VZCZCXRO4746
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #4969/01 3570731
ZNR UUUUU ZZH
R 230731Z DEC 05
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0608
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 004969 
 
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 December 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: 
 
 -  Second Phase of BEE Codes Released; 
 -  Unemployment SA's Challenge in 2005; 
 -  Black Incomes Could Prolong Consumer Demand Growth; 
 -  South African Charity; and 
 -  SA Tourist Arrivals Up; 
 End Summary. 
 
 Second Phase of BEE Codes Released 
 ---------------------------------- 
 
 ¶2.  The Department of Trade and Industry (DTI) released 
 for public comment the second phase of the Black Economic 
 Empowerment (BEE) codes of good practice, which outline 
 multinational companies and small enterprise BEE 
 requirements.  In terms of the codes, equity ownership 
 scores 20 BEE points out of 100, but foreign corporations 
 would be allowed to accumulate the 100 points through 
 other requirements.  Multinational companies that meet 
 specific criteria will be given alternative options in 
 lieu of black equity ownership.  DTI's Acting Chief 
 Director on BEE, Polo Radebe, said that in order to 
 qualify for the alternative option, a multinational would 
 have to submit evidence that it had a global policy in 
 place to maintain 100% ownership of its foreign 
 subsidiaries.  One of the alternative options will be to 
 launch job-creating projects in government-identified 
 strategic economic sectors.  Other options include 
 preferential procurement, skills development and small 
 business development as areas where multinationals could 
 score points.  Foreign companies also have the option to 
 participate in public programs, which would be regarded as 
 equity equivalents.  Participation would, however, have to 
 equal 25 percent of their local operations in order for 
 them to score full ownership points.  Polo Radebe said 
 foreign companies could also meet ownership requirements 
 by selling offshore equity equivalent to 25% of domestic 
 operations to local black individuals. 
 
 ¶3.  Clarification regarding small business requirements in 
 meeting BEE goals was also released as well as plans for 
 creating an exit mechanism for black investors while 
 allowing the companies to keep their empowerment status. 
 The codes say "qualified small enterprises" (the code 
 defined qualified small enterprises' revenue and employee 
 limits for different economic sectors) can choose to meet 
 only five of the seven scorecard elements.  DTI plans to 
 create a new warehousing fund that will buy shares from 
 black investors wanting to divest from empowerment deals. 
 DTI Deputy Director-General Lionel October said the 
 warehousing function would hopefully lead to less 
 stringent lock-in clauses in empowerment deals, which 
 typically prevented black partners from selling their 
 shares before a certain time, even if there were 
 legitimate reasons.  To use the fund, a company must have 
 already found new black shareholders to whom it wanted to 
 sell, and the fund could only warehouse shares for a 
 maximum of three years.  If the new black investors can't 
 come up with funding during that time, the fund will try 
 to find replacements.  Industry has three months to 
 comment on the draft legislation, and the final version 
 may be ready for implementation by November 2006.  Source: 
 Business Day and Business Report, December 21. 
 
 Unemployment SA's Challenge in 2005 
 ----------------------------------- 
 
 ¶4.  Patrick Craven, from the Congress of South African 
 Trade Unions (Cosatu), identified unemployment and 
 contract labor as one of the biggest challenges facing 
 South Africa.  The increasing wage gap between the poorest 
 workers and top South African executives, inherited from 
 the apartheid era, is another challenge the union plans to 
 address.  Craven said that the income gap, unemployment, 
 increasing use of contract labor, and a reduction in the 
 quality of jobs were among the reasons for a number of 
 strikes in 2005.  In 2005, South Africa experienced 
 strikes in the mining, steel and engineering, glass, 
 airport baggage handling, retail, electrical and other 
 
PRETORIA 00004969  002 OF 003 
 
 
 small sectors.  South Africa's official rate of 
 unemployment is 26.5%, while the expanded version, which 
 includes discouraged workers, is above 40%, according to 
 Statistics SA.  Man-days lost to strikes and other forms 
 of work stoppages more than doubled to 2.2 million days 
 during the first nine months of 2005 from 1.05 million 
 during the same period in 2004, according to the South 
 African Reserve Bank's December 2005 Quarterly Bulletin. 
 Industrial action was largely related to wage disputes, 
 which accounted for 88.7 percent of the number of man-days 
 lost during the first three quarters of 2005.  Source:  I- 
 Net Bridge, December 19. 
 
