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UNCLAS SECTION 01 OF 03 PRETORIA 004960 
 
SIPDIS 
 
DEPT FOR AF/S/JDIFFILY; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR OAISA/BARBER/WALKER/JEWELL 
USTR FOR COLEMAN 
LONDON FOR GURNEY; PARIS FOR NEARY 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT:  SOUTH AFRICA ECONOMIC NEWSLETTER 
           NOVEMBER 12, 2004 ISSUE 
 
 
¶1. Summary.  Each week, AMEmbassy Pretoria publishes an 
 economic newsletter based on South African press reports. 
 Comments and analysis do not necessarily reflect the 
 opinion of the U.S. Government.  Topics of this week's 
 newsletter are: 
 -  Manufacturing Growth for Eighth Consecutive Month; 
 -  Rise in Individual Credit Debt Unsustainable; 
 -  Reserve Bank Increases Foreign Exchange and Gold Reserves; 
 -  Real Wholesale Trade Sales Increase 18.1 Percent; 
 -  Provincial Governments Project R2.2 Billion Deficit; 
 -  September House Prices Increase 33.9 Percent; and 
 -  Economic Inequalities Still Remain. 
 End Summary. 
 
MANUFACTURING GROWTH FOR EIGHTH CONSECUTIVE MONTH 
--------------------------------------------- ---- 
 
¶2.  According to Statistics South Africa (StatsSA), 
 manufacturing production grew by 6.1 percent (y/y) in 
 September compared to August's 6.8 percent growth. 
 September's manufacturing sales grew by 12 percent.  Third 
 quarter 2004's manufacturing production grew by 2.7 
 percent (seasonally adjusted) compared to second quarter 
 2004's 1.8 percent growth.  Third quarter growth was 
 robust with eight out of ten manufacturing sub-sectors 
 reporting higher growth.  The main contributors to third 
 quarter growth were the food, motor vehicle and furniture 
 sectors.  Strong domestic consumption was the key reason 
 behind manufacturing growth, as the Euro zone's growth has 
 not been as strong as initially expected.  Approximately 
 30 percent of South Africa's manufactured goods are 
 exported, and of these exports, roughly 35 percent go to 
 the Euro zone.  Continued strength of the rand and 
 uncertain global oil prices constrain domestic producers 
 from raising their prices.  Source:  Standard Bank, 
 Manufacturing Unpacked, November 9; Business Day, Business 
 Report, November 10. 
 
¶3.  Comment.  There are signs of manufacturing growth 
 leveling off in the near future.  The Investec Purchasing 
 Manager's Index declined in October, (although it is still 
 above the 50 level, which signals activity expansion) and 
 the rand has recently strengthened.  During October 2004, 
 the rand appreciated 2.5 percent, while the average 
 monthly change in 2004 so far is a 0.3 percent 
 appreciation.  Lower than expected global growth may also 
 contribute to a possible slowdown in manufacturing 
 activity.  ABSA economist John Loos believes that consumer 
 demand peaked in the third quarter and predicts consumers 
 to curtail future spending.  Healthy growth is still 
 expected for manufacturing though lower than the current 6 
 percent monthly growth.   Manufacturing contributes 18 
 percent to South Africa's economy and continuing expansion 
 in this sector is needed for sustained economic growth. 
 End Comment. 
 
RISE IN INDIVIDUAL CREDIT DEBT UNSUSTAINABLE 
-------------------------------------------- 
 
¶4.  Efficient Research financial services group contents 
 that South African credit debt levels are manageable, but 
 current growth rates cannot be supported.  Total credit 
 card debt in September 2004 was R3 billion ($500 million 
 using 6.1 rands per dollar) higher than the previous 
 September, with individuals accounting for most of the 
 increase.  The amount owed on individual credit cards is 
 at the highest level yet at R18 billion ($3 billion). 
 Overall, total South African credit increased by R9.5 
 billion ($1.6 billion) in September compared to August 
 ¶2004.  However, the use of overdrafts by individuals 
 declined, indicating that savings on lower home (all of 
 South African mortgages issued use variable rates) and 
 vehicle loan rates were sources of financing increased 
 individual credit.  Increased use of overdrafts is one 
 indication of credit overextension.  Source:  Business 
 Report, November 10. 
 
RESERVE BANK INCREASES FOREIGN EXCHANGE AND GOLD RESERVES 
--------------------------------------------- ------------ 
 
¶5.   The South African Reserve Bank (SARB) increased 
 foreign exchange reserves, reaching US $11.3 billion in 
 October from $10.7 billion in September and $10.4 billion 
 in August.  Gold reserves of $1.7 billion lifted total 
 gross reserves to $13 billion at the end of October.  In 
 October, SARB bought $590 million worth of foreign 
 exchange and provided $372 million worth of financing for 
 repayment of a National Treasury euro-denominated loan. 
 Many economists believe that the SARB should have at least 
 $20 billion in foreign exchange reserves given that 
 average monthly imports have exceeded $4 billion this 
 year.   From 1999 though February 2004, the foreign 
 exchange reserves had fluctuated around the $6 billion 
 level.  In March 2004, reserves increased by $2 billion 
 and have been increasing ever since.  Source:  I-Net 
 Bridge, November 5; Business Day, November 8. 
 
