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

121356Z Aug 05

UNCLAS SECTION 01 OF 03 PRETORIA 003253 
 
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 
          August 12 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: 
 -  Interest Rates Remain Unchanged; 
 -  Gold Strike Lasts 4 Days; 
 -  Manufacturing Shows Improving Growth in June; 
 -  Jobs in Automobile Sector at 7-Year High; 
 -  Stats SA Will Begin New Expenditure Survey; and 
 -  Softening Consumer Demand 
 End Summary. 
 
 INTEREST RATES REMAIN UNCHANGED 
 ------------------------------- 
 
 ¶2.  On August 11, the Monetary Policy Committee announced 
 that interest rates would remain unchanged, leaving the 
 repurchase rate at 7 percent.  The Committee cited robust 
 domestic demand and an expected increase in inflation over 
 the next few months as reasons for an unchanged monetary 
 stance, although inflation is still expected to remain 
 within the 3 percent to 6 percent targeted band.  High oil 
 prices pose the greatest source of future inflationary 
 pressure, even though the Committee's statement gave 
 generally favorable views of domestic inflation.  Consumer 
 inflation excluding mortgage costs (CPIX) has remained 
 within the inflation target range of 3-6 percent for the 
 past 22 months.  Services inflation has remained higher 
 than goods inflation (6.1 percent vs. 2 percent 
 respectively), although service inflation has declined 
 from the 7 percent level shown in June 2004.  Wage and 
 unit labor cost trends have shown recent declines.  Wage 
 settlements increased 6 percent for the first half of 2005 
 compared to 6.8 percent in 2004.  Unit labor costs in the 
 non-agricultural sector increased 5.9 percent in the first 
 quarter of 2005, compared to 2004's last quarter increase 
 of 9.8 percent.  The Committee statement did not mention 
 any current wage negotiations taking place other than to 
 note that future inflation will depend on these 
 settlements.  Source:  Statement of the Monetary Policy 
 Committee, August 11; Business Day and Business Report, 
 August 12. 
 
 GOLD STRIKE LASTS 4 DAYS 
 ------------------------ 
 
 ¶3.  On August 7, the National Union of Mineworkers (NUM) 
 called for a strike against the gold mining companies. 
 Solidarity, another gold worker trade union, joined the 
 following day.  These two unions represent about 75 
 percent of South African gold miners, or approximately 
 100,000 out of 130,000 workers.  As the cost of the 
 strikes continues to increase, AngloGold Ashanti, Harmony 
 and Gold Fields, which had been negotiating under the 
 auspices of the Chamber of Mines, began to explore 
 separate deals with the unions.  At one point, Solidarity 
 had threatened to request that the Commission for 
 Conciliation, Mediation and Arbitration to intervene, 
 suggesting that the Chamber was no longer representing the 
 mining companies.  On August 10, the Chamber of Mines 
 offered a wage increase up to 7 percent, the biggest raise 
 in 18 years, a living-out allowance of R1500 a month and a 
 contribution of 1 percent towards the provident fund 
 (employee savings fund).  Unions responded by saying that 
 they would recommend the offer to their members, an 
 indication that the 5-day strike might end soon.  When the 
 strike started, the unions were demanding between 12 
 percent and 20 percent wage increases (NUM 20 percent, 
 Solidarity 12 percent) in addition to other benefits and 
 the Chamber of Mines was offering 5 percent.  On August 
 12, the unions formally accepted the Chamber's offer and 
 agreed that wage increases next year would be one point 
 above inflation.  Changes to the revised Chamber offer 
 include:  a living out allowance of R1,000 per month and 
 R10,000 ($1540 using 6.4 rands per dollar) funeral 
 allowance.  Estimates of the cost of the strike to the 
 gold industry were R130 million ($20 million) in revenue 
 or 40,000 ounces of gold per day.  Gold industry analyst 
 Nick Goodwin estimated that the gold price would have to 
 increase by 25 percent for the industry to absorb the 
 increased labor costs assuming no change in other costs. 
 Source:  Business Day and Sapa, August 11; Business Day 
 and Business Report, August 12. 
 ¶4.  Comment.  South Africa accounts for about 15 percent 
 of global gold output and the sector contributes 2 percent 
 to South Africa's GDP and about 10 percent of export 
 revenue.  Since 1995 employment in the sector has fallen 
 from 530,000 to 130,000.  End comment. 
 
 MANUFACTURING SHOWS IMPROVING GROWTH IN JUNE 
 -------------------------------------------- 
 
 ¶5.  Manufacturing production grew by 2.3 percent (y/y) in 
 June 2005, up from May's y/y growth of 1.2 percent. 
 Monthly manufacturing output growth continues to show a 
 rebound in 2005 growth, indicating that production may 
 continue its growth in late 2005.  On a seasonally 
 adjusted, month-on-month basis, manufacturing output rose 
 0.7 percent, compared to a 2.7 percent contraction in May. 
 Manufacturing output grew by a seasonally adjusted rate of 
 3.2 percent in the second quarter 2005 compared with a 1.9 
 percent contraction in the first quarter.  The biggest 
 contributors to the 3.2 percent quarterly growth in 
 manufacturing output were the petroleum, chemicals, rubber 
 and plastic sectors, which contributed 1.4 percent.  These 
 sectors were followed by the food and beverages industry, 
 which added 0.6 percent to manufacturing expansion.  The 
 wood, paper, printing and publishing and the basic iron 
 and steel sectors each contributed 0.4 percent to 
 quarterly manufacturing growth.  Source:  Business Report 
 and Business Day, August 11; Manufacturing Unpacked, 
 Standard Bank, August 10. 
 
