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RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #4592/01 3221123
ZNR UUUUU ZZH
R 181123Z NOV 05
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0063
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 PRETORIA 004592 
 
SIPDIS 
 
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 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT:  SOUTH AFRICA ECONOMIC NEWSLETTER November 18 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: 
 
 -  September Manufacturing Production Picks Up; 
 -  World Bank Launches 2006 Development Report; 
 -  Slow Internet and High Cost Obstacle to South African Online 
 Shopping; 
 -  Deputy President Views Lack of Skills as a Danger to SA's 
 Continued Gains; 
 -  NAFCOC Sets Targets for Small Business Sector; 
 -  Credit Demand Expected to Remain High in 2006; and 
 -  Fraud Still Perceived as Problem to SA Firms; 
 End Summary. 
 
 SEPTEMBER MANUFACTURING PRODUCTION PICKS UP 
 ------------------------------------------- 
 
 ¶2.  South Africa's manufacturing output rose by 5.9% in 
 September up from August's 4% growth, primarily due to 
 production increases in the petroleum industry, according 
 to Statistics South Africa (StatsSA).  Compared with 
 August, manufacturing production rose by a seasonally 
 adjusted 2.2%.  In the three months to the end of 
 September, it rose by 1.8% compared to the previous 
 quarter.  The petroleum, chemical and rubber and plastics 
 sector contributed most to growth, followed by the food, 
 motor vehicle and wood and printing sectors.  The basic 
 metals and machinery and textile sectors were the only two 
 sectors with negative growth during September. 
 Manufacturing is the second-biggest sector of the South 
 Africa's economy, accounting for more than 16% of gross 
 domestic product.  Source:  Reuters, StatsSA Release 
 P3041.2, November 17. 
 
 WORLD BANK LAUNCHES 2006 DEVELOPMENT REPORT 
 ------------------------------------------- 
 
 ¶3.  At the launch of the World Bank's 2006 World 
 Development Report (WDR), the authors stressed the 
 importance of equity in achieving high economic growth and 
 prosperity.  World Bank economist Francisco Ferreira 
 emphasized the importance of early education, local 
 government's capacity to provide access to water, 
 transportation and health services and broad access to 
 finance as key determinants to increased equity and 
 growth.  The 2006 WDR focused on equity and development, 
 where equity was defined as equality of opportunities, 
 that are not predetermined by race, gender, or wealth.  At 
 the report's launch, several economists discussed local 
 constraints facing the South African government in 
 providing rapid growth and improved equity.  Local 
 government's capacity, skill development, and lack of 
 investment were repeatedly cited as South Africa's 
 challenges.  Iraj Abedian, from Pan African Capital 
 Holdings, viewed inefficiencies of the state in providing 
 infrastructure as more prominent at local governmental 
 levels and advocated immediate action to remedy the 
 situation.  He also pointed out the lack of African 
 investment in Africa, stating that 50% of African 
 investments are made outside the continent.  In addition, 
 matching the skills and training to the needs of the 
 business was crucial for sustaining employment gains. 
 Elias Masilela, a former Treasury Deputy Director General 
 and now a Sanlam (a financial services company) executive, 
 thought that the government should ensure that nobody 
 experiences extreme poverty and that this required 
 government intervention, as one could not rely on markets 
 to provide everything.  Sound institutions, especially at 
 the local government level, had to be created to empower 
 the poor with knowledge and offer more choices by ensuring 
 competition.  When asked what South Africa could do in the 
 short term to alleviate poverty and promote equity, 
 Ferreira suggested that conditional grants, whether linked 
 to education or health, were preferable to unconditional 
 grants.  Source:  I-Net Bridge, November 15 and 16. 
 
 SLOW INTERNET AND HIGH COST OBSTACLE TO SOUTH AFRICAN 
 ONLINE SHOPPING 
 --------------------------------------------- -------- 
 
 ¶4.  Recent research shows that online shopping is a 
 
PRETORIA 00004592  002 OF 003 
 
 
 growing retail trend internationally, with accelerated 
 growth in emerging markets.  The South African market, 
 however, is lagging behind as a result of slow internet 
 speeds and the high cost of connections.  An annual 
 research report on the South African online retail market 
 by Arthur Goldstuck suggested that there are approximately 
 300,000 active online shoppers, accounting for less than 
 10% of South African internet users.  Online retail 
 accounts for about 0.14% of general retail in South 
 Africa, compared with 1.6% in other parts of the world. 
 According to Goldstuck, access to higher and cheaper 
 bandwidth is essential for the growth of the South African 
 online retail market and unless the telecommunications 
 authorities deregulate the market more effectively, online 
 retail sales will stagnate.   Airline tickets are the most 
 popular item bought online in South Africa, with groceries 
 and books being the next most popular online products. 
 Source:  Business Day, November 16. 
 
