SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 22,

UNCLAS SECTION 01 OF 03 PRETORIA 005114 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 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD EMIN EPET BEXP KTDB SENV PGOV SF SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 22, 2006 ISSUE PRETORIA 00005114 001.2 OF 003 ¶1. (U) Summary. This is Volume 6, issue 28 of U.S. Embassy Pretoria's South Africa Economic News weekly newsletter. Topics of this week's newsletter are: - AMCHAM study on impact of U.S companies; - Eskom warns about rising capital costs; - Net foreign exchange reserves increase to $22.17 billion; - Plan to tackle non-tariff barriers in SADC; - South Africa's AGOA exports accelerate; - Tourism peak in sight as visitors flock in; - EU-SA deal on car parts may draw manufacturers to South Africa; - Social grants carry South Africa forward; - Biofuels conference in Cape Town. End Summary. AMCHAM Study on Impact of U.S. Companies -------------- ¶2. (U) AMCHAM has released a summary of its recent study of the impact of U.S. business in South Africa. The 120 companies that responded to the survey employed 227,000 South Africans (47,000 direct and 180,000 indirect),had annual gross sales of $12.4 billion (R86.8 billion),and spent $83 million (R583.2 million) on corporate social investment (CSI) in 2005. The 47,000 direct employees represent 0.65% of total employment in South Africa. The $12.4 billion in gross sales constitutes 3% of total gross sales in South Africa, with the largest concentrations in the wholesale and retail and manufacturing sectors. The 105 U.S. companies that have CSI programs contributed 22% of all CSI in South Africa. A majority of U.S. companies that responded to an earlier AMCHAM Business Climate Survey in 2005 viewed the South African business climate as excellent or good and 92% were planning to invest more or the same amount of money and either increase or maintain their current number of employees. The recent AMCHAM study is the first of a series of projected studies that are designed to provide a more accurate picture of U.S. companies in South Africa. Skills development by U.S. companies is the possible topic of the next study. Eskom Warns About Rising Capital Costs -------------- ¶3. (U) State power company Eskom has warned that the current shortage of cement and steel will place pressure on the company's planned $13.9 billion (R97 billion) capital investment program. Eskom spokesman Fani Zulu said the company was "keeping a watching brief" on the effect the upward pressure on prices would have on its infrastructure program. Minister of Public Enterprises Alec Erwin said last June that Eskom would need approximately one million tons of cement and 60,000 tons of steel per year for its investment program for the next five years. The pressure could be worsened by the growing global scarcity of electrical equipment as many of the world's largest utilities embark on capacity expansion programs similar to Eskom's. On the domestic front, infrastructure expansion is underway in several sectors, including highways, ports, airports, new mines, and stadiums for the 2010 World Cup. This will have an impact on construction costs and skills shortages throughout the economy. The higher construction costs mean that Eskom may have to borrow more money to add to the initial $6.9 billion (R48.5 billion) that it planned to borrow from local and international markets. This in turn means that customers may have to pay higher tariffs from 2009 onwards. (Business Day, December 12) Net Foreign Exchange Reserves Increase to $22.17 billion -------------- --- ¶4. (U) The SARB's net foreign exchange reserves increased to $22.17 billion in November. This was largely the result of a $250 million prepayment on a three-year $1 billion syndicated loan taken out in 2004 and a $148 million increase in the value of the country's gold reserves as the average price of gold increased from $602.50 per ounce in October to $639.60 per ounce in November. The large foreign interest in domestic acquisitions and mergers should ensure that capital inflows remain strong and that reserves will continue to rise. The SARB's international liquidity position still lags behind comparable emerging markets. Net reserves now equal 5 months of imports based on 2005 imports of $51 billion. Plan to Tackle Non-Tariff Barriers in SADC -------------- PRETORIA 00005114 002.2 OF 003 ¶5. (U) Southern African Development Community (SADC) officials and local businessmen met recently in Pretoria to develop an action plan to tackle non-tariff barriers (NTBs) in the SADC region. To date, SADC countries have focused almost entirely on reduction of tariffs, which must be completely eliminated for 85% of goods by 2008, while