Identifier
Created
Classification
Origin
06PRETORIA600
2006-02-10 12:46:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

SOUTH AFRICA ECONOMIC NEWSLETTER FEBRUARY 10 2006

Tags:  ECON EINV EFIN ETRD BEXP KTDB PGOV SF 
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INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 000600 

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TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER FEBRUARY 10 2006
ISSUE


UNCLAS SECTION 01 OF 03 PRETORIA 000600

SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER FEBRUARY 10 2006
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:

- December Manufacturing Resumes Growth;
- Survey Shows Slower 2005 SA Employment Growth;
- Net Reserves Reach $18.7 Billion;
- Growth Initiative Announced;
- January Business Confidence High but Unbalanced;
- November Retail Sales Come in High; and
- Accelerated Land Reform Wanted.
End Summary.

December Manufacturing Resumes Growth
--------------


2. As consumer demand remained strong during the
holidays, December's manufacturing production showed
higher growth at 6.6% (seasonally adjusted, y/y),compared
to November's growth of 4.1%. For 2005 as a whole,
manufacturing production growth cooled as the rand
continued to strengthen albeit at a slower rate compared
to 2004. 2005's manufacturing production grew by 3.5%
compared to 2004's 4.4% growth. The highest growing
sectors were food and beverages and motor vehicle and
parts at 6.4% and 11.1% respectively, with basic iron and
steel and machinery along with textiles showing declining
production of -0.6% and -2.2%, respectively. Table 1
shows yearly manufacturing growth for the past three
years.
Table 1. 2003 2004 2005
Manufacturing Production -1.8% 4.4% 3.5%
Source: Statistics SA Release, P3041.2, February 9.

Survey Shows Slower 2005 SA Employment Growth
--------------


3. According to Grant Thornton's 2006 Employment Growth
Index (EGI),manufacturing employment declined by 3% in
2005 compared to 2004's growth of 4.5% and accounted for
the reduced growth in overall 2005 employment. Employment

in the manufacturing sector has shown similar weakness in
other recent surveys. According to the Investec
Purchasing Managers' index (PMI),the manufacturing sector
activity could drop further. The PMI, which measures
manufacturers' confidence levels, dropped below the 50
levels for the first time in more than two years in
January. Over the past year, PMI manufacturing employment
index has remained consistently below 50, indicating
reduced employment levels. On the positive side, other
major sectors reported sharp growth in employment. The
construction, service and retail sectors reported
employment growth of 11%, 6% and 5%, respectively. In
2004, these three sectors showed similar growth.
Employment in businesses having between 50 and 250 workers
expanded by 3% compared to 2004 and 2003's growth of 6%
and 5%, respectively. All major South African cities
increased employment, with Cape Town's 6% growth the
highest. Durban experienced the lowest growth at 1%.
Gauteng reported 2% growth, down from 6% in 2004, and Port
Elizabeth and East London were at 3%, compared to the
previous year's growth of 11%. The EGI, which forms part
of the Grant Thornton 2006 International Business Owners
Survey, showed that on balance, 32% of all South African
respondents said they expected to increase their staff
complement in 2007. Source: Business Report, February 5.


4. Comment. The Grant Thornton International Business
Owners Survey contacted 7,000 owners of medium sized
businesses from 30 countries. In South Africa, 300
business owners who employ between 50 and 250 staff were
contacted. End comment.

Net Reserves Reach $18.7 Billion
--------------


5. According to the South African Reserve Bank, net
reserves rose by $1.5 billion, reaching $18.7 billion at
the end of January, up from $17.19 billion at the end of
December. Gross reserves increased to $22.2 billion from
$20.7 billion. Net gold and foreign currency reserves
grew by 8.8% reaching levels of $2.2 and $19.9 billion,

PRETORIA 00000600 002 OF 003


respectively, as foreign exchange purchases arising from
FDI-related transactions increased. The rand strengthened
by 4.7% in January, in response to increased capital flows
and high precious metals prices. In January, the rand
averaged 6.09 per dollar and the average gold price
reached $571.22 per ounce, an 11% monthly increase.
Source: Business Day, February 8.

