SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 22,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 22,
2006 ISSUE

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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
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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
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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
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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
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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
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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)

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Biofuels conference in Cape Town
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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