SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 17, 2009

UNCLAS SECTION 01 OF 03 PRETORIA 000831 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 17, 2009 ISSUE PRETORIA 00000831 001.2 OF 003 ¶1. (U) Summary. This is Volume 9, issue 17 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Business Index Shows Light at End of Tunnel - Empowerment Fund Changes Strategy to Help Smaller Firms - Telkom and AT&T Launch Strategic Alliance - Tourism's Impact on Economy Still Upbeat - Passenger Rail Services to Be Consolidated - Granite Miners Have Two Months to Back Expropriation Claim - New Green Paper on Minerals Beneficiation Launched - R6 Billion Lost Annually to Illegal Fishing End Summary. -------------- Business Index Shows Light at End of Tunnel -------------- ¶2. (U) South Africa's leading economic indicator, which predicts growth six to 12 months in advance, increased from 105.9 points in January to 106.6 points in February, suggesting the recession may be less severe than feared. The South African Reserve Bank's composite leading business cycle indicator is compiled from data from surveys, share prices, and South Africa's main trading partners. The figures showed that four of the components measured by the indicator rose in February: job advertisements in a Sunday newspaper; sales of new passenger vehicles; the commodity price index; and the spread between 10-year bonds and 91-day Treasury bills. The business confidence, share prices, residential building plans, money supply, manufacturing orders, and working hours components dropped. This was the first time the indicator, which accurately predicted the current economic downturn, had risen since February last year. It has steadily declined from a peak of 127.2 in March 2007. Analysts warned that an economic recovery depends on the extent of South Africa's response to a pick-up in the global economy, which has begun to show signs of improvement. It would also take time for lower interest rates to inject some vigor into consumer spending, the main growth engine of the economy. (Business Day, April 21, 2009) -------------- -------------- Empowerment Fund Changes Strategy to Help Smaller Firms -------------- -------------- ¶3. (U) The National Empowerment Fund (NEF) plans to spend R700 million ($78 million) in 2009, mainly on providing finance for small and medium-sized businesses. The economic slowdown has required the NEF, which was set up to promote black economic empowerment (BEE), to devote time and energy to assist distressed companies. The NEF's total equity and loan exposure to the small business sector is about R300 million ($33 million),and it has had to restructure financing instruments for about 40% of its 177 beneficiaries because of the difficult economic times. The fund has disbursed more than R978 million ($109 million) to 160 black entrepreneurs and black-empowered businesses since its inception. Of this, 76% is invested in deals of less than R5 million ($600,000) and 24% in deals of more than R5 million ($600,000). A panel of business mentors would also be deployed to help clients with various aspects of their businesses, such as accounting, access to markets, and Qof their businesses, such as accounting, access to markets, and general strategic advice. (Business Day, April 20, 2009) -------------- Telkom and AT&T Launch Strategic Alliance -------------- ¶4. (U) State-owned Telkom and AT&T signed a memorandum of understanding that would allow the two companies to tap into each other's networks, ensuring that African and multinational firms based in Africa link more effectively to other global markets. The contract is expected to be finalized in the next five months. Telkom CEO Reuben September remarked that AT&T chose Telkom because of its presence in 35 African countries (through the acquisition of Africa Online and MWeb Africa),its strong international connectivity, and strong enterprise relationship. AT&T Business Solutions CEO Ronald Spears explained, "Through Telkom, AT&T would PRETORIA 00000831 002.2 OF 003 extend its world-class, internet-based network to sub-Saharan Africa and strengthen its ability to serve the needs of its customers in the key South African market." (Business Report and MoneyWeb, April 16-17, 2009) -------------- Tourism's Impact on Economy Still Upbeat -------------- ¶5. (U) Tourism's share of the economy kept rising in 2008, contributing an estimated 8.4% to the gross domestic product (GDP). Minister of Environmental Affairs and Tourism Marthinus van Schalkwyk predicted a 12% contribution to GDP within five years. While growth in foreign arrivals slowed to 5.5% in 2008 due to the global economic slowdown - down from double-digit growth of the past few years - the country still welcomed a record 9.6 million tourists. Tourism added R70.5 billion ($7.8 billion) in direct contributions to GDP, up 12% from 2007. The sector employed more than 1 million people, up 7% from 2007. "The South African industry continued to perform well in spite of pressures exerted by the global financial crisis that had seen growth in the global industry shrink to 1.3% last year," Van Schalkwyk said. South African Tourism Board CEO Didi Moyle commented that an increase in flight capacity was critical. "The U.S. market performed very