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 001766 
 
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 
          May 6 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: 
 -  Signs of Slowing Manufacturing Activity; 
 -  South African Credit and Money Supply Growth Slow; 
 -  South African Economy Adds 14,000 Jobs per Month; 
 -  SMEs Struggle to Adopt BEE Practices; 
 -  March Trade Deficit Widens; 
 -  Motor Vehicle Sales Still High; and 
 -  Wage Gap Widens. 
 End Summary. 
 
 SIGNS OF SLOWING MANUFACTURING ACTIVITY 
 --------------------------------------- 
 
 ¶2.  The April Investec Purchasing Managers Index (PMI) 
 declined to 53.6, from its March level of 57.9.  The lower 
 April PMI supports the latest Statistics SA data showing 
 growth in manufacturing output declining in the first two 
 months of the year to 3.2 percent year on year in January 
 and 2.7 percent in February.  Brait economist Colen Garrow 
 said that PMI data were also consistent with the slower 
 growth in Organization for Economic Co-operation and 
 Development industrial production data, a trend indicating 
 less demand for local exports and continuing pressure on 
 the current account.  A drop below 50 points indicates a 
 contraction in the manufacturing sector, while one above 
 this level indicates growth.  The business activity index, 
 which measures manufacturing production levels, declined 
 from 60.7 to 52.4, while the employment index reached 
 below 50 to 48.9, from 57.0 in March.  Purchasing 
 managers' six-month expectations dropped to 66.1 (71.5 in 
 March) in April.  Respondents expecting an improvement in 
 general business conditions declined to 41 percent (51 
 percent in March) in April, while the percentage expecting 
 a worsening in business conditions increased from 8 
 percent to 9 percent.  The PMI price index increased to 
 67.4 in April, from 61.5 in March, suggesting that the PPI 
 (producer price index) was likely to increase in the 
 future.  The PMI price index has been on an upward trend 
 since January 2005.  Source:  Business Day, May 4. 
 
 SOUTH AFRICAN CREDIT AND MONEY SUPPLY GROWTH SLOWS 
 --------------------------------------------- ----- 
 
 ¶3.  Credit demand in South Africa slowed in March, easing 
 concern over signs that inflation pressures were 
 increasing.  Annual growth in private sector credit 
 moderated to 16.2 percent from an unrevised 17 percent in 
 February, comparing favorably with forecasts of a 17.3 
 percent increase.  Expansion in money supply also slowed, 
 with the broadly defined M3 measure rising by 11.9 percent 
 in the year to March -- compared with an increase of 12.2 
 percent in February and forecasts of a stronger 12.7 
 percent rise.  The South African Reserve Bank (SARB) did 
 not signal concern over the accelerating pace of consumer 
 credit growth when it reduced its key repurchase rate by 
 half a percentage point to 7.0 percent on April 14. 
 Instead the SARB highlighted the negative impact of slower 
 manufacturing activity and lower inflationary 
 expectations.  Given those concerns -- and high 
 unemployment -- most analysts believe the central bank 
 will keep interest rates on hold for as long as possible. 
 Source:  Reuters, April 29. 
 
 SOUTH AFRICAN ECONOMY ADDS 14,000 JOBS PER MONTH IN 2004 
 --------------------------------------------- ---------- 
 
 ¶4.  Commissioned by the trade union United Association of 
 South Africa (UASA), T-Sec released an employment study 
 showing that the South African formal sector grew at about 
 2.7 percent in 2004, or about 14,000 jobs per month.  The 
 economy created jobs for three years in a row, after 
 around 13 to 14 years of declines.  UASA commissioned the 
 employment report because of dissatisfaction with the long 
 data lag of the official employment data.  The latest 
 Labor Force Survey (published in March 2005) is for 
 September 2004.  According to the survey, the utility 
 (electricity, gas and water) sector was the only sector to 
 experience job losses in 2004, while overall formal sector 
 employment grew by 2.7 percent.  Medium size businesses 
 are the companies increasing employment the most at a rate 
 of 6 percent for 2004.  Small firms who already employ 
 around 2.3 million people grew payrolls by 2.5 percent, a 
 rate matched by large companies, while public sector 
 employment only increased by 0.6 percent.  T-Sec economist 
 Mike Schussler expects employment growth to ease to 1.5 
 percent in 2005 from 2.7 percent last year, as 
 construction growth offsets retrenchments in the mining 
 sector.  In 2004, average salaries increase showed a 
 deceleration, explaining the reduction in inflationary 
 expectations.  According to the survey, salaries on 
 average increased by 5.4 percent in 2004, compared to 8 
 percent increase in 2003.  Source:  I-Net Bridge, Business 
 Day, April 29. 
 
