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

UNCLAS SECTION 01 OF 02 PRETORIA 003369 
 
SIPDIS 
 
DEPT FOR AF/S/KGAITHER; 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 19 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: 
 -  Treasury Plans to Increase Public Debt; 
 -  Western Cape Plans to Help Textile Industry; 
 -  Microlending Sector Growth; 
 -  SNO to Start in 7 Months; and 
 -  SA Private Hospitals Cheaper than U.S. and Australia; 
 End Summary. 
 
 TREASURY PLANS TO INCREASE PUBLIC DEBT 
 -------------------------------------- 
 
 ¶2.  Public sector borrowing is expected to increase over 
 the next three years, as public enterprises such as 
 Transnet and Eskom invest heavily in infrastructure as 
 part of government's plan to raise capital investment. 
 Treasury Director-General Lesetja Kganyago anticipated 
 public-sector borrowing would increase from 1 percent of 
 gross domestic product (GDP) in 2002 to about 4 percent 
 over the next three years.  Transnet is expected to invest 
 more than R40 billion ($6.3 billion using 6.4 rands per 
 dollar) over the next five years, while Eskom had begun to 
 recommission mothballed power plants and would continue 
 its expansion and strengthening of transmission networks. 
 Kganyago's comments indicate that the Treasury may be 
 aiming to increase public-sector borrowing higher than the 
 3.8 percent it had indicated for the 2007-08 financial 
 year in its budget review earlier in 2005.  According to 
 the 2005 budget review, the public sector borrowing 
 reached 2.8 percent of GDP in 2004 and was expected to 
 rise to 3.9 percent this year.  Kganyago asserted that the 
 increase in infrastructure investment could not be 
 financed entirely through debt, which is why the 
 government encouraged public-private partnerships. 
 Investment has been identified as a critical target to 
 raise economic growth from its current 3.5 percent-4 
 percent a year to 5 percent-6 percent.  Faster growing 
 economies invested more than 15 percent of GDP.  Source: 
 Business Day, August 17. 
 
 WESTERN CAPE TO HELP TEXTILE INDUSTRY 
 ------------------------------------- 
 
 ¶3.  The Western Cape's Finance and Tourism MEC Lynne Brown 
 announced a range of programs designed to aid the clothing 
 industry.  Twenty-six clothing firms have folded in a year 
 in the province, resulting in 2,300 job losses.  One 
 program will promote efficiencies within and between 
 different companies.  Another proposal is to provide 
 incentives for smaller firms over a period of about three 
 years.  Brown recognized that the industry needed to 
 establish new niche markets.  Unless there is substantial 
 upgrading of skills and equipment, improvements in 
 manufacturing processes and an increased focus on exports, 
 the provincial government expects that only a few 
 factories in the Western Cape will survive over the short 
 to medium term.  Another proposal was to establish a 
 clothing and textiles information hub on export and market 
 intelligence so that clothing firms could become more 
 design-oriented as well as service the upper end of the 
 retail market.  Source:  Business Day, August 17. 
 
 MICROLENDING SECTOR GROWTH 
 -------------------------- 
 
 ¶4.  According to the Micro Finance Regulatory Council 
 (MFRC), micro loans increased 30 percent (y/y) for the 
 quarter ending in May 2005, reaching R5.77 billion ($900 
 million).  Borrowing for educational purposes was the most 
 important reason for obtaining loans, at R685 million 
 ($110 million), followed by housing at R630 million ($98 
 million) and small business funding at about R250 million 
 ($40 million).  A comparison of lending activity for the 
 quarter ending May 2005 with the previous quarter 
 decreased slightly by 0.8 percent from R5.82 billion ($910 
 million) to R5.77 billion ($900 million).  In the same 
 period, the number of loans extended increased by 1.6 
 percent from R3.59 million to R3.65 million.  Banks 
 continued to be the most common source of microloans, 
 showing another strong quarter with loans of R2.3 billion 
 ($360 million) being issued, some 9.5 percent higher than 
 reported by the MFRC for the February quarter.  Private 
 companies' loan disbursements fell 9 percent from R2.6 
 billion ($410 million) to R2.3 billion ($360 million). 
 Close corporations, trusts and public companies' loan 
 disbursements fill by 0.4 percent, from R1.025 billion to 
 R1.021 billion.  Section 21 companies performed moderately 
 well, displaying a 10 percent increase in disbursements 
 from R43.4 million to R47.7 million driven by two large 
 Section 21 companies.  Cooperatives registered with the 
 MFRC reflected a 13.6 percent decline in disbursements 
 reflecting R67.7 million in revenue in the May 2005 
 quarter.  Source:  I-Net Bridge and Mail & Guardian, 
 August 16; Business Report, August 17. 
 