 JOBS IN AUTOMOBILE SECTOR AT 7-YEAR HIGH 
 ---------------------------------------- 
 
 ¶6.  According to the latest Quarterly Review of Business 
 Conditions, released by the National Association of 
 Automobile Manufacturers of South Africa (NAAMSA), vehicle 
 manufacturers created 773 jobs in the second quarter, 
 bringing the total number of people employed in the 
 industry to 34,431, the highest level in seven years.  The 
 report said that a total of 2,295 jobs were created in the 
 previous 15 months.  The vehicle manufacturing industry 
 comprises all the major vehicle and specialist commercial 
 truck manufacturers.  Nico Vermeulen, NAAMSA's executive 
 director, said two companies had recruited new employees 
 during the second quarter, while other companies recruited 
 only to maintain their workforce.  Toyota SA disclosed in 
 July that it had created more than 1,100 jobs at its 
 assembly plant at Prospecton in Durban during the past 
 eight months, with the export of its Hilux truck to more 
 than 70 countries.  Nissan SA announced it had created 
 more than 200 jobs after launching a second shift in its 
 Rosslyn manufacturing plant to meet Hardbody pickup export 
 demand.  The report mentions that the rising prices of 
 automotive steel continues to increase local content and 
 vehicle production costs, despite cost cutting efforts by 
 vehicle manufacturers in other areas.  The NAAMSA report 
 said that capacity utilization levels throughout the 
 vehicle manufacturing industry remained at or near record 
 levels during the second quarter.  Capital expenditure by 
 the industry was projected to total R5.9 billion ($922 
 million, using 6.4 rands per dollar) in 2005.  Of this 
 amount, roughly 85 percent (R5.09 billion) would be spent 
 on product, local content, and investment for exports or 
 production facilities.  Source:  Business Report, August 
 ¶11. 
 
 STATS SA WILL BEGIN NEW EXPENDITURE SURVEY 
 ------------------------------------------ 
 
 ¶7.  In September, Statistics SA will start an income and 
 expenditure survey (IES) to update the consumer price 
 index (CPI) basket of goods and services.  The survey will 
 measure household incomes and spending patterns of 24,000 
 homes nationally.  The data will be used to re-weight 
 items in the CPI basket, with items on which a large 
 portion of household income is spent having higher 
 weightings.  Major changes in the collection of 
 expenditure data are planned in the upcoming IES.  A 
 sample size of 24,000 households will asked to complete a 
 diary of purchases for a month and then rely on memory for 
 all semi-and durable goods purchases during the past 11 
 months.  In previous surveys, the entire data collection 
 process took one month.  The upcoming IES data collection 
 will take one year.  Previously, participating households 
 were interviewed once, now they will be interviewed five 
 times over the month.  The last IES was done in 2000 and 
 released in 2002, revealing that the richest 20 percent of 
 the country's households accounted for nearly two-thirds 
 of spending, while the poor were responsible for only 2.6 
 percent of expenditure.  Source:  Business Report and 
 Business Day, August 11. 
 
 ¶8.  Comment.  Because such a large number of South African 
 households are maintained by people outside the household, 
 Stats SA will use acquisitions as a measure for 
 expenditure and then ask whether the goods were donated or 
 given as gifts.  In past surveys, respondents have been 
 reluctant to divulge information about income and savings. 
 For the upcoming IES, additional information about savings 
 and income is sought.  A pilot survey in March 2005 
 received the lowest response rate from high-security 
 residential areas (63.6 percent) and improved responses 
 from farms and small holdings (88.9 percent).  End 
 Comment. 
 
 SOFTENING CONSUMER DEMAND 
 ------------------------- 
 
 ¶9.  Retail sales grew by 4.8 percent (y/y) in May, slower 
 than April's 9.3 percent growth.  This was the slowest 
 pace of growth in four months, suggesting a slackening of 
 domestic demand, which has been extremely strong due to 
 interest-rate reductions of 6.5 percentage points in the 
 past two years.  Future retail sales may show a further 
 indication of cooling demand, as July's car sales showed a 
 six percent month-on-month decline.  Expectations in the 
 retail sector remain high, with the latest Retail Trade 
 Survey (released by the Bureau for Economic Research) 
 increasing in the second quarter 2005 to 86, compared with 
 first quarter's 75 level.  The stronger index was largely 
 based on improvements in the sales on non-durable items, 
 along with marginal improvements in semi-durables. 
 Source:  Business Day, August 11, Taking Stock, Standard 
 Bank, August 10. 
 
 FRAZER