SOUTH AFRICA ECONOMIC NEWSLETTER

UNCLAS SECTION 01 OF 03 PRETORIA 001766

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
May 6 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:
- Signs of Slowing Manufacturing Activity;
- South African Credit and Money Supply Growth Slow;
- South African Economy Adds 14,000 Jobs per Month;
- SMEs Struggle to Adopt BEE Practices;
- March Trade Deficit Widens;
- Motor Vehicle Sales Still High; and
- Wage Gap Widens.
End Summary.

SIGNS OF SLOWING MANUFACTURING ACTIVITY
--------------


2. The April Investec Purchasing Managers Index (PMI)
declined to 53.6, from its March level of 57.9. The lower
April PMI supports the latest Statistics SA data showing
growth in manufacturing output declining in the first two
months of the year to 3.2 percent year on year in January
and 2.7 percent in February. Brait economist Colen Garrow
said that PMI data were also consistent with the slower
growth in Organization for Economic Co-operation and
Development industrial production data, a trend indicating
less demand for local exports and continuing pressure on
the current account. A drop below 50 points indicates a
contraction in the manufacturing sector, while one above
this level indicates growth. The business activity index,
which measures manufacturing production levels, declined
from 60.7 to 52.4, while the employment index reached
below 50 to 48.9, from 57.0 in March. Purchasing
managers' six-month expectations dropped to 66.1 (71.5 in
March) in April. Respondents expecting an improvement in
general business conditions declined to 41 percent (51
percent in March) in April, while the percentage expecting
a worsening in business conditions increased from 8
percent to 9 percent. The PMI price index increased to
67.4 in April, from 61.5 in March, suggesting that the PPI
(producer price index) was likely to increase in the
future. The PMI price index has been on an upward trend
since January 2005. Source: Business Day, May 4.

SOUTH AFRICAN CREDIT AND MONEY SUPPLY GROWTH SLOWS
-------------- --------------


3. Credit demand in South Africa slowed in March, easing
concern over signs that inflation pressures were
increasing. Annual growth in private sector credit
moderated to 16.2 percent from an unrevised 17 percent in
February, comparing favorably with forecasts of a 17.3
percent increase. Expansion in money supply also slowed,
with the broadly defined M3 measure rising by 11.9 percent
in the year to March -- compared with an increase of 12.2
percent in February and forecasts of a stronger 12.7
percent rise. The South African Reserve Bank (SARB) did
not signal concern over the accelerating pace of consumer
credit growth when it reduced its key repurchase rate by
half a percentage point to 7.0 percent on April 14.
Instead the SARB highlighted the negative impact of slower
manufacturing activity and lower inflationary
expectations. Given those concerns -- and high
unemployment -- most analysts believe the central bank
will keep interest rates on hold for as long as possible.
Source: Reuters, April 29.

SOUTH AFRICAN ECONOMY ADDS 14,000 JOBS PER MONTH IN 2004
-------------- --------------


4. Commissioned by the trade union United Association of
South Africa (UASA),T-Sec released an employment study
showing that the South African formal sector grew at about
2.7 percent in 2004, or about 14,000 jobs per month. The
economy created jobs for three years in a row, after
around 13 to 14 years of declines. UASA commissioned the
employment report because of dissatisfaction with the long
data lag of the official employment data. The latest
Labor Force Survey (published in March 2005) is for
September 2004. According to the survey, the utility
(electricity, gas and water) sector was the only sector to
experience job losses in 2004, while overall formal sector
employment grew by 2.7 percent. Medium size businesses
are the companies increasing employment the most at a rate
of 6 percent for 2004. Small firms who already employ
around 2.3 million people grew payrolls by 2.5 percent, a
rate matched by large companies, while public sector
employment only increased by 0.6 percent. T-Sec economist
Mike Schussler expects employment growth to ease to 1.5
percent in 2005 from 2.7 percent last year, as
construction growth offsets retrenchments in the mining
sector. In 2004, average salaries increase showed a
deceleration, explaining the reduction in inflationary
expectations. According to the survey, salaries on
average increased by 5.4 percent in 2004, compared to 8
percent increase in 2003. Source: I-Net Bridge, Business
Day, April 29.

