenders. The
decision to reissue the tender is also in line with an earlier
indication given by Transnet that it is hoping to pursue a "more
commercial approach" to the acquisition of new traction power, in
light of the "breathing space" created by the slowdown in the
international and domestic economies. (Engineering News, February
9, 2009)


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Second Transnet Executive Announces Departure
--------------


6. (U) Transnet Chief Operation Officer Louis van Niekerk has
announced that he plans to leave the state-controlled transport
Qannounced that he plans to leave the state-controlled transport
logistics group at the end of March. Transnet CEO Maria Ramos had
announced her resignation last November and would depart at the end
of February. Van Niekerk joined Transnet in 2005 soon after Ramos
took over. He had been asked to join Transnet to assist with a
far-reaching re-engineering and asset recapitalization plan.
Transnet spokesperson John Dludlu did not indicate whether a
replacement would be sought for Van Niekerk, or whether any other
senior executives were contemplating resignation. Dludlu was also
unable to provide an update on finding a replacement for Ramos, who
would be taking over as CEO at banking group Absa on March 1.
(Engineering News, February 9, 2009)

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Department of Minerals and Energy to Split
--------------


7. (U) South Africa's Minister of Minerals and Energy Buyelwa
Sonjica expects her department to be split into two separate
ministries if the ruling African National Congress wins the April 22
election. Sonjica said both energy and minerals were vital to the
country's economy and having two separate ministries would allow

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more time and energy to be devoted to each. "Both energy and
minerals are very complex ... it makes sense if the two very
important sectors of the economy would be given separate focus; it
can only improve performance," Sonjica remarked. Mining experts
expect the new Energy Ministry to be responsible for implementing a
clear energy strategy, while the Mines Ministry would have more
scope to tackle issues still unresolved many years after the 1994
Mining Charter. Such issues would include ensuring a genuine
transfer of more control of the mining industry and the export of
mined commodities to black management and ownership. (Reuters,
February 10, 2009)

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Anglo Platinum to Cut 10,000 Jobs
--------------


8. (U) Anglo Platinum (Angloplat) would cut about 8,000 contractor
jobs and shed another 2,000 posts this year through natural
attrition, but would do what it could to avoid laying-off permanent
employees, CEO Neville Nicolau announced. Angloplat is the world's
largest platinum producer. The decision to lay off workers follows
the collapse in commodities prices. Permanent job cuts could be
inevitable if prices continued to fall, Nicolau warned. Nicolau
expected platinum would average about $1,000/oz this year, assuming
a market in balance or slight deficit. There could be a slight
improvement at the end of the year, he said, although it was
difficult to forecast when prices would recover. Angloplat was
trying to create sufficient flexibility in its operations to be able
to ramp production up or down in response to market conditions.
Every mine had to be profitable, Nicolau commented. Those that were
posting losses would be fixed, sold, or closed. (Business Day,
February 10, 2009)

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Manuel Acknowledges Environmental
Issues in Budget Speech
--------------


9. (U) Finance Minister Trevor Manuel proposed introducing
incentives for company investment in energy-efficient equipment
during his February 11 budget speech. Such incentives would take
the form of a supplementary depreciation allowance. Manuel
encouraged South African companies to take advantage of the Kyoto
Protocols' clean development mechanism (CDM),and commented that the
National Treasury would introduce a favorable tax treatment for the
recognition of income derived from the sale of emission reductions
through the CDM mechanism. The Minister also noted that the tax on
plastic shopping bags would be increased from 3 cents to 4 cents.
(www.treasury.gov.za, February 12, 2009)