SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 1,

UNCLAS SECTION 01 OF 02 PRETORIA 000024 SIPDIS DEPT FOR AF/S/RMARBURG; AF/EPS; EB/IFD/OMA USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND TREASURY FOR OAISA/RALYEA/CUSHMAN 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 JANUARY 1, 2008 ISSUE ¶1. (U) Summary. This is Volume 8, issue 1 of U.S. Embassy Pretoria's South Africa Economic News weekly newsletter. Topics of this week's newsletter are: - Credit Growth Remains Strong - Foreign Capital Inflows Decline - Gold Mining Shares Up - Student Test Scores Continue Decline End Summary. -------------- Credit Growth Remains Strong -------------- ¶2. (U) Despite numerous interest rate hikes since 2006, credit grew an annual rate of 22.6 percent in November. The rate was down from 23.39 percent in October, but was still higher than expected. Economists were divided over the implications. Some said that continued robust spending would support the argument for another rate hike when the South African Reserve Bank's Monetary Policy Committee meets in late January. However, one economist noted that the composition of credit is changing, with borrowing increasingly being used for investment rather than consumption. He predicted that the South African Reserve Bank would leave interest rates unchanged. (Business Day, December 31, 2007) -------------- Foreign Capital Inflows Decline -------------- ¶3. (U) Net foreign purchases of South African shares and bonds fell to R81 billion ($11.6 billion) in 2007 from more than R100 billion ($14.3 billion) in 2006. While the amount is still substantial, and continues to fund the widening current account deficit estimated to be more than 7 percent of GDP for 2007, the slowdown highlights South Africa's exposure to swings in the mood of global investors. Analysts do not view the current account deficit as a problem provided capital inflows remain substantial. However, a global credit crunch and resulting risk aversion may curb investors' appetites for emerging market assets. In addition, a slowdown in South African economic growth due to the rising interest rates and political uncertainty may diminish the appeal of South African shares. However, surging prices of commodities are likely to compensate. (Business Day, January 4, 2008) -------------- Gold Mining Shares Up -------------- ¶4. (U) Gold-mining shares on the Johannesburg Stock Exchange (JSE) are reaping the benefits of high gold prices, with the gold-mining index jumping 6.07 percent on January 3. Analysts noted, however, that gold now accounts for only 10-12 percent of South Africa's exports and only 4-5 percent of the labor force. According to one economist at RBC Capital Markets, the increase in gold prices is "good news" for the economy but no reason to start "hammering the drums." An economist at ABSA Capital said the rising trend in gold prices would strengthen the rand, encourage more investment in the mining sector, and help to finance South Africa's current account deficit by boosting mining shares on the JSE. (Business Day, January 4, 2008) -------------- Student Test Scores Continue Decline -------------- ¶5. (U) Poor secondary school test results indicate that South Africa is not producing the high-level skills the economy needs. The pass rate, which has declined over the last four years, was 65.2 percent Qthis year compared to 66.5 percent last year. The number of passing students eligible to go to a university fell 400 to 85,454, or only 15 percent of those who took the exam. More importantly, only 40 percent of the 560,000 students who took the exam passed the math portion, and only 25,415 of those passed higher grade mathematics. Fewer than a third of the students passed science, with the number passing higher grade science dropping to 28,122 from 29,781 last year. With higher grade math and science a requirement for university courses in subjects such as engineering, accounting, medicine and science, the limited pool of qualified students paints PRETORIA 00000024 002 OF 002 a bleak picture of South Africa's long-term ability to meet its need for high-skilled professionals. (Business Day Editorial, January 3, 2008) BOST