SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 29,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 29,
2006 ISSUE


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1. 1. (U) Summary. This is Volume 6, issue 29 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Economic Indicators Positive for Year-End
- Consumer Price Index (CPIX) up 5 Percent
- Johannesburg Stock Exchange Hits Record High
- Major Conglomerate Sells 15 Percent Stake to BEE Investors
- Westinghouse Inches towards South African Nuclear Reactor
Contract
End Summary.
Economic Indicators Positive for Year-End
--------------


2. (U) South African economic indicators are looking positive for
next year: Retailers are reporting record sales for the holiday
season, with expectations of exceeding last year's record-breaking
R33.5 billion ($4.8 billion). Tourism rose by 15% for the first 8
months of 2006, and South Africa is expected to beat last year's
tourist record of 7.3 million tourists. Finally, the Japan-based
Rating and Investment Information Agency upgraded South Africa's
foreign currency long-term rating from BBB+ to A-. (Business Day,
December 27 & 29)

Consumer Price Index (CPIX) Up 5 Percent
--------------


3. (U) The consumer price index excluding interest rates on mortgage
bonds (CPIX) increased by 5% in November, compared to the same month
in the previous year, the same rate as in October. The producer
price inflation index (PPI) increased by 10% in November, also the
same rate as in October. The imported component of the PPI index
increased by 11.3% and the domestic component increased by 9.7%,
revealing that there are strong imported and domestic producer price
pressures that have yet to work their way through the system to
impact consumer prices. The November CPIX and PPI increases were
both lower than expected, reversing an earlier trend of
higher-than-expected increases. Despite these encouraging inflation
results, the SARB is expected to raise interest rates at least one
more time in February. (Business Day, December 22; Business Report,
December 21 & 22)

Johannesburg Stock Exchange Hits Record High
--------------


4. (U) The lower-than-expected November inflation figures caused the
share prices of the interest-sensitive banking sector to increase,
helping to drive the Johannesburg Stock Exchange's (JSE) all-share
index to record highs of 24,825 on December 21 and 24,949 on
December 28. The healthy macro-economy, the weaker rand's positive
impact on trade-sensitive sectors, strong foreign portfolio interest
in the JSE, and rumors that the JSE might be bought by an overseas
entity, like the NASDAQ or the LSE, also helped drive the all-share
index to just shy of the 25,000 mark. The average price:earnings
ratio on the all-share index now stands at 16.4, near the upper end
of the range for the past 15 years. An even weaker dollar, higher
domestic interest rates, and a lower domestic economic growth rate
are expected to contribute to a more modest increase in the
all-share index in 2007. (Financial Mail, December 15; Business
Report, December 22; Business Day, December 28)


Major Conglomerate Sells 15 Percent Stake to BEE Investors
-------------- ---


5. (U) Major South African conglomerate Barloworld has announced its
decision to unbundle its 72% majority stake in its PPC cement and
lime-producing subsidiary and sell a minority stake in both
companies to BEE investors. The PCC unbundling follows Barloworld's
sell-off of almost R8 billion ($1.1 billion) in assets and purchase
of R7 billion ($1 billion) in assets during the past eight years.
Barloworld CEO Tony Phillips will also depart after eight years of
successful leadership. Barloworld sources suggest that Phillips may
end up running the PPC spin-off given PPC's control of 80% of the
domestic cement market, the large number of private investment
projects, the government's massive infrastructure investment
program, and the rapidly growing demand for cement. The Barloworld
and PPC BEE deals are further examples of the private sector's
willingness to move ahead with BEE deals now that the BEE codes have

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been approved. (Financial Mail, December 22; The Weekender,
December 23-24)


Westinghouse Inches towards South African Nuclear Reactor Contract
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6. (U) Westinghouse Electric is competing with Areva of France and a
South Korean company to build the first of four planned pressurized
water reactors (PWR) in SA, with an estimated value of $1.5 to $2
billion and creating as many as 5,000 jobs in the U.S. The reactor
is to be located near South Africa's existing commercial reactor at
Koeberg in South Africa's Western Cape Province. Until recently,
Areva's main competitive advantage over Westinghouse was that it was
already building the first of its latest technology 1,600 megawatt
plants in Finland, even though this project was experiencing delays,
while Westinghouse had yet to find a customer for its
latest-technology, 1,100 megawatt AP 1000 plants. On December 16,
China National Nuclear awarded Westinghouse a $5.3 billion contract
to build two AP 1000 units at Sanmen in Zhejiang Province and two
more at Yangjiang in Guangdong Province. Westinghouse won the award
over Areva and AtomStroyExport of Russia. China's decision to
award the contract to Westinghouse should strengthen Westinghouse's
competitive position against Areva for the South African contract.
Toshiba Corporation of Japan acquired a 70% controlling interest in
Westinghouse from British Nuclear Fuels Limited on October 16, 2006.
(Business Day, December 18; Business Report, December 18 & 19;
Embassy contacts)

BOST