SOUTH AFRICA ECONOMIC NEWSLETTER

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E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
DECEMBER 3, 2004 ISSUE


1. Summary. Each week, AMEmbassy Pretoria publishes an
economic newsletter based on South African press reports.
Comments and analysis do not necessarily reflect the
opinion of the U.S. Government. Topics of this week's
newsletter are:
- Gross Domestic Product Revised Upwards;
- October Trade Deficit Widens;
- October Money Supply Increased 15.7 Percent;
- Business Confidence Increases to 23-Year Peak;
- Gauteng's Development Strategy Faces Challenge of
Uneven Economic Expansion;
- Draft Black Economic Empowerment Targets for Tourism
Industry Released; and
- Internet Use in South Africa.
End Summary.

GROSS DOMESTIC PRODUCT REVISED UPWARDS
--------------


2. On November 30, Stats SA released revised statistics
for gross domestic product revealing mainly higher growth
during the 2000-2004 time period. The annual real GDP
growth rates from 2000 to 2003 are now 4.2, 2.7, 3.6 and
2.8 percent respectively compared to previous growth
estimates of 3.5, 2.7, 3.6 and 1.9 percent. The average
annual real GDP growth rate for the period 2000-2003 rose
to 3 percent, compared to a pre-revision growth of 2.7
percent; while for the period 1997-2003, the average
annual real growth rates increased from 2.4 percent to 2.7
percent. The nominal GDP estimate for 2000 is 3.8 percent
higher than the previous estimate. The largest revision
(3.9 percent) occurred in 2002 and the smallest (0.5
percent) was in 1998. Growth in 2004 has been steadily
increasing, indicating that the impact of interest rate
cuts outweighed the relatively weak global demand growth
and the strong rand. Growth in the third quarter 2004 was
5.6 percent, compared to the first and second quarter's
growth of 3.8 and 4.5 percent respectively. In the third
quarter, growth of agriculture (relative size 2.6 percent
of GDP),construction (relative size 2.5 percent),
transport and communication (relative size 9.9 percent),
manufacturing (relative size 16.4 percent),and finance
and real estate (relative size 18.5 percent) sectors
showed 14.7, 10.3, 6.7, 6.3, and 5.5 percent growth
respectively, contributing the most to real GDP growth.
Economic growth in the first nine months of 2004 was 3.4
percent higher than the corresponding period in 2003,
indicating that 2004 growth will be higher than the pre-
revision market expectations of 3 percent. The revised
higher growth rates should contribute to higher business
confidence and possible additional credit upgrades;
however, many analysts question whether the South African
Reserve Bank will lower interest rates at the December
meeting in the face of increased demand. Source:
Business Day, Business Report, December 1; Standard Bank,
GDP Alert, Investec GDP Update, Stats SA Release P0441,
November 30.


3. Comment. For the seventh time, Stats SA has revised
the national income accounts by updating data sources,
incorporating new methodologies, including new areas of
economic activities, and changing the base period to adopt
weights that more clearly reflect current economic
conditions. Typically, rebasing occurs every five years,
and Stats SA has shifted the base year to 2000 from 1995.
Particularly important to this revision is data from new
sources, such as the development of a new business
register that is based on the South African Revenue
Service's VAT database. The change in contribution to
gross value added between the 1995 and 2000 benchmark
years show that finance, real estate and business services
increased from 18.1 percent to 20.1 percent, while general
government's contribution decreased from 17.3 percent to
14.7 percent. The revisions also result in GDP per capita
increasing from R17,700 ($3,200 using 5.53 rands per
dollar, the average in 1998) in 1998 to R27,100 ($3,585
using 7.56 rands per dollar, the average in 2003) in 2003.
End comment.

OCTOBER TRADE DEFICIT WIDENS
--------------


4. The trade deficit widened in October to R5.8 billion
compared to September's deficit of R0.3 billion. The
value of exports declined by 14.7 percent (m/m) to R23.8
billion in October from September's value of R 27.9
billion. The value of imports increased in October by 5
percent (m/m) to R29.6 billion from R28.2 billion in
September. Mineral product exports increased, although
declines in exports of wood and paper products, precious
and semi-precious metals, and vehicles, aircraft and
vessels explained the October export decline. Cumulative
trade figures for the first 10 months of 2004 shows a
deficit of R13.6 billion compared to last year's surplus
of R15.5 billion. The trade deficit is expected to
continue. Both the continued strength of the rand and
slower global demand due to higher global oil prices
negatively impact the South African export market.
Domestic demand remains at high levels and import growth
is expected to remain robust as foreign manufactured goods
become more affordable. The current account will probably
remain in deficit, although if oil prices recede and
global demand accelerates, the deficit could narrow.
Source: Business Day, December 1; Standard Bank, Foreign
Trade Alert, November 30.