SMES STRUGGLE TO ADOPT BEE PRACTICES
--------------


5. A survey commissioned by financial services group Old
Mutual (OML) showed that although 69 percent of South
African small and medium-sized enterprises (SMEs) see
black economic empowerment (BEE) as a business
opportunity, 65 percent do not intend to implement the
government's BEE program in their businesses. According
to the survey results, 44 percent of respondents expected
to be fined for non-compliance to BEE and about 36 percent
indicated they believed nothing would happen to them.
Only 10 percent of the respondents said their businesses
would suffer if they did not comply with BEE. The survey
also showed that 64 percent of companies believed that
attracting and retaining competent black employees would
be the most challenging aspect of implementing BEE in
their businesses. Most SMEs are not yet aware of how BEE
can help their businesses, said Andr Diederichs, Old
Mutual market development manager of SMEs. Source: I-Net
Bridge, May 3.

MARCH TRADE DEFICIT WIDENS
--------------


6. South Africa's trade account recorded its third
consecutive monthly trade deficit, reaching R1.14 billion
($190 million, using 6 rands per dollar) in March from
February's R0.123 billion. Imports increased by 17.2
percent to R27.7 billion ($4.6 billion) compared to
February's level of R23.7 billion. Exports increased by
12.9 percent in March, reaching R26.6 billion ($4.4
billion). The strong rand, averaging 5.99 rands per
dollar in March, continues to encourage stronger import
growth and it is unlikely that South Africa's trade
position will be reversed soon. Exports of mineral
products, base metals, and vehicles accounted for most of
the 12.9 percent March export increase. Machinery,
mineral products and aircraft accounted for most of the
monthly import increase. The March trade deficit came in
larger than expected, with a Reuter's poll of economists
expecting a deficit of R0.7 billion. Source: Standard
Bank, Foreign Trade Alert, April 29.

MOTOR VEHICLE SALES STILL HIGH
--------------


7. Data from the National Association of Automobile
Manufacturers in South Africa (NAAMSA) shows April motor
vehicle sales increased 41.1 percent (y/y),with year-to-
date (January-April) sales up by 25.5 percent. New
passenger cars showed especially strong April growth at
44.6 percent, indicating that lower inflation, interest
rates and tax relief are continuing to encourage vehicle
sales. April 2005 had three more selling days than April
2004 since the Easter vacations happened in March this
year, although the number of cars sold daily in April 2005
was 33 percent higher than in April last year. Source:
Standard Bank, Motor Alert, May 4.

WAGE GAP WIDENS
--------------


8. According to research by P-E Corporate Services, South
African executives received higher salary increases than
lower-level employees over the past 12 months. Salary
increase projections indicate that the trend is likely to
continue this year. The average company executive earns
around 50 times more than minimum wage workers. The
difference in earnings is even greater when executives'
total packages are considered, including their share
options and performance-based bonuses. For the first time
in 25 years, salary increases at all levels have dropped
below 7 percent, according to the survey of 900 companies
employing between 1.5 and 2 million people by P-E
Corporate Services. Executive increases ranged between 8
and 9 percent, yielding a 2 percent differential between
them and average salaries. Executive salary increases in
South Africa are influenced by international pay scales,
skills shortages and compulsory disclosure of executive
pay levels that have driven salaries upward as
remuneration committees have been reluctant to set pay
levels below those of their competitors and expose their
companies to the loss of key staff. A study by Statistics
SA in March 2004 showed workers in agriculture and mining
tended to be the lowest-paid workers in the formal sector
- with less than R2,500 ($417) a month on average. Among
professionals, teachers and engineers were the lowest-paid
at less than R8,000 ($1,333) a month. A 2003 survey of
average monthly earnings by Statistics SA said the highest-
paid salaries in selected industries (excluding the
agricultural sector) were paid in the electricity, gas and
water supply sector at an average of R16,277 ($2,713),
followed by the financial sector (R11,770, $1,962),and
the community, social and personal services industry
(R7,681, $1,280). The lowest average wages were paid in
the construction sector (R3,987, $665). Source: Business
Day, May 3.

FRAZER