Identifier
Created
Classification
Origin
05PRETORIA4450
2005-11-04 13:19:00
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 004450 

SIPDIS

DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
November 4 2005 ISSUE


UNCLAS SECTION 01 OF 03 PRETORIA 004450

SIPDIS

DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
November 4 2005 ISSUE



1. Summary. Each week, Embassy 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:

- Consumer Credit Demand High but Below Expectations;
- Lack of Steady Employment Bars Widespread Bank Account
Usage;
- DTI Minister Reiterates Importance of Chinese Trade;
- October Shows Slowing in Manufacturing Sector Growth;
- Labor Department Reviewing UIF Benefits;
- September's Trade Deficit Widens;
- Gasoline Price Reduction Lowers Risk of Increases in
Interest Rates;
- Public Works Having Little Impact on Employment; and
- August Retail Sales Jump.
End Summary.

CONSUMER CREDIT DEMAND HIGH BUT BELOW EXPECTATIONS
-------------- --------------


2. Demand for credit rose slightly more than expectations
in September, as consumers continued to take advantage of
the current low interest-rate environment. According to
figures released by the South African Reserve Bank (SARB),
private sector credit extension rose 22.9% year on year in
September, compared to 22.7% in August, driven mainly by
mortgage advances, which rose R12.6 billion. M3, the
broadest measure of money supply, slowed to 16.7%, from
19% in August, due to a decline of R11.18 billion in net
claims on the government sector. A Reuter's poll
consensus forecast predicted that private sector credit
demand and M3 would rise 22.1% and 17.9%, respectively.
Installment sales credit declined R374 million in
September, reducing growth in this category to 21.5% y/y
compared to August's growth of 23.8%. Recent statements
by the SARB Governor Tito Mboweni about the inflationary
risk from high oil prices led many analysts to expect an
interest rate hike in December. However, with September

money supply growth slowing down and producer and consumer
inflation below market forecasts, December interest rates
may remain unchanged. Source: Business Day, October 31.

LACK OF STEADY EMPLOYMENT BARS WIDESPREAD BANK ACCOUNT
USAGE
-------------- --------------


3. According to a FinScope 2005 survey, 57% of South
Africans polled cite lack of employment as the main reason
for not having a bank account, while 43% say it is because
they have no regular income, and 15% say it is because
they have no money to save. Because of the large numbers
not using financial services, 47% of money received in the
country does not go into a bank account. In addition,
roughly 3.6 million South Africans, or 25% of all those
with bank accounts, withdraw all the money out of their
accounts as soon as it is deposited. There has been a
slight increase in the number of South Africans with a
bank account, largely due to the introduction of the low-
cost Mzansi account a year ago. About 550,000 or 4% more
accounts were held in June 2005 compared to the previous
year, leading to a 1% increase in the number of South
Africans participating in the formal financial sector.
According to FinScope 2005, 15% of those people who have
opened an Mzansi account are not using it; 38% opened an
Mzansi account in addition to having another account; and
27% opened an Mzansi account to replace another bank
account. Regarding debt, the survey found that 79%
thought that taking out loans should be avoided as much as
possible. However, the survey noted that the main reason
why black and "coloured" South Africans borrowed money was
to buy food when their own money had run out, contrasting
with the main reason why white and Asian South Africans
borrowed money - which was to buy a car. Research Surveys
conducted 3,885 interviews across South Africa on behalf
of FinMark Trust for FinScope 2005 between June and August

2005. Two-thirds of the respondents lived in non-
metropolitan areas. Source: Business Day, October 31.

DTI MINISTER REITERATES IMPORTANCE OF CHINESE TRADE
-------------- --------------


4. Citing the overall Chinese trade relationship as more
important than any one sector, Department of Trade and
Industry Minister Mandisi Mpahlwa said South Africa would
not impose quotas on Chinese textile imports. Mpahlwa
said the government must consider the entire trading
relationship. South African import tariffs on textiles
are being reviewed, aimed at reducing costs for local
clothing manufacturers. Customs inspection was being
improved to reduce illegal or under-invoiced imports. An
increase in cheaper Chinese imports led to a reduction of
than 50,000 South African clothing and textile jobs in

2005. Source: Business Report, October 31.

OCTOBER SHOWS SLOWING IN MANUFACTURING SECTOR GROWTH
-------------- --------------


5. The seasonally adjusted Investec Purchasing Managers
Index (PMI) slowed to 54.1 in October from 55.7 in
September. The decline in the PMI was mainly due to a
drop in the activity index to 56.3 from 61.2, while the
new orders index fell to 55.7 from 62.1. The index is
still above the critical level of 50, indicating continued
growth in the manufacturing sector. Despite the
moderation in the business activity index, the seasonally
adjusted employment index increased from 48.1 in September
to 53.4 in October. Increases were also recorded in the
sub-indices of inventories and suppliers performance, but
they were not enough to prevent the decline in the overall
index. The PMI price index rose further to 62.2 in
October from 60.3 in September, indicating increasing cost
pressures. Manufacturers' six-month expectations of
business conditions improved marginally in October to 66,
compared to the 65.4 recorded in September. Improvement
in business conditions was expected by 43% of the
respondents, while 11% anticipate deterioration in
conditions. Source: I-Net Bridge, November 1.

