SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 20, 2009

UNCLAS SECTION 01 OF 03 PRETORIA 000533 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 MARCH 20, 2009 ISSUE PRETORIA 00000533 001.2 OF 003 ¶1. (U) Summary. This is Volume 9, issue 12 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Manufacturing Production Has Steepest Fall in Almost Two Decades - Gold Production Declines Sharply - Retail Sales Grow - Moody's to Review South Africa's Local Currency Rating - Automotive Industry Seeks New Approach - Tata Communications to Be Seacom Anchor Tenant - Anglo American Sheds Last Of its AngloGold Shares - Mine Deaths Worsening for Year-to-Date Comparison - Ibhubesi Field Could Supply Gas by 2012 - Minister of Environmental Affairs Encourages Equity End Summary. -------------- Manufacturing Production Has Steepest Fall in Almost Two Decades -------------- ¶2. (U) Manufacturing production had its steepest fall in more than 18 years, providing a grim picture of where the South African economy is headed this year. Statistics South Africa (StatsSA) announced that manufacturing production for January decreased year-on-year (y/y) by 11.1%. Nedbank Group's Economic Recovery Unit said some moderate recovery in the sector could be experienced during the second half of the year as low interest rates stimulate domestic demand. (Business Times, March 15, 2009) -------------- Gold Production Declines Sharply -------------- ¶3. (U) South Africa's gold production in January this year was 8.7% lower than in January 2008. South Africa's total mining production for the month dropped 11% y/y, said StatsSA. Non-gold production fell by 11.4% in January, compared with last January. The decrease in total mining production for January was largely attributable to negative contributions from diamonds (-6.2%),platinum group metals (-2.3%) and chromium (-1.1 %). (Business Times, March 15, 2009) -------------- Retail Sales Grow -------------- ¶4. (U) South Africa's annualized retail sales grew for the first time in nine months in January, according to recent data. Stats SA said sales rose by 1.7% compared to the same month last year, the first growth since April 2008 and the highest rate since last February. Analysts warned the January growth may not signal the start of a trend and could be a knee-jerk reaction to sharply lower fuel prices, as well as base effects following power cuts during January last year. (Business Day, March 18, 2009) -------------- Moody's to Review South Africa's Local Currency Rating -------------- ¶5. (U) Ratings agency Moody's has placed South Africa's A2 local currency rating on review for possible downgrade, citing fiscal pressures and the risk of a prolonged recession. The agency affirmed the positive outlook on the government's Baa1 foreign currency rating and the A2/Baa1 foreign currency ceiling for debt and deposits. The review reflected fiscal pressures which, although not unique to South Africa, may weaken the government's creditworthiness. (Business Times, March 15, 2009) -------------- Automotive Industry Seeks New Approach -------------- ¶6. (U) National Association of Automotive Component and Allied Q6. (U) National Association of Automotive Component and Allied Manufacturers President Stewart Jennings called for aggressive PRETORIA 00000533 002.2 OF 003 interest rate cuts to stimulate the economy and for measures to protect the industry. Jennings called for the government to provide subsidized finance, increased quality standards, a focused Buy SA campaign, labor regulation reform to increase labor productivity, tariff interventions, and more aggressive antidumping duties in order to protect local manufacturers. National Association of Automobile Manufacturers of South Africa (NAAMSA) President David Powells urged the government to intensify its industrial policy program to support the motor industry. Powells remarked that financial support from the Industrial Development Corporation (IDC), over and above support already received by the industry in the form of the Automotive Production and Development Programme (APDP),was necessary to stabilize the industry. (Business Day, March 19, 2009) -------------- Tata Communications to Be Seacom Anchor Tenant -------------- ¶7. (U) Tata Communications, which owns a 56% stake in South African alternative fixed-line operator Neotel, announced on March 17 that it was an anchor tenant customer for the broadband-boosting Seacom cable system. Seacom and Tata Communications were planning for the system to be ready for service by June 2009. Tata Communications would operate the landing point in Mumbai, while Neotel