SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 16, 2007

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 16, 2007
ISSUE



1. (U) Summary. This is Volume 7, issue 11 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Manufacturing up 6.2%
- Business Confidence Down
- Lack of Education and Skills Inhibits Rate of Economic Growth
- SAA Restructuring Prompts Route Review
- SAG to Offer R1bn Lure for Call Centers
- Launch of Solar Powered Geysers
- Business Urges More Action Against Crime
End Summary.

Manufacturing up 6.2%
--------------

2. (U) According to Statistics South Africa (StatsSA),manufacturing
output increased by 6.2% in volume terms year-on-year in January
compared with 5.0% in December. Analysts said the sector's fortunes
have improved considerably in recent months as the rand weakened and
spending by government and the private sector increased. The rand
lost nearly 10% of its value against the dollar in 2006. Analysts
remain optimistic about the manufacturing sector, based on a further
weakening in the currency, indications of a pick-up in business
expenditure, and infrastructural work spearheaded by the government.
Also, the Investec purchasing managers index (PMI),a leading
indicator of activity in the manufacturing sector, increased by
three index points to 78, its highest level in more than 12 years.
The revival in the supply side of the economy bodes well for
economic growth and the large deficit on the current account.
Manufacturing is South Africa's second largest sector, accounting
for nearly 17% of gross domestic product, and is key to creating
much-needed jobs in a country battling with unemployment of over
25%. (I-Net Bridge March 13, 2007)

Business Confidence Down
--------------


3. (U) According to the Business Confidence Index (BCI),business
confidence declined from 83 index points in the fourth quarter of
2006 to 81 index points in the first quarter of 2007, its lowest
level in two years, as higher interest rates negatively affected
sectors that depend on consumer spending. Economists said business
confidence has remained consistently high for a long time,
indicating that the economy was structurally healthier. Retailers'
confidence declined from 91 to 78, while wholesaler confidence eased
further, down from 88 to 76. Conditions in the building sector
remain buoyant, with building contractors' confidence remaining
unchanged at 90, a level around which it has fluctuated for most of
the past two years. New vehicle dealers' confidence edged up by one
point to 72 in the first quarter while manufacturing sector
confidence increased to 78, the highest level in 12 years. "The
latest BCI results indicate that the source of growth is rotating
away from the consumer sectors towards

Manufacturing, and probably mining, given the expected impact of
both higher interest rates and a weaker rand. The survey was
conducted between February 6 and March 6, 2007. (Business Day,
March 15, 2007)

Lack of Education and Skills Inhibits Rate of Economic Growth
--------------


4. (U) According to University of Pretoria professor Charlotte du
Toit, who is also economic adviser to the social development
minister, an improvement of 10% in the socioeconomic environment
would increase South Africa's economic growth potential to
approximately 6.5%. In a study du Toit did for the Department of
Social Development, she found that growth has not done much to
reduce unemployment because of factors that affected insufficient
access to effective education and skills development. She concluded
that the economy would not be able to sustain higher growth rates as
long as it has a huge "untapped resource" of people who cannot be
absorbed into the economy. Du Toit has called for an integrated
national strategy on social development that will improve South
Africa's ability to absorb and mobilize human capital and so raise
the economy's sustainable growth rate. Du Toit, who is also
responsible for the econometric modeling of South Africa's growth
potential for the Reserve Bank, now estimates the economy's growth
potential at 4%-4.5%, given that there are structural or supply-side
impediments, particularly in the labor market. Du Toit said that as

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the economy grows faster, it starts to overheat, and that is
reflected in domestic inflation and balance-of-payments pressures.
"Supply-side impediments inhibit people who would be willing to work
from doing so, preventing them from taking part in any form of
economic activity" she said. The South African economy has grown at
about 5% for the past two years, and the government is targeting an
average growth rate of 6% after 2010. (Business Day, March 14,
2007)
SAA Restructuring Prompts Route Review
--------------


