SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 2,

UNCLAS SECTION 01 OF 03 PRETORIA 000004 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 2, 2009 ISSUE PRETORIA 00000004 001.2 OF 003 ¶1. (U) Summary. This is Volume 9, issue 1 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Growth in Credit Slows - COSATU Slammed on Labor Plans - South Africa's Trade Gap Swells - Vodacom Ponders Launching Mobile Money Service in South Africa - Resources Slammed on the JSE - U.S. Firm Invests $150 million in Clean Power Company Despite Global Downturn - Water Industry Showcase to be Held in Johannesburg End Summary. -------------- Growth in Credit Slows -------------- ¶2. (U) South African Reserve Bank (SARB) data shows the rate of growth in credit extension to the private sector (PSCE) decreased from 16.4% year-on-year (y/y) in October to 15.3% y/y in November. The rate of growth of South Africa's broad M3 money supply measure increased from 15.6% y/y in October to 16.3% y/y in November. The credit extension growth was expected to have increased at a slower 15.2% y/y in November; the broad M3 money supply growth rate, meanwhile, was expected to have increased at just 14.7% y/y, according to I-Net Bridge's Econometer. Efficient Group Economist Fanie Joubert said "credit extension is slightly better than expected, but the pace at which it is coming down is still relatively high. Nedbank chief economist Dennis Dykes remarked that the data was slightly above what he had anticipated. "Money supply is a bit high, but these numbers do tend to be fairly erratic. The trend over the last few months has been in the right direction and we will continue to see them coming off going into the new year. The priority is to make sure we avert a downturn and it is not that central banks are taking their eyes off the inflation story - inflation will come under control more and more." (I-Net Bridge, December 30, 2008) -------------- COSATU Slammed on Labor Plans -------------- ¶3. (U) The South African Chamber of Commerce and Industry (SACCI) slammed the Congress of South African Trade Unions' (COSATU) calls for labor law amendments, saying they would only serve as a "disincentive" to employ people. SACCI Chief Executive Officer Neren Rau asserted that many businesses are at the threshold of insolvency and it therefore helps little to argue for further restrictive labor legislation. COSATU is strategizing to fight layoffs in the midst of the economic crisis, and plans to pressure the ruling ANC to make it more difficult to fire workers. "It is not the sort of message that investors are likely to find attractive in an environment considered by many to be already too 'labor-friendly,'" Rau noted. (I-Net Bridge, December 23, 2008) -------------- South Africa's Trade Gap Swells -------------- ¶4. (U) South Africa's trade deficit widened to R12.1 billion ($1.2 billion) in November due to higher vehicle imports and lower precious metals exports, reported the South African Revenue Service (SARS). The gap widened from a R9.8 billion ($1 billion) shortfall in October despite a sharp drop in the value of oil imports. Economists polled by Reuters last week had predicted a deficit of R6 QEconomists polled by Reuters last week had predicted a deficit of R6 billion ($645.5 million),but the monthly trade figure is traditionally volatile and difficult to forecast. Exports fell by 17.93 percent, while imports decreased by 12.59 percent. Precious metals fell by 30%. "It's a lot bigger than we expected ... it's not a good number and shows ongoing structural problems in our trade account," said ETM economist Russell Lamberti. SARS said the PRETORIA 00000004 002.2 OF 003 cumulative trade deficit for the first 11 months of 2007 was R68.1 billion ($7.3 billion),compared R84.2 billion ($9.1 billion) during the same period in 2008, keeping pressure on an ailing current account. The deficit on the current account was 7.3 percent of GDP for 2007 and swelled to 7.9 percent of gross domestic product in the third quarter of 2008. The current account deficit is expected to widen to 8.9 percent of GDP by 2010. But Lamberti said the trade deficit may start easing in the next few months as importers and exporters adjust after a sharp drop in the rand in 2008. (Engineering News, December 30, 2008) -------------- Vodacom Ponders Launching Mobile Money Service in South Africa -------------- ¶5. (U) South Africa may become the newest market for Vodacom's mobile money transfer service. The Vodafone-developed service allows users to deposit, withdraw, and transfer money with their cellular phones as well as to convert cash into electronic