 Black Incomes Could Prolong Consumer Demand Growth 
 --------------------------------------------- ----- 
 
 ¶5.  The black middle class has grown by 30% in the past 12 
 months, adding another 421,000 black adults to South 
 Africa's middle-income group and increasing the black 
 population's share of South Africa's total middle class to 
 almost a third, according to the 2005 All Media and 
 Product Survey (AMPS) data released by the SA Advertising 
 & Research Foundation (SAARF).  A Financial Mail article 
 defined the black middle income group as Living Standard 
 Measure 7-9, correlating to average monthly household 
 incomes ranging from R6,444 ($1,020, using 6.3 rands per 
 dollar) to R11,864 ($1,880).  In the period between 2001 
 and 2004, there were only 300,000 new black entrants to 
 the middle class, but in just the past 12 months another 
 420,000 have joined, growing 30% in 12 months.  Over the 
 past 12 months, LSM 8 grew by 42.6%, the largest increase 
 in black members for any LSM category.  During the same 
 period, LSMs 1-3 (the lowest income categories) declined 
 by 802,000 blacks.  LSM 10 (average monthly income of 
 R18,822 or $2990) increased by 18,000 blacks (17.6% 
 growth) in 12 months.  However, the total number of blacks 
 in LSM 10 in 2005 was still only 120,000 people or 0.07% 
 of all blacks, whereas a third of all whites are in LSM 
 ¶10.  South African blacks have raised their share of the 
 total middle class from 28.4% in 2003/2004 to 32.6% in 
 2004/2005.  During the same period, whites' share of the 
 total middle class fell from 45.4% to 41%.  Between 1993 
 and 2003, though the demographic composition of the 
 population remained more or less the same, black 
 households' contribution to total household expenditure 
 increased from 36% to 46%, making blacks the country's 
 biggest consumer base.  Source:  Financial Mail, December 
 16 issue and Sunday Times, December 15. 
 
 South African Charity 
 --------------------- 
 
 ¶6.  According to the State of Giving Project survey, South 
 Africans contribute 2.2% of the monthly income of working 
 age population to poverty alleviation and development. 
 About 17% of respondents volunteered their time, with 
 poorer people giving more time.  More than half of 
 respondents (54%) have given money to charities or other 
 causes, a third (31%) gave food or goods, while less than 
 a fifth (17%) volunteered time for a charity or cause. 
 The survey questioned more than 3,000 South Africans over 
 the age of 18, including those living in informal 
 settlements and rural areas.  Top priorities of charity 
 included the youth (22%), HIV/AIDS (21%) and the poor 
 (20%), with less than 8% giving to international causes. 
 Differences in largesse between gender and race groups 
 were slight, and there were similarly slight differences 
 between levels of education and socioeconomic status. 
 However, there were variations between the provinces. 
 Less than half of Gauteng's citizens (41%) gave money and 
 12% gave time, while 49% in Eastern Cape gave money and 
 16% gave time.  Source:  Business Day, December 19. 
 
 SA Tourist Arrivals Up 
 ---------------------- 
 
 ¶7.  According to Statistics SA, the number of overseas 
 tourists to South Africa in July 2005 increased 7.8%, with 
 arrivals from the U.K. and Germany still showing recent 
 growth.  There was recently a decline in the numbers of 
 arrivals from these markets, attributed to the strong 
 rand.  Statistics SA's overseas arrivals in July increased 
 to 148, 212 from 137,538 in the corresponding period 2004, 
 and most of these were from the U.K. (29,537), U.S. 
 
PRETORIA 00004969  003 OF 003 
 
 
 (25,793) and Germany (12,013).  At 17.6%, the U.S. showed 
 the biggest increase in arrivals, while there was a 30.9% 
 decrease in tourists from France.  The number of tourists 
 from other African countries increased 26%, from 381,846 
 in July 2004 to 481,109 in July 2005.  Lesotho accounted 
 for 28.8% of tourists, followed by Swaziland (16.2%) and 
 Botswana (15.5%).  SA Tourism Chief Executive Officer 
 Moeketsi Mosola, said each tourist spent on average R408 
 ($65) more than in the corresponding period last year. 
 Tourism contributed R93.6 billion ($15 billion), or 7.4%, 
 to the national economy in 2004.  Second-quarter figures 
 from SA Tourism showed that African countries had made the 
 biggest contribution to total foreign direct spending in 
 South Africa, followed by Europe.  Source:  Business Day, 
 December 21. 
 TEITELBAUM