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 003821 
 
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 16 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: 
 
 -  South Africa Improves in World Bank's Business 
    regulation Index; 
 -  Import-Parity Pricing Might Be Phased Out; 
 -  Eastern Cape Municipal Finances in Disarray; 
 -  Transport Survey Reveals Concerns; and 
 -  Unemployed Not Getting Job Information. 
 
 End Summary. 
 
 SOUTH AFRICA IMPROVES IN WORLD BANK'S BUSINESS REGULATION 
 INDEX 
 --------------------------------------------- ------------ 
 
 ¶2.  Doing Business in 2006, a report cosponsored by the 
 World Bank and International Finance Corporation, ranked 
 South Africa 28th out of 155 nations in its ease of doing 
 business, higher than Israel, Spain, Taiwan, Saudi Arabia 
 and France.  In last year's report, South Africa's ranking 
 was in the low 30s, suggesting that the country has made 
 progress in creating an environment conducive to 
 investment.  Overall, the World Bank rated South Africa as 
 one of the countries with the "most business-friendly 
 conditions" but warned that there were dire problems 
 elsewhere in Africa.  For example, Madagascar's minimum 
 cost of starting a company rose to $5350 - 25 times the 
 average annual income.  If all taxes were paid in Sierra 
 Leone, they would comprise 165 percent of a company's 
 gross profit.  The report noted in Mozambique it takes 153 
 days to register a new business.  In South Africa, it 
 costs less to start a business here than it did last year, 
 down from 9.1 percent to 8.6 percent of per capita income. 
 The country also scored well on investor protection, with 
 the strength of shareholder protection and extent of 
 disclosure both rated eight out of 10.  These ratings 
 equaled UK's performance, and were better than Australia 
 or Denmark.  In an index of labor inflexibility, South 
 Africa scored below the average for any region.  Though it 
 was as hard to hire workers in South Africa as last year, 
 it had become 10 percent easier to fire them.  The top 30 
 economies in the world in terms of the report's ease-of- 
 doing-business index, in order, were New Zealand, 
 Singapore, the United States, Canada, Norway, Australia, 
 Hong Kong/China, Denmark, the United Kingdom, Japan, 
 Ireland, Iceland, Finland, Sweden, Lithuania, Estonia, 
 Switzerland, Belgium, Germany, Thailand, Malaysia, Puerto 
 Rico, Mauritius, the Netherlands, Chile, Latvia, Korea, 
 South Africa, Israel, and Spain.  Doing Business reports 
 use a set of regulatory indicators related to business 
 startup, operation, trade, payment of taxes, and closure 
 by measuring the time and cost associated with various 
 government requirements; the reports do not track 
 variables such as macroeconomic policy, quality of 
 infrastructure, currency volatility, investor perceptions, 
 or crime rates.  Source:  Business Day and 
 www.worldbank.org, September 14. 
 
 IMPORT-PARITY PRICING MIGHT BE PHASED OUT 
 ----------------------------------------- 
 
 ¶3.  Trade and Industry Minister Mandisi Mpahlwa alluded to 
 a possible phasing out of import-parity pricing, saying 
 that a set of policy proposals developed by the Trade and 
 Industry Department would be submitted to the cabinet in 
 the next month.  Government launched a study into the 
 effects of import parity pricing in 2004 although the 
 results have not yet been released.  Mpahlwa has said on 
 several occasions recently that prices of some raw 
 materials were significantly higher in South Africa than 
 in other countries.  Efforts to increase value-added 
 product manufacturing in South Africa have had limited 
 success to date and analysts blame import-pricing parity 
 (the domestic pricing of raw materials at international 
 prices) as a primary culprit.  Mpahlwa also gave strong 
 assurance that the government did not intend making major 
 changes to the support the automotive industry enjoyed 
 through the Motor Industry Development Program (MIDP). 
 The government recognized the importance of the automotive 
 industry, citing its 7.2 percent contribution to gross 
 domestic product in 2004.  The industry is the third 
 largest sector in the domestic economy and accounts for 33 
 percent of manufacturing output.  Source:  Business Day, 
 September 14. 
 
