SOUTH AFRICA ECONOMIC NEWSLETTER November 18 2005

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E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER November 18 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:

- September Manufacturing Production Picks Up;
- World Bank Launches 2006 Development Report;
- Slow Internet and High Cost Obstacle to South African Online
Shopping;
- Deputy President Views Lack of Skills as a Danger to SA's
Continued Gains;
- NAFCOC Sets Targets for Small Business Sector;
- Credit Demand Expected to Remain High in 2006; and
- Fraud Still Perceived as Problem to SA Firms;
End Summary.

SEPTEMBER MANUFACTURING PRODUCTION PICKS UP
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2. South Africa's manufacturing output rose by 5.9% in
September up from August's 4% growth, primarily due to
production increases in the petroleum industry, according
to Statistics South Africa (StatsSA). Compared with
August, manufacturing production rose by a seasonally
adjusted 2.2%. In the three months to the end of
September, it rose by 1.8% compared to the previous
quarter. The petroleum, chemical and rubber and plastics
sector contributed most to growth, followed by the food,
motor vehicle and wood and printing sectors. The basic
metals and machinery and textile sectors were the only two
sectors with negative growth during September.
Manufacturing is the second-biggest sector of the South
Africa's economy, accounting for more than 16% of gross
domestic product. Source: Reuters, StatsSA Release
P3041.2, November 17.

WORLD BANK LAUNCHES 2006 DEVELOPMENT REPORT
--------------


3. At the launch of the World Bank's 2006 World
Development Report (WDR),the authors stressed the
importance of equity in achieving high economic growth and
prosperity. World Bank economist Francisco Ferreira
emphasized the importance of early education, local
government's capacity to provide access to water,
transportation and health services and broad access to
finance as key determinants to increased equity and
growth. The 2006 WDR focused on equity and development,
where equity was defined as equality of opportunities,
that are not predetermined by race, gender, or wealth. At
the report's launch, several economists discussed local
constraints facing the South African government in
providing rapid growth and improved equity. Local
government's capacity, skill development, and lack of
investment were repeatedly cited as South Africa's
challenges. Iraj Abedian, from Pan African Capital
Holdings, viewed inefficiencies of the state in providing
infrastructure as more prominent at local governmental
levels and advocated immediate action to remedy the
situation. He also pointed out the lack of African
investment in Africa, stating that 50% of African
investments are made outside the continent. In addition,
matching the skills and training to the needs of the
business was crucial for sustaining employment gains.
Elias Masilela, a former Treasury Deputy Director General
and now a Sanlam (a financial services company) executive,
thought that the government should ensure that nobody
experiences extreme poverty and that this required
government intervention, as one could not rely on markets
to provide everything. Sound institutions, especially at
the local government level, had to be created to empower
the poor with knowledge and offer more choices by ensuring
competition. When asked what South Africa could do in the
short term to alleviate poverty and promote equity,
Ferreira suggested that conditional grants, whether linked
to education or health, were preferable to unconditional
grants. Source: I-Net Bridge, November 15 and 16.

SLOW INTERNET AND HIGH COST OBSTACLE TO SOUTH AFRICAN
ONLINE SHOPPING
-------------- --------------


4. Recent research shows that online shopping is a

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growing retail trend internationally, with accelerated
growth in emerging markets. The South African market,
however, is lagging behind as a result of slow internet
speeds and the high cost of connections. An annual
research report on the South African online retail market
by Arthur Goldstuck suggested that there are approximately
300,000 active online shoppers, accounting for less than
10% of South African internet users. Online retail
accounts for about 0.14% of general retail in South
Africa, compared with 1.6% in other parts of the world.
According to Goldstuck, access to higher and cheaper
bandwidth is essential for the growth of the South African
online retail market and unless the telecommunications
authorities deregulate the market more effectively, online
retail sales will stagnate. Airline tickets are the most
popular item bought online in South Africa, with groceries
and books being the next most popular online products.
Source: Business Day, November 16.

