SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 3, 2009

UNCLAS SECTION 01 OF 03 PRETORIA 000658

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 APRIL 3, 2009
ISSUE

PRETORIA 00000658 001.2 OF 003



1. (U) Summary. This is Volume 9, issue 14 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:

- Manufacturing Activity Slumps to Record Low
- Vehicle Sales, Exports Continue to Plummet
- South Africa Must Try to Save 'Distressed' Sectors - BUSA
- Zuma Promises Smooth Transition; SARB, BEE to Remain the Same
- Dramatic Reversal in Trade Gap
- Revamped OR Tambo Can Handle 25 Million Visitors
- ArcelorMittal SA Cuts Prices Again
- Eskom to Apply for 34% Tariff Increase
- South Africa's Environmental Protection Vessel Patrols East
African Coast

End Summary.


--------------
Manufacturing Activity
Slumps to Record Low
--------------


2. (U) The Investec Purchasing Managers' Index (PMI) decreased from
39.2 points in February to 36 points in March, a record low.
Manufacturing has been hit hard by the global downturn, with a
severe recession in most of South Africa's main trading partners
eroding demand for local exports. Analysts believe the sector's
woes led to another fall in output during the first quarter of this
year. The Bureau for Economic Research (BER),which conducts the
PMI survey, is revising down its forecasts for the economy this year
after projecting a contraction of 0.5% last month. "At this stage
it seems like we will be going lower with our forecast for this year
for a fall of between 0.5% and 0.7%," BER economist Christelle
Grobler predicted. All five of South Africa's biggest banks are
predicting the economy will shrink this year. A shrinking economy
means the government's huge infrastructure spending program is
unlikely to be enough to compensate for the slowdown in consumer
spending and exports. (Business Day, April 2, 2009)

--------------
Vehicle Sales, Exports Continue to Plummet
--------------


3. (U) New vehicle sales in South Africa continued its downward
spiral in March, declining by 30.3%. These figures confirmed "the
depressed and increasingly desperate state of the domestic market,"
commented an official from the National Association of Automobile
Manufacturers of South Africa (NAAMSA). Passenger car sales fell
24.9% in March, reaching the lowest level for March in the past six
years. Light-commercial vehicle and medium and heavy truck sales
also dropped, suggesting a downturn in investment spending by the
private sector. Exports of South African manufactured motor
vehicles also declined. Mercedes-Benz exports its C-Class sedan to
the U.S. The C-Class was Mercedes-Benz USA's top seller in March,
but sales of the C-Class were down 30% on a year-to-date basis
compared with 2008. The softening market in the U.S. had lead to
extended shutdown periods at Mercedes' East London plant.
(Engineering News, April 2, 2009)

--------------
South Africa Must Try to Save
'Distressed' Sectors - BUSA
--------------


4. (U) Business Unity South Africa (BUSA) warned the South African
government that it should do everything in its power to rescue
"distressed" sectors of the economy to prevent "huge" job losses.
The economy may grow this year despite the global recession,
QThe economy may grow this year despite the global recession,
according to BUSA, but growth would require speedy implementation of
planned support measures. Concern is mounting about the fallout
from the global financial crisis and a cyclical slowdown in the
domestic economy. Finance Minister Trevor Manuel has lambasted a
proposed bail-out for the beleaguered motor industry, saying the
focus should be on jobs. Analysts have predicted the economy could
shed 250,000 jobs this year. Mining and manufacturing, particularly
the vehicle industry, have been hit hardest. (Business Day March
31, 2009)

PRETORIA 00000658 002.2 OF 003



--------------
Zuma Promises Smooth Transition;
SARB, BEE to Remain the Same
--------------


5. (U) ANC President Jacob Zuma has promised a "smooth transition"
after a new administration takes office in May. Speaking at a
business breakfast in Johannesburg, Zuma said that underperforming
ministers would be removed from office, some cabinet departments
would be split, and a planning commission would be established in
the Presidency to oversee policy. Responding to a question on the
mandate of the South African Reserve Bank, Zuma said: "The role of
the Reserve Bank will continue to be the same. The Bank has been
doing very well. I don't think it will change." While
acknowledging flaws in the implementation of affirmative action,
Zuma said he saw no need for a "sunset clause" for black employment
targets. (Business Day, April 1, 2009)

