SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 16, 2007

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

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1. (U) Summary. This is Volume 7, issue 19 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Foreign Reserves Increase
- SA Economic Action Set to Slow
- Vehicle Sales Down
- Average House Cost R911,800
- Hunting Law's Reform Postponed
- Cement Exports Fall As Construction Expands
- Alcoa Bids for Alcan Raises Questions About $2.7 Billion Coega
Aluminum Smelter
End Summary.

Foreign Reserves Increase
--------------

2. (U) According to the South African Reserve Bank (SARB),net gold
and foreign exchange reserves increased from $23.97 billion at the
end of March 2007 to $24.59 billion at the end of April 2007,
reflecting further improvement in the South Africa's financial
position. The SARB attributed the increase in reserves to a
combination of valuation adjustments as well as SARB foreign
exchange operations. The SARB has previously said it will continue
to build its reserves by buying foreign exchange when market
conditions permit, but will do so cautiously to avoid affecting the
value of the rand. Analysts welcomed the rise in foreign exchange
reserves, saying it would be favorable for the South African economy
in the long run and ease speculation and investor's fears.
Economists expect the build-up of reserves to continue at a steady
pace, possibly accelerating, as a result of the stronger rand
exchange rate. The SARB brought a long-standing negative reserves
position into balance early in 2004 with the elimination of its
loss-making forward foreign exchange book, historically seen as a
weak point for the rand. Since then, SARB has gradually increased
net reserves, although the total still lags behind comparable
emerging markets. (Fin24, May 8, 2007)

SA Economic Action Set to Slow
--------------


3. (U) The South African Chamber of Business' (Sacob's) Business
Confidence Index (BCI) increased to 101.9 points in April 2007, 2.4
points higher on a month-on-month basis, but 1.2 points lower on a
year-on-year basis. "Although April 2007 may be the start of
another wave to higher levels of the BCI, domestic economic
developments indicate that the moderation of business confidence may
continue throughout 2007," Sacob said. According to Sacob, the
improvement in the BCI in April could largely be ascribed to the
positive global financial market sentiment that spilled over onto
the domestic financial markets. It pointed out that although the
real domestic economy made a marginal positive contribution to
April's increase in the BCI, there are definite signs of a slowing
tempo in domestic economic activity. Sacob recommended that special
attention be given to the reasons for and the appropriate remedies
for monetary excesses, higher inflation, types of financial inflows,
the current account deficit and excessive domestic demand. Also,
capacity and physical constraints that stem from the public sector
should be urgently addressed. Notwithstanding a challenging
economic environment at present, Sacob is confident that real
domestic economic developments suggest that while business
confidence will continue to moderate, it could remain at relatively
high levels. (I-Net Bridge, 8 May 2007)

Vehicle Sales Down
--------------


4. (U) South African new vehicle sales declined by 4.4% year-on-year
in April as higher interest rates and rising debt levels curbed
spending on passenger cars. The National Association of Automobile
Manufacturers (Naamsa) said the industry sold 45,590 units in April
2006 compared to 43,588 vehicles during April 2007. New passenger
car sales were down by 15.9% to 25,912 units, mainly due to interest
rate hikes between June and December last year to curb rising
inflationary pressures, high consumer spending and record high
household debt levels. However, light commercial vehicle sales and
heavy trucks sales increased by 20.8% and 17.9% in April,
respectively, reflecting robust economic growth and a buoyant
construction industry, bolstered by a huge infrastructure spending
drive. Vehicle production is one of the biggest industries within

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South Africa's manufacturing sector and accounts for 17% of gross
domestic product.