 DEPUTY PRESIDENT VIEWS LACK OF SKILLS AS A DANGER TO SA'S 
 CONTINUED GAINS 
 --------------------------------------------- ------------ 
 
 ¶5.  Deputy President Phumzile Mlambo-Ngcuka warned that 
 unless South Africa tackled its skills shortages at all 
 levels of the economy, it could undo "all the gains of the 
 past 11 years."  She said the government had identified 
 certain categories of skills that were critical to 
 implement programs needed to shift growth higher. 
 Financial skills were needed, especially in municipalities 
 that had received unfavorable audit reports.  These 
 municipalities also needed more engineering skills and 
 economic planners.  All these efforts should build up a 
 core group of people that could be deployed to the rural 
 areas that needed them the most.  Where local talent is 
 lacking, people would be recruited from abroad, although 
 the government's first preference is South Africans who 
 have retired or who are living overseas and now want to 
 come back.  Skilled people from other African countries 
 would also be recruited.  Source:  Business Day, November 
 ¶15. 
 
 NAFCOC SETS TARGETS FOR SMALL BUSINESS SECTOR 
 --------------------------------------------- 
 
 ¶6.  The National African Federated Chamber of Commerce and 
 Industry (NAFCOC) wants to establish and sustain 100,000 
 new small, medium and micro- enterprises (SMME) every 
 year.  NAFCOC President Patrice Motsepe said there were 
 currently 1.2 million SMME businesses, employing more than 
 60% of the private sector.  The recent nationwide SMME 
 Survey 2005 identified insufficient expertise as a greater 
 stumbling block to the growth of small businesses than the 
 often-cited lack of access to finance.  During its annual 
 general meeting in Durban next week, NAFCOC will focus its 
 discussions on the development of small businesses. 
 NAFCOC was formed in 1964 as the National African Chamber 
 of Commerce to tackle the hostile environment facing black 
 business at the time.  Source:  Business Day, November 15. 
 
 CREDIT DEMAND EXPECTED TO REMAIN HIGH IN 2006 
 --------------------------------------------- 
 
 ¶7.  According to business consulting firm KreditInform, 
 73% of the 160 businesses surveyed in its latest 
 KreditBarometer expect an increase in new credit 
 applications in the next 12 months, despite the prospect 
 of future higher interest rates.   Only 2% expect a 
 decline in credit applications, while 21% expect them to 
 remain constant.  Two-thirds of respondents also said the 
 size of credit limits would increase, while 30% felt they 
 would remain unchanged.  According to Gavin Long, Manager 
 of Specialist Products at KreditInform, most businesses 
 expect a small and steady increase in interest rates but 
 not enough to affect economic output and demand for 
 credit.  Another indication of strong credit demand 
 continuing is the strength of loans financed.  The Micro 
 Finance Regulatory Council reported record loans by 
 microfinanciers of R6.3 billion ($940 million, using 6.7 
 rands per dollar) from June until August 2005, an increase 
 of 9% compared to the same period in 2004.  Most of the 
 growth was due to the size of the loans, rather than an 
 increase in number.  Recent statements by leading 
 governmental financial policymakers caution that interest 
 
PRETORIA 00004592  003 OF 003 
 
 
 rates may rise in the near future.  Finance Minister 
 Trevor Manuel pointed to higher interest rates, saying 
 domestic rates were unlikely to remain low as interest 
 rates rise globally.  He also cautioned against rising 
 debt levels in a higher interest rate environment.   Colen 
 Garrow, economist at financial services company Brait, 
 said while an increase of 50-100 basis points in the prime 
 lending rate might dampen credit growth, it would be 
 unlikely to halt it.  Source:  Business Day, November 17. 
 
 FRAUD STILL PERCEIVED AS PROBLEM BY SA FIRMS 
 -------------------------------------------- 
 
 ¶8.  According to a KPMG survey, 64% of South African firms 
 surveyed believed that fraud was a major problem.  The 
 Consumer Profile Bureau also pointed out that 65% of 
 businesses in Africa were complaining about higher levels 
 of fraud.  Businesses viewed background checks and credit 
 screening as essential tools in preventative measures to 
 prevent fraud.  In South Africa, the ease of obtaining 
 duplicate identification documents from the Department of 
 Home Affairs was cited as the most critical problem, while 
 strong concerns were expressed about the proposed National 
 Credit Bill's regulations that would prevent credit 
 bureaus from issuing a negative credit report for amounts 
 under R100 and a one-time deletion of information older 
 than three years on repayment history.  Credit industry 
 analysts assert that these regulations would mean credit 
 might have to be extended to someone who did not have a 
 debt repayment history.  Source:  Business Report, 
 November 17. 
 
TEITELBAUM