Cablegate: Scene-Setter for Codel Led by Congresswoman Eddie

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UNCLAS SECTION 01 OF 07 PRETORIA 000001

SIPDIS

SENSITIVE
SIPDIS

FOR CONGRESSWOMAN JOHNSON AND DELEGATION FROM AMBASSADOR
ERIC BOST

E.O. 12958: N/A
TAGS: ECON SENV PREL PGOV SF
SUBJECT: SCENE-SETTER FOR CODEL LED BY CONGRESSWOMAN EDDIE
BERNICE JOHNSON

1. (SBU) I warmly welcome the visit of your congressional
delegation to South Africa. My staff and I stand ready to do
everything we can to make your trip a success. You are
visiting South Africa at a particularly interesting time,
only two weeks after Jacob Zuma defeated incumbent Thabo
Mbeki as leader of the ruling African National Congress
(ANC). Because the ANC has overwhelming support in the
country (70 percent in the last election), Zuma is now the
leading candidate to become the next national president
following parliamentary elections expected in March/April
2009. However, the December 28 indictment of Zuma on
corruption and fraud charges complicates his political
future. Zuma,s trial is scheduled to begin August 14, 2008,
and a conviction would derail his bid for the national
presidency. With Zuma in charge of the ruling party, his
rival Mbeki in control of government, and the court case
looming, the upcoming year will test South Africa,s young
democracy.

2. (SBU) South Africa is an anchor country in U.S. Africa
policy. Since the end of apartheid in 1994, the ANC-led
South African Government (SAG) has made major progress toward
establishing a vibrant democracy and market-based economy.
The SAG has focused on political and economic transformation:
closing the gap between the historically privileged and
disadvantaged communities -- primarily through
government-provided housing, electricity, and water to the
poor -- and creating employment and business opportunities.
South Africa, however, continues to face daunting challenges,
including skills shortages in all sectors of the economy,
growing infrastructure bottlenecks, income inequality between
haves and have-nots, massive unemployment, entrenched poverty
in both rural and urban areas, violent crime, and a severe
HIV/AIDS pandemic. These problems are intensifying political
tensions within the ANC-led ruling coalition. The tense
debate at the party's December 16-20, 2007 national
conference and defeat of incumbent Mbeki reflected the
growing impatience with the pace of socio-economic change.

3. (SBU) Despite its challenges, South Africa remains the
continent's best prospect for establishing a successful
democratic society with widespread prosperity. South Africa
plays a key role in promoting peace and stability in Africa,
and is an important voice on global trade and
nonproliferation issues. U.S.-South African relations are
stable, as reflected by President Bush's July 2003 visit to
South Africa and President Mbeki's June 2005 and December
2006 trips to Washington. We share objectives on the African
continent and work together closely on many of them.

------------------
POLITICAL OVERVIEW
------------------

4. (SBU) The African National Congress (ANC) dominates the
political scene in South Africa. The ANC won 70 percent of
the vote, and 279 of 400 seats in the National Assembly in
the April 14, 2004 elections. Subsequent "floor crossing"
periods, in which parliamentarians were allowed to switch
parties, boosted the ANC's total to 297. The ANC also won 66
percent of the vote nationally in the March 2006 local
elections. The Democratic Alliance (DA) is the largest of
several opposition parties in parliament, with 47 seats. The
Qseveral opposition parties in parliament, with 47 seats. The
ANC leads the administrations in all nine of South Africa's
provinces and in the vast majority of its municipalities.
The most visible exception to this country-wide ANC
domination is the DA's control of the Cape Town municipality
where there have been multiple attempts to unseat the DA-led,
multi-party municipal government.

