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

231452Z Sep 05

UNCLAS SECTION 01 OF 03 PRETORIA 003923 
 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR OAISA/RALYEA/CUSHMAN 
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 23 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: 
 
 
 -  Credit Blacklist Review; 
 -  IMF Report on South Africa; 
 -  IMF Increases Growth Prospects for Africa; 
 -  Business Confidence Up Despite Oil Prices; 
 -  Water Price Increases Expected; 
 -  Manuel Complains About SMME Underspending; and 
 -  SA Concludes Free Trade Agreement with EFTA. 
 End Summary. 
 
 CREDIT BLACKLIST REVIEW 
 ----------------------- 
 
 ¶2.  The Department of Trade and Industry (DTI) introduced 
 a new clause in the National Credit Bill, still being 
 considered by Parliament, requiring DTI to produce 
 regulations on how the credit bureaus maintain, verify and 
 remove information about consumer debt.  Proponents of 
 removing all negative credit data from credit bureaus' 
 databanks assert that blacklisting results in further 
 indebtedness of the poor, who are then charged much higher 
 interest rates using unconventional loan sources.  DTI 
 proposals include the deletion of default and judgment 
 information for amounts under R100 within the first three 
 months of the regulations' implementation and a one-time 
 deletion of information on paid-up judgments older than 
 three years.  Source:  Business Day, September 19. 
 
 IMF REPORT ON SOUTH AFRICA 
 -------------------------- 
 
 ¶3.  The International Monetary Fund (IMF) released its 
 annual Article IV report on South Africa, projecting 3.4 
 percent growth over the next five years without any major 
 policy interventions.  The IMF report praised the short- 
 term South African economic outlook, but noted that South 
 Africa faces major long-term challenges, namely high 
 unemployment, widespread poverty and high prevalence of 
 HIV/AIDS.  Several recommendations for increasing economic 
 growth and job creation included: relaxing centralized 
 collective bargaining, simpler minimum wage system, and 
 streamlining dismissal procedures; further liberalization 
 of tariffs; and increased privatization of state-owned 
 enterprises.  The report described several possible growth 
 scenarios, with one scenario accelerating structural 
 reforms (labor market reform, trade liberalization, public 
 enterprise reforms with increased privatization) and 
 another scenario highlighting South Africa's public sector 
 debt sustainability.  The IMF report asserted that if 
 accelerated reforms were enacted, South African growth 
 would reach 5.5 percent by 2010 and the unemployment rate 
 would fall to 18.3 percent from its current level of 26.5 
 percent.  The scenario testing of South Africa's debt 
 sustainability concluded that South Africa's external debt 
 position and financing needs are robust to a range of 
 shocks, reflecting a relatively low level of debt and 
 favorable debt structure.  Source:  Sunday Times, 
 September 18; Business Day, September 19; www.imf.org. 
 
 IMF INCREASES GROWTH PROSPECTS FOR AFRICA 
 ----------------------------------------- 
 
 ¶4.  Despite HIV/AIDS, the working-age population in sub- 
 Saharan Africa should increase substantially in the next 
 40 years, holding out welcome prospects for faster growth 
 and healthier investment, according to the International 
 Monetary Fund (IMF).  In its twice-yearly World Economic 
 Outlook, the IMF predicted that sub-Saharan African 
 economic growth should reach 5.9 percent in 2006, compared 
 to 4.8 percent and 5.4 percent in 2005 and 2004, 
 respectively.  Growth of 5.9 percent would be the 
 strongest expansion in sub-Saharan Africa since the early 
 1970s.  The IMF attributed the expected slowdown in 2005 
 to weaker rises in non-oil commodity prices than were 
 enjoyed in 2004, notably in the cotton sector.  Favorable 
 2006 growth prospects are explained by the start of 
 operations at new oil production facilities in Angola and 
 Mauritania and higher oil production in Nigeria.  People 
 of working age today account for slightly under 55 percent 
 of the overall population, whereas that figure was closer 
 to 50 percent in 1990.  But in 2050, according to the IMF, 
 sub-Saharan Africa's working-age population should 
 constitute 65 percent of the total.  The report described 
 South Africa's prospects as favorable, with growth 
 projected at 4.3 percent in 2005 from 3.7 percent in 2004, 
 but decreasing to 3.9 percent in 2006.  Risks to South 
 Africa's growth include deterioration in commodity export 
 prices, elevated housing prices and high unemployment. 
 Nigerian growth is expected to slow to 3.9 percent this 
 year from 6 percent in 2004, and improve to 4.9 percent in 
 ¶2006.  Source:  SAPA-AFP, Business Report, September 22. 
 BUSINESS CONFIDENCE UP DESPITE OIL PRICES 
 ----------------------------------------- 
 
