SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MAY 18, 2007

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MAY 18, 2007
ISSUE


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1. (U) Summary. This is Volume 7, issue 20 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- R15 Billion Trade Deficit in First Quarter
- 2010 to Boost GDP by R51.1 billion
- Changes to Tax Return System
- Rates Hit Manufacturing Growth
- More SA Workers Stressed, Depressed
- South African Airways Bailed Out
- South Africa's Top CO2 Emitters Engaged in Carbon Disclosure
Program
End Summary.

R15 Billion Trade Deficit in First Quarter
--------------


2. (U) South African Revenue Service (SARS) data recorded a R15
billion ($2.1 billion) trade deficit in the first quarter of 2007,
due to rising imports of capital goods and increasing oil imports.
Imports surged from R92.4 billion ($13.2 billion) in the first
quarter of 2006 to R127.7 billion ($18.2 billion) during the same
period this year. Higher imports were mainly due to the importation
of machinery and mechanical appliances, oil, cement, steel and
vehicles. The value of exports improved from R77.7 billion ($11.1
billion) in the first quarter of 2006 to R112.7 billion ($16.1
billion) during the first quarter of 2007, largely due to rand
weakness and robust global demand for resources. Economists believe
South Africa's export growth will remain strong during 2007 on the
back of ongoing robust global demand for resources, improved
production efficiencies in the mining sector, and rand weakness.
South Africa's demand for both imported capital and consumer goods
is expected to remain robust, the former due to ongoing vigorous
capital formation. Strong foreign demand for South Africa's assets
has provided ample capital inflows to finance the current account
deficit, but poses a risk to South Africa should these flows dry up.
(Investec, May 9, 2007)

2010 to Boost GDP by R51.1 billion
--------------


3. (U) According to a 2010 Soccer World Cup economic impact
assessment study by Grant Thornton, the World Cup will contribute at
least R51.1 billion to gross domestic product (GDP) between 2006 and
2010, R21 billion ($3 billion) more than estimated during the
bidding phase of the World Cup in 2003. Of this revised amount,
R17.7 billion ($2.5 billion) comes from higher-than-planned
infrastructure spending, particularly transport infrastructure.
Also, 500,000 more tickets will be available for soccer supporters,
adding to the number of tourists expected to visit South Africa
during this period. (Fin24, May 14, 2007)

Changes to Tax Return System
--------------


4. (U) Finance Minister Trevor Manuel announced changes to South
Africa's tax return system, making it easier for individuals and
businesses to file returns. However, industry experts warn the
changes threaten the livelihoods of about 17,000 tax practitioners
and advisers registered with the South African Revenue Service
(SARS),as taxpayers would now be able to fill out their own tax
returns. Under the new system, tax assessment forms have been
reduced from 10 pages to just two and taxpayers would not have to
submit supporting documentation or make calculations. The new
self-assessment system put the onus on the taxpayer to ensure that
amounts disclosed in the return are correct and that supporting
documents are kept for five years. Furthermore, the deadline for
personal tax submissions has been pushed back from mid-July to
October 31. SARS intends to ensure greater efficiency and faster
turnaround times verifying and assessing the information submitted
by taxpayers. Manuel said the number of returns that needed to be
assessed each year had reached unprecedented volumes, and would
continue to grow at about 8% per year over the next three to five
years. There are currently 7 million registered taxpayers in South
Africa, of which there are 5 million individuals, 1.7 million
companies, and 300,000 trusts. SARS is also in the process of
simplifying tax returns for companies, trusts and tax exempt
institutions. (News24, May 10, 2007)


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Rates Hit Manufacturing Growth
--------------