DEPUTY PRESIDENT VIEWS LACK OF SKILLS AS A DANGER TO SA'S
CONTINUED GAINS
-------------- --------------


5. Deputy President Phumzile Mlambo-Ngcuka warned that
unless South Africa tackled its skills shortages at all
levels of the economy, it could undo "all the gains of the
past 11 years." She said the government had identified
certain categories of skills that were critical to
implement programs needed to shift growth higher.
Financial skills were needed, especially in municipalities
that had received unfavorable audit reports. These
municipalities also needed more engineering skills and
economic planners. All these efforts should build up a
core group of people that could be deployed to the rural
areas that needed them the most. Where local talent is
lacking, people would be recruited from abroad, although
the government's first preference is South Africans who
have retired or who are living overseas and now want to
come back. Skilled people from other African countries
would also be recruited. Source: Business Day, November

15.

NAFCOC SETS TARGETS FOR SMALL BUSINESS SECTOR
--------------


6. The National African Federated Chamber of Commerce and
Industry (NAFCOC) wants to establish and sustain 100,000
new small, medium and micro- enterprises (SMME) every
year. NAFCOC President Patrice Motsepe said there were
currently 1.2 million SMME businesses, employing more than
60% of the private sector. The recent nationwide SMME
Survey 2005 identified insufficient expertise as a greater
stumbling block to the growth of small businesses than the
often-cited lack of access to finance. During its annual
general meeting in Durban next week, NAFCOC will focus its
discussions on the development of small businesses.
NAFCOC was formed in 1964 as the National African Chamber
of Commerce to tackle the hostile environment facing black
business at the time. Source: Business Day, November 15.

CREDIT DEMAND EXPECTED TO REMAIN HIGH IN 2006
--------------


7. According to business consulting firm KreditInform,
73% of the 160 businesses surveyed in its latest
KreditBarometer expect an increase in new credit
applications in the next 12 months, despite the prospect
of future higher interest rates. Only 2% expect a
decline in credit applications, while 21% expect them to
remain constant. Two-thirds of respondents also said the
size of credit limits would increase, while 30% felt they
would remain unchanged. According to Gavin Long, Manager
of Specialist Products at KreditInform, most businesses
expect a small and steady increase in interest rates but
not enough to affect economic output and demand for
credit. Another indication of strong credit demand
continuing is the strength of loans financed. The Micro
Finance Regulatory Council reported record loans by
microfinanciers of R6.3 billion ($940 million, using 6.7
rands per dollar) from June until August 2005, an increase
of 9% compared to the same period in 2004. Most of the
growth was due to the size of the loans, rather than an
increase in number. Recent statements by leading
governmental financial policymakers caution that interest

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rates may rise in the near future. Finance Minister
Trevor Manuel pointed to higher interest rates, saying
domestic rates were unlikely to remain low as interest
rates rise globally. He also cautioned against rising
debt levels in a higher interest rate environment. Colen
Garrow, economist at financial services company Brait,
said while an increase of 50-100 basis points in the prime
lending rate might dampen credit growth, it would be
unlikely to halt it. Source: Business Day, November 17.

FRAUD STILL PERCEIVED AS PROBLEM BY SA FIRMS
--------------


8. According to a KPMG survey, 64% of South African firms
surveyed believed that fraud was a major problem. The
Consumer Profile Bureau also pointed out that 65% of
businesses in Africa were complaining about higher levels
of fraud. Businesses viewed background checks and credit
screening as essential tools in preventative measures to
prevent fraud. In South Africa, the ease of obtaining
duplicate identification documents from the Department of
Home Affairs was cited as the most critical problem, while
strong concerns were expressed about the proposed National
Credit Bill's regulations that would prevent credit
bureaus from issuing a negative credit report for amounts
under R100 and a one-time deletion of information older
than three years on repayment history. Credit industry
analysts assert that these regulations would mean credit
might have to be extended to someone who did not have a
debt repayment history. Source: Business Report,
November 17.

TEITELBAUM