5. (SBU) The recently-concluded December 16-20 ANC National
Conference in Polokwane, Limpopo significantly shifted power
within the ruling party. New ANC President Jacob Zuma
defeated incumbent, national President Thabo Mbeki, by a vote
of 2,329 to 1,505. Zuma,s allies swept the other top five
leadership positions. The Zuma camp also dominated the
elections for the ANC,s 86-member National Executive Council
(NEC), with sixteen Mbeki Cabinet members (out of 28) losing
their NEC seats. While Zuma,s victory makes him the
frontrunner to become national President following the 2009

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parliamentary elections, the December 28 indictment of Zuma
on corruption and fraud charges complicates Zuma,s political
future. Zuma,s political allies have alleged that the
corruption case is politically-motivated, a charge
prosecutors and Mbeki strongly deny. Zuma has stated he will
step down as ANC President if convicted. If convicted and
sentenced to more than 12 months imprisonment, Zuma would be
constitutionally prohibited from running in the 2009
parliamentary elections, effectively blocking his succession
to the national presidency.

6. (SBU) It is too soon to tell whether the dramatic events
at the ANC National Conference will result in any significant
changes in South African Government policy. Mbeki remains in
control of the government until 2009, and the ANC conference
policy resolutions did not advocate any sweeping changes.
New ANC President Zuma has stressed that he will not make any
radical shifts and would respect the party,s previous policy
statements. However, many of the new ANC leaders - and
Zuma,s strongest supporters - come from the left wing of
South African politics. The Congress of South African Trade
Unions (COSATU) and South African Communist Party (SACP),
formally members of the ANC-led tripartite alliance, will
likely pressure Zuma to embrace more leftist or perhaps even
populist positions. On issues like HIV/AIDS and Zimbabwe,
this could lead to SAG policies more closely in line with
U.S. interests, although on other issues like fiscal
management and trade liberalization the shifts in policy
might be less positive from a U.S. perspective.

------------------------------------------
FOREIGN POLICY - FOCUS ON PROMOTING AFRICA
------------------------------------------

7. (U) South Africa has taken a high-profile role in
promoting Africa's development. South Africa served as the
first chair of the African Union until July 2003 and helped
establish continental institutions such as the Pan-African
Parliament (which sits in South Africa) and the AU Peace and
Security Council. President Mbeki is the driving force
behind the New Partnership for Africa's Development (NEPAD),
an African-developed program to strengthen economic and
political governance across the continent and a framework for
productive partnership with the international community.

8. (SBU) South Africa recognizes that, by virtue of its
regional political, economic, and military clout, it has a
responsibility to participate in conflict resolution and
peace support operations. South Africa played a leading role
in negotiations that ended the conflicts in Burundi and the
Democratic Republic of Congo. Approximately 3,000 personnel
are deployed in UN, African Union and bilateral peace support
operations in Sudan, Burundi, DRC, Ethiopia/Eritrea, and
Comoros. While the U.S. has a strong policy interest in
seeing South Africa expand and enhance its peace support
capabilities, our ability to support these efforts has been
limited by the suspension of FMF military assistance because
of the lack of an Article 98 agreement with South Africa.
South Africa participates in the African Contingency
Operations Training and Assistance program (ACOTA) to enhance
the capacity of the South African National Defence Force
Qthe capacity of the South African National Defence Force
(SANDF) for participation in multilateral peace support
operations.

9. (SBU) Zimbabwe remains a continuing challenge and
increasing concern for South Africa. In March 2007, regional
SADC leaders appointed Mbeki as official mediator between
Zimbabwean President Robert Mugabe and the opposition
Movement for Democratic Change (MDC) with the goal of
leveling the playing field in advance of 2008 elections.
Negotiations are ongoing and have made some progress, but
human rights abuses against the opposition continue. Mugabe
has shown little willingness to open the political
environment and allow free and fair elections. While South
Africa wants political and economic reform in Zimbabwe, SAG
officials argue that additional pressure, such as public
criticism or additional sanctions, would have little effect
on President Mugabe and could destabilize Zimbabwe with
spillover effects in South Africa. South Africa already
hosts between 1 and 2 million Zimbabwean refugees.

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10. (SBU) Overall U.S.-South African relations are positive,
but South Africa sometimes takes positions on global issues
that run counter to U.S. interests. As a non-permanent UN
Security Council member, and former chair of the G-77 and the
Non-Aligned Movement (NAM), South Africa has taken up the
cause of a greater "South" voice in international
institutions, increased development assistance, an expanded
UN Security Council, and lower trade barriers (for
manufactured and agricultural exports to developed countries).

