SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER NOVEMBER 16,

UNCLAS SECTION 01 OF 03 PRETORIA 003973 SIPDIS DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND TREASURY FOR TRINA RAND USTR FOR COLEMAN SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV PGOV, SF SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER NOVEMBER 16, 2007 ISSUE PRETORIA 00003973 001.2 OF 003 ¶1. (U) Summary. This is Volume 7, issue 46 of U.S. Embassy Pretoria's South Africa Economic News Weekly Newsletter. Topics of this week's newsletter are: - Manufacturing Production Slows - Textile Tariff Plan A Boost For Factories - South Africans Forced To Live In Higher-Density Developments - Mboweni In Favor Of Another Rate Hike - No Apology Needed For Budget Surplus - SA Banks Not For Sale - Stadium Workers Strike End Summary. -------------- Manufacturing Production Slows -------------- ¶2. (U) According to Statistics South Africa (StatsSA),manufacturing output volumes declined from 5.2% y/y in August 2007 to 1.4% y/y in September 2007. This decline was largely the result of lower production during September, which can be traced to strikes in the automotive component manufacturing industry, which had knock-on effects in the automobile sub-sector. Apart from the automotive components industry, the food and beverages industry, the glass and non-metallic mineral products sector, and the iron and steel industry also dragged manufacturing output growth lower. However, the negative contributions made by these industries were partially offset by increases recorded in the petroleum and chemical sector, the clothing and textiles sector, as well as the furniture manufacturing sector. According to analysts, the contribution of the manufacturing sector to the third quarter Gross Domestic Product (GDP) is likely to slow down, or perhaps even turn negative, from the 0.5% annualized growth recorded during the second quarter of 2007. (Fin 24, November 8, 2007) -------------- Textile Tariff Plan A Boost For Factories -------------- ¶3. (U) The Department of Trade and Industry's (DTI) plan to cut tariffs on key inputs into strategic industrial sectors has got underway in earnest, with DTI's International Trade Administration Commission (ITAC) announcing the review of tariffs on textiles, aluminum and chemicals. The textile tariff review is of particular importance as it could bring some relief to beleaguered clothing manufacturers who have been battling to survive an influx of cheap imports. Clothing Trade Council of South Africa President Hassim Randeree said the removal of tariffs on textiles would be a significant step to help the clothing industry become internationally competitive. The South African textile industry enjoys an effective protection rate of 22% on a wide range of textiles, primarily on textiles not manufactured in South Africa, putting a needless burden on clothing manufacturers who are taxed on fabrics they have no choice but to import. Moreover, manufacturers complain that South African textile mills are inflexible and unable to do short runs on product lines or produce the variety required by the clothing industry. However, the review could be challenged by other members of the Southern African Customs Union (SACU) with interests in the sector, while labor union resistance may also be expected. Textile Federation Executive Director Brian Brink cautioned that the review should be tackled "sensibly and not too Qcautioned that the review should be tackled "sensibly and not too narrowly," as it could have sweeping implications for related industries, such as farming, which provide some raw material inputs. (Business Day, November 13, 2007) -------------- -- South Africans Forced To Live In Higher-Density Developments -------------- -- ¶4. (U) The total number of newly-built South African houses of above 80m2 as a share of the total houses built declined from 62.2% in 2001 to 43.8% in 2007, whereas the share of newly-built flats and townhouses increased from 37.8% in 2001 to 56.2% in 2007. Urban conditions such as traffic congestion and increased transport costs have forced many people to live in higher-density residential developments close to places of work and amenities such as shopping centers, schools and access routes. Moreover, land scarcity, PRETORIA 00003973 002.2 OF 003 especially in the major urban areas, the affordability of housing, and security concerns have also played an important role in the increasing popularity of higher-density housing. Analysts expect the construction of more higher-density housing -- and even high-rise high-density housing -- to continue in the future in view of changing urban lifestyles, an increasing scarcity of development land, and the continuous upward trend in property prices. (ABSA Newsletter, November 13, 2007) -------------- Mboweni In Favor Of Another Rate Hike -------------- ¶5. (U) South African Reserve Bank Governor Tito Mboweni said inflation pressures in South Africa were on the upside, and that he would raise interest rates in December 2007 if he were the sole member of the Monetary Policy Committee (MPC). The MPC, which Mboweni chairs and which meets once every two months, has increased interest rates by a cumulative 350 basis points since June 2006. CPIX-inflation (consumer price inflation excluding mortgage interest rates) has stayed above the top end of the Reserve Bank's 3%-6% target band since April this year. In response to tighter monetary policy, retail sales growth slowed from 6.6% y/y in August to 2.0% y/y in September. (Business Day, November 14, 2007) -------------- No Apology Needed For Budget Surplus -------------- ¶6. (U) Finance Minister Trevor Manuel defended the budget surplus planned by the government over the next three years, saying there was "no shame" in having a surplus and the government would not apologize for it. The budget surplus was a precaution against uncertain prospects for the international economy which could result in next year being a tough year, Manuel said, "There is no failure in running a surplus. There is no shame in taking out the unevenness, the boom and bust, and we shall not apologize for this". The National Treasury has estimated cyclical revenue to amount to R87.7 billion ($13.5 billion) over the next three years. Of this amount, R44.5 billion ($6.8 billion) would be saved, almost R15 billion ($2.3 billion) a year for three years, or 0.6% of gross domestic product. In spite of the surplus, Manuel pointed out that the SAG was committed to alleviate the erosion of social grants by inflation. Manuel also argued strongly against any change to the inflation targeting band "even if it looks bad." Manuel said there must be a commitment to price stability and he voiced confidence that the CPIX-inflation would fall back within the band next year. Manuel has been criticized for running a budget surplus in a developing country with huge social problems. (Business Day, November 14, 2007) -------------- SA Banks Not For Sale -------------- 7 (U) South African Reserve Bank Governor Tito Mboweni has told parliament that the recent $5.5 billion acquisition of 20% of Standard Bank by the Industrial and Commercial Bank of China was a "good thing" that "will help cement the relationship between China and South Africa." Mboweni stressed, however, that the deal does not mean that a "for sale" sign has been hung on South African Qnot mean that a "for sale" sign has been hung on South African banks, as the state should "maintain strategic interests" in the banking sector. Mboweni told parliament, "South Africa has to maintain its own strategic banking interest. Does it mean that other banks are for sale? No." Some banks and analysts were critical of Mboweni's position, accusing the central banker of flouting standards of fair competition. They said that allowing foreign investment in some banks (such as Standard and ABSA) at the expense of other banks would result in unfair competition and disadvantage consumers. (Business Day, November 15, 2007) -------------- Stadium Workers Strike -------------- 8 (U) Hundreds of construction workers at the Moses Mabhida Stadium in Durban, one of the stadiums under construction for the 2010 Soccer World Cup tournament, are engaged in a strike to protest against poor pay conditions. Workers are demanding a minimum wage PRETORIA 00003973 003.2 OF 003 of R11 an hour, project bonuses of R1,500 a month, and safety improvements. The National Union of Mineworkers (NUM),which represents construction workers, claimed that workers were paid only R6 an hour, which they regard as pitiful and unfair. The construction company, Group Five, disputed the claims, saying that the starting rate is R11.98 an hour, though it is said that subcontractors might be paying less. NUM spokesperson Lesiba Seshoka said a sympathy strike at the 10 other stadiums under construction would commence soon if the demands of the Durban workers are not met. This has raised concerns about the completion of infrastructure for the World Cup. Meanwhile, over 3,000 FIFA delegates are expected to visit Durban to inspect the sites at the end of November. (Pretoria News, November 15, 2007) BOST