SOUTH AFRICA ECONOMIC NEWSLETTER

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TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
February 18 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 in the February 18
newsletter include:

- President Mbeki's State of the Nation address
- South Africa's manufacturing capacity improves
- South Africa's project value up 309 percent in 2004
- Power station revamp will create 36,000 jobs
- Unemployment is South Africa's biggest worry
- South Africa's 2004 4Q real GDP grows 4 percent
- SA and Angola sign trade and investment agreements
- Final stake in South Africa's SNO awarded to India's VSNL
END SUMMARY.

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PRESIDENT MBEKI'S STATE OF THE NATION ADDRESS
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2. In his "State of the Nation" address to the South
African Parliament, President Thabo Mbeki painted a picture
of a country which "has never in its entire history enjoyed
such a confluence of encouraging possibilities." The
president reiterated government's broad objectives to
increase investment in the economy, lower the cost of doing
business, improving economic inclusion and provide the
required skills. Mbeki said that 72 percent of the
government's programs were being carried out more or less
within the time frames set. He singled out issues such as
classroom-building and the provision of services by
municipalities as areas which required improvement.
Referring briefly to AIDS, he said "the government's
comprehensive plan, which is among the best in the world,
combining awareness, treatment and home-based care, is being
implemented with greater vigor." R180 billion ($31 billion)
has been allocated to build or improve harbors, oil
pipelines and power stations, and banks were commended for
committing R85 billion ($14 billion) over three years for
low-cost housing, infrastructure, small black businesses and
new black farmers. Government would allocate R21.9 billion
($3.8 billion) for a five-year National Skills Development
Strategy. A simpler system for paying taxes and levies and
registering businesses would be introduced by April 2006.
More than R1.5 billion ($259 million) had been spent on an
expanded public works program, he said, creating 76,000
jobs. Extra money would be allocated to pay for restoring
land to those who had been deprived of it under white rule.
Action would be taken to ensure that free basic electricity
was provided "to all with minimum delay" and that
municipalities could provide sanitation to 300,000
households a year from 2007. (BuaNews, February 11)

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SOUTH AFRICA'S MANUFACTURING CAPACITY IMPROVES
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3. Manufacturing capacity utilization by large enterprises
rose to 86.3 percent in November 2004 from 83.1 percent in
November 2003, Statistics South Africa (Stats SA) said
today. The under-utilization of 13.7 percent for November
2004 was attributed mainly to insufficient demand (8.9
percent of reported under-utilization),followed by `other'
reasons (such as downtime due to maintenance, lower
productivity and seasonal factors) (2.2 percent),a shortage
of raw materials (1.8 percent) and a shortage of labor (0.8
percent). The capacity utilization rate is reported
quarterly and has been rising since November 2003, when the
new survey started. The November 2004 survey covered ten
sectors with the highest utilization rate recorded for large
enterprises in furniture and `other' manufacturing
industries (91.9 percent),followed by those in wood and
wood products, paper, publishing and printing (91.5
percent),glass and non-metallic mineral products (89.8
percent),electrical machinery (87.8 percent) and basic iron
and steel, nonferrous metal products, metal products and
machinery (87.2 percent) divisions. Large enterprises in
the radio, television and communication apparatus division
recorded the lowest utilization rate for November 2004 (82.7
percent),followed by those in the division food and
beverages (83.1 percent). The economy has officially been
in an "upward" phase since September 1999. (I-Net, February
17)

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SOUTH AFRICA'S PROJECT VALUE UP 309 percent IN 2004
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4. The value of announced capital projects with a value in
excess of R20 million ($3.4 billion) more than quadrupled to
a record R174 billion ($30 billion) in 2004 from R42 billion
($7.2 billion) in 2003, according to Nedbank's (NED) capital
expenditure project listing. The quadrupling in value in
2004 represented government's plans to accelerate spending
on infrastructure in order to upgrade a badly outdated and
inefficient transport network and expand capacity in both
the transport and power systems to meet future demand. The
South African Treasury in its Medium Term Budget Policy
Statement (MTBPS) in October 2004 said that the public
sector, including non-financial public enterprises such as
Eskom and Transnet, would spend R301 billion ($51.9 billion)
on capital expenditure over the next three fiscal years
(2005/6 to 2007/8) compared with only R188 billion ($32
billion) spent in the past three fiscal years of 2001/2 to
2003/4. The government aims to increase fixed capital
formation from 16.3 percent of GDP currently to 25 percent
by 2014. In 2004, the private sector announced 46 new
projects worth R38.4 billion ($6.6 billion) compared with 41
projects of R25.4 billion ($4.4 billion) in 2003. (I-Net,
February 18)

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POWER STATION REVAMP WILL CREATE 36,000 JOBS
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5. Eskom's recommissioning of mothballed power stations
would create 36,000 jobs and contribute R5.8 billion ($1
billion) in GDP by 2007, according to a study undertaken by
Econometrix on behalf of the power utility. Eskom has
commissioned the return to service of three mothballed
stations to provide 3,800MW: Camden in Ermelo, Grootvlei
near Balfour and Komati in Middleburg at a cost of R12
billion ($2 billion),which is about 40 percent of the cost
of a new station. About 26,000 of the jobs would be in
Mpumalanga were the Camden station is located. Camden is
expected to be operational in June this year and the rest by