-----------------------------------------
THE ECONOMY AND THE STRUGGLE TO TRANSFORM
-----------------------------------------

11. (SBU) As the dominant and most developed economy in
sub-Saharan Africa, South Africa is markedly different from
other countries of the region. It is a middle income,
emerging market economy with GNI per capita of $5,209 (2006),
akin to Chile, Malaysia, or Thailand. The South African
government's fiscal and monetary policies are excellent. The
ANC government steadily reduced the fiscal deficit from
nearly 6 percent of GDP in 1994-95 to a small surplus (0.3
percent of GDP) in 2006-07. The South African Reserve Bank
(SARB) is independent and committed to CPIX inflation (CPI
excluding mortgage interest costs) within a target band of
3.0 to 6.0 percent. Inflation fell from 12.4 percent at the
beginning of 2003 to 4.8 percent in June 2006, but has
recently crept back up to 7.9 percent (November 2007). Real
GDP growth in 2006 fell slightly to 5.0 percent from 5.1
percent in 2005. The South African Department of Finance
expects growth to slow to 4.9 percent in 2007 and 4.5 percent
in 2008.

12. (SBU) South Africa's single greatest economic challenge
is to accelerate growth. GDP growth averaged 3.0 percent per
year between 1994 and 2004, and was not sufficient to address
widespread unemployment and reduce poverty. The official
unemployment rate, currently 25.5 percent, has only recently
begun to decline, and is significantly higher among black
South Africans than among whites. Income inequality between
haves and have-nots remains high. Poverty is widespread.
Fifty-six percent of black South Africans, but only four
percent of whites, live in poverty. Nevertheless, the
government has made strides in the areas of transfer payments
and public services to close the gap. Nearly 1.9 million
low-cost homes have been built to provide shelter to 7.6
million people, 3.5 million homes have been provided with
electricity, and nine million people have been connected to
clean water. Almost twelve million people were benefiting
from social grants in 2006 (compared to the country's five
million individual taxpayers). The government's broad-based
Black Economic Empowerment (BEE) program provides ownership
and employment opportunities to blacks and has helped the
black middle class double to an estimated two million since
1994. The black middle class now exceeds the size of the
white middle class and is driving consumer demand.

13. (U) The success in preparing for and carrying off the
FIFA 2010 Soccer World Cup to be held in South Africa is
regarded by many as a bellwether of the country's commitment
to continued progress in a variety of social and economic
Qto continued progress in a variety of social and economic
areas, among these being the fight against crime, expanding
and improving infrastructure, providing services, and
developing tourism.

--------------------------------------------- -----------
Environment, Science and Technology - A Delicate Balance
--------------------------------------------- -----------

14. (U) South Africa currently spends 0.6 percent of its GDP
on science and technology and the South African government
wants to increase that figure to 1.0 percent within the next
five to ten years. South Africa has channeled its S&T focus
in the last decade, concentrating on science for development
and on areas of traditional strength, such as paleontology,
astronomy, social science and biodiversity.

15. (U) The Department of Science and Technology (DST) is the
major funder of S&T research, including most S&T

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infrastructure projects, such as the Hermanus Magnetic
Observatory. The National Research Foundation (NRF), a DST
agency, provides funding for research and for students.
Research Councils throughout the country fund specialized
research and student scholarships. NRF has just completed a
major strategic planning exercise and is focusing its efforts
on: research and innovation; astro/space/geoscience
infrastructure; biodiversity/conservation infrastructure,
including the South African Environmental Observatory Network
(SAEON); and nuclear science.

16. (U) Capacity building remains a major challenge. The NRF
has instituted a new program aimed at increasing the number
of PhDs fivefold by 2018. Nevertheless, a lack of capacity
continues to hamper scientific research. Scientists across
the country also note that the lack of broadband and other
computing connections impede scientific advancement.

