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UNCLAS SECTION 01 OF 03 PRETORIA 001413 
 
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 
           April 8 2005 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: 
 -  Unemployment Rates Drop; 
 -  Increase in Jobs and Earnings; 
 -  March Manufacturing Activity Reaches Six-month High; 
 -  Extra Tax Revenue Reduces Budget Deficit; 
 -  But How Should the Revenue Surplus Be Spent?; 
 -  March Housing Prices Lower; and 
 -  First Signs of Consumer Spending Slowdown. 
 End Summary. 
 
 UNEMPLOYMENT RATES DROP 
 ----------------------- 
 
 ¶2.  The Statistics SA Labor Force Survey (LFS) showed a 
 gain of 251,000 jobs and a drop in the official 
 unemployment rate from 27.9 percent in March 2004 to 26.2 
 percent in September.  Using the expanded definition of 
 unemployment, which includes discouraged workers or those 
 who made no effort to seek employment in the four weeks 
 preceding the survey, the unemployment rate changed from 
 41.8 percent in March to 41 percent in September.  The 
 number of discouraged workers increased from 3.77 million 
 in March to 3.95 million six months later.  The biggest 
 growth in jobs came in the construction (25 percent) and 
 trade (8 percent) sectors, which have benefited from low 
 interest rates.  Impacted by the strong rand and drought, 
 the mining and agriculture sectors experienced employment 
 reductions of 27.5 percent and 15.5 percent, respectively, 
 in the six-month period.  Excluding agriculture, 
 employment levels increased by 209,000 and 180,000 jobs in 
 the formal and informal sectors respectively, between 
 March and September 2004.  Non-agricultural employment in 
 the informal sector accounted for 19 percent of total 
 employment; if domestic workers are included, the 
 percentage increases to 27 percent.  The LFS shows that 
 youth unemployment has fallen but remains high. 
 Unemployment among 15- to 24-year olds, the fastest 
 growing segment of the population, fell from 55.6 percent 
 in March to 51.8 percent in September.  Unemployment 
 remains highest among Black Africans, at 31.3 percent, 
 followed by "coloureds", at 21.8 percent, Indians and 
 other Asians at 13.4 percent and whites, at 5.4 percent. 
 The Western Cape Province had the lowest unemployment at 
 less than 20 percent, while Limpopo, North West, KwaZulu- 
 Natal and the Eastern Cape provinces had levels of more 
 than 30 percent.  Gauteng provided most of the employment 
 opportunities, with about three million jobs, while the 
 Northern Cape provided about 230,000 jobs.  Source: 
 Business Day, April 1; Mail & Guardian, April 1-7; 
 Statistics SA, Release P0210, March 31. 
 
 INCREASE IN JOBS AND EARNINGS 
 ----------------------------- 
 
 ¶3.  Statistics SA's Survey of Employment and Earnings 
 (SEE) showed a 4 percent y/y rise in employment while 
 earnings increased by 14.9 percent in the formal, 
 nonagricultural sector in the fourth quarter of 2004.  The 
 SEE counted 6.685 million jobs in the formal sector as of 
 December 2004, an increase of 85,000 (1.3 percent 
 quarterly growth) over September's employment.  The 
 highest level of job creation occurred in the wholesale 
 and retail trade sectors followed by the personal services 
 and financial sectors, explained by high growth in 
 domestic demand.  Gross earnings increased 11 percent 
 (q/q) in the fourth quarter 2004, resulting in a 9.6 
 percent increase in the average earnings per employee. 
 Labor representatives noted the progress in employment but 
 argue that these figures are at least six months out of 
 date.  Figures provided by trade unions show that more 
 than 20,000 workers across various sectors will be laid 
 off with most of the job cuts taking place by the end of 
 April.  The mining industry is hardest hit, with more than 
 10,000 jobs removed and the clothing and textile sector, 
 due to cheaper imports, will lose 2,750 jobs in addition 
 to the 3,100 jobs already lost since January 2005. 
 Source:  Business Day, April 1; Mail & Guardian, April 1- 
 7; Statistics SA, Release P0275, March 31. 
 
 ¶4.  Comment.  In March, Stats SA released both the LFS and 
 SEE surveys simultaneously, although the coverage of 
 employment is quite different.  LFS is a semi-annual 
 household survey, based on a nationwide sample of over 
 30,000 households.  Stats SA staff interviewed more than 
 68,000 adults of working age face-to-face.  The survey 
 reveals information on household employment in both the 
 formal and informal sectors, as well as discouraged 
 workers.  Business included in the LFS is based on a 
 sample updated by Census 2001 and consists of all 
 businesses, whether VAT registered or not.  SEE is a 
 quarterly survey of 10,183 VAT-registered (and VAT- 
 paying) private and public businesses in the non- 
 agricultural sector, completed by mail.  Because of 
 changes in the survey sample, there is no official SEE 
 data before 2002.  Stats SA uses 2000 and 2001 SEE data 
 only in discussion documents, since about 1.5 million more 
 jobs were recorded in 2002 over 2001 as a result of the 
 changes in survey design.  End Comment. 
 
 
 MARCH MANUFACTURING ACTIVITY REACHES SIX-MONTH HIGH 
 --------------------------------------------- ------ 
 
 ¶5.  The March Investec Purchasing Managers Index (PMI) 
 shows manufacturing activity has risen to its highest 
 level in six months.  The PMI increased to 57.9 points in 
 March, from 54.2 in February and 49.3 in January.  A drop 
 below 50 points indicates a contraction in the 
 manufacturing sector, while one above this level indicates 
 growth.  The expected business conditions index, which 
 records purchasing managers' outlook for the next six 
 months, reached 71.5 compared to February's 66.3, and 8 
 percent of managers expect a drop in general business 
 conditions compared to February's 14 percent.  Better than 
 expected business conditions and the softer exchange rate 
 explains improving expectations, with the rand 
 depreciating about 9 percent against the U.S. dollar since 
 the beginning of the year.  The seasonally adjusted 
 employment index reached 57 points compared to February's 
 48.9; however, subsequent above-50 levels are needed for 
 improving manufacturing employment.  New sales orders also 
 improved, reflecting strong consumer demand and improving 
 exports.  Source:  Reuters and Business Day, April 4. 
 
