Identifier
Created
Classification
Origin
05PRETORIA1054
2005-03-11 13:06:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

SOUTH AFRICA ECONOMIC NEWSLETTER

Tags:  ECON EINV EFIN ETRD BEXP KTDB PGOV SF 
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UNCLAS SECTION 01 OF 03 PRETORIA 001054 

SIPDIS

DEPT FOR AF/S/JDIFFILY; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/BARBER/WALKER/JEWELL
USTR FOR COLEMAN
LONDON FOR GURNEY; PARIS FOR NEARY

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
March 11 2005 ISSUE

UNCLAS SECTION 01 OF 03 PRETORIA 001054

SIPDIS

DEPT FOR AF/S/JDIFFILY; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/BARBER/WALKER/JEWELL
USTR FOR COLEMAN
LONDON FOR GURNEY; PARIS FOR NEARY

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
March 11 2005 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:
- February Manufacturing Trade Indicators Improve
Slightly;
- Advice to Mbeki: Borrow and Invest More Would Yield
Higher Growth;
- Reserve Bank Increases Gross Reserves by $508 Million;
- SA To Target Sources of FDI;
- Regulations Still A Problem;
- Tourism Creates 17,000 Jobs;
End Summary.

FEBRUARY MANUFACTURING TRADE INDICATORS IMPROVE SLIGHTLY
-------------- --------------


2. Current manufacturing trade conditions improved
slightly in February according to the South African Trade
Management Indices. Expectations remained strong, but
unchanged compared to January's levels. The trade
activity index, measuring current trading conditions,
reached 48. This level is still below the expansionary
50, but above January's level of 47. Sales volumes,
purchase and selling prices and new orders all reached
expansionary levels, while inventories, employment, and
order backlogs experienced reductions in activity. Trade
expectations over the next six months remain optimistic
and unchanged from January's level of 63. Traders have a
very positive outlook for business, as increases in
disposable income from tax cuts and moderate inflation are
expected to have a positive impact on trading conditions.
Expectations of strong sales volumes and new orders are
the strongest in February, with over 70 percent of
respondents expecting favorable conditions. Fifty percent
of survey respondents expected no change in employment
over the next six months. Source: Business Day, March 4;
Standard Bank, SATMI, March 3.

ADVICE TO MBEKI: BORROW AND INVEST MORE WOULD YIELD

HIGHER GROWTH
-------------- --------------


3. The International Investment Council, an informal
Presidential advisory group, thinks that South Africa can
reach six percent annual growth prior to the 2014 target
date by increased borrowing and investing. According to
the ten members of the Council, economic growth has been
limited by a skills shortage and labor market rigidities,
but South Africa is able to finance policies that would
increase the growth rate and job creation at a faster
rate. However, Pan African Advisory Services CEO Iraj
Abedian warned that a more expansionary fiscal policy with
a higher budget deficit and higher government borrowing
for investment would be possible only if supply side
constraints, such as the skills shortage and the lack of
implementation capacity, were addressed. Government had
to ensure that there was not a heavy regulatory burden on
enterprises. Council members assert that companies should
be given greater freedom to import skills and foreign
exchange controls should be removed, as the strong
currency showed that the international market, and
investors, had confidence in the rand. The Council also
emphasized the need for South Africa to explain the
historical, economic and political rationale for black
economic empowerment, which was often misunderstood
abroad. Members of the council who attended the weekend
talks were Tata Sons chairman Rattan Tata, Commerzbank's
Martin Kolhaussen, DaimlerChrysler CEO Jurgen Schrempp,
Astra Zeneca's Perce Barnevik, Mitsubishi's Masaki Miyaji,
AngloGold Ashanti's Sam Jonah, Independent News chairman
Sir Anthony O'Reilly, Mittal Steel's Lakshmi Mittal,
Compahia Vale do Rio CEO Roger Agnelli, Pan African
Advisory Services CEO Iraj Abedian, and Reuters Group
chairman Niall Fitzgerald. Source: Business Day, March

7.