OCTOBER MONEY SUPPLY INCREASED 15.7 PERCENT
--------------


5. The October money supply increased 15.7 percent, up
from 14.7 percent September growth, as increased credit
demand funded purchases of houses and motor vehicles.
Private sector credit demand, excluding the volatile
investments and bills category, increased 15.1 percent
last month, up from September's rise of 13.2 percent.
Figures released by the South African Reserve Bank showed
that mortgage credit increased by more than R8.5 billion
last month to R391.7 billion, with mortgage advances
rising 21.2 percent from a year ago. Leasing finance grew
22.9 percent (y/y) in October, while installment sales
credit increased 17.2 percent. Given these increases in
credit demand and the recent rand strength, the SARB will
have to decide next week whether to reduce interest rates.
Source: Business Day November 30.

BUSINESS CONFIDENCE INCREASES TO 23-YEAR PEAK
--------------


6. Business confidence jumped to a 23-year high this
quarter, fuelled by low interest rates that have boosted
economic growth and consumer spending. The latest
confidence index measured by Rand Merchant Bank (RMB) and
the University of Stellenbosch's Bureau for Economic
Research increased nine index points to 88 this quarter,
only three points shy of the record high reached in the
third quarter of 1980. The survey shows a fairly broad-
based improvement in confidence across all sectors, with
sentiment among building contractors, retailers and motor
vehicle dealers particularly strong. In these sectors,
more than 90 percent of respondents were positive about
business conditions. Although confidence among
manufacturers increased, sentiment in this sector lagged
behind the rest of the economy. Despite the lower
confidence levels in manufacturing compared to other
sectors, the survey showed that two-thirds of
manufacturers were positive about prevailing business
conditions. The strong level of business confidence in
the economy was partly the result of increasing domestic
demand, but also due to a stronger economy. The survey
also showed an increase in net employment across all
sectors this quarter. Source: Business Day, November 30.

GAUTENG'S DEVELOPMENT STRATEGY FACES CHALLENG OF UNEVEN
ECONOMIC EXPANSION
-------------- --------------


7. Gauteng's growth and development draft strategy traces
the economic impacts of the province's shift towards the
service industries combined with having the highest
employment growth of all the provinces. Gauteng
contributes 33 percent of South Africa's gross domestic
product and continues to attract more job seekers than it
can absorb, increasing the number of unemployed and poor.
The province has shifted away from its dependence on
minerals towards the services industries, which today
account for 70 percent of Gauteng's employment. The shift
towards high-value, high-skills jobs is a major
contributor to unemployment and poverty among the job
seekers who previously would be easily absorbed into the
mining industry but now cannot find employment. In 2003,
unemployment in Gauteng was 28.2 percent and the average
monthly income was estimated at R2,000 ($265, using 7.56
rands per dollar, the 2003 average). Representatives of
government, business, labor and nongovernmental
organizations met at a two-day summit in Johannesburg to
develop the growth and development strategy. The draft
document points out the province's progress in service
delivery and infrastructure improvements. Over the past
10 years, Gauteng has invested more than R1 billion in
economic infrastructure to stimulate growth and
sustainable job creation. The province has also extended
the provision of social grants to more than 900,000
recipients. But unemployment and poverty persists, and
the strategy suggests that the solution may lie elsewhere.
Providing education, health care and grants contributes to
building a skilled, healthy and nourished population that
will need further opportunities to be integrated into the
mainstream economy. The strategy prefers labor-absorbing
industries such as tourism, financial services, business
services, telecommunications, transport and logistic
services. Gauteng premier Mbhazima Shilowa is scheduled
to launch the final development strategy early next year.
Source: November 30, Business Day.

DRAFT BLACK ECONOMIC EMPOWERMENT TARGETS FOR TOURISM
INDUSTRY RELEASED
-------------- --------------


8. The Black Economic Empowerment (BEE) scorecard
steering committee will give its draft empowerment targets
for the tourism industry to the Minister of Environmental
Affairs and Tourism, Marthinus van Schalkwyk on December

8. The committee, made up of industry, labor, and
community representatives, recommended: (1) 26 percent
black ownership by 2009 and 40 percent by 2014; (2) 70
percent black employees with 33 percent manager
representation by 2009; and (3) 70 percent of the
industry's skills training should be allocated to black
employees in the first draft of targets released two
months ago. In October, the committee presented its draft
targets to various communities, generating response about
the targets' impacts on small and medium enterprises and
concerns about the relative weighting of ownership versus
skills development. As a result, the human capital
component has a larger weight than ownership targets
during the first five years after the scorecard is
adopted. Source: Business Report and Business Day,
December 1.

INTERNET USE IN SOUTH AFRICA
--------------


9. The South African Advertising Research Foundation's
Trends publication reveals that in 2003, 5.9 percent of
South African adult population accessed the Internet
within the past four weeks, compared to 4.6 percent in
2002, 4.5 percent in 2001 and 5.1 percent in 2000. In
2003, 2.8 percent used the Internet at home, while 2.3
percent accessed it at the office. Using internet banking
services and email services increased in 2003, with 1.9
percent of adults accessing online banking services from
1.6 percent in 2002, and 4.5 percent using email services
compared to 3.6 percent in 2002. Few South Africans
purchase goods via the Internet with 0.4 percent buying
online, compared to 0.3 percent in 2002. Source:
Business Day, December 1.

FRAZER