would manage the landing point in Mtunzini, South Africa. The project would provide connectivity between the Tata Communications global network, the Seacom cable system, and Neotel's converged network in South Africa. Another subsidiary company, Tata Communications Transformation Services, was awarded the network administration, operations, and maintenance contract for the cable, supporting 1.28 terabits per second of capacity. "Prior to the development of this cable system, a majority of east and southern Africa relied on small and expensive satellite circuits to meet their international network requirements," said Seacom President Brian Herlihy. (Engineering News, March 18, 2009) -------------- Anglo American Sheds Last Of its AngloGold Shares -------------- ¶8. (U) Cash-seeking Anglo American is now completely out of gold, the precious metal that was synonymous with the iconic South African-rooted diversified major since its inception in 1917. The company announced it had disposed of its remaining 11.3% shareholding in AngloGold Ashanti for $1.28 billion. On December 31, 2008 Anglo American's shareholding in AngloGold Ashanti had been 16.2%. (Engineering News, Business Day, March 18, 2009) -------------- Mine Deaths Worsening for Year-to-Date Comparison -------------- ¶9. (U) More mine workers died in work-related incidents so far this year than the same period last year, according to National Union of Mineworkers (NUM) Safety Head Mziwakhe Nhlapo, speaking to an Exxaro mine safety summit at the Council of Science and Industrial Research. He noted that 34 miners had died this year, compared to 22 over the same period in 2008 (some of this period was affected by power outages). Many of this year's fatalities involved workers who had not completed a full trade test acceptable to the Chamber of Qhad not completed a full trade test acceptable to the Chamber of Mines. Nhlapo also suggested that mine layoffs could also be a cause of low worker morale, which could be a contributing factor to the increased number of deaths. Exxaro Executive General Manager Safety Nombasa Tsengwa highlighted that because the law forced every single mine death to result in temporary mine closure and an investigation, there was a considerable knowledge base for potential corrective action. AngloGold Ashanti's Moab Khotsong mine was closed on March 16 after a miner was killed an underground cave-in incident. (Mining Weekly, March 18, 2009) -------------- Ibhubesi Field Could Supply Gas by 2012 -------------- ¶10. (U) The Ibhubesi natural gas field off South Africa's west coast PRETORIA 00000533 003.2 OF 003 could start supplying gas and condensate to the Western Cape industrial and power generation sectors as early as 2012, according to U.S.-based Forest Exploration Commercial Director John Langhus, speaking to the Cape Regional Chamber of Commerce and Industry. He remarked that the project had the potential to produce about 3.65 million gigajoules of energy a year for its 30-year lifespan, including 400-700 megawatts of power generation capacity. This would significantly enhance the energy security of the province, which is reliant on transmission lines from Mpumalanga Province and diesel-driven peaking power plants to supplement the base load generated by the Koeberg nuclear facility. Ibhubesi was now considered "big and economically viable enough" to justify expected investment of $3-4 billion over twenty years, Langhus commented, "after having been put on the backburner during the period of uncertainty that characterized South Africa's controversial conversion of old exploration leases to new order rights - including a black empowerment component." Forest expected to be granted production rights to block 2A, according to Langhus, 380 kilometers northwest of Cape Town and about 100 kilometers offshore. Forest is lead operator of the consortium with a 53% share, in partnership with state-owned PetroSA (24%) and Anshcutz SA (23%). (Business Day, March 18, 2009) -------------- Minister of Environmental Affairs Encourages Equity -------------- ¶11. (U) South African Minister of Environmental Affairs and Tourism Marthinus Van Schalkwyk announced at a recent climate change conference that South Africa is making serious contributions in the fight against carbon emissions reduction, but cautioned that the developing world must not be forced to carry the developed world's carbon emissions burden. He emphasized the need for establishing a legally binding instrument under which developed countries would provide finance, technology and capacity support to developing countries. (Engineering News, March 13 -19, 2009)