NTBs have been left essentially untouched. Highlighted problems with NTBs included customs administration, high costs of transportation due to infrastructure deficiencies, sanitary and phytosanitary requirements, cumbersome documentation requirements, and trade quotas. NTBs had the greatest negative impact on agricultural items, one of the region's most important products. (Business Day, December 19) South Africa's AGOA Exports Accelerate -------------- ¶6. (U) As of September, South Africa had exported $5.6 billion of goods to the U.S. this year, of which $1.3 billion were under AGOA. This amount was almost equal to the total value of exports to the U.S. for all of 2005, and represented a 30% growth over the same period last year. Much of this growth is attributed to higher commodity prices (of the $5.6 billion of goods, $3.9 billion fell into the category of "minerals and metals"). While the largest value of exports under AGOA came from Nigeria and Angola, almost all of these exports are comprised of energy-related products. South Africa's exports to the U.S., on the other hand, are the most diversified among the 37 AGOA beneficiary countries. (Business Report Magazine, December 15) Tourism Peak in Sight as Visitors Flock In -------------- ¶7. (U) South Africa is set to improve on last year's record-breaking 7.3-million tourist arrivals. The number of visitors in September increased to 173,348, an 11.2% increase over the same month last year. According to StatsSA figures, 89.9% of the visitors were in SA on holiday, while business trips accounted for 4.9%. The rest were either in the country for work or in transit. With more than 35,000 visitors, Britain was the leading source of visitors, followed by Germany and the U.S. with 22,587 and 21,435, respectively. Travelers from other African countries increased 11.3% to 469,721. Statistics SA said 93.9% of African visitors came to South Africa for holidays and 1.7% were on business trips. Last year, the 10.3% increase in foreign arrivals to South Africa outstripped the global annual increase of 5.5%. (Business day, December 20) EU-SA Deal on Car Parts May Draw Manufacturers to South Africa -------------- -------------- ¶8. (U) A trade agreement between SA and the European Union (EU) on vehicle products became effective on November 17. Under the agreement, the EU will remove all tariffs on motor components manufactured in South Africa. Duties on completely built-up cars will be lowered gradually from the current 10% to 0% by the beginning of 2008 (this tariff will apply if vehicles and components have a minimum of 60% South African content). Commercial vehicle exports are already duty-free but tariffs were imposed on South African-manufactured components this year. In terms of the agreement, these tariffs will be lifted. SA last year exported more than R20billion ($3 billion) of car-related products to the EU, while it imported automotive goods worth R38billion ($5.5 billion). On its side, SA duties on completely built-up cars and light commercial vehicles will be phased down to 18% by 2012, compared with the present 25%. (Business Day, December 18) Social Grants Carry SA Forward -------------- ¶9. (U) The government's broad social welfare system (old age grants, war veterans' grants, disability grants, care dependency grants, foster care grants and grants in aid) has made inroads into poverty in South Africa. According to the FinMark Trust's Finscope study, 30% of households lived below the poverty line ($1 per day) in 2004 with social grants constituting their main source of income, while roughly the same percentage lived on remittances from relatives. Last year the proportion of households living on social grants dropped to 25% and only 15% were surviving on remittances. The 2006 budget provided an additional R2.7 billion ($0.4 billion) for social assistance grants. About 10 million South Africans depend on social grants. (Business Day, December 15) PRETORIA 00005114 003.2 OF 003 Biofuels conference in Cape Town -------------- ¶10. (U) An inaugural Biofuels Markets Africa conference took place in Cape Town on November 30 - December 1, 2006. The event attracted over 200 attendees, primarily from African industry and governments. Key topics included government policies and incentives to support investment, production quality standards, Africa's potential for biofuels, and opportunities under the Kyoto Protocol Clean Development Mechanism. Most speakers presented an upbeat view of both the market and Africa's potential within the market. However, almost all the speakers noted the need for regional standards and policy frameworks, none of which are currently in existence. SADC is working on a framework which could be in effect within two to four years. BOST