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 002451 
 
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 
          June 10, 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 in the February 25 
newsletter include: 
 
- Interest rate remains unchanged 
- April manufacturing up 7.1 percent 
- Inflation expectations unchanged 
- SACU to sign trade deal with EFTA 
- SA eyes uranium mining 
- Telkom announces huge profits 
- South Africa forex reserves soar 7 percent 
END SUMMARY. 
 
------------------------------- 
INTEREST RATE REMAINS UNCHANGED 
------------------------------- 
 
¶2.  On June 9, Reserve Bank Governor Tito Mboweni announced 
that the repurchase rate would remain at 7 percent.  The 
decision to keep rates unchanged was the unanimous 
expectation of economists surveyed by I-Net Bridge and 
mirrors similar non-action by the central banks of 
Australia, New Zealand and the United Kingdom this week. 
The no-change forecast was despite the fact that CPIX 
inflation (CPI excluding mortgage costs) has been below the 
midpoint of the Reserve Bank's inflation target range of 3 - 
6 percent year-on-year for 16 out of the past 19 months. 
The recent volatility in the rand has concerned economists 
as the rand went from below R6 per dollar to almost R7 per 
dollar.  Optimists say that all this has done is provide a 
buying opportunity for foreigners, who expect the rand to 
strengthen back towards the R6 per dollar level as the 
proceeds from the Barclays purchase of Absa enters South 
Africa.  (Mail & Guardian, June 9) 
 
---------------------------------- 
APRIL MANUFACTURING UP 7.1 PERCENT 
---------------------------------- 
 
¶3.  South African manufacturing production rose by 7.1 
percent year-on-year (y/y) in April 2005 after increasing by 
only 0.7 percent y/y in March 2005, Statistics South Africa 
(Stats SA) reported.  Manufacturing sales rose by 11.4 
percent y/y in April to 68.1 billion rand after increasing 
by only 1.9 percent y/y in March.  Stats SA said the y/y 
comparisons are distorted by Easter falling in March this 
year, whereas in 2004 it fell in April.  Higher production 
was reported by four of the ten manufacturing divisions. 
Manufacturers reported increased production and sales in 
April 2005 due to a longer working month after the public 
holidays in March 2005.  The major contributor to the 
seasonally adjusted increase of 1.0 percent in total 
manufacturing production for the three months ended April 
2005 compared with the previous three months was the food 
and beverages division, followed by the petroleum, chemical 
products, rubber and plastic products, wood and wood 
products, paper, publishing and printing and the glass and 
non-metallic mineral products division.  However, these 
increases were counteracted by decreases reported by the 
furniture and 'other' manufacturing division, the textiles, 
clothing, leather and footwear division, the radio, 
television and communication apparatus and professional 
equipment division, and the motor vehicles, parts and 
accessories and other transport equipment division.  The 
South African economy has officially been in an "upward" 
phase since September 1999, exceeding the previous record 
upward phase, which lasted from September 1961 to April 
¶1965.  (I-Net Bridge, June 10) 
 
-------------------------------- 
INFLATION EXPECTATIONS UNCHANGED 
-------------------------------- 
 
¶4.  South African inflation expectations of 4.5 percent for 
CPIX (CPI less mortgage costs) for the second quarter of 
2005 remain unchanged from those in the first quarter of the 
year, according to the latest survey by the Bureau for 
Economic Research (BER) at the University of Stellenbosch. 
The BER said the results were "encouraging," as they 
confirmed the lower expectations recorded during the first 
quarter of the year, while also showing that the higher 
petrol price had not pushed general inflation expectations 
higher.  The price of unleaded petrol at the coast had 
increased by more than 1 rand per liter - to 5.11 rand in 
May from 4.09 rand in February - since the previous survey. 
Changes in the petrol price could have a large impact on 
inflation expectations, the BER noted, as transport costs 
made up a relatively large share of the expenses of 
households and companies.  However, the BER added, inflation 
expectations were unlikely to fall further during the 
upcoming quarters, as actual inflation had bottomed and fuel 
prices had risen.  Also noteworthy was the trade union 
movement's slightly higher expectations for salary and wage 
increases - the second quarter survey showed trade union 
officials' expectations for these rising to 7.2 percent for 
2005 and 7.3 percent for 2006, from 6.8 percent and 6.9 
percent, respectively, in the first quarter.  (I-Net Bridge, 
June 10) 
 