money via an authorized agent. Vodacom Chief Communications Officer Pieter Uys noted that South Africa has a large number of people who do not have bank accounts. Users of the service do not need to have a bank account because the service holds the money in a bank account on behalf of the phone user. Vodacom launched the service in Kenya in March 2007 and in Tanzania in April 2008. Uys commented that the service is designed to find new revenue streams, retain customers, and diversify the number of services that Vodacom offers. (Engineering News, December 12, 2008) -------------- Resources Slammed on the JSE -------------- ¶6. (U) The five most battered stocks on the Johannesburg Stock Exchange (JSE) in 2008 were mining and industrial companies. Junior miner Metorex shed 90.7% of its value, Super Group lost 85.6%, Bell Equipment was down 72.6%, Combined Motor Holdings shed 71.5%, and Wesco Investment lost 69.5%. One of the most dramatic features of local markets in the past year was the steep fall in metals prices. Gold and platinum started the year on a high, reaching new record prices for the first three months. By July the prices of both precious metals and base metals were cut in half. Gold prices at the end of 2008 are approximately the same as they were at the beginning of the year, but platinum prices are more than 50% lower than their per ounce price at the beginning of 2008. NKC Independent economist Christie Viljoen said there was very little information indicating that the local market had reached a turning point or that a recovery was imminent. Low trading volumes in coming weeks mean that the market would "remain directionless until early next year," Viljoen predicted. (Business Day, December 24, 2008) -------------- U.S. Firm Invests $150 million in Clean Power Company Despite Global Downturn -------------- ¶7. (U) Power cogeneration projects are forging ahead despite the economic slowdown and an associated crunch in credit extension. Johannesburg-based clean and renewable energy company BioTherm Energy has received an injection of $150 million of equity from the QEnergy has received an injection of $150 million of equity from the U.S. private equity company Denham Capital, which targets investments in the energy sector. Cogeneration is power generated from process by-products like waste and heat from industrial processes. BioTherm has eight cogeneration projects in South Africa with total generating capacity of 120 MW. These include projects with PetroSA, Engen, glass manufacturer PFG, Hernic Ferrochrome, and pharmaceutical group Adcock Ingram. BioTherm CEO Charles Liebenberg says that the company can use bank financing to leverage the equity injection, in combination with another $50 million of black economic empowerment funding, to finance cogeneration projects totaling $800 million. Liebenberg cautioned, "Eskom, the regulator NERSA, and the Department of Minerals and Energy are supportive of independent power producers but that needs to manifest rapidly in realistic legislation, policy, and enabling environment." Liebenberg also noted that South Africa can learn from EU experience in implementing cogeneration that is energy efficient and favorable for reducing PRETORIA 00000004 003.2 OF 003 carbon output. He warned that Eskom's tariff structure does not reflect the cost of production, nor the life cycle cost of base load fossil fuel including carbon emissions, thus creating a challenge for implementing waste energy conversion projects. (Business Day, December 24, 2008) -------------- Water Industry Showcase to be Held in Johannesburg -------------- ¶8. (U) Increased investment in water-related infrastructure in Africa is creating business and growth opportunities across the continent. The global value of the water industry, including waste treatment, valves, pumps, filtration, and desalination equipment, is now estimated at $400 billion. The global water industry will be able to showcase its opportunities and challenges at WaterTec Africa 2009, which is to be held in Johannesburg in June 2009. The World Bank remains the biggest single contributor to the overall funding of water infrastructure in Africa. South Africa is also investing heavily in water-related infrastructure. Finance Minister Trevor Manual recently announced a R3.1 billion ($331 million) grant for a three-year program which would focus on improving regional and district water storage and supply capacity. The South African government also allocated R500 million ($53.4 million) to address backlogs in electrification and water sanitation in schools and clinics. (Engineering News, December 12, 2008)