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 003476 
 
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 
PARIS FOR NEARY 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT:  SOUTH AFRICA ECONOMIC NEWSLETTER 
           August 26 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: 
 -  Manufacturing Leads 2nd Quarter GDP Growth; 
 -  Oil Prices Accelerate July Inflation but Still Within 
Targets; 
 -  Producer Prices Also Increase More than Expectations; 
 -  Survey Shows a Slow Improvement in Poverty; and 
 -  Five Consortiums Chosen as Finalists to Build Power 
 Plants. 
 End Summary. 
 
 MANUFACTURING LEADS 2ND QUARTER GDP GROWTH 
 ------------------------------------------ 
 
 ¶2.  South Africa's economy grew at a faster pace in the 
 second quarter 2005, primarily due to manufacturing growth 
 of 7.3 percent.  South Africa's real gross domestic 
 product (GDP) at market prices on a quarter-on-quarter 
 (q/q), seasonally annualized and adjusted (saa) increased 
 by 4.8 percent in the second quarter of 2005, compared to 
 3.5 percent growth in the first quarter.  The 4.8 percent 
 growth rate exceeded expectations, with the consensus 
 forecast at 4.4 percent, and put the South African 
 government's 2005 GDP forecast of 4.3 percent within 
 target.  The manufacturing sector was the main engine of 
 second quarter growth, expanding by 7.3 percent on a 
 seasonally adjusted and annualized basis compared with a 
 first quarter decline of 1.9 percent.  Sectors 
 contributing to the second quarter growth include:  the 
 manufacturing industry (accounting for 1.2 percent); 
 wholesale and retail trade, hotels and restaurants 
 industry and finance, real estate, and business services 
 industry (0.7 percent each); transport, storage and 
 communication industry (0.6 percent) and agriculture, 
 forestry and fishing; general government services and 
 personal services (0.3 percent each).  The seasonally 
 adjusted real value added by the non-agricultural 
 industries increased by 4.7 percent during second quarter 
 following an increase of 3.5 percent in the first quarter 
 of 2005.  Manufacturing is the second largest sector of 
 the economy, accounting for 16.4 percent of GDP.  The 
 finance sector is the largest sector and is responsible 
 for 18.6 percent of GDP.  On a saa q/q basis, real GDP 
 last posted negative growth in the 3rd quarter 1998 (0.9 
 percent decline), since then there have been 11 out of 28 
 quarters of growth at 4 percent or above.  Source: 
 Reuters, I-Net Bridge, and StatsSA Release P0441, August 
 23; Business Day, Business Report, August 24. 
 
 ¶3.  Comment.  StatsSA calculates GDP using the production 
 and income approach; the South African Reserve Bank (SARB) 
 compiles GDP using the expenditure approach.  The expected 
 release date of the 2nd quarter 2005 SARB Quarterly 
 Bulletin is September 22, where expenditure (consumption, 
 investment and government spending) components of GDP are 
 released.  The StatsSA GDP release focuses on industrial 
 production sectors explaining GDP growth.  A recent 
 Standard Bank study describes industrial sector growth 
 prospects over the next five years and the structural 
 shifts in the South African economy.  Over the past four 
 decades, the South African economy has shifted from growth 
 driven primarily by agriculture and mining to growth 
 driven by wholesale and retail trade, tourism, transport, 
 communications, and services.  According to Standard Bank 
 forecasts, high growth in manufacturing, business 
 services, transport and communication, and wholesale and 
 retail trade will generate an average annual GDP growth of 
 4 percent over the next five years.  End comment. 
 
 OIL PRICES ACCELERATE JULY INFLATION BUT STILL WITHIN 
 TARGETS 
 --------------------------------------------- --------- 
 