Average House Cost R911,800
--------------


5. (U) According to the ABSA House Price Index, nominal house price
growth of 15.5% year-on-year was recorded in April 2007, bringing
the average price of a house in the survey to R911,800 ($130,300).
The Index recorded an average price increase of 15.6% for the first
four months of 2007. House prices increased by 22.7% and 15.2% in
2005 and 2006, respectively. Absa researchers said that house
price growth in 2007 could be expected to continue the downward
trend to about 9% before improving again in 2008. They stated that
short-term risk for interest rates was on the upside, pointing to
high fuel and food prices as concerns on the inflation front.
(I-net Bridge, May 7, 2007)

Hunting Law's Reform Postponed
--------------


6. (U) Minister of Environmental Affairs and Tourism Marthinus Van
Schalkwyk announced that the date of effect for the Protected
Species Regulations has been moved forward from June 1, 2007 to
February 1, 2008. Van Schalkwyk's decision was prompted by concerns
raised by some Provincial Environmental Ministers who complained
that there were some challenges which would make it difficult to
implement the regulations by June 1, 2007. Van Schalkwyk plans to
phase out the controversial practice of "canned hunting" which is
regarded as reprehensible and unethical, through the introduction of
the regulations. His office gave no details of the challenges
stated by the provincial Ministers. However, the new regulations
seek to outlaw the hunting of captive-bred predators within two
years of their release into a game farm for the purpose of hunting.
North West Agriculture, Conservation and Environment Minister
Mandlinkosi Mayisela welcomed Van Schalkwyk's shifiting of the
implementation date to next year. He said this gave them some
"breathing room" to engage further in discussion with the National
Minister, with the hope of striking a favorable compromise for his
province. Mayisela said that over 350 lions are hunted per year in
North West province. While waiting for the regulations to come into
effect, the Department of Environmental Affairs and Tourism will
convene countrywide information sessions to ensure that the public
and all other stakeholders are ready for implementation and
compliance by February 1, 2008. The Department encouraged
interested parties to apply for licenses or permits to avoid an
unnecessary backlog on the effective date. The new regulations were
developed in terms of the National Environmental Management
Biodiversity Act 10 of 2004. (Business Day, May 7, 2007)

Cement Exports Fall As Construction Expands
--------------


7. (U) South Africa's cement exports dropped by 34% in 2006 as the
country's construction boom expanded. Only 156,256 tons of cement
were exported in 2006, or just 1% of exports, according to the
latest Cement and Concrete Review published by the Cement and
Concrete Institute. Cement exports have been declining for the past
ten years with the exception of two peaks in 1999 and 2002. The
review attributed the decline to rising local demand, which limited
the amount of cement available for export, and the strength of the
rand, which decreased the competitiveness of South African exports.
South African cement exports typically go to neighboring countries
and Indian Ocean islands. All four South African cement
manufacturers have begun importing clinker or cement to meet
domestic demand and total cement imports were about 1 million tons
of cement product in 2006. Investment in new production capacity is
also up. Pretoria Portland Cement, the largest producer, is
expanding capacity by 1 million tons per year at a cost of R1.68
billion ($240 million). Lafarge South Africa, the local subsidiary
of the French building materials group, is expanding capacity by 1
million tons at a cost of R1.2 billion ($171 million). NPC, owned
by Cimpor Cimentos de Portugal, is expanding its Simuma plant in
KwaZulu-Natal as a cost of R800 million ($114 million). Most of
these projects are scheduled to come on stream in 2008. (Business
Report, April 25, 2007)

Alcoa Bids for Alcan Raises Questions About $2.7 Billion Coega
Aluminum Smelter

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8. (U) U.S aluminum group Alcoa's hostile bid for Canadian rival
Alcan has raised questions about the expected start date of Alcan's
$2.7 billion Coega aluminum smelter project near Port Elizabeth.
The concern is that if the bid is successful, the start date could
be delayed as Alcoa integrates Alcan and reassesses the project's
potential. The same thing happened in 2003 when Alcan bought the
French group Pechiney, which completed the first feasibility study
in 2001. Local analysts believe it would only be a delay, because
all the top aluminum producers need to increase output, the Alcoa
group has a many less efficient smelters in North America and
Europe, and the Coega smelter would compare well in any project
pipeline in a combined Alcoa-Alcan group. The Coega smelter moved
closer to a start date last November with the signing of a 25-year
power supply contract between state power producer Eskom and Alcan.
The next steps are the completion of an engineering study and the
arranging of project finance. The Coega smelter could eventually
become the world's largest aluminum smelter if Alcan exercised an
option to extend the facility to 1 million tons. (Business Report,
May 9, 2007)

BOST