 SNO TO START IN 7 MONTHS 
 ------------------------ 
 
 ¶5.  After more than three years' delay, the second network 
 operator (SNO) for the telecommunication sector should 
 start early in 2006.  The SNO partners signed a 
 shareholders' agreement and it now rests with the 
 Independent Communications Authority of South Africa 
 (ICASA) to award a license.  SNO chairman Karl Socikwa 
 expects the license to be awarded within four weeks.  The 
 SNO shareholders are:  Nexus Connexion, the black 
 empowerment partner, with 19 percent; Transtel and Eskom 
 Telecommunications, divisions of the transport and 
 electricity parastatal utilities with 30 percent between 
 them; and the Sepco consortium, with 51 percent.  The 
 Sepco consortium is made up of VSNL, a Tata group 
 subsidiary, with a controlling share of 26 percent of the 
 SNO and CommunicTel and Two Consortium, which have equal 
 ownership in Sepco.  Analysts expect the SNO to target the 
 business market first and later move to the residential 
 market, since the SNO does not have sufficient 
 infrastructure to service residences.  Source:  Business 
 Report, August 17. 
 
 SA PRIVATE HOSPITALS CHEAPER THAN U.S. AND AUSTRALIA 
 --------------------------------------------- ------- 
 
 ¶6.  According to a study sponsored by the Hospital 
 Association of South Africa, private hospitals in South 
 Africa perform much of their surgery better, faster and 
 cheaper than those hospitals in Australia and the United 
 States.  The report shows that South Africa is up to 50 
 percent cheaper than the US and Australia with regard to 
 procedures requiring hospitalization.  On average, the 
 private hospital industry invests R8 billion ($1.3 
 billion) in health-care technology annually, about 45.7 
 percent of the sector's revenue.  According to the study, 
 the average combined cost of hospital and surgical fees, 
 drug and surgical equipment for an uncomplicated Caesarean 
 section in a private hospital in South Africa is about 
 R15,431 ($2400), almost half the R29,445 ($4600) in 
 Australia and a quarter of the R58,602 ($9200) cost in the 
 U.S.  The cost of a colonoscopy in a private South African 
 hospital, R3,458 ($540), is one-third less than the cost 
 of the identical procedure in Australia, R5,305 ($830), 
 and 30 percent of the U.S. cost of R11,760 ($1800).  A 
 tonsillectomy performed in South Africa is between 53 
 percent and 58 percent cheaper than in Australia and less 
 than 10 percent of the U.S. cost.  A hip replacement is 77 
 percent cheaper than in Australia and 58 percent cheaper 
 than in the U.S.  A vasectomy costs R3,883 ($610), which 
 is 10 percent of the R39,900 ($6200) charged in the U.S. 
 The length of time a patient spends in South Africa's 
 private hospitals is among the lowest worldwide.  The 
 average stay for an uncomplicated Caesarean section is 
 four days in a private hospital in South Africa, compared 
 with 3.38 days in the U.S. and 5.9 days in Australia. 
 Patients who undergo a straightforward hip replacement in 
 South Africa's private hospitals spend an average of 5.58 
 days in hospital, while the length of stay for the 
 identical procedure in the U.S. and Australia is 4.59 and 
 9.5 respectively.  Source:  Sapa and Mail & Guardian, 
 August 15. 
 
   FRAZER