SOUTH AFRICA ECONOMIC NEWSLETTER

UNCLAS SECTION 01 OF 02 PRETORIA 003369 SIPDIS DEPT FOR AF/S/KGAITHER; 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 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 -------------- ¶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 -------------- -------------- ¶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