LABOR DEPARTMENT REVIEWING UIF BENEFITS
--------------


6. The Department of Labor plans to review the benefits
under the Unemployment Insurance Fund (UIF) because
monthly income received at R500 million ($92 million,
using 6.5 rands per dollar) far exceeds monthly
expenditure at R200 million ($31 million). Labor Deputy
Director-General Les Ketteldas told Parliament's labor
portfolio committee that contribution income had increased
because higher income earners had been included as
contributors and they did not use unemployment benefits as
much as low income earners. According to the UIF's annual
report for the year ended March 31, 2005, revenue
contributions were over R6 billion ($920 million),up from
R5.6 billion ($860 million) in the previous year. Benefit
payment to contributors rose from R2.1 billion ($320
million) to R2.5 billion ($385 million) in 2005. The net
surplus for the year rose from R121 million ($18.6
million) to R2 billion ($308 million). Starting November
1, recipients of unemployment benefits will be able to
receive payments electronically, reducing time spent long
lines waiting to receive monthly checks. Source:
Business Report, October 31; Business Day, November 1.

SEPTEMBER'S TRADE DEFICIT WIDENS
--------------


7. For the second month in a row, South Africa's trade
deficit widened due to an increase in crude oil imports
and a relatively stronger rand. Figures released by the
South African Revenue Service show that the trade deficit
increased to R3.7 billion in September, from R3.24 billion
in August. During the month, imports climbed 3.3% to R33
billion ($5.1 billion),while exports rose 2% to R29.3
billion ($4.5 billion). Analysts said the steady increase
in exports may be an indication that the export sector was
adjusting to a stronger rand. The sector has been under
pressure over the past two years, as a strong local
currency undermined its competitiveness. On average, the
rand was trading at R6.36 to the dollar, compared with
R6.47 in August. September oil imports, which account for
12% of the country's imports, increased by 44%. Oil
imports made up almost a quarter of total imports in
September. For the first nine months of this year, the
trade deficit amounted to R15.9 billion, more than double
the R6.6 billion deficit recorded over the same period in

2004. In 2003, the trade balance recorded a surplus of
R17.4 billion. Source: Business Day, November 1.

GASOLINE PRICE REDUCTIONS LOWERS RISK OF INCREASES IN
INTEREST RATES
-------------- --------------


8. November's expected 31 rand cents per liter reduction
in the retail gasoline price lowers the risks of a
December interest rate increase. Continuing high oil
prices and their possible second-round effects on CPIX
inflation were cited as primary inflationary risks in the
October Monetary Policy Committee statement. Recent
statements by the South African Reserve Bank Governor
Mboweni have continued to warn of possible interest rate
hikes due to higher oil prices. According to T-Sec
economist Mike Schussler, however, there was no evidence
of second-round inflationary effects. If transport
operating costs, which are mostly fuel, are excluded from
CPIX, then inflation rose by 3.5% y/y in September from
3.7% y/y in August. Source: I-Net Bridge, November 2.

PUBLIC WORKS HAVING LITTLE IMPACT ON EMPLOYMENT
-------------- --


9. The South African public works program's impact on
jobs creation and development has been limited, according
to research by Anna McCord, a research associate at the
Southern Africa Labor and Development Research Unit at the
University of Cape Town. McCord's research showed that
during 2004/05, 170,000 jobs, lasting four months, were
created, making it unlikely that government's employment
targets would be met. The public works program also
strained management capacity to handle the temporary
workers. McCord's research showed that only 3% of people
benefiting from the public work job program are eligible
for internships or apprentice programs in the construction
sector. McCord, the head of the Public Works Research
Project, presented her results to Parliament's Committee
on Public Works. Source: Business Day, November 2.

AUGUST RETAIL SALES JUMP
--------------


10. According to Statistics South Africa (StatsSA) latest
release of retail sales, August's inflation-adjusted sales
growth reached 7.2%, up from July's 5.8% growth. This
boost in retail sales indicates that consumer spending
growth may remain high; however, more recent car sales
trends may indicate otherwise. Passenger car sales, a
leading indicator for retail sales, recorded particularly
strong growth in August at 28% y/y. Since then, the car
sales growth has decelerated, with October's increase
coming in at 18.1% y/y. Overall, analysts expect consumer
demand to remain strong, although soften in the coming
months. Insolvencies are at their 18-year low and the
percentage of non-performing loans reached its lowest
levels in the past four years. Source: Taking Stock,
Standard Bank, November 2.

HARTLEY