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UNCLAS SECTION 01 OF 03 PRETORIA 003657 
 
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 
           September 9 2005 ISSUE 
 
 ¶1. Summary.  Each week, Embassy 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 Indicator Down in August; 
 -  August Business Confidence High Although Declines 
    From Peak; 
 -  Trade Activity at Breakeven Level Although Trade 
    Expectations Still High; 
 -  Retail Sales Slow but Still Strong; 
 -  July Manufacturing Production Growth Stalls; 
 -  Mzansi Transfers Possible; 
 -  Free State Municipalities in Debt; and 
 -  Decline in 2005 SA Human Development Rating. 
 
 End Summary. 
 
 MANUFACTURING INDICATOR DOWN IN AUGUST 
 -------------------------------------- 
 
 ¶2.  The Investec Purchasing Managers Index (PMI) has come 
 down slightly in August 2005 from record levels in July. 
 The August PMI was down to 56.8 from the historical high 
 of 61.7 recorded in July 2005, but still above the 
 critical level of 50.  According to Andre Roux of 
 Investec, the reading of 56.8 is still fairly high and 
 consistent with 5 percent year on year growth in the 
 manufacturing sector.  July's reading pointed to a 9 
 percent growth rate in the sector, a growth rate that was 
 not sustainable for any length of time.  The PMI from the 
 Bureau of Economic Research in Stellenbosch records 
 activity in the manufacturing sector of the South African 
 economy.  Source:  Business Day, September 2. 
 
 ¶3.  Comment.  The PMI is compiled on a monthly basis among 
 purchasing managers, released on the first working day of 
 each month.  Purchasing managers manage the supply chain 
 within their respective factories, making sure there are 
 enough inputs for the process and no buildup of inventory. 
 Globally, this survey based on interviewing purchasing 
 managers gives an early and good indication of what's 
 happening in the manufacturing sector.  Even though South 
 Africa's August reading has dipped, it is still above many 
 of its global counterparts.  End comment. 
 
 AUGUST BUSINESS CONFIDENCE HIGH ALTHOUGH DECLINES FROM 
 PEAK 
 --------------------------------------------- --------- 
 
 ¶4.  The Business Confidence Index (BCI), compiled by the 
 South African Chamber of Business (SACOB), declined to 
 126.1 in August from 129 in July.  July's level peaked at 
 the highest level so far for 2005.  August 2005's BCI was 
 1.7 points below August 2004's level of 127.8.  Of the 13 
 BCI sub-indices, seven made a positive contribution to the 
 August 2005 index while six had either a negative or a 
 neutral impact.  Among those having a negative impact were 
 liquidations, merchandise goods export volumes, real 
 retail sales and core inflation for metropolitan and urban 
 areas.  Manufacturing production and merchandise goods 
 import volumes had a neutral impact.  Higher risk factors 
 are becoming more evident, such as: increasing credit 
 expansion; low domestic saving; greater price instability; 
 a slow down in value added exports; liquidations; possible 
 weaker financial inflows; and the higher price of crude 
 oil.  SACOB believes that the present growth expansion, 
 fueled by demand, must be matched by expansion in domestic 
 supply for South Africa's higher growth to be sustainable. 
 Growth prospects may be jeopardized if not followed by 
 higher real expansion, particularly in the primary and 
 secondary sectors.  Source:  Business Report and Business 
 Day, September 6. 
 
 TRADE ACTIVITY AT BREAKEVEN LEVEL ALTHOUGH TRADE 
 EXPECTATIONS STILL HIGH 
 --------------------------------------------- --- 
 
 ¶5.  The August South African Trade Management Indices 
 indicate that the optimistic six month outlook continues 
 (reaching 60), although declining marginally compared to 
 July.  Current trade activity hovers around the critical 
 50 level, where half of the respondents expect 
 improvement, and the activity index has remained there for 
 the last six months.  A strong improvement in current 
 sales volumes pulled overall trade activity up in August 
 and optimistic views of continuing growth in sales over 
 the upcoming December holiday period signal that trade 
 conditions should remain good over the year.  Source: 
 SATMI, Standard Bank, September 6. 
 
 RETAIL SALES SLOW BUT STILL STRONG 
 ---------------------------------- 
 
 ¶6.  According to Statistics South Africa (StatsSA), real 
 June retail sales increased 5.4 percent y/y from 5.7 
 percent growth in May, although declined by 1.8 percent on 
 a monthly basis.  The slowing growth in retail sales may 
 indicate that the stimulus from the 6.5 percent reduction 
 in interest rates since June 2003 may be slowing.  Vehicle 
 sales, a leading indicator of retail sales, recently 
 showed strong growth and business confidence continues to 
 be at relatively high levels, indicating that consumer 
 demand growth may continue.  Downside risks include 
 continuing high oil prices and an overextension of private 
 sector credit demand which might lead to possible 
 reductions in retail sales.  Source:  Standard Bank, 
 Taking Stock, September 7; Business Day, September 8. 
 