--------------------------------- 
SACU TO SIGN TRADE DEAL WITH EFTA 
--------------------------------- 
¶5.  The Southern African Customs Union (SACU) is expected to 
sign a free trade agreement with the European Free Trade 
Association (EFTA) by the end of the month, according to 
Trade and Industry Chief Director of Trade Negotiations 
Xavier Carim.  An agreement would open up duty-free and 
quota-free access for SACU industrial products to EFTA 
member countries - Norway, Switzerland, Lichtenstein and 
Iceland.  EFTA countries normally trail the EU to negotiate 
equal agreements with trade partners, but this agreement has 
better rules-of-origin requirements than the trade agreement 
that South Africa has with the EU.  Implementation is only 
likely to take place from early next year, as each of the 
member countries of both blocs must ratify the agreement, 
Carim said in a briefing to Parliament's trade and industry 
portfolio committee.  The negotiations with EFTA began in 
May 2002 and have concentrated on traditional trade issues. 
The parties agreed to exclude "new-generation" issues such 
as trade in services, intellectual property rights, 
investment, competition and government procurement.  EFTA 
has offered SACU limited access to its basic agricultural 
products market, but is willing to grant more.  (Business 
Day, June 6) 
---------------------- 
SA EYES URANIUM MINING 
---------------------- 
¶6.  In her recent budget speech to Parliament, Minerals and 
Energy Minister Phumzile Mlambo-Ngcuka said South Africa was 
committed to nuclear power, and would use its uranium 
resources to ensure security of energy supply.  Currently, 
most uranium in SA is mined as a by-product of gold mining. 
Gold and uranium miner Aflease's CE Neal Forneman says 
Aflease wants to start mining uranium and that government 
needs to make it easier for companies to gain access to 
mineral rights.  However, Earthlife Africa researcher 
Mashile Phalane cautions that government must ensure that 
communities living in the vicinity of uranium grains will 
not be affected by expanded uranium mining.  The price of 
the mineral in oxide form has risen from $10/lb in early 
2003 to the current price of $29/lb.  (Business Day, June 7) 
----------------------------- 
TELKOM ANNOUNCES HUGE PROFITS 
----------------------------- 
¶7.  Shares in telecommunications group Telkom rose to an all- 
time high of 119 rand per share on Monday after the firm 
reported a 53 percent rise in basic earnings per share to 
1241.8 cents from last year's 812 cents.  The results came 
in slightly above market consensus. The market had forecast 
an improvement of between 40 percent and 50 percent.  The 
Johannesburg and New York-listed firm also said it would pay 
out an ordinary dividend of four rand per share and a 
special dividend of five rand per share.  Since listing on 
March 4, 2003, Telkom's share price has roared ahead more 
than 320 percent.  Telkom CEO Sizwe Nxasana said, during the 
results presentation, that the firm was looking at investing 
in the Democratic Republic of Congo where its 50 percent- 
held subsidiary Vodacom Group already had mobile operations. 
In addition, he said Kenya and Nigeria are some of the 
markets Telkom has identified for future expansion.  (I-Net 
Bridge, June 6) 
------------------------------------------- 
SOUTH AFRICAN FOREX RESERVES SOAR 7 PERCENT 
------------------------------------------- 
¶8.  South Africa's foreign exchange reserves rocketed 7 
percent last month as the Reserve Bank began managing the 
financial inflows from the proposed $4.9 billion Barclays- 
Absa deal.   Gross foreign exchange and gold reserves surged 
by $1.15 billion to $17.2 billion.  Efficient Group 
economist Nico Kelder said reserves "breached the R100 
billion level for the first time" last month, increasing the 
import-cover ratio to 16.8 weeks from 13.9 weeks in April. 
"This ratio is expected to increase further in coming 
months, especially after the Barclays transaction boosts 
reserves by approximately R33 billion ($5 billion)," he 
said.   The Bank said yesterday that the reserves increase 
reflected "a combination of foreign exchange operations 
conducted by the Bank for own account, as well as on behalf 
of customers, including foreign exchange purchases arising 
from a foreign direct investment transaction."  It did not 
identify the transaction, but economists said it was most 
likely to be the deal approved by Finance Minister Trevor 
Manuel last month, in which Barclays seeks to buy up to 60 
percent of ABSA.  National treasury officials have said the 
Bank will manage the inflows from the deal to avoid an 
unwelcome strengthening of the rand that a sudden increase 
in demand for the currency would cause.  The sharp increase 
in reserves also comes against the backdrop of calls for the 
Bank to be more active in the foreign exchange market to 
weaken the rand, something it has repeatedly said it is not 
prepared to do.  Despite the strong rand being blamed for 
job losses and sluggish growth in the manufacturing sector, 
President Thabo Mbeki said, "We certainly are not thinking 
in any way of finding huge resources to keep the value of 
the currency at a particular rate.  We don't have them; 
there is no way we can find billions of dollars to compete 
with the market to set the value of the currency after a 
particular point."  (Business Day, June 8) 
FRAZER