--------------
Dramatic Reversal in Trade Gap
--------------


6. (U) South African Revenue Service (SARS) trade data showed that
South Africa's trade deficit narrowed from R17.4 billion ($1.8
billion) in January to R571 million ($61 million) in February.
Exports increased by 21.5% month-on-month (m/m) in February, driven
by a brief, seasonal uptick in vehicle exports and a rebound in
precious metals, and stones. Imports decreased 17% m/m, fueled by a
plunge in machinery and electrical appliances, while lower oil
prices also cut the value of mineral imports. Exports decreased by
6% compared with the same month last year, while imports plunged
15.4%. The deficit on South Africa's current account is likely to
narrow from 7.4% in 2008 to less than 6% of gross domestic product
(GDP) this year. Exports are expected to decline more than imports
during the course of the year. (Business Day, April 1, 2009)

--------------
Revamped OR Tambo Can Handle
25 Million Visitors
--------------


7. (U) OR Tambo International Airport has opened a combined domestic
and international departures hall and launched a state-of-the-art
baggage handling system. The new facilities would easily
accommodate up to 25 million visitors each year - including the
expected 400,000 Soccer World Cup fans - that the Airports Company
SA (ACSA) expects to pass through the airport next year. Only 18
million visitors passed through the airport in 2008, down 5% from
the previous year. The baggage handling system allows ACSA to
handle up to 8,000 bags per hour, more than doubling its previous
capacity. The integrated system will now handle both domestic and
international baggage and boasts the ability to track bags
throughout the airport. OR Tambo is close to being
construction-free. The new international arrivals hall is scheduled
to open in May. (Business Day, April 2, 2009)

--------------
ArcelorMittal SA Cuts Prices Again
--------------


8. (U) Steel giant ArcelorMittal South Africa notified its customers
that beginning on April 1 steel prices would fall between 5% and 8%.
These cuts were over and above the average 40% price reduction that
had been implemented since domestic steel prices peaked in August
Qhad been implemented since domestic steel prices peaked in August

2008. ArcelorMittal sets its domestic selling prices using a
pricing model that includes a basket of domestic prices in a range
of markets around the world. The price decline coincided with the
release of the group's annual report, in which the company expressed
uncertainty about markets, demand, pricing, and the future economic
landscape. ArcelorMittal took the unprecedented step of shutting
54% of its capacity during the fourth quarter of 2008, and sustained
production cuts of about 35%. Second-largest South African steel
producer Highveld Steel & Vanadium announced in mid-March that it
would produce only on orders received, but put no figure on the
extent to which production would be cut during 2009. (Engineering
News, April 1, 2009)

--------------

PRETORIA 00000658 003.2 OF 003


Eskom to Apply for 34%
Tariff Increase
--------------


9. (U) State-owned utility Eskom is likely to apply to the National
Energy Regulator of South Africa (NERSA) for a 34% increase in
electricity tariffs for the coming year. The 34% increase would be
used to cover operating costs rather than the cost of Eskom's build
program. Eskom's board is due to meet this week on its application
for the increase, which was supposed to have been submitted to NERSA
in October 2008. NERSA must hold public hearings before deciding on
the next tariff determination. Eskom is seeking a price for
electricity that would recover the full operating cost of providing
it, noted Eskom chairperson Bobby Godsell. "We think that is
important, not only for Eskom itself, but also to allow independent
power producers to produce electricity and co-generators to sell in
the market at a realistic price. (Mail & Guardian, March 30, 2009)



--------------
South Africa's Environmental Protection
Vessel Patrols East African Coast
--------------


10. (U) South Africa's environmental protection vessel, the Sarah
Baartman, returned to Cape Town yesterday after a 31-day patrol
along the east African coast. Fisheries inspectors from South
Africa, Tanzania, Kenya, and Mozambique were on board; they arrested
six vessels and inspected more than 40 others within Southern
African Development Community (SADC) territorial waters. The patrol
was aimed at "improving and strengthening fisheries surveillance and
law enforcement within the SADC region," according to the Department
of Environmental Affairs. In waters off Tanzania the inspectors
chased a fishing boat because it ignored calls to allow inspectors
to board. More than 290 tons of blue fin tuna was found onboard the
vessel, which did not have a legitimate fishing permit or license.
The vessel and crew were arrested. Other arrests included two South
African hake vessels off Mossel Bay, and a prawn fishing boat off
Mozambique which was illegally fishing in a restricted zone.
(Pretoria News, March 27, 2009)