2008. Econometrix said the jobs were expected to
subsequently decline when constructions activities decrease.
Alec Erwin, the minister of public enterprises, announced a
R107 billion ($18 billion) investment over five years for
electricity in which Eskom would spend R87 billion ($15
billion). The investments are part of the government
strategy to strengthen power capacity to supplement the
excess capacity which was expected to run out in 2007.
South Africa would need at least a power station that can
produce 3,600MW at a cost of R30 billion ($5 billion) every
three years. (Business Report, February 15)

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UNEMPLOYMENT IS SOUTH AFRICA'S BIGGEST WORRY
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6. Nine out of 10 South Africans are worried about the high
unemployment levels in the country, according to the latest
South African Broadcasting Corporation-Markinor survey on
governance. The survey identified crime as the second most
important issue affecting South Africans. The third greatest
concern that required urgent government attention was
poverty and then HIV/AIDS. The survey also found out that
perceptions among South Africans of corruption involving
government officials had decreased - although it was still
fifth on the respondents' list of priorities. Following
this was concern about government's slow delivery in the
education sector. Respondents were worried about both poor
education facilities and the education department's ability
to provide the same standard of education for South Africans
of all backgrounds. The development of infrastructure such
as water, electricity, roads and bridges took seventh place
in the respondents' list of priorities. The poll was
conducted in October last year and about 3500 South Africans
were interviewed, representing a demographic sample of the
entire country. (Business Day, February 14)

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SOUTH AFRICA'S 2004 4Q REAL GDP GROWS 4 PERCENT
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7. Real gross domestic product (GDP) at market prices on a
quarter-on-quarter basis rose by 4 percent in the fourth
quarter 2004 from a revised eight-year high of 5.7 percent
in the third quarter 2004, (previously estimated at 5.6),
according to Statistics SA. On a year-on-year (y/y) basis
fourth quarter 2004 GDP was up 4.7 percent from the third
quarter's 3.8 percent. This is the highest y/y growth rate
since the third quarter 2000, when growth was 5.2 percent
y/y. The annual average for 2004 was 3.7 percent compared
with 2.8 percent in 2003. This was the highest annual
average since 4.2 percent in 2000. According to a survey of
economists, fourth quarter 2004 gross domestic product (GDP)
growth was expected to have risen to a median forecast of
4.4 percent on a q/q saa basis. The range of forecasts was
from 3.6 to 5.4 percent. The growth rate on a y/y basis was
expected to be in a range of 4.4 percent to 4.8 percent with
a median of 4.6 percent. The median forecast for the annual
average for 2004 is 3.7 percent with a range of 3.5 percent
to 3.8 percent. The main drivers of GDP growth in 2004 were
internal trade, financial services, transport and
communications, and manufacturing. The main drivers in the
fourth quarter of 2004 were financial services, internal
trade, transport and communications and manufacturing. (I-
Net, February 15)

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SA AND ANGOLA SIGN TRADE AND INVESTMENT AGREEMENTS
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8. South Africa and Angola signed four agreements aimed at
strengthening economic and bilateral relations during an
official visit by Angolan Prime Minister Fernando dos
Santos. Angola has considerable reserves of oil, gas,
diamonds and other minerals. This week's visit indicates a
major thaw in the relationship between SA and Angola. Both
governments appear keen to forge closer ties after their
relationship was damaged when Angola and SA supported
opposite sides in the war in the Democratic Republic of
Congo. An investment agreement, signed by Trade and
Industry Minister Mandisi Mpahlwa and Angolan Transport
Minister Andre Brandao, commits the countries to facilitate
the granting of permits and licensing agreements necessary
for investment. An agreement on electricity commits both
countries to engaging in joint projects in urban and rural
electrification and secures Eskom's position in Angola to
assist with the development of the country's power
generation and national grid. Agreements were also signed
to set up a defense committee to extend co-operation in
peace support missions and disasters; and on co-operation in
social development programs. Deputy President Jacob Zuma,
who hosted the three-day talks, says pacts in "other areas"
will be concluded soon. SA's exports to Angola were worth
R2,5 billion ($417 million) last year, a decline on the
previous three years, and SA imports R1,3 billion ($217
million) in goods from Angola, a major increase on 2003.
(Business Day, February 18)

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FINAL STAKE IN SOUTH AFRICA'S SNO AWARDED TO INDIA'S VSNL
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9. The Communications Minister approved the bid by Indian
Telecoms group VSNL for a 26 percent equity stake in the
second national operator. Minister Ivy Matsepe-Casaburri
said, "The stakeholders must (now) finalize the shareholder
agreements and business plan as a matter of urgency." She
called on ICASA, the telecommunications regulator, to issue
a license for the second national operator (SNO) "at the
earliest opportunity." VSNL is part of the Tata Group,
which already has business interests in South Africa. VSNL
was allocated the 26 percent equity stake in the second
national operator after a long and contentious bidding
process that saw one shareholder, Nexus, threaten a judicial
review. The Tata-group is one of India's business giants,
with international interests in sectors ranging from
communications to motor vehicles. Analysts believe its long
experience in telecommunications will benefit the future
SNO. The private sector has been impatiently waiting the
licensing of a second national operator, hoping that
competition will result in cheaper rates. Other
shareholders in the SNO include Nexus (19 percent),Eskom's
Esitel (15 percent),Transnet's Transtel (15 percent),
Communitel (12.5 percent),and TwoConsortium (12.5 percent).
(SAPA, February 14)

FRAZER