 EXTRA TAX REVENUE REDUCES BUDGET DEFICIT 
 ---------------------------------------- 
 
 ¶6.  The estimated deficit in 2005's budget has been 
 reduced from 2.3 percent to 1.6 percent of gross domestic 
 product (GDP) due to the almost R10 billion ($1.6 billion, 
 using 6.1 rands per dollar) in surplus revenue collected 
 by the South African Revenue Services (SARS) in the 
 2004/05 fiscal year (ending March).  The revenue collected 
 by SARS was R9.6 billion more than the previous revenue 
 target of R345.3 billion announced in October 2004 and R21 
 billion more than the original revenue target of R333.7 
 billion announced in February 2004.  SARS collected R110.7 
 billion in personal income tax compared with the R105.9 
 billion estimate; R70.6 billion in company taxes (R68.8 
 billion estimate); R97.8 billion in VAT (R89.5 billion 
 estimate); R18.8 billion in fuel levies (R17.4 billion 
 estimate); R13.1 billion in customs duties (R9.5 billion 
 estimate) and R7.1 billion in transfer duties (R5.2 
 billion estimate).  A further R14 billion in excise duties 
 was collected, which was in line with estimates.  Finance 
 Minister Trevor Manuel cited a buoyant economy and 
 significant consumer spending as key contributors to the 
 improved revenue collection during the past year.  Source: 
 Business Report and Business Day, April 4. 
 
 BUT HOW SHOULD THE REVENUE SURPLUS BE SPENT? 
 -------------------------------------------- 
 
 ¶7.  News of the government's revenue surplus has generated 
 disagreement over how the excess funds should be used. 
 Analysts suggest that the government is likely to use the 
 revenue surplus to reduce the amount borrowed on local 
 bond markets, reducing the government's local borrowing 
 requirement to R7 billion ($1.1 billion, using 6.1 rands 
 per dollar).  Interest groups differ regarding their 
 preferred method of revenue surplus disbursement, with 
 suggestions ranging from increased infrastructure 
 investment and social development to reductions in current 
 tax rates.  Strong consumer spending explains much of the 
 increased revenue yielding higher than expected VAT 
 revenues.  VAT revenues are now 28 percent of the total 
 revenue collected, up from 25 percent in FY2003. 
 Efficient Group economist Dawie Roodt suggested that the 
 FY2005 budget deficit could be as low as 1.1 percent of 
 GDP, rather than the 1.6 percent forecasted by National 
 Treasury.  Source:  Business Day, April 6. 
 
 MARCH HOUSING PRICES LOWER 
 -------------------------- 
 
 ¶8.  South African house prices increased by 26.8 percent 
 (y/y) in March 2005 compared to February's 29 percent 
 increase and September 2004's increase of 35.5 percent, 
 according to ABSA Bank's monthly House Price Index (HPI). 
 ABSA attributes the current declining trend in prices to 
 less housing affordability because of the high increase in 
 prices, salary and wage increases of well below 10 percent 
 and the relatively stable interest rates in 2004.  In 
 addition, the difference between asking and selling prices 
 has increased and properties are remaining longer on the 
 market before being sold.  ABSA expects nominal growth in 
 house prices of between 15 percent and 20 percent, with 
 real growth in housing prices between 11.7 percent and 
 16.5 percent in 2005.  ABSA pointed out these favorable 
 property market developments:  (1) personal tax relief; 
 (2) lower transfer duties on property; (3) strong growth 
 in the real disposable income of households; (3) a 
 relatively low ratio of household debt to disposable 
 income; (4) relatively low inflation and interest rates; 
 and (5) strong domestic and foreign demand.  In 2004, 
 housing prices grew by 32.2 percent, 21.4 percent in 2003, 
 and 15.2 percent in 2002.  Source:  IOL, April 5; Business 
 Report, April 6. 
 
 FIRST SIGNS OF CONSUMER SPENDING SLOWDOWN 
 ----------------------------------------- 
 
 ¶9.  The latest Bureau of Economic Research (BER) retail 
 survey suggests that retail, wholesale and vehicle sales 
 growth peaked during the 4th quarter 2004 and will start 
 to slow during the first quarter of 2005.  The survey 
 showed a dip in retailers' confidence during the first 
 quarter from a 24-year high of 90 index points in the 
 final quarter 2004 to 75 points in the first quarter 2005. 
 Wholesaler's confidence levels also declined in the first 
 quarter 2005.  The lower level of business confidence 
 during the first quarter of 2005 supported the BER's 
 earlier view of a slightly lower rate of increase in 
 consumer spending this year, after growing more than 10 
 percent last year.  Sales growth slowed slightly in all 
 three retail sales categories, namely non-durable goods 
 (food, beverages and pharmaceuticals), semi-durables 
 (clothing, footwear, textiles and household requisites), 
 and durables (furniture, appliances and electronic 
 equipment), with non-durable goods showing the largest 
 slowdown in growth.  The BER also found that expectations 
 of increases in selling prices did not occur, with the 
 majority of retailers lowering their selling prices during 
 the first quarter.  Source:  Business Report, April 6. 
 
FRAZER