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RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #0600/01 0411246
ZNR UUUUU ZZH
R 101246Z FEB 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1500
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 000600 
 
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 FEBRUARY 10 2006 
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: 
 
 -  December Manufacturing Resumes Growth; 
 -  Survey Shows Slower 2005 SA Employment Growth; 
 -  Net Reserves Reach $18.7 Billion; 
 -  Growth Initiative Announced; 
 -  January Business Confidence High but Unbalanced; 
 -  November Retail Sales Come in High; and 
 -  Accelerated Land Reform Wanted. 
 End Summary. 
 
 December Manufacturing Resumes Growth 
 ------------------------------------- 
 
 ¶2.  As consumer demand remained strong during the 
 holidays, December's manufacturing production showed 
 higher growth at 6.6% (seasonally adjusted, y/y), compared 
 to November's growth of 4.1%.  For 2005 as a whole, 
 manufacturing production growth cooled as the rand 
 continued to strengthen albeit at a slower rate compared 
 to 2004.  2005's manufacturing production grew by 3.5% 
 compared to 2004's 4.4% growth.  The highest growing 
 sectors were food and beverages and motor vehicle and 
 parts at 6.4% and 11.1% respectively, with basic iron and 
 steel and machinery along with textiles showing declining 
 production of -0.6% and -2.2%, respectively.  Table 1 
 shows yearly manufacturing growth for the past three 
 years. 
 Table 1.                     2003     2004     2005 
 Manufacturing Production     -1.8%    4.4%     3.5% 
 Source:  Statistics SA Release, P3041.2, February 9. 
 
 Survey Shows Slower 2005 SA Employment Growth 
 --------------------------------------------- 
 
 ¶3.  According to Grant Thornton's 2006 Employment Growth 
 Index (EGI), manufacturing employment declined by 3% in 
 2005 compared to 2004's growth of 4.5% and accounted for 
 the reduced growth in overall 2005 employment.  Employment 
 in the manufacturing sector has shown similar weakness in 
 other recent surveys.  According to the Investec 
 Purchasing Managers' index (PMI), the manufacturing sector 
 activity could drop further.  The PMI, which measures 
 manufacturers' confidence levels, dropped below the 50 
 levels for the first time in more than two years in 
 January.  Over the past year, PMI manufacturing employment 
 index has remained consistently below 50, indicating 
 reduced employment levels.  On the positive side, other 
 major sectors reported sharp growth in employment.  The 
 construction, service and retail sectors reported 
 employment growth of 11%, 6% and 5%, respectively.  In 
 2004, these three sectors showed similar growth. 
 Employment in businesses having between 50 and 250 workers 
 expanded by 3% compared to 2004 and 2003's growth of 6% 
 and 5%, respectively.  All major South African cities 
 increased employment, with Cape Town's 6% growth the 
 highest.  Durban experienced the lowest growth at 1%. 
 Gauteng reported 2% growth, down from 6% in 2004, and Port 
 Elizabeth and East London were at 3%, compared to the 
 previous year's growth of 11%.  The EGI, which forms part 
 of the Grant Thornton 2006 International Business Owners 
 Survey, showed that on balance, 32% of all South African 
 respondents said they expected to increase their staff 
 complement in 2007.  Source:  Business Report, February 5. 
 
 ¶4.  Comment.  The Grant Thornton International Business 
 Owners Survey contacted 7,000 owners of medium sized 
 businesses from 30 countries.  In South Africa, 300 
 business owners who employ between 50 and 250 staff were 
 contacted.  End comment. 
 
 Net Reserves Reach $18.7 Billion 
 -------------------------------- 
 
 ¶5.  According to the South African Reserve Bank, net 
 reserves rose by $1.5 billion, reaching $18.7 billion at 
 the end of January, up from $17.19 billion at the end of 
 December.  Gross reserves increased to $22.2 billion from 
 $20.7 billion.  Net gold and foreign currency reserves 
 grew by 8.8% reaching levels of $2.2 and $19.9 billion, 
 
PRETORIA 00000600  002 OF 003 
 
 
 respectively, as foreign exchange purchases arising from 
 FDI-related transactions increased.  The rand strengthened 
 by 4.7% in January, in response to increased capital flows 
 and high precious metals prices.  In January, the rand 
 averaged 6.09 per dollar and the average gold price 
 reached $571.22 per ounce, an 11% monthly increase. 
 Source:  Business Day, February 8. 
 