17. (U) South Africa remains committed to conservation and is
a recognized world leader in wildlife management. For
example, South Africa's elephant herds are so numerous that
the government recently announced that culling might become
necessary. Major conservation NGOs such as the World
Wildlife Fund/South Africa and TRAFFIC supported this
decision because the South African government's management
and decision-making policies are science-based and
transparent. However, economic and social pressures can play
a role in environmental decisions. The government recently
rescinded a ban on endangered abalone fishing after numerous
protests from disadvantaged fishing communities.

18. (U) The Department of Environment and Tourism Affairs
(DEAT) walks a delicate balance between promoting climate
change/adaptation policies and advocating economic growth.
South Africa would like to play a role as a green leader
within the developing world. However, it recognizes that its
coal-based energy systems (95 percent of the country's
electric power comes from coal-fired power stations) preclude
certain decisions/actions. With the past 10 years, South
Africa has enacted a series of well-regarded environmental
laws, many based on U.S. EPA criteria or standards and on
principles found in international agreements. Over the past
four years, South Africa has begun to enact implementation
legislation to enforce these statutes. One key enforcement
tactic has been the establishment of the Environmental
Management Inspectorate (EMI) also known as the "Green
Scorpions". Prosecutors from the U.S. Department of Justice
and investigators from the U.S. Environmental Protection
Agency (EPA) developed and presented training programs for
the initial cadre of EMIs. That program has now been
replicated throughout the country and EMIs are found not only
at the national level, but also in provincial and
metropolitan environmental agencies.

--------------------------------------------- -----
TRANSPORTATION - WELL DEVELOPED, RELIANCE ON STATE
--------------------------------------------- -----

19. (U) South Africa's transport infrastructure is well
developed and is the best in Africa. There are sizeable and
efficient ports, a road network that is mostly excellent, and
good air links, particularly to Europe and the U.S., and
Qgood air links, particularly to Europe and the U.S., and
increasingly to Asia and the rest of Africa. The network of
rural secondary roads is less well developed. Transport
policy has led to a shift from rail to road since the
liberalization of transport in the mid-1980's and a relative
lack of investment in rail. Lack of control over
heavy-vehicle overloading has led to significant damage to
the road network and substantial backlogs in maintenance.

20. (U) State-owned Transnet owns and operates port
facilities, including the Port of Durban, the largest in
Africa. Transnet Freight Rail (formerly known as Spoornet)
runs an extensive rail network, including spurs to transport
coal from Mpumalanga coal-fields to the Richards Bay Coal
Terminal and iron ore from the Western Cape to the coast at
the port of Saldanha. The government has not allowed private
investment in rail lines. There has been substantial
under-investment in locomotives and rolling stock. South
Africa Airways has direct flights to the U.S., Europe, and

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Asia, and is a world-class airline. It cannot effectively
position itself as an international hub, because of its
location at the end of the African continent, so it has
focused more recently on travel within Africa.

------------------------------
KEY SECTORS - WATER AND ENERGY
------------------------------

21. (U) South Africa is a water-scarce country given that
much of the country is semi-arid, but nevertheless subject to
periodic flooding. South Africa's water policy is based on
managing scarce water resources to ensure that water is used
to support equitable and sustainable social and economic
transformation. The government aims to ensure provision of
water services - potable water and safe sanitation - to all
people, but especially to the poor and previously
disadvantaged. The National Water Act of 1998 transformed
the way water is controlled, from a system of rights based on
land ownership to a system designed to allocate water
equitably, efficiently, and sustainably in the public
interest. The National Water Resource Strategy targets
progressive decentralization of responsibility and authority
for water resources management to catchment management
agencies and local water user associations.

22. (SBU) South Africa now faces electricity supply
shortages and load-shedding, given strong demand growth and
delays in the government planning for addition of sufficient
new supply. State-owned electricity supplier Eskom has now
embarked on the building of new coal-fired plants. The
Government has undertaken a plan to diversify its energy mix
by greatly expanding its portfolio of nuclear power plants.
Westinghouse and Areva of France are competing for up to
20,000 MW of new nuclear build over the next twenty years.
The Government seeks to augment use of renewable energy and
energy efficiency. South Africa is a significant oil
importer and has built up a significant coal-to-liquids
techology capability to reduce its reliance on oil imports.
Automobiles in the interior of South Africa run on
coal-drived fuel.