 EASTERN CAPE MUNICIPAL FINANCES IN DISARRAY 
 ------------------------------------------- 
 
 ¶4.  Most municipalities' finances in the Eastern Cape 
 Province are in a bad shape, with most local authorities 
 unable to calculate how much money they are owed for 
 services rendered.  Local government Member of Executive 
 Council Sam Kwelita stated only two municipalities out of 
 more than 40 had received unqualified audit reports from 
 the auditor-general, while a significant number had not 
 bothered in eight years to report their finances for an 
 audit by the auditor-general.  Of the 36 municipalities 
 that had been audited, 10 received qualified reports and 
 24 had "disclaimers" attached to the audit reports, mainly 
 concerning the late submission of financial statements. 
 Since 2001, 34 investigations had been conducted into 
 inadequate administration in local government in Eastern 
 Cape.  The Eastern Cape along with the provinces of the 
 Western Cape, Free State and Mpumalanga presented the 
 state of their finances to Parliament's Local Government 
 Portfolio Committee during the past few weeks.  Deficits 
 and poor financial record-keeping were some of the common 
 elements.  Reports from these provinces showed large 
 disparities between the budgeted income of most 
 municipalities and what was actually collected. 
 Municipalities across the country are owed more than R40 
 billion ($6.3 billion, using 6.3 rands per dollar), mostly 
 because of the refusal by consumers to pay and the 
 inability of local councils to collect what is owed to 
 them.  Eastern Cape was able to supply only budgeted 
 figures and not actual figures for its towns.  Eastern 
 Cape municipalities were also owed R80 million ($13 
 million) by government departments.  The worst offenders 
 were the Department of Public Works at R27 million ($4.3 
 million) and the Department of Education at R21 million 
 ($3.3 million).  Like Free State, Eastern Cape has 
 recently experienced street protests and violence as 
 communities have complained about poor service delivery. 
 Source:  Business Day, September 14. 
 
 TRANSPORT SURVEY REVEALS CONCERNS 
 --------------------------------- 
 
 ¶5.  A recent comprehensive survey of household transport 
 use has found high levels of public dissatisfaction with 
 all forms of public transport.  The national household 
 travel survey, which interviewed 45000 households, found 
 that 30 percent of all households regarded personal safety 
 as a serious public transport issue, either because of 
 motor accidents or crime.  The highest level of concern 
 was about minibus taxi accidents and bad driver behavior. 
 Only 30 percent of all households interviewed did not 
 experience any serious transport problems with 82 percent 
 of rural households, 73 percent of metropolitan households 
 and 59 percent of urban households complaining about 
 serious transport problems.  Currently, minibus taxis, 
 which carry 64 percent of the country's passengers, are 
 unsubsidized, while rail and buses get R2.5 billion ($400 
 million) and R2.2 billion ($350 million) in government 
 subsidies annually.  The survey found that 48 percent of 
 all households experience problems with access to 
 transport, particularly in rural areas, with 76 percent 
 having no access to train services; 38 percent no access 
 to bus services; and 9 percent no access to taxi services. 
 Only 10 percent of those surveyed could access a train 
 within 15 minutes of their homes.  The survey found that 
 of the nearly 10 million people who travel regularly to 
 work, about 3.9 million use public transport, 64 percent 
 of them relying on taxis (despite taxis being more 
 expensive), 21 percent on buses and 15 percent on trains. 
 Twenty-three percent of all households find transport too 
 expensive, spending on average R170 ($22, using 7.56, the 
 2003 rand per dollar exchange rate) a month on trains; 
 R200 ($26) on buses; and R220 ($29) on minibus taxis (at 
 2003 prices).  Eighteen-percent of households spend more 
 than 20 percent of their household income on public 
 transport and 18 percent (1.7 million) of commuters travel 
 for more than two hours a day to work.  Problems in the 
 transport sector include:  (1) inadequate regulation and 
 law enforcement; (2) destructive competition within and 
 between modes of transport; (3) poorly trained and 
 undisciplined drivers; (4) age and poor condition of 
 equipment; and (5) services ill-matched to the needs of 
 consumers.  Source:  Business Day and Allafrica.com, 
 September 14. 
 
 UNEMPLOYED NOT GETTING JOB INFORMATION 
 -------------------------------------- 
 
 ¶6.  Inefficient information flows in the job markets may 
 be one of the factors contributing to youth unemployment, 
 according to the latest South African Reserve Bank 
 publication Labor Market Frontiers.  The lack of matching 
 job seekers with opportunities may be contributing to 
 unemployment being worse for those without job-seeking 
 skills such as proper interview techniques.  The lower the 
 level of education of the unemployed, the more likely it 
 was that job seekers inquired directly at workplaces.  Job 
 advertisements appeared to reach mainly those with high 
 school or tertiary education.  Nearly 70 percent of those 
 without any schooling looked for jobs by making direct 
 inquiries; this percentage dropped to 32 percent among 
 those with tertiary education.  By contrast, the 
 percentage responding to advertisements increased with the 
 level of education from about 2 percent among those with 
 no education to 24 percent for those with completed 
 secondary education and 52 percent at the tertiary level. 
 White people were more likely to depend on relatives or 
 friends in their job searches, while coloured people were 
 most likely to make direct inquiries at places of 
 employment.  Of South Africa's more than 3 million 
 unemployed youth, only about 3 percent had received job 
 offers in the previous six months.  Another study in Labor 
 Market Frontiers found that most of the formally employed 
 with some tertiary qualifications were in non-science, non- 
 technical fields such as education, business, commerce and 
 management studies.  In addition, most of those in formal 
 employment merely have high school education, often 
 incomplete, rather than vocational or industry-related job 
 training.  Source:  Business Day, September 14. 
 
TEITELBAUM