 Growth Initiative Announced 
 --------------------------- 
 
 ¶6.  President Mbeki announced the Accelerated and Shared 
 Growth Initiative of South Africa (ASGISA), and described 
 ASGISA as a limited set of interventions designed to 
 accelerate overall Accelerated and Shared Growth 
 Development whose ultimate goal is to halve unemployment 
 and poverty by 2014.  ASGISA focuses on microeconomic 
 reforms to ameliorate the high costs of intermediate 
 inputs and regulatory environment, rather than any change 
 to its overall macroeconomic policies.  Deputy President 
 Mlambo-Ngcuka provided more details, emphasizing the 
 shared commitment necessary to achieve sustainable and 
 balanced economic growth.  Six economic constraints and 
 selected government interventions designed to accelerate 
 growth were identified.  The following constraints were 
 cited:  (1) volatility and level of the currency, (2) 
 costs, efficiency and capacity of the national logistics 
 system; (3) shortage of skilled labor; (4) limited 
 competition and new investment opportunities; (5) 
 regulatory environment and its burden on small and medium 
 businesses; and (6) deficiencies in state organization, 
 capacity and leadership.  The following types 
 interventions were recommended:  (1) improving 
 infrastructure, (2) encouraging certain sectors with 
 priority industries being tourist and business process 
 outsourcing, (3) improving education and skills, (4) 
 developing the second economy, (5) improving public 
 administration; and (6) developing better government 
 budgeting and expenditure management.  Most of the 
 infrastructure projects are aimed at improving the Durban- 
 Gauteng transport corridor, building a wireless broadband 
 network through the parastatal Sentech, and construction 
 of a new dam in Limpopo Province.  Source:  Business Day, 
 February 7; www.info.gov.za. 
 
 January Business Confidence High but Unbalanced 
 --------------------------------------------- -- 
 
 ¶7.  The January South African Chamber of Business 
 (SACOB)'s Business Confidence Index (BCI) rose to record 
 high level of 131, primarily because of the financial 
 sector's strength.  SACOB's BCI contains 13 indices 
 representing economic trends impacting confidence, among 
 which include manufacturing production, liquidations, core 
 inflation, the real prime interest rate, the gold price 
 and the rand exchange rate.  According to SACOB, over 90% 
 of the January index improvement was caused by trends and 
 developments in financial markets rather than any real 
 economic activity.  Only one financially related index 
 declined in January, while five of the real economic 
 indicators worsened.  SACOB fears that the unbalanced 
 nature of business confidence reflects a further 
 unbalanced South African growth.  Source:  Business Day, 
 February 8. 
 
 November Retail Sales Come in High 
 ---------------------------------- 
 
 ¶8.  South Africa's retail sales accelerated to 8.1% in 
 November, compared to October's increase of 7%, according 
 to Statistics SA.  Real quarterly retail sales increased 
 by 6.8% and sales for the first 11 months were up 6.5% 
 y/y.  At its February monetary policy committee meeting, 
 the South African Reserve Bank (SARB) listed strong 
 consumer spending and credit demand, as well as higher 
 food inflation and persistently high oil prices, as 
 threats to the inflation outlook.  SARB governor Tito 
 Mboweni stated that two of the main risks, oil and food 
 prices, were exogenous, and the Bank was disinclined to 
 react to them unless they had second-round price impacts. 
 Strong consumer demand growth has been a major reason for 
 the above 3% GDP growth over the past several years.  The 
 November's surge in retail sales growth reinforces 
 expectations that interest rates will remain unchanged for 
 
PRETORIA 00000600  003 OF 003 
 
 
 the first half of 2006.  Source:  Reuters, Business Day 
 and Business Report, February 9. 
 
 Accelerated Land Reform Wanted 
 ------------------------------ 
 
 ¶9.  President Thabo Mbeki announced in the State of the 
 Union address that the government would review its willing 
 seller, willing buyer approach to land restitution, 
 following both international and domestic legal standards. 
 Tozi Gwanya, chief Land Claims Commissioner, said that 
 government will start procedures to expropriate land from 
 owners where negotiations have lasted more than several 
 years.  The South African government estimates that 96% of 
 commercial farmland is owned by whites, making up 
 approximately 10% of the population.  The government wants 
 to transfer 30% of commercial farmland to blacks by 2014, 
 but so far less than 4% has been transferred.  Settling 
 land claims of those who were forced off their land during 
 the apartheid regime is also a government priority.  South 
 Africa has settled 67,000 land claims out of 79,000, 
 although 7,000 rural claimed remain.  The government's 
 target of settling all land claims by March 2008 is seen 
 as key to social stability, important for an improved 
 investment climate.  (Business Day, February 9) 
 
 TEITELBAUM