well, and was helped by Delta and South African Airways putting on double daily flights to the U.S." The number of American visitors to South Africa grew 3.8% to 287,438 despite the U.S. economy slipping into recession. Despite the tough first few months of 2009, foreign arrivals would grow this year, Moyle predicted. (Business Day, April 17, 2009) -------------- Passenger Rail Services to Be Consolidated -------------- ¶6. (U) South African Rail Commuter Corporation's Metrorail and the passenger transport businesses operated by Transnet are undergoing a merger to create a new Passenger Rail Agency of South Africa (PRASA). PRASA's main goal will be to improve existing passenger service, which is currently able to sustain about 650 million passenger journeys a year. There is also a program to upgrade 2,000 coaches by the end of 2010. PRASA CEO Lucky Montana noted that PRASA would need to introduce some 560 new coaches yearly for the next 10 to 12 years if it is to match capacity to anticipated demand growth and reposition commuter rail at the heart of the country's public transport system. Montana admitted that such an aspiration would require an investment far beyond the R25 billion ($2.7 billion) already allocated by national government for the next three years. Montana said a plan for further investment was currently before government. Future projects being considered include the R8.6 billion ($988 million) Moloto corridor rail system between Gauteng and Mpumalanga and a high-speed between Johannesburg and Durban. PRASA is also assessing two serious bids to build a new link between Cape Town and the city's international airport. (Engineering News, April 10, 2009) -------------- Granite Miners Have Two Months to Back Expropriation Claim -------------- Q -------------- ¶7. (U) The South African government has agreed to a two-month stay of an International Centre for the Settlement of Investment Disputes (ICSID) arbitration in which Italian granite miners claim that their mineral rights are being expropriated by South Africa's minerals legislation. The claimants had alleged that South Africa's Mineral and Petroleum Resources Development Act (MPRDA) and South Africa's BEE-mining charter had expropriated the indirect interests that the granite miners held in the South African quarrying sector and had otherwise violated the bilateral investment treaties that had been signed between South Africa, Italy, and Belgium/Luxembourg. The South African government said that the ICSID's tribunal had given effect to the stay, which had come into being on March 28 and which would expire on May 28. The South African government's agreement to the stay followed its submission on March 27 of a package including four witness statements, five expert reports on several specialized disciplines, and 19 volumes of documentary evidence and legal authorities. During the stay period, South African quarrying PRETORIA 00000831 003.2 OF 003 companies indirectly owned by the claimants would be expected to complete their application for "old-order" rights to be converted into "new-order" rights, subject to compliance with the MPRDA and mining charter, to enable the company to prospect or mine for minerals. (Mining Weekly, April 10, 2009) -------------- New Green Paper on Minerals Beneficiation Launched -------------- ¶8. (U) South Africa's Department of Minerals and Energy (DME) recently launched the long-awaited minerals beneficiation strategy, a draft document on which stakeholders were invited to make written submissions. DME mineral policy and promotion Deputy Director General Musa Mabuza explained that once comments come through, they would be consolidated and the document would be taken to Cabinet to be adopted as a policy position of the country. Chamber of Mines Chief Economist Roger Baxter highlighted the importance of doing proper analysis of the top ten minerals in South Africa to see what was feasible and how to integrate the different stakeholders to play a constructive engaging role in the process. The Department of Trade and Industry said it viewed the strategy as valuable starting point, as it was important for job creation, and said the strategy was 100% backed by the department. (Mining Weekly, April 10, 2009) -------------- R6 Billion Lost Annually to Illegal Fishing -------------- ¶9. (U) A report commissioned by the South African Institute for Security Studies has revealed that illegal fishing in South African waters was costing the country nearly R6 billion ($667 million) annually. Most of the fish poached are hake, anchovies, sardines, and shark. According to the report, Spanish vessels working with local vessels are responsible for most of the poaching. South African law does not allow the issuance of fishing quotas to foreign vessels, but local quota holders often sell their quotas to Spanish ships. The practice often results in large-scale poaching. The Department of Environmental Affairs and Tourism (DEAT) is also blamed for having allowed several vessels owned by a known and convicted Spanish poacher Manual Martinez into the hake industry in ¶2007. DEAT reduced the hake quota by 14% between 2005 and 2007, which resulted in a R300 million direct loss to the industry, according to the report. (The Cape Times, April 13, 2009)