RESERVE BANK INCREASES GROSS RESERVES BY $508 MILLION
-------------- --------------


4. The South African Reserve Bank (SARB) added $508
million (R3 billion) to the country's foreign gross
reserves in February to push the overall total closer to
$16 billion. This increase adheres to the SARB's pledge
of not taking any aggressive action in the market to
influence the strength of the rand. Although the bank
more than doubled January's $234 million increase in gross
reserves, analysts believe the SARB did not fully exploit
this year's four percent appreciation in the rand against
the dollar so far. In February, net reserves, or the
international liquidity position, increased by $527
million to $12.2 billion. Ever since South Africa closed
a $23.2 billion net open forward position (NOFP) in early
2003, the SARB has steadily built the reserves,
culminating in the country receiving an investment upgrade
from the world's largest credit ratings agency, Moody's
Investors Service. A debate regarding the appropriate
level of reserves for South Africa prompted the government
to establish a committee to determine the foreign reserves
target. The committee, which consists of SARB and
National Treasury officials, will publish its
recommendations later this year. The International
Monetary Fund recommends that foreign reserves be able to
cover a country's imports for three months. At $15.6
billion, South Africa has enough foreign currency to buy
imports for three months, but some analysts advocate
having six months' import cover. However, Andre Roux, the
head of fixed income at Investec Asset Management, argued
that there was no need to invest South Africa's savings in
a currency that was fast losing its value. Dennis Dykes,
the chief economist at Nedcor, said the bank's policy of
gradual accumulation of foreign reserves implied a firm
rand, low inflation and interest rates, and strong demand
for imports in the future. Source: Business Report and
Business Day, March 8.

SA TO TARGET SOURCES OF FDI
--------------


5. The International Marketing Council, responsible for
promoting South Africa abroad, has identified countries to
target on as potential sources of foreign investment in
South Africa. Focused marketing of South Africa should be
aimed at the United States, United Kingdom, China, India,
Japan, the Netherlands, France, Germany and Brazil. The
Council recommends France because it provides a launch pad
into French-speaking countries all over the world and
Brazil because of its position in Latin America. A
marketing campaign would be conducted in these countries
to promote South Africa as an investment destination with
the bulk of the council's R18 million ($3.1 million, using
5.8 rands per dollar) budget being concentrated on mass
media communication and advertising. The council noted
that South Africa had consistently underperformed its
potential in terms of foreign direct investment (FDI)
flows and expects that global foreign direct investment to
increase over the next several years. Global growth
should remain high with increased revenues and net profits
for the top 500 companies in the United States and the
1000 largest Asian transnational corporations. The agency
has a budget of R17 million ($2.9 million) this year: R7
million from the state, R5.3 million from broadcasters and
R4.8 million from print media. A cap of 25 percent had
been placed on administration costs relative to total
income. The agency's board has so far approved 63 media
projects. Source: Business Day March 9.

REGULATIONS STILL A PROBLEM
--------------


6. According to the latest annual Grant Thornton survey
of international business owners, business growth in South
Africa was hampered by regulations and red tape. The
construction industry appeared to be most affected, with
68 percent of business owners reporting that red tape was
their biggest growth constraint. It was followed by the
services sector with 44 percent and the manufacturing
sector with 38 percent. The retail sector was least
affected, with just 28 percent of business owners
reporting red tape as a growth barrier. Overall, 41
percent of business owners cited regulation and red tape
as the biggest business constraint, while the availability
of a skilled workforce came a close second, with 37
percent. On a regional basis, 68 percent of business
owners in Gauteng listed red tape and regulation as their
greatest constraint, followed by 54 percent in Port
Elizabeth and East London, 42 percent in Durban and 38
percent in Cape Town. The concerns of South African
business owners echo those of business owners around the
world. The study found that 36 percent all respondents
saw regulation and red tape as the biggest threat to
business expansion for the second consecutive year.
Source: Business Report, March 9.

TOURISM CREATES 17,000 JOBS
--------------


7. The Tourism Enterprise Program (TEP),initially funded
by private enterprise through the Business Trust, created
over 17,000 jobs over the past four years. The TEP
received funds from The Business Trust and The Department
of Environmental Affairs and Tourism (DEAT) to continue
its work for an additional three years. Created in 2000
and expected to last for four years, the project's aim was
to aid the expansion of small, medium and micro
enterprises (SMME) in the tourism economy, resulting in
job creation and income generating opportunities. Initial
four-year targets for TEP were set by The Business Trust,
which included the creation of a minimum of 10,000 jobs,
the facilitation of 450 million rand of incremental
revenues for small businesses and measurably assisting
1,000 enterprises to grow. Four years later, these
initial targets were exceeded, with over 2,000 small
enterprises and over 17,000 jobs created. TEP's
objectives for the next phase include assisting 2,000
small enterprises to create an additional 20,000 jobs,
while achieving a target of 1.2 billion rand in
incremental revenue for these enterprises. Source: I-Net
Bridge, March 10.

FRAZER