This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PRETORIA 005244 
 
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 
          DECEMBER 3, 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: 
 -  Gross Domestic Product Revised Upwards; 
 -  October Trade Deficit Widens; 
 -  October Money Supply Increased 15.7 Percent; 
 -  Business Confidence Increases to 23-Year Peak; 
 -  Gauteng's Development Strategy Faces Challenge of 
 Uneven Economic Expansion; 
 -  Draft Black Economic Empowerment Targets for Tourism 
 Industry Released; and 
 -  Internet Use in South Africa. 
 End Summary. 
 
 GROSS DOMESTIC PRODUCT REVISED UPWARDS 
 -------------------------------------- 
 
 ¶2.  On November 30, Stats SA released revised statistics 
 for gross domestic product revealing mainly higher growth 
 during the 2000-2004 time period.  The annual real GDP 
 growth rates from 2000 to 2003 are now 4.2, 2.7, 3.6 and 
 2.8 percent respectively compared to previous growth 
 estimates of 3.5, 2.7, 3.6 and 1.9 percent.  The average 
 annual real GDP growth rate for the period 2000-2003 rose 
 to 3 percent, compared to a pre-revision growth of 2.7 
 percent; while for the period 1997-2003, the average 
 annual real growth rates increased from 2.4 percent to 2.7 
 percent.  The nominal GDP estimate for 2000 is 3.8 percent 
 higher than the previous estimate.  The largest revision 
 (3.9 percent) occurred in 2002 and the smallest (0.5 
 percent) was in 1998.  Growth in 2004 has been steadily 
 increasing, indicating that the impact of interest rate 
 cuts outweighed the relatively weak global demand growth 
 and the strong rand.  Growth in the third quarter 2004 was 
 5.6 percent, compared to the first and second quarter's 
 growth of 3.8 and 4.5 percent respectively.  In the third 
 quarter, growth of agriculture (relative size 2.6 percent 
 of GDP), construction (relative size 2.5 percent), 
 transport and communication (relative size 9.9 percent), 
 manufacturing (relative size 16.4 percent), and finance 
 and real estate (relative size 18.5 percent) sectors 
 showed 14.7, 10.3, 6.7, 6.3, and 5.5 percent growth 
 respectively, contributing the most to real GDP growth. 
 Economic growth in the first nine months of 2004 was 3.4 
 percent higher than the corresponding period in 2003, 
 indicating that 2004 growth will be higher than the pre- 
 revision market expectations of 3 percent.  The revised 
 higher growth rates should contribute to higher business 
 confidence and possible additional credit upgrades; 
 however, many analysts question whether the South African 
 Reserve Bank will lower interest rates at the December 
 meeting in the face of increased demand.  Source: 
 Business Day, Business Report, December 1; Standard Bank, 
 GDP Alert, Investec GDP Update, Stats SA Release P0441, 
 November 30. 
 
 ¶3.  Comment.  For the seventh time, Stats SA has revised 
 the national income accounts by updating data sources, 
 incorporating new methodologies, including new areas of 
 economic activities, and changing the base period to adopt 
 weights that more clearly reflect current economic 
 conditions.  Typically, rebasing occurs every five years, 
 and Stats SA has shifted the base year to 2000 from 1995. 
 Particularly important to this revision is data from new 
 sources, such as the development of a new business 
 register that is based on the South African Revenue 
 Service's VAT database.  The change in contribution to 
 gross value added between the 1995 and 2000 benchmark 
 years show that finance, real estate and business services 
 increased from 18.1 percent to 20.1 percent, while general 
 government's contribution decreased from 17.3 percent to 
 14.7 percent.  The revisions also result in GDP per capita 
 increasing from R17,700 ($3,200 using 5.53 rands per 
 dollar, the average in 1998) in 1998 to R27,100 ($3,585 
 using 7.56 rands per dollar, the average in 2003) in 2003. 
 End comment. 
 
 OCTOBER TRADE DEFICIT WIDENS 
 ---------------------------- 
 
 ¶4.  The trade deficit widened in October to R5.8 billion 
 compared to September's deficit of R0.3 billion.  The 
 value of exports declined by 14.7 percent (m/m) to R23.8 
 billion in October from September's value of R 27.9 
 billion.  The value of imports increased in October by 5 
 percent (m/m) to R29.6 billion from R28.2 billion in 
 September.  Mineral product exports increased, although 
 declines in exports of wood and paper products, precious 
 and semi-precious metals, and vehicles, aircraft and 
 vessels explained the October export decline.  Cumulative 
 trade figures for the first 10 months of 2004 shows a 
 deficit of R13.6 billion compared to last year's surplus 
 of R15.5 billion.  The trade deficit is expected to 
 continue.  Both the continued strength of the rand and 
 slower global demand due to higher global oil prices 
 negatively impact the South African export market. 
 Domestic demand remains at high levels and import growth 
 is expected to remain robust as foreign manufactured goods 
 become more affordable.  The current account will probably 
 remain in deficit, although if oil prices recede and 
 global demand accelerates, the deficit could narrow. 
 Source:  Business Day, December 1; Standard Bank, Foreign 
 Trade Alert, November 30. 
 
 OCTOBER MONEY SUPPLY INCREASED 15.7 PERCENT 
 ------------------------------------------- 
 
 ¶5.   The October money supply increased 15.7 percent, up 
 from 14.7 percent September growth, as increased credit 
 demand funded purchases of houses and motor vehicles. 
 Private sector credit demand, excluding the volatile 
 investments and bills category, increased 15.1 percent 
 last month, up from September's rise of 13.2 percent. 
 Figures released by the South African Reserve Bank showed 
 that mortgage credit increased by more than R8.5 billion 
 last month to R391.7 billion, with mortgage advances 
 rising 21.2 percent from a year ago.  Leasing finance grew 
 22.9 percent (y/y) in October, while installment sales 
 credit increased 17.2 percent.  Given these increases in 
 credit demand and the recent rand strength, the SARB will 
 have to decide next week whether to reduce interest rates. 
 Source:  Business Day November 30. 
 