 ¶4.  CPIX (consumer prices minus mortgage costs) increased 
 4.2 percent in July, up from June's 3.5 percent increase, 
 chiefly due to a 32 rand cent/liter increase in gasoline 
 prices.  July consumer prices increased 3.4 percent (y/y) 
 compared to June's increase of 2.8 percent.  July's 
 increase in targeted inflation (CPIX) was higher than the 
 consensus forecast of 3.9 percent and if oil prices 
 continue to escalate, future interest rate reductions 
 would become less probable.  Transport costs accounted for 
 30 percent of July's increase, although some of the 
 pressure on consumer prices will not affect August 
 inflation.  New surveys of rental, electricity and water 
 costs completed in July accounted for 40 percent (30 
 percent attributed to housing and 10 percent to fuel and 
 power) of the 4.2 increase in CPIX.  CPIX is still well 
 within the 3-6 percent targeted range and oil prices 
 remain the main contributor to a possible increase in 
 August's inflation.  If oil prices continue to escalate, 
 most forecasters expect interest rates to remain unchanged 
 for the rest of 2005.  Prices of services increased faster 
 than goods (6.1 percent vs 3.4 percent) and prices for the 
 lower expenditure groups increased slower than the prices 
 faced by the higher expenditure groups.  Source: 
 Investec, CPIX Update; Standard Bank, CPI Alert; StatsSA 
 Release P0141.1; August 24. 
 
 PRODUCER PRICES ALSO INCREASE MORE THAN EXPECTATIONS 
 --------------------------------------------- ------- 
 
 ¶5.  The July Producer Price Index (PPI) rose by 3.6 
 percent (y/y) higher than a Reuters poll of economic 
 forecasts of 3.3 percent.  PPI, which tends to lead 
 consumer inflation by a couple of months, rose by an 
 annual rate of 2.3 percent in June.  July domestic and 
 imported goods prices increased 3.0 percent and 5.2 
 percent, respectively, compared to June's increase of 1.9 
 percent and 3.4 percent.  The higher imported goods price 
 reflects the impact of higher world oil prices.  The 
 prices of petroleum and coal products more than doubled, 
 while prices of agricultural, paper, basic metals and 
 tobacco products also showed a higher July price increase 
 compared to the previous month.  The last month where 
 overall producer prices declined was April 2004; since 
 then, producer prices have increased an average of 1.6 
 percent y/y.  Since May 2005, producer prices have 
 increased over 2.3 percent, signaling possible future 
 increases in consumer prices.  Source:  Business Day, 
 Reuters, StatsSA Release P0142.1, August 25. 
 
 SURVEY SHOWS A SLOW IMPROVEMENT IN POVERTY 
 ------------------------------------------ 
 
 ¶6.  A recent All Media Products Surveys (AMPS) survey 
 demonstrated that there has been dramatic change in the 
 income shares of different races since 1994.  From 1993 to 
 2002, black Africans increased their share of the top 10 
 percent of household income, from under 10 percent just 
 before 1994 to 23 percent in the second half of 2002. 
 "Coloureds" (a distinct South African racial category) 
 also increased their share slightly, while the white share 
 fell sharply from nearly 80 percent to 63 percent. 
 However, the rate of change slowed after 2002.  Coloured 
 people continued to advance post-2002, but the shares of 
 all other groups remained static, and may even have fallen 
 slightly among black Africans.  According to the AMPS 
 survey, the following trends emerge:  (1) a slight but 
 significant decline in black poverty is occurring, due 
 largely to the expansion of social grants; (2) there is a 
 modest but significant expansion of the numbers of blacks 
 in the "not so poor" category of R1,400 ($220 using 6.4 
 rands per dollar) to R4,000 ($625) per month; (3) abject 
 or severe poverty among coloured people is roughly half of 
 what it is among blacks and impacting less than 10 percent 
 of Indians and less than 5 percent of whites; (4) the 
 lower middle class among blacks (R4,000 - R12,000 per 
 month) has not expanded over the two years; and (5) the 
 expansion of the categories of relative wealth of R12,000 
 and more per month has been more rapid among coloureds, 
 Indians and whites than it has been among blacks.  The 
 semiannual AMPS is one of the largest annual measures of 
 income and other socio-economic patterns provided by the 
 All Media Products Surveys (AMPS) of the South African 
 Advertising Research Foundation, using large and fully 
 representative samples of 25,000.  The purpose of these 
 surveys is to estimate readership patterns and to relate 
 them to basic social and economic characteristics, 
 including household income per month.  Source:  Pretoria 
 News, August 23. 
 
 ¶7.  Comment.  The AMPS survey is the only South African 
 expenditure survey conducted each year.  The survey and 
 results are private.  Official expenditure studies will 
 use the StatsSA expenditure surveys, where both results 
 and methodology are readily available.  However, the 
 official surveys are only conducted every five years and 
 their changing methodologies make comparisons over time 
 difficult.  End comment. 
 
   FRAZER