SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 27, 2009

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 27, 2009
ISSUE

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1. (U) Summary. This is Volume 9, issue 13 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- SARB Cuts Interest Rates
- Current Account Deficit Lowest in Almost Three Years
- Slowdown 'May Bring Manufacturing Sector to its Knees'
- Company Failures Increase
- Trevor Manuel Will Not Become
Super Minister
- Credit Crunch Has Little Effect on
South African Farmers
- No Bailouts for Business, Says Phosa
- Telkom to Wind Up Media Unit
- Consortium to Begin Building $620 Million Johannesburg-Maputo
Pipeline
- SAG Aims for Space Industry Development


End Summary.


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SARB Cuts Interest Rates
--------------


2. (U) The South African Reserve Bank's (SARB) Monetary Policy
Committee (MPC) reduced the key policy interest rate, the repo rate,
by 100 points to 9.5%. This is the lowest level since June 2007,
and follows a 50 point cut in December and a 100 point cut in
February. The MPC also decided to meet every month instead of every
two months, but warned the public not to expect the rate to be cut
at every meeting. The MPC explained that it decided to cut the rate
because of the slowing global and domestic economy and an improved
medium-term outlook for inflation. The MPC expects inflation to
fall within the target range of 3-6% in the third quarter of 2009.
Most analysts believe there will be further rate cuts in 2009.
(Fin24, March 25, 2009)

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Current Account Deficit Lowest in Almost Three Years
-------------- --------------


3. (U) South Africa's current account deficit is the lowest it has
been since the third quarter of 2006. SARB Governor Tito Mboweni
reported that the deficit - the gap between export revenue and
import costs - had fallen from a revised 7.8% of GDP in the third
quarter of 2008 to 5.8% in the fourth quarter. Mboweni warned that
the R17.4 billion ($1.8 billion) trade deficit in January was a sign
that the fourth quarter improvement might not last. (Business
Report, March 25, 2009)

--------------
Slowdown 'May Bring Manufacturing
Sector to its Knees'
--------------


4. (U) The Bureau for Economic Research (BER) warned that an
unprecedented contraction in global demand coupled with the domestic
slowdown may bring South Africa's manufacturing sector to its knees.
The BER's manufacturing business confidence index slumped from 31
points in the fourth quarter of 2008 to 16 points in the first
quarter of 2009, showing the "extreme and broad-based weakness in
the manufacturing sector." Manufacturing output plunged by 22% in
the fourth quarter of 2008 as exports collapsed on rock bottom
foreign demand. Sales activity is at a record low. Factory worker
layoffs continued to increase as production plummeted. Analysts
predict that business conditions will remain depressed, which means
business confidence could be eroded further in the short term.
(Business Day, March 23, 2009)



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Company Failures Increase
--------------


5. (U) Statistics South Africa (StatsSA) data showed that company
Q5. (U) Statistics South Africa (StatsSA) data showed that company

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failures were 70% higher in February than a year earlier. It was
the third month in a row in which corporate liquidations increased
by that order of magnitude. The last time company failures climbed
at such a pace was in 1991. "It's what you would expect given the
downswing in South Africa's economy," remarked Citadel chief
economist Dave Mohr. The South African economy shrank 1.8% in the
fourth quarter of last year, which was its first contraction in more
than a decade. Analysts expect liquidations to increase further as
the South African economy is only now starting to experience the
collapse of the world economy." (Business Day, March 24, 2009)

--------------
Trevor Manuel Will Not Become
Super Minister
--------------


6. (U) The African National Congress (ANC) and its allies have
decided against the introduction of a "super cabinet" because they
fear it could create conflict between executive office members.
Minister of Finance Trevor Manuel would have been elevated to a key
planning position in the super cabinet, according to press reports.
The idea of a super cabinet came from discussions on how best to
streamline and overhaul the Cabinet after the April elections.
(Business Day, March 24, 2009)

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Credit Crunch Has Little Effect on
South African Farmers
--------------


7. (U) The availability of credit is not expected to be a major
problem for South Africa's farmers during the 2009/10 production
season. Experts expect the farmers to benefit from high local price
levels, an above-average crop, and a decrease in input costs.
During the 2008/09 planting season there was a 7.1% decrease in the
area planted with summer crops, but the decrease was attributable to
less than normal rainfall rather than to increases in input costs or
the availability of credit. (Impact of Credit Crunch on Producers'
Procurement of Agricultural Inputs, Foreign Agricultural Service,
March 12, 2009. Please contact FAS at +27-012-431-4057 for more
information.)






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No Bailouts for Business, Says Phosa
--------------


8. (U) Firms in the private sector that are struggling due to the
economic slowdown should not be bailed out by the government,
according to ANC Treasurer General Matthews Phosa. Rescue packages
were under debate, Phosa remarked, but he believed the government
should help only public entities. "I don't think we should reward
those who failed because of greed and mismanagement. Public
utilities ... yes," he distinguished. Phosa also touched on black
economic empowerment (BEE),saying the country should not rely too
much on funding schemes based on share prices. He said that while
BEE remained policy, its implementation needed to change because it
was enriching only a few people. Phosa stressed that the ruling
party would not change its economic policies. (Business Report,
March 25, 2009)

--------------
Telkom to Wind Up Media Unit
--------------


9. (U) Fixed-line operator Telkom plans to call a shareholder
meeting to seek approval to wind up its Telkom Media unit after it
Qmeeting to seek approval to wind up its Telkom Media unit after it
failed to find a buyer for it. Telkom said it undertook an
"extensive process" to identify suitable buyers for its interest in
Telkom Media, but that it proved unsuccessful. Telkom Media, in
which Telkom has a 66% stake, was awarded a satellite and cable
broadcasting license in September 2007, but by March 2008, Telkom
announced that it was seeking a buyer for its stake. "The fact that
they haven't managed to find an investor for the last 12 months is a
major reason for this decision," commented Frost & Sullivan ICT

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industry analyst Lindsey Mc Donald. "There is no point in throwing
good money after bad, so it makes sense for Telkom to withdraw
completely." Telkom had aimed to develop a set of digital media
businesses through Telkom Media. (Engineering News, March 25,
2009)

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Consortium to Begin Building $620 Million
Johannesburg-Maputo Pipeline
--------------


10. (U) South African and Mozambican consortium Petroline Holdings
plans to start building a $620 million oil pipeline linking
Johannesburg to the port of Maputo before the end of 2009. The 450
kilometer pipeline would have an annual capacity to transport 3.5
million cubic meters of oil. It would facilitate fuel imports via
Mozambique's Maputo port, which is closer to Johannesburg than any
of South Africa's major ports, including Durban. The pipeline is
expected to reduce the risk of fuel shortages in the interior of
South Africa and cut deficiencies in transport and storage
capacities. The consortium aims to complete the project before

2010. Pipeline construction was originally scheduled to have
started in September last year, but was delayed because an
environmental impact study was not approved. Stakeholders in the
project include South Africa's Woesa Consortium, which holds 25%,
and Gigajoule International, which controls another 20%. A
Mozambican consortium of small and medium companies holds the
remaining 15%. (Engineering News, March 26, 2009)

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SAG Aims for Space Industry Development
--------------


11. (U) Minister of Trade and Industry Mandisi Mpahlwa launched the
National Space Policy, saying that it was South Africa's primary
goal to acquire the appropriate space-based systems for wider
socio-economic benefits, as well as for the country's independent
access to space. The DTI is aiming to promote the development of a
competitive local commercial space sector with competitive space
technology. (Engineering News, March 6-26, 2009)