SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 27, 2009

UNCLAS SECTION 01 OF 03 PRETORIA 000595 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 27, 2009 ISSUE PRETORIA 00000595 001.2 OF 003 ¶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. -------------- 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) -------------- -------------- 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) -------------- Company Failures Increase -------------- ¶5. (U) Statistics South Africa (StatsSA) data showed that company Q5. (U) Statistics South Africa (StatsSA) data showed that company PRETORIA 00000595 002.2 OF 003 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) -------------- 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.) -------------- 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 PRETORIA 00000595 003.2 OF 003 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) -------------- 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) -------------- 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)