-----------------------------
U.S. SUPPORT FOR SOUTH AFRICA
-----------------------------

23. (U) Since 1994, the United States Government has
contributed approximately $1.217 billion toward South
Africa's development, plus $201 million in credit guarantees.
Currently, our development assistance program focuses on
HIV/AIDS and strengthening the healthcare system, addressing
unemployment through job-skills training and education,
creating models for efficient service delivery, and reducing
gender-based violence as part of the President's Women's
Justice and Empowerment Initiative (WJEI). A wide range of
U.S. private foundations and NGOs are also at work in South
Africa. Among them are the Gates Foundation (HIV/AIDS), the
Ford Foundation (higher education), and the Rockefeller
Foundation (adult education).

24. (U) Twenty-eight U.S. government entities are represented
at the U.S. Mission in South Africa (Embassy Pretoria and the
three Consulates in Cape Town, Durban, and Johannesburg).
The Mission has 281 U.S. employees and 564 local employees.
More than 40 percent of Mission staff provide regional
services to other U.S. embassies in Africa. The Mission has
Qservices to other U.S. embassies in Africa. The Mission has
embarked on an ambitious program to build safe office
facilities. In FY 2005, the Mission completed the new
Consulate compound in Cape Town, and in FY 2006 broke ground
on a new Consulate building in Johannesburg. In FY 2009, the
Mission intends to break ground on a new 155-desk office
annex in Pretoria.

------------------------------
U.S.-S.A. TRADE AND INVESTMENT
------------------------------

25. (SBU) U.S.-South Africa trade grew 23 percent in 2006,
totaling $11.7 billion. U.S. exports were up 16 percent at
$4.2 billion, while South African exports to the United

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States increased 28 percent at $7.5 billion. In 2006, South
Africa was the 37th largest trading partner of the United
States, equivalent to Turkey or Chile. It is the largest
U.S. export market in sub-Saharan Africa, twice the size of
Nigeria and equal to Russia or Argentina. South Africa was
the third largest beneficiary of AGOA in 2006, and the
largest beneficiary of non-oil exports. Its AGOA exports
totaled 21 percent of the country's total exports in 2006.
An impressive 99.6 percent of South Africa's exports entered
the U.S. with zero import duties in 2005 as a result of
normal trading relations (NTR), GSP and AGOA benefits. Only
0.4 percent of the value of South Africa's exports to the
U.S. was subject to duty, or $26 million out of $5.9 billion
in exports in 2005. The U.S. also became South Africa's
largest export market in 2007. Over 600 U.S. firms have a
presence in South Africa with 85 percent using the country as
a regional or continental center. South Africa's stable
government, sound fiscal and monetary policy management and,
by African standards, its large market are the primary
attractions for U.S. businesses. South Africa has, however,
failed to attract a proportionate share of foreign direct
investment since 1994. Reasons include: slow growth, high
unit labor costs, crime, regulatory uncertainty and the
impact of Black Economic Empowerment policies, labor
regulations, HIV/AIDS, and the slow process of privatization.
The U.S. was the largest portfolio investor and the second
largest foreign direct investor in South Africa ($5.1 billion
at year-end 2005).

26. (SBU) Following six rounds of negotiations over three
years, the U.S. and the Southern African Customs Union (SACU:
South Africa, Botswana, Lesotho, Namibia, and Swaziland)
agreed in April that they could not conclude negotiations on
a free trade agreement (FTA) by their target date of December
2006. Negotiators subsequently agreed to deepen the
bilateral relationship through a Cooperative Agreement on
Trade, Investment and Development (TIDCA). Negotiations are
currently underway for the signing of a framework agreement
for the TIDCA.