5. (U) South African Parastatal airline South African Airways (SAA)
is conducting a comprehensive review of its routes as part of its
strategic plan to restructure the company. The review is expected
to take six months to complete. SAA has decided to postpone the
proposed May 9 launch of a new route from Johannesburg to Chicago.
Ticketed passengers are being re-routed to the existing
Johannesburg-Washington (Dulles) route. SAA has suffered
significant financial losses over the past year, prompting the
Department of Public Enterprises to seek a government bail-out
before parliament last week. (SAA press release, March 9, 2007)

SAG to Offer R1bn Lure for Call Centers
--------------


6. (U) The South African government has earmarked R1 billion ($135
million) in investment incentives over the next five years to lure
international business services to South Africa to boost job
creation and increase foreign direct investment. The plan was
launched by Trade and Industry Minister Mandisi Mpahlwa in Pretoria
on March 15. The plan forms part of a broad industrial policy
framework and is key to government's accelerated and shared growth
initiative (ASGISA) which aims to boost economic growth to 6% and
halve unemployment by 2014. The investment incentives are on a par
with a global benchmark in providing grants equal to half of the
salary of each job created and a skill-training grant. Depending on
the size of the investment and the number of jobs created, companies
can claim grants of up to R60, 000 ($8,100) per "seat", where a seat
would provide jobs for one to three people, depending on whether the
firm operates shifts. The Department of Trade and Industry
estimates the plan will translate into 100,000 new jobs by 2009 and
draw about $175 million in foreign direct investment, which could
push the sector's contribution from 0.92% to 1.36% of Gross Domestic
Product (GDP) by 2009. Call centers currently employ 54,000 call
center agents and the sector has reported growth of 8% a year over
the past four years. (Business Day March 16, 2007)

Launch of Solar Powered Geysers
--------------


7. (U) CEF (Pty) Ltd, together with some partners, launched a pilot
project of developing a high-quality water heating system for mid to
upper-income homes in South Africa (SA) in March. The company was
established to support the public Central Energy Fund's objectives
of searching for appropriate energy solutions to meet South Africa's
future energy needs. CEF partnered with the Department of Minerals
and Energy (DME),the Department of Science and Technology (DST),
the South African Bureaus of Standard (SABS),the Global
Environmental Fund (GEF) and the United Nations Development Program
(UNDP) to work on the project. The project is aimed at inspiring
confidence in the use of renewable energies and to help ease the
growing pressure on the local electricity supplier. A CEF official
also said that the project was designed to raise awareness and to
remove market barriers to solar technology. Three approved
distributors would supply 200 and 300-liter solar-heated geysers to
501 private homes, and install 167 geysers in each of the provinces
of Gauteng, Kwa-Zulu Natal and the Western Cape. According to CEF
CEO Dominic Milazi, South Africa is one of the countries with the
highest 24-hour solar radiation averages in the world, while water
heating accounts for one-third or half of household energy
consumption. Milazi said it made sense to take advantage of solar
energy because of these reasons. Such a move has the potential to
leverage electricity saving and reduce greenhouse gas emissions.
The SABS-approved geysers will cost between $1,400 and $2,800 and
will be monitored and measured for effectiveness and compliance to
the national standards. (The Star, March 7, 2007)

Business Urges More Action Against Crime
--------------


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8. (U) Business Against Crime called on the government to adopt new
strategies to combat crime and make the police force and Department
of Justice and Constitutional Development more efficient. Outrage
over crime is growing as South Africa tries to show it is safe
before hosting the 2010 Soccer World Cup. Corporate leaders have
forged a partnership with government officials to mount a campaign
against the country's rampant murder, rape and robbery rates. A
joint industry-government taskforce has collected $2 million in
private donations for crime-busting projects, ranging from cracking
crime syndicates to addressing social problems. The projects are
due to roll out by next month. The projects are also aimed at
improving the under-paid police and justice system. President Thabo
Mbeki, who has often been accused of downplaying crime, acknowledged
in his State of the Nation address in February that many live in
fear of crime and pledged to expand the police force. (Fin 24,
March 13, 2007)

BOST