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
August 19 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:
- Treasury Plans to Increase Public Debt;
- Western Cape Plans to Help Textile Industry;
- Microlending Sector Growth;
- SNO to Start in 7 Months; and
- SA Private Hospitals Cheaper than U.S. and Australia;
End Summary.

TREASURY PLANS TO INCREASE PUBLIC DEBT
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2. Public sector borrowing is expected to increase over
the next three years, as public enterprises such as
Transnet and Eskom invest heavily in infrastructure as
part of government's plan to raise capital investment.
Treasury Director-General Lesetja Kganyago anticipated
public-sector borrowing would increase from 1 percent of
gross domestic product (GDP) in 2002 to about 4 percent
over the next three years. Transnet is expected to invest
more than R40 billion ($6.3 billion using 6.4 rands per
dollar) over the next five years, while Eskom had begun to
recommission mothballed power plants and would continue
its expansion and strengthening of transmission networks.
Kganyago's comments indicate that the Treasury may be
aiming to increase public-sector borrowing higher than the
3.8 percent it had indicated for the 2007-08 financial
year in its budget review earlier in 2005. According to
the 2005 budget review, the public sector borrowing
reached 2.8 percent of GDP in 2004 and was expected to
rise to 3.9 percent this year. Kganyago asserted that the
increase in infrastructure investment could not be
financed entirely through debt, which is why the
government encouraged public-private partnerships.
Investment has been identified as a critical target to
raise economic growth from its current 3.5 percent-4
percent a year to 5 percent-6 percent. Faster growing
economies invested more than 15 percent of GDP. Source:
Business Day, August 17.

WESTERN CAPE TO HELP TEXTILE INDUSTRY
--------------


3. The Western Cape's Finance and Tourism MEC Lynne Brown
announced a range of programs designed to aid the clothing
industry. Twenty-six clothing firms have folded in a year
in the province, resulting in 2,300 job losses. One
program will promote efficiencies within and between
different companies. Another proposal is to provide
incentives for smaller firms over a period of about three
years. Brown recognized that the industry needed to
establish new niche markets. Unless there is substantial
upgrading of skills and equipment, improvements in
manufacturing processes and an increased focus on exports,
the provincial government expects that only a few
factories in the Western Cape will survive over the short
to medium term. Another proposal was to establish a
clothing and textiles information hub on export and market
intelligence so that clothing firms could become more
design-oriented as well as service the upper end of the
retail market. Source: Business Day, August 17.

MICROLENDING SECTOR GROWTH
--------------


4. According to the Micro Finance Regulatory Council
(MFRC),micro loans increased 30 percent (y/y) for the
quarter ending in May 2005, reaching R5.77 billion ($900
million). Borrowing for educational purposes was the most
important reason for obtaining loans, at R685 million
($110 million),followed by housing at R630 million ($98
million) and small business funding at about R250 million
($40 million). A comparison of lending activity for the
quarter ending May 2005 with the previous quarter
decreased slightly by 0.8 percent from R5.82 billion ($910
million) to R5.77 billion ($900 million). In the same
period, the number of loans extended increased by 1.6
percent from R3.59 million to R3.65 million. Banks
continued to be the most common source of microloans,
showing another strong quarter with loans of R2.3 billion
($360 million) being issued, some 9.5 percent higher than
reported by the MFRC for the February quarter. Private
companies' loan disbursements fell 9 percent from R2.6
billion ($410 million) to R2.3 billion ($360 million).
Close corporations, trusts and public companies' loan
disbursements fill by 0.4 percent, from R1.025 billion to
R1.021 billion. Section 21 companies performed moderately
well, displaying a 10 percent increase in disbursements
from R43.4 million to R47.7 million driven by two large
Section 21 companies. Cooperatives registered with the
MFRC reflected a 13.6 percent decline in disbursements
reflecting R67.7 million in revenue in the May 2005
quarter. Source: I-Net Bridge and Mail & Guardian,
August 16; Business Report, August 17.

SNO TO START IN 7 MONTHS
--------------


5. After more than three years' delay, the second network
operator (SNO) for the telecommunication sector should
start early in 2006. The SNO partners signed a
shareholders' agreement and it now rests with the
Independent Communications Authority of South Africa
(ICASA) to award a license. SNO chairman Karl Socikwa
expects the license to be awarded within four weeks. The
SNO shareholders are: Nexus Connexion, the black
empowerment partner, with 19 percent; Transtel and Eskom
Telecommunications, divisions of the transport and
electricity parastatal utilities with 30 percent between
them; and the Sepco consortium, with 51 percent. The
Sepco consortium is made up of VSNL, a Tata group
subsidiary, with a controlling share of 26 percent of the
SNO and CommunicTel and Two Consortium, which have equal
ownership in Sepco. Analysts expect the SNO to target the
business market first and later move to the residential
market, since the SNO does not have sufficient
infrastructure to service residences. Source: Business
Report, August 17.

SA PRIVATE HOSPITALS CHEAPER THAN U.S. AND AUSTRALIA
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6. According to a study sponsored by the Hospital
Association of South Africa, private hospitals in South
Africa perform much of their surgery better, faster and
cheaper than those hospitals in Australia and the United
States. The report shows that South Africa is up to 50
percent cheaper than the US and Australia with regard to
procedures requiring hospitalization. On average, the
private hospital industry invests R8 billion ($1.3
billion) in health-care technology annually, about 45.7
percent of the sector's revenue. According to the study,
the average combined cost of hospital and surgical fees,
drug and surgical equipment for an uncomplicated Caesarean
section in a private hospital in South Africa is about
R15,431 ($2400),almost half the R29,445 ($4600) in
Australia and a quarter of the R58,602 ($9200) cost in the
U.S. The cost of a colonoscopy in a private South African
hospital, R3,458 ($540),is one-third less than the cost
of the identical procedure in Australia, R5,305 ($830),
and 30 percent of the U.S. cost of R11,760 ($1800). A
tonsillectomy performed in South Africa is between 53
percent and 58 percent cheaper than in Australia and less
than 10 percent of the U.S. cost. A hip replacement is 77
percent cheaper than in Australia and 58 percent cheaper
than in the U.S. A vasectomy costs R3,883 ($610),which
is 10 percent of the R39,900 ($6200) charged in the U.S.
The length of time a patient spends in South Africa's
private hospitals is among the lowest worldwide. The
average stay for an uncomplicated Caesarean section is
four days in a private hospital in South Africa, compared
with 3.38 days in the U.S. and 5.9 days in Australia.
Patients who undergo a straightforward hip replacement in
South Africa's private hospitals spend an average of 5.58
days in hospital, while the length of stay for the
identical procedure in the U.S. and Australia is 4.59 and
9.5 respectively. Source: Sapa and Mail & Guardian,
August 15.

FRAZER