REAL WHOLESALE TRADE SALES INCREASE 18.1 PERCENT 
--------------------------------------------- --- 
 
¶6.  According to Statistics South Africa (StatsSA), August 
 real wholesale trade sales, excluding diamonds, increased 
 18.1 percent (y/y) compared to June and July growth of 
 16.7 percent and 10.6 percent, respectively.  The three 
 months' (ending in August) seasonally adjusted real 
 wholesale trade sales increased 15.1 percent (y/y), as 
 wholesale inflation remained around 2 percent.  In May 
 2004, StatsSA revised the company list that comprises 
 wholesale and retail trade data, saying that sales were 
 systematically under reported.  The new list, based on the 
 value-added tax (VAT) database obtained from the South 
 African Revenue Service (SARS), covers all businesses in 
 South Africa expecting to reach sales of R300,000 
 ($50,000) for a 12-month period.  The coverage of the new 
 company list is greater than that of the old list. 
 Company information is provided by SARS and verified by 
 StatsSA.  StatsSA has further plans to improve company 
 coverage by accessing corporate income tax records. 
 Source:  I-Net Bridge, November 5. 
 
PROVINCIAL GOVERNMENTS PROJECT R2.2 BILLION DEFICIT 
--------------------------------------------- ------ 
 
¶7.  Provincial governments are projecting a R2.2 billion 
 deficit ($361 million using 6.1 rands per dollar) in 
 expenditure in the FY2004, largely due to unexpectedly 
 high increases in the number of people receiving foster 
 care and disability grants.  Those provinces not having 
 surplus funds will have to finance these deficits from 
 next year's budgets, as the national government's policy 
 is to not fund overruns of provincial budgets.  In the 
 Medium-Term Budget Policy Statement, Finance Minister 
 Manuel announced an additional R4.3 billion ($705 million) 
 provincial appropriation for FY2004; however, the 
 projected aggregated R2.2 billion budget deficit takes 
 this into account.  The Eastern Cape and Northern Cape 
 provinces are already operating on overdrafts, while some 
 provinces have already instituted cost containment 
 measures and other initiatives to ensure their deficits 
 are reduced to levels of available funding.  Provincial 
 revenue this fiscal year included budgeted equitable share 
 spending not earmarked of R160 billion, conditional grants 
 of R21.2 billion and provincial revenue of R5.4 billion. 
 The figures on provincial spending for the first six 
 months of this fiscal year also showed slow spending of 
 capital expenditure.   Provinces spent 29.5 percent (R3.3 
 billion) of their R11.3 billion capital budgets.  Capital 
 spending in education was 23.2 percent and provinces spent 
 27.2 percent in health capital spending.  The lowest rates 
 of capital spending were in Gauteng (6.4 percent), 
 Mpumalanga (11.9 percent) and Northern Cape (12.3 
 percent); Free State and Limpopo recorded the highest at 
 48.1 percent and 54.6 percent, respectively.  Provinces 
 spent 52 percent of their R47.3 billion social development 
 budget by the end of September.  Provincial spending on 
 social development rose from R20.9 billion in 2000-01 to 
 R42.4 billion in 2003-04, an annual average nominal growth 
 of 26.6 percent.  Source:  Business Day, November 8. 
 
SEPTEMBER HOUSE PRICES INCREASE BY 33.9 PERCENT 
--------------------------------------------- -- 
 
¶8.  Real house prices increased by 33.9 percent this year 
 through September, compared with a revised increase of 
 33.3 percent through August, according to the latest ABSA 
 bank house price index.  Monthly house price increases 
 were on a declining trend, from 3.1 percent in January to 
 1.5 percent in September, indicating potential lower 
 growth in the near future.  Relatively stable interest 
 rates this year, combined with the continuing rise in 
 house prices, already resulted in an increase in new 
 mortgage payments.  Ultimately, rapidly growing housing 
 prices will increase housing costs leading to lower demand 
 for housing and lower growth in prices.  The ABSA bank 
 house price index showed a nominal year-on-year increase 
 of 35.4 percent in house prices in October and the revised 
 increase of 35.6 percent for September, with the y/y 
 increase in the past 10 months averaging 32 percent. 
 Source:  IOL, November 8. 
 
ECONOMIC INEQUALITIES STILL REMAIN 
---------------------------------- 
 
¶9.  The Economic Transformation Audit and Scorecard, 
 compiled by a panel of economic experts for the Institute 
 for Justice and Reconciliation, showed poverty and 
 inequality are still increasing in South Africa.  The 
 Institute's calculations show that 58 percent of the South 
 African population and 69 percent of black South Africans 
 now live under the basic poverty level.  Between 1996 and 
 2001, the study found that with poverty measured in terms 
 of income increased, more households fell below the basic 
 poverty line of R250 ($40) a day.  Those living under the 
 mean (average) poverty line of R91 ($15) a day rose from 
 26 percent in 1996 to 28 percent in 2001, while black 
 South African per capita income as a percentage of white 
 income declined by 1.3 percent from the already low base 
 of 8.2 percent in 1996. The average black South African 
 now has less than seven percent of the income of an 
 average white South African.  White and Asian shares of 
 the total income are growing again after a slight drop, 
 but the average white person is somewhat worse off, 
 indicating more poverty as well as wealth.  Real household 
 income at the higher end of the income spectrum increased 
 (in all population groups), resulting in a widening in 
 inequality for the first time since 1975.  Income of 
 households headed by South African women relative to those 
 headed by men increased by 4 percent since 1996.  The 
 percentage of households with clean water and electricity 
 increased since 1996, although up to one third of the 
 population is still without these basic services.  The 
 percentage of families living in permanent structures 
 decreased from 77.6 percent in 1995 to 73.8 percent in 
 2002, and the number of households increased during the 
 same period.  Between 1995 and 2002, the percentage of 
 children at school decreased by 0.7 percent and the infant 
 mortality increased by 14 percent.  The number of jobs 
 increased by 1 million during the same time frame, 
 however, due to a large increase in the labor force, 
 unemployment is now at 42 percent.  Source:  Sunday Argus, 
 November 7. 
 
FRAZER