--------------------------------------
HIV/AIDS: A CRISIS OF EPIC PROPORTIONS
--------------------------------------

27. (U) South Africa has the largest mumber of HIV-infected
citizens in the world and HIV/AIDS is the country's leading
cause of death. South Africa has a generalized, mature HIV
epidemic and HIV-related care and treatment services are
required across the population. An estimated 5.5 million
South Africans are HIV-positive, including 2.9 million women
and approximately 300,000 children aged 14 or less. An
estimated 18.8 percent of the adults between 15 and 49 are
infected. Women in the age group 25-29 are the most
seriously affected, with prevalence rates of up to 40
percent. In 2005, an estimated 800,000 more citizens became
infected and in 2006, 346,000 adults and children died from
AIDS. An estimated 3.5 million children, or 18.6 percent of
South Africa's children, have had at least one parent die.
Sixty-six percent of these children had been orphaned as a
result of AIDS. The number of AIDS-related deaths since the
start of the epidemic is estimated at 1.8 million, with 71
Qstart of the epidemic is estimated at 1.8 million, with 71
percent of all deaths in the 15-41 year old age group being
due to AIDS. Continued AIDS-related mortality will create
millions of new orphans and generate additional social and
economic disruption, including orphans being raised by
extended family members or in child-headed households.

28. (U) In April 2007, the South African Government released
its National Strategic Plan for HIV, AIDS, & Sexually
Transmitted Infections (STIs) for 2007-2011 (NSP). The NSP
has the goal of reducing new HIV infections by 50 percent by
2011 and also aims to boost provision of anti-retroviral
treatment (ART) in South Africa. However, South African
public health facilities suffer from an acute shortage of
skilled personnel and laboratory and clinical infrastructure.
Considerable investment in human resources and
infrastructure is necessary to meet the NSP's national
anti-retroviral treatment targets. Approximately 230,000
people were receiving anti-retroviral (ARV) treatment as of
2006, while a further 540,000 people needed, but were not

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receiving, treatment. The Global Fund has provided major
grants to the Western Cape Health Department and a
public-private consortium in KZN.

29. (SBU) The President's Emergency Plan for AIDS Relief
(PEPFAR) is in its fourth year of implementation working with
public and private sector prevention, treatment, and care
programs. To date, the U.S. has provided $857.8 million
through PEPFAR to support HIV/AIDS programs in South Africa,
with an additional $590 million to be funded in FY 2008,
making it the largest recipient of Emergency Plan resources.
The Emergency Plan directly supported 172,400 people in ARV
treatment through programs in all nine provinces as of June
2007. The USG PEPFAR team in South Africa includes U.S.
Agency for International Development (USAID), Centers for
Disease Control (CDC), Department of State, Department of
Health and Human Services (HHS), Department of Defense, and
Peace Corps. The team works to ensure that the PEPFAR
strategic plan is aligned with the goals of the NSP. The
South African military has expanded prevention programs and
collaborates with the U.S. military and NIH on AIDS treatment
research.

30. (U) South Africa has the strongest research and training
capacity of any country in the region, making it an important
partner in the fight against HIV/AIDS. USG agencies work
with national and provincial health departments, the
military, universities and NGOs to strengthen primary health
care, prevention, disease surveillance and research.
President Bush and President Mbeki confirmed a mutual
commitment to expand HIV/AIDS collaboration, particularly
through the Emergency Plan. The U.S. Mission has prepared,
in coordination with the government, a five-year strategic
plan focused on treatment, prevention, palliative care, and
the provision of care for orphans and other vulnerable
children.

31. (U) The epidemics of HIV and tuberculosis (TB) are
interlinked. TB is the most common infectious disease
associated with HIV in sub-Saharan Africa and between 50 and
88 percent of TB patients in Southern Africa are HIV
positive. A high overall prevalence rate for HIV and lack of
continuity in treatment contributes to the increasing
incidence of active TB disease, including multi-drug
resistant (MDR) strains. In conjunction with HIV, TB is
linked to substantially higher fatality rates, even in the
presence of effective TB chemotherapy.
BOST

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