 BUSINESS CONFIDENCE INCREASES TO 23-YEAR PEAK 
 --------------------------------------------- 
 
 ¶6.  Business confidence jumped to a 23-year high this 
 quarter, fuelled by low interest rates that have boosted 
 economic growth and consumer spending.  The latest 
 confidence index measured by Rand Merchant Bank (RMB) and 
 the University of Stellenbosch's Bureau for Economic 
 Research increased nine index points to 88 this quarter, 
 only three points shy of the record high reached in the 
 third quarter of 1980.  The survey shows a fairly broad- 
 based improvement in confidence across all sectors, with 
 sentiment among building contractors, retailers and motor 
 vehicle dealers particularly strong.  In these sectors, 
 more than 90 percent of respondents were positive about 
 business conditions.  Although confidence among 
 manufacturers increased, sentiment in this sector lagged 
 behind the rest of the economy.  Despite the lower 
 confidence levels in manufacturing compared to other 
 sectors, the survey showed that two-thirds of 
 manufacturers were positive about prevailing business 
 conditions.  The strong level of business confidence in 
 the economy was partly the result of increasing domestic 
 demand, but also due to a stronger economy.  The survey 
 also showed an increase in net employment across all 
 sectors this quarter.  Source:  Business Day, November 30. 
 
 GAUTENG'S DEVELOPMENT STRATEGY FACES CHALLENG OF UNEVEN 
 ECONOMIC EXPANSION 
 --------------------------------------------- ---------- 
 
 ¶7.  Gauteng's growth and development draft strategy traces 
 the economic impacts of the province's shift towards the 
 service industries combined with having the highest 
 employment growth of all the provinces.  Gauteng 
 contributes 33 percent of South Africa's gross domestic 
 product and continues to attract more job seekers than it 
 can absorb, increasing the number of unemployed and poor. 
 The province has shifted away from its dependence on 
 minerals towards the services industries, which today 
 account for 70 percent of Gauteng's employment.  The shift 
 towards high-value, high-skills jobs is a major 
 contributor to unemployment and poverty among the job 
 seekers who previously would be easily absorbed into the 
 mining industry but now cannot find employment.  In 2003, 
 unemployment in Gauteng was 28.2 percent and the average 
 monthly income was estimated at R2,000 ($265, using 7.56 
 rands per dollar, the 2003 average).  Representatives of 
 government, business, labor and nongovernmental 
 organizations met at a two-day summit in Johannesburg to 
 develop the growth and development strategy.  The draft 
 document points out the province's progress in service 
 delivery and infrastructure improvements.  Over the past 
 10 years, Gauteng has invested more than R1 billion in 
 economic infrastructure to stimulate growth and 
 sustainable job creation.   The province has also extended 
 the provision of social grants to more than 900,000 
 recipients.  But unemployment and poverty persists, and 
 the strategy suggests that the solution may lie elsewhere. 
 Providing education, health care and grants contributes to 
 building a skilled, healthy and nourished population that 
 will need further opportunities to be integrated into the 
 mainstream economy.  The strategy prefers labor-absorbing 
 industries such as tourism, financial services, business 
 services, telecommunications, transport and logistic 
 services.  Gauteng premier Mbhazima Shilowa is scheduled 
 to launch the final development strategy early next year. 
 Source:  November 30, Business Day. 
 
 DRAFT BLACK ECONOMIC EMPOWERMENT TARGETS FOR TOURISM 
 INDUSTRY RELEASED 
 --------------------------------------------- ------- 
 
 ¶8.  The Black Economic Empowerment (BEE) scorecard 
 steering committee will give its draft empowerment targets 
 for the tourism industry to the Minister of Environmental 
 Affairs and Tourism, Marthinus van Schalkwyk on December 
 ¶8.  The committee, made up of industry, labor, and 
 community representatives, recommended:  (1) 26 percent 
 black ownership by 2009 and 40 percent by 2014; (2) 70 
 percent black employees with 33 percent manager 
 representation by 2009; and (3) 70 percent of the 
 industry's skills training should be allocated to black 
 employees in the first draft of targets released two 
 months ago.  In October, the committee presented its draft 
 targets to various communities, generating response about 
 the targets' impacts on small and medium enterprises and 
 concerns about the relative weighting of ownership versus 
 skills development.  As a result, the human capital 
 component has a larger weight than ownership targets 
 during the first five years after the scorecard is 
 adopted.  Source:  Business Report and Business Day, 
 December 1. 
 
 INTERNET USE IN SOUTH AFRICA 
 ---------------------------- 
 
 ¶9.  The South African Advertising Research Foundation's 
 Trends publication reveals that in 2003, 5.9 percent of 
 South African adult population accessed the Internet 
 within the past four weeks, compared to 4.6 percent in 
 2002, 4.5 percent in 2001 and 5.1 percent in 2000.  In 
 2003, 2.8 percent used the Internet at home, while 2.3 
 percent accessed it at the office.  Using internet banking 
 services and email services increased in 2003, with 1.9 
 percent of adults accessing online banking services from 
 1.6 percent in 2002, and 4.5 percent using email services 
 compared to 3.6 percent in 2002.  Few South Africans 
 purchase goods via the Internet with 0.4 percent buying 
 online, compared to 0.3 percent in 2002.  Source: 
 Business Day, December 1. 
 
 FRAZER