 ¶5.  Business confidence rose to near 24-year highs in the 
 third quarter, buoyed by strong domestic demand and low 
 interest rates, despite steep oil prices and domestic 
 strikes.  The index, which is compiled by the Bureau for 
 Economic Research at Stellenbosch University, and 
 sponsored by Rand Merchant Bank (RMB), rose to 86 points 
 in the third quarter 2005, compared to 82 in the previous 
 quarter.  Business confidence has been in positive for 15 
 successive quarters, and the index reached a 23-year 
 record of 88 in the third quarter of 2004.  Confidence in 
 the manufacturing sector increased in the third quarter, 
 to 68 from 61 in the second quarter, surprising many 
 analysts.  During the previous 18 months business 
 confidence in manufacturing remained in the low 60s, far 
 below other sectors, which had readings between 80 and 90. 
 The strong rand over the past three years has impacted 
 exports of the manufacturing sector (accounting for about 
 16 percent of gross domestic product (GDP).  The recovery 
 in the manufacturing sector has also been reflected in 
 Statistics SA's latest GDP figures.  The sector grew 7.3 
 percent in the second quarter, after contracting 1.9 
 percent in the first quarter.  Confidence rose in four out 
 of five of the sectors covered for the index.  In addition 
 to the manufacturing sector, new vehicles dealers' 
 confidence increased to 99 from 94 in the second quarter. 
 The building sector recorded confidence of 94, 
 wholesalers' confidence rose to 84, while retailers' 
 sentiment remained largely unchanged at 85.  Source: 
 Business Day, September 21. 
 
 WATER PRICE INCREASES EXPECTED 
 ------------------------------ 
 
 ¶6.  The South African government was considering 
 increasing water prices to reduce waste by the country's 
 bulk water users, according to Water Affairs and Forestry 
 Minister Buyelwa Sonjica.  Price increases were likely to 
 come into effect with the new national water-pricing 
 strategy in July 2006.  The expected increases will affect 
 commercial farmers, municipalities, electricity utility 
 Eskom, forestry companies and companies such as Sasol. 
 The changes will apply to raw or untreated water. 
 Commercial farmers currently pay about 3 rand cents a 
 cubic meter to extract water for irrigation, one of the 
 lowest costs in the world, considering government's 
 expenditure on infrastructure such as dams.  Irrigation 
 accounts for 50 percent of South African water use. 
 Sonjica said an increase in the tariffs was likely to 
 force the industrial sectors to reduce their water use. 
 The closing date for comment on the proposed reforms is 
 September 30.  Source:  Business Day, September 21. 
 
 MANUEL COMPLAINS ABOUT SMME UNDERSPENDING 
 ----------------------------------------- 
 
 ¶7.  Finance minister Trevor Manuel said that the 
 government had set aside R1.4 billion ($222 million, using 
 6.3 rands per dollar) in 2005 to help small, medium and 
 micro enterprises (SMMEs), but not enough money was 
 filtering through to the small business sector.  Manuel's 
 comments came on the same day that the Department of Trade 
 and Industry (DTI) was to present to the cabinet a new 
 strategy aimed at revitalizing the SMME sector.  The 
 strategy, which seeks to reduce red tape, improve access 
 to finance for SMMEs, and advance black economic 
 empowerment, is likely to result in extra funding request 
 by DTI.  However, Manuel seemed to think that the R1.4 
 billion was adequate, as the government had to focus its 
 resources on other priority areas such as health, 
 education and housing.  Manuel stated that the days of 
 granting tax incentives to large industrial projects that 
 did not create jobs were over.  The strategic investment 
 program has been cut, after it created 7,000 direct and 
 110,000 indirect jobs.  Treasury also cut plans to 
 introduce special tax incentives in the country's four 
 industrial development zones, which the DTI had hoped 
 would boost their investor appeal.  Since their beginning 
 in the late 1990s, the four zones (Coega, near Port 
 Elizabeth, East London, Johannesburg and Richards Bay) 
 have attracted less than R3.5 billion in planned 
 investments despite the government spending more than R4 
 billion on building their infrastructure.  Source: 
 Business Day, September 22. 
 
 SA CONCLUDES FREE TRADE AGREEMENT WITH EFTA 
 ------------------------------------------- 
 
 ¶8.  South African exports will have duty-free access to 
 European Free Trade Association (EFTA) members starting 
 next year under a recently concluded free-trade agreement. 
 EFTA members are Switzerland, Norway, Iceland, and 
 Liechenstein.  South Africa already agreed to a free-trade 
 agreement with the European Union.  The agreement allows 
 South African clothing manufacturers to use imported 
 fabric and still qualify for the duty-free and quota-free 
 access to EFTA markets.  Negotiations started early in 
 2003 and the goal is for the agreement to become effective 
 July 2006.  Southern Africa Customs Union negotiators look 
 to restart free trade talks with the United States next 
 week in Gaborone.  Source:  Business Day, September 22. 
 
 TEITELBAUM