 SMES STRUGGLE TO ADOPT BEE PRACTICES 
 ------------------------------------ 
 
 ¶5.  A survey commissioned by financial services group Old 
 Mutual (OML) showed that although 69 percent of South 
 African small and medium-sized enterprises (SMEs) see 
 black economic empowerment (BEE) as a business 
 opportunity, 65 percent do not intend to implement the 
 government's BEE program in their businesses.  According 
 to the survey results, 44 percent of respondents expected 
 to be fined for non-compliance to BEE and about 36 percent 
 indicated they believed nothing would happen to them. 
 Only 10 percent of the respondents said their businesses 
 would suffer if they did not comply with BEE.  The survey 
 also showed that 64 percent of companies believed that 
 attracting and retaining competent black employees would 
 be the most challenging aspect of implementing BEE in 
 their businesses.  Most SMEs are not yet aware of how BEE 
 can help their businesses, said Andr Diederichs, Old 
 Mutual market development manager of SMEs.  Source:  I-Net 
 Bridge, May 3. 
 
 MARCH TRADE DEFICIT WIDENS 
 -------------------------- 
 
 ¶6.  South Africa's trade account recorded its third 
 consecutive monthly trade deficit, reaching R1.14 billion 
 ($190 million, using 6 rands per dollar) in March from 
 February's R0.123 billion.  Imports increased by 17.2 
 percent to R27.7 billion ($4.6 billion) compared to 
 February's level of R23.7 billion.  Exports increased by 
 12.9 percent in March, reaching R26.6 billion ($4.4 
 billion).  The strong rand, averaging 5.99 rands per 
 dollar in March, continues to encourage stronger import 
 growth and it is unlikely that South Africa's trade 
 position will be reversed soon.  Exports of mineral 
 products, base metals, and vehicles accounted for most of 
 the 12.9 percent March export increase.  Machinery, 
 mineral products and aircraft accounted for most of the 
 monthly import increase.  The March trade deficit came in 
 larger than expected, with a Reuter's poll of economists 
 expecting a deficit of R0.7 billion.  Source:  Standard 
 Bank, Foreign Trade Alert, April 29. 
 
 MOTOR VEHICLE SALES STILL HIGH 
 ------------------------------ 
 
 ¶7.  Data from the National Association of Automobile 
 Manufacturers in South Africa (NAAMSA) shows April motor 
 vehicle sales increased 41.1 percent (y/y), with year-to- 
 date (January-April) sales up by 25.5 percent.  New 
 passenger cars showed especially strong April growth at 
 44.6 percent, indicating that lower inflation, interest 
 rates and tax relief are continuing to encourage vehicle 
 sales.  April 2005 had three more selling days than April 
 2004 since the Easter vacations happened in March this 
 year, although the number of cars sold daily in April 2005 
 was 33 percent higher than in April last year.  Source: 
 Standard Bank, Motor Alert, May 4. 
 
 WAGE GAP WIDENS 
 --------------- 
 
 ¶8.  According to research by P-E Corporate Services, South 
 African executives received higher salary increases than 
 lower-level employees over the past 12 months.  Salary 
 increase projections indicate that the trend is likely to 
 continue this year.  The average company executive earns 
 around 50 times more than minimum wage workers.  The 
 difference in earnings is even greater when executives' 
 total packages are considered, including their share 
 options and performance-based bonuses.  For the first time 
 in 25 years, salary increases at all levels have dropped 
 below 7 percent, according to the survey of 900 companies 
 employing between 1.5 and 2 million people by P-E 
 Corporate Services.  Executive increases ranged between 8 
 and 9 percent, yielding a 2 percent differential between 
 them and average salaries.  Executive salary increases in 
 South Africa are influenced by international pay scales, 
 skills shortages and compulsory disclosure of executive 
 pay levels that have driven salaries upward as 
 remuneration committees have been reluctant to set pay 
 levels below those of their competitors and expose their 
 companies to the loss of key staff.  A study by Statistics 
 SA in March 2004 showed workers in agriculture and mining 
 tended to be the lowest-paid workers in the formal sector 
 - with less than R2,500 ($417) a month on average.  Among 
 professionals, teachers and engineers were the lowest-paid 
 at less than R8,000 ($1,333) a month.  A 2003 survey of 
 average monthly earnings by Statistics SA said the highest- 
 paid salaries in selected industries (excluding the 
 agricultural sector) were paid in the electricity, gas and 
 water supply sector at an average of R16,277 ($2,713), 
 followed by the financial sector (R11,770, $1,962), and 
 the community, social and personal services industry 
 (R7,681, $1,280).  The lowest average wages were paid in 
 the construction sector (R3,987, $665).  Source:  Business 
 Day, May 3. 
 
 FRAZER