Growth Initiative Announced
--------------


6. President Mbeki announced the Accelerated and Shared
Growth Initiative of South Africa (ASGISA),and described
ASGISA as a limited set of interventions designed to
accelerate overall Accelerated and Shared Growth
Development whose ultimate goal is to halve unemployment
and poverty by 2014. ASGISA focuses on microeconomic
reforms to ameliorate the high costs of intermediate
inputs and regulatory environment, rather than any change
to its overall macroeconomic policies. Deputy President
Mlambo-Ngcuka provided more details, emphasizing the
shared commitment necessary to achieve sustainable and
balanced economic growth. Six economic constraints and
selected government interventions designed to accelerate
growth were identified. The following constraints were
cited: (1) volatility and level of the currency, (2)
costs, efficiency and capacity of the national logistics
system; (3) shortage of skilled labor; (4) limited
competition and new investment opportunities; (5)
regulatory environment and its burden on small and medium
businesses; and (6) deficiencies in state organization,
capacity and leadership. The following types
interventions were recommended: (1) improving
infrastructure, (2) encouraging certain sectors with
priority industries being tourist and business process
outsourcing, (3) improving education and skills, (4)
developing the second economy, (5) improving public
administration; and (6) developing better government
budgeting and expenditure management. Most of the
infrastructure projects are aimed at improving the Durban-
Gauteng transport corridor, building a wireless broadband
network through the parastatal Sentech, and construction
of a new dam in Limpopo Province. Source: Business Day,
February 7; www.info.gov.za.

January Business Confidence High but Unbalanced
-------------- --


7. The January South African Chamber of Business
(SACOB)'s Business Confidence Index (BCI) rose to record
high level of 131, primarily because of the financial
sector's strength. SACOB's BCI contains 13 indices
representing economic trends impacting confidence, among
which include manufacturing production, liquidations, core
inflation, the real prime interest rate, the gold price
and the rand exchange rate. According to SACOB, over 90%
of the January index improvement was caused by trends and
developments in financial markets rather than any real
economic activity. Only one financially related index
declined in January, while five of the real economic
indicators worsened. SACOB fears that the unbalanced
nature of business confidence reflects a further
unbalanced South African growth. Source: Business Day,
February 8.

November Retail Sales Come in High
--------------


8. South Africa's retail sales accelerated to 8.1% in
November, compared to October's increase of 7%, according
to Statistics SA. Real quarterly retail sales increased
by 6.8% and sales for the first 11 months were up 6.5%
y/y. At its February monetary policy committee meeting,
the South African Reserve Bank (SARB) listed strong
consumer spending and credit demand, as well as higher
food inflation and persistently high oil prices, as
threats to the inflation outlook. SARB governor Tito
Mboweni stated that two of the main risks, oil and food
prices, were exogenous, and the Bank was disinclined to
react to them unless they had second-round price impacts.
Strong consumer demand growth has been a major reason for
the above 3% GDP growth over the past several years. The
November's surge in retail sales growth reinforces
expectations that interest rates will remain unchanged for

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the first half of 2006. Source: Reuters, Business Day
and Business Report, February 9.

Accelerated Land Reform Wanted
--------------


9. President Thabo Mbeki announced in the State of the
Union address that the government would review its willing
seller, willing buyer approach to land restitution,
following both international and domestic legal standards.
Tozi Gwanya, chief Land Claims Commissioner, said that
government will start procedures to expropriate land from
owners where negotiations have lasted more than several
years. The South African government estimates that 96% of
commercial farmland is owned by whites, making up
approximately 10% of the population. The government wants
to transfer 30% of commercial farmland to blacks by 2014,
but so far less than 4% has been transferred. Settling
land claims of those who were forced off their land during
the apartheid regime is also a government priority. South
Africa has settled 67,000 land claims out of 79,000,
although 7,000 rural claimed remain. The government's
target of settling all land claims by March 2008 is seen
as key to social stability, important for an improved
investment climate. (Business Day, February 9)

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