 JULY MANUFACTURING PRODUCTION GROWTH STALLS 
 ------------------------------------------- 
 
 ¶7.  July's manufacturing production grew at the same rate 
 as June, reaching 2.4 percent (y/y).  On a quarterly 
 basis, manufacturing production increased by 0.8 percent 
 (q/q).  Quarterly manufacturing production growth grew 
 slowly even though seven out of the 10 manufacturing sub- 
 sectors grew faster than total manufacturing production. 
 However, production in those industries more impacted by 
 the stronger rand declined, having a more important 
 contribution to overall manufacturing production.  Food 
 and beverages, textiles, and basic metals and machinery 
 sectors declined 1.5 percent, 3.6 percent and 2.8 percent, 
 respectively, contributing 44 percent towards overall 
 manufacturing production.  The stalled manufacturing 
 growth was somewhat of a surprise to analysts, given that 
 July's leading manufacturing indices, such as Investec's 
 Purchasing Manager's Index and SACOB's Business Confidence 
 Index, posted year-high levels.  Source:  StatsSA Release 
 P3041.2 and Standard Bank Manufacturing Unpacked, 
 September 8; Business Day and Business Report, September 
 ¶9. 
 
 MNANSI TRANSFERS POSSIBLE 
 ------------------------- 
 
 ¶8.  Banks and the Post Office have launched the second 
 phase of their Mzansi low-cost accounts, with a money 
 transfer facility now available.  The Mzansi Money 
 Transfer is primarily aimed at the Living Standards 
 Measure 1-5 income groups (the bottom 5 income groups out 
 of 10, based on ownership of assets and provision of water 
 and telephone), which often has to transfer money to 
 family members in rural areas.  They can now transfer up 
 to R5000 ($800, using 6.3 rands per dollar) per day using 
 the new facility.  Nedbank, which had on average the most 
 expensive fees for the Mzansi Account launched in 2004, 
 now has the cheapest Mzansi Money Transfer rates.  It 
 charges a flat rate of R15 ($2.40) for transfers from an 
 Mzansi account, while customers without an account who are 
 transferring money are charged R17.50 ($2.78) regardless 
 of the amount of money being transferred.  The other banks 
 charge between R17 ($2.70) and R100 ($16.00) depending on 
 the amount being transferred.  The Post Office charges R21 
 ($3.30) plus 1.5 percent of the amount being transferred. 
 The person receiving the money receives the full amount as 
 the remitter pays the fee.  The number of Mzansi accounts 
 opened since October 2004 has reached over 1.6 million. 
 ABSA now has the highest number of Mzansi accounts (31%), 
 followed by Post Bank (27%), Standard Bank (18%), FNB 
 (14%) and Nedbank (10%).  Source:  Business Day, September 
 ¶7. 
 
 FREE STATE MUNICIPALITIES IN DEBT 
 --------------------------------- 
 
 ¶9.  According to a National Council of Provinces (NCOP) 
 report presented to Parliament, debt in 25 of the Free 
 States' municipalities has now reached R2.56 billion. 
 Protestors in the province have complained about the lack 
 of services and corruption among municipal officials, with 
 the most recent being in the Kgotsong township of 
 Bothaville on August 23.  Protesters have also complained 
 of inaction and corruption among municipal officials.  The 
 average payment of local government debt was 72.25% of 
 what was owed.  Only two councils collected all that was 
 owed to them.  In spite of attempts to implement credit 
 controls and improve revenue collection, there had been no 
 decrease in debt levels.  Chairman of the NCOP local 
 government committee Sicelo Shiceka said that of the 25 
 consolidated local councils in Free State, not one ran a 
 surplus.  Source:  Business Day, September 7. 
 
 DECLINE IN 2005 SA HUMAN DEVELOPMENT RATING 
 ------------------------------------------- 
 
 ¶10.  South Africa's United Nations Human Development Index 
 (HDI) reached 120 out of 177 countries, slightly lower 
 than 2004's HDI of 119, largely due to a fall in life 
 expectancy because of HIV/AIDS and high levels of 
 inequality.  The HDI index tracks indicators including 
 life expectancy, equality of income and education, based 
 on 2003 data.  South Africa was rated higher than India 
 and most African countries, and lower than the occupied 
 Palestinian territory, Mongolia and Indonesia.  Positive 
 trends include increasing real income and advances in 
 gender rights.  However, South Africa has an average 
 HIV/AIDS prevalence rate of 21% for people aged 15-49. 
 Largely due to this high HIV/AIDS prevalence rate, life 
 expectancy dropped from 53 years in the period 1995-2000 
 to 49 years in the past five years.  South Africa's income 
 inequality was among the highest.  The richest 10% of the 
 population took 44% of the income, while the poorest 10% 
 got 1.4%.  This gave South Africa an inequality rating 
 worse than Zimbabwe or Niger, even though South African 
 per capita income was much higher.  On a Human Poverty 
 Index of developing countries, SA ranked in the middle, at 
 56 out of 103 countries.  South Africa's GDP per capita of 
 $3489 was higher than many of the countries of similar 
 rank, growing faster than Russia and the United Arab 
 Emirates.  Source:  SAPA, Business Day, September 8. 
 
TEITELBAUM