5. (U) According to Statistics South Africa (StatsSA),manufacturing
output growth slowed from 7.2% year-on-year in February 2007 to 5.2%
in March 2007, adding to evidence of weaker domestic demand and
backing the case for interest rates to remain steady this year. The
South African Reserve Bank (SARB) raised interest rates by two
percentage points in the second half of last year to curb
inflationary pressures fanned by rapid growth in credit demand and
consumer consumption, along with rising food and fuel costs. Since
then, growth in retail sales, private sector credit and vehicle
purchases has subsided, suggesting higher interest rates are having
an effect on the demand side of the economy. Also, expected slower
global growth and rand gains are likely to keep the trend in place
by dampening appetite for South African exports. That does not bode
well for the manufacturing sector, which accounts for more than 17%
of the economy and is seen as crucial to sustaining economic growth
and job creation. (Business Day, May 11, 2007)

More SA Workers Stressed, Depressed
--------------


6. (U) According to a study by Corporate Absenteeism Management
Solutions (CAMS),increasing numbers of South Africans are taking
sick leave because of psychological illness, costing companies more
than R1 billion ($140 million) a year. About R19 billion ($2.7
billion) was lost due to sick absenteeism in South Africa in 2006,
of which R1.2 billion ($17 million) was due to psychological
reasons. CAMS studied a sample of more than 100,000 employees in
more than 60 companies, and examined the medical certificates
presented by employees after returning from sick leave. It found
that between March 2005 and the beginning of March 2006, 45 out of
every 1,000 employees took time off for psychological reasons. This
had risen to 65 out of every 1,000 employees between March 2006 and
March 2007. Psychological illness includes depression and
absenteeism due to stress. The average number of days per year an
employee was ill for psychological reasons was 4.6 days, double the
time the average employee takes off for other illnesses. The
statistics may reflect the impact of high crime levels,
socio-economic problems, and transformation in the workplace on the
South African workforce. (Business Day, May 15, 2007)

South African Airways Bailed Out
--------------


7. (U) Parliament has agreed to provide financially troubled South
African Airways (SAA) with a R1.3 billion ($188 million) guarantee
to fund recapitalization and restructuring. The state-owned airline
had asked for R4 billion ($580 million) but Parliament's public
enterprise committee balked, saying that the various restructuring
plans submitted by SAA over the past two years were "troubling."
Public Enterprise Minister Alec Erwin said that a two-year deadline
had been set for restructuring and cost-cutting. Erwin said this
would involve simplifying the corporate structure, improving
accountability and disposing non-core assets. Erwin warned that up
to 1,000 of SAA's 11,000 jobs could be lost in the process.
(Business Day, May 4, 2007)

South Africa's Top CO2 Emitters Engaged in Carbon Disclosure
Program
-------------- Q -------------- ---


8. (U) Leading South African companies are to participate in a
carbon disclosure program (CDP) scheduled to run until the end of
May 2007. CDP is a survey launched in the UK in 2000 and designed
to determine the impact of business on the environment. According
to the CDP survey, many companies contribute to climate change
through greenhouse gases emitted during their different working
processes. Growing fear of the potential impact of climate change
on the global economy and people's livelihoods is increasingly
forcing nations to develop mitigation and adaptation mechanisms
against climate change. World markets are also intensifying demand
for products manufactured and harvested in environmentally
sustainable ways, while customers and consumers frown upon products
manufactured through carbon-intensive processes. South Africa is
one of the countries beginning to feel the pressure of these new
developments. South African coal companies find it more difficult
to penetrate European coal markets, as authorities in those

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countries believe that coal imported from South Africa, relative to
other import sources, tends to be high in oxide and carbon dioxide
emissions when burned. The EU's Large Combustion Plant Directive is
to start limiting nitrogen oxides and sulphur dioxide emissions
which may pose significant problems for South African coal exports.
South African carbon dioxide (CO2) production is reported to have
been on the increase from 1980 to 2004, making it higher than Brazil
with four times South Africa's production. The World Resource
Institute estimated South Africa's CO2 production at 417 million
tons for 2000, making South Africa the world's 19th largest emitter
of the gas. The initial CDP survey involved only FT 500 companies,
while the current survey is the first to include developing
countries like Brazil, India and South Africa. South Africa's top
emitters, ESKOM and SASOL, are expected to participate in the
survey. (Business Day and Business Report, May 14, 2007)

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