VZCZCXRO2567
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #1123/01 0761037
ZNR UUUUU ZZH
R 171037Z MAR 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2274
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 001123 
 
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 MARCH 17 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: 
 
 -  Are SA's Growth Prospects Faltering?; 
 -  Energy Shortages will not Impact Higher Growth; 
 -  South Africa's Entrepreneurship Ranking Falls; 
 -  Value of BEE Transactions Decline but Numbers Increase; 
 -  Importance of Informal Sector Underestimated; and 
 -  South Africa Ranked 28th in Ease of Doing Business. 
 End Summary. 
 
 Are SA's Growth Prospects Faltering? 
 ------------------------------------ 
 
 ¶2.  The national strike by Transnet workers, coupled with 
 intermittent power outages in South Africa's Western Cape, 
 might lead to a GDP growth rate below 3% in the first 
 quarter 2006, according to several economists.  During the 
 last quarter of 2005, GDP grew by 3.3%; however, if the 
 Transnet strike is successful, ports, trains, commuter 
 railways and road freight operations, will be affected. 
 Metrorail, the Durban Container Terminal and the Richard's 
 Bay Terminal are expected to be the hardest hit.  T-Sec 
 chief economist Mike Schussler said that a one-day 
 national strike by more than 60,000 Transnet employees 
 could cost the economy R100 million ($17 million, using 6 
 rands per dollar) or more.  Standard Bank chief economist 
 Goolam Ballim said the cumulative effect of the strike, 
 along with Western Cape power cuts, could reduce GDP 
 growth by 0.5% in the first quarter in a worst-case 
 scenario.  The South African Chamber of Business asserted 
 that February's two-day strike at the Durban Container 
 Terminal had cost the economy R110 million a day. 
 However, Chris Hart, a senior ABSA bank economist who 
 forecasts first quarter 2006 GDP growth at 3.5%-4.5%, 
 discounted large negative impacts of a Transnet strike. 
 Unions are worried that the disposal of Transnet's noncore 
 assets, excluding South African Airways, could cost about 
 30,000 jobs.  Source:  Business Day, March 13. 
 
 Energy Shortages will not Impact Higher Growth 
 --------------------------------------------- - 
 
 ¶3.  In Parliament, Public Enterprises Minister Alec Erwin 
 denied that South Africa faces a national energy crisis, 
 asserting that tight reserve margins were the reasons for 
 the temporary power shortages.  South Africa's margin of 
 reserve-generation capacity of 8%-10% was much lower than 
 the desired 15%, because higher than expected economic 
 growth had led to tightening reserves.  Erwin denied that 
 investors were changing their minds about investing in 
 South Africa.  The South African government had no 
 knowledge that according to press reports, a Russian 
 aluminum firm, SUAL, reversed its decision to invest in an 
 aluminum smelter because of electricity-supply shortages. 
 Erwin insisted government was negotiating with only one 
 investor, Alcan, about a smelter at Coega.  Erwin 
 emphasized Eskom's plans to accelerate the spending of R84 
 billion ($14 billion) over the next five years on 
 maintenance, upgrading old plants and building new 
 capacity, and will spend an estimated $25 billion between 
 2010 and 2024 to almost double existing capacity.  Eskom 
 CEO Thulani Gcabashe expected a short-term 300MW-400MW 
 shortfall during morning and evening peak hours in Western 
 Cape over the next several months.  Gcabashe said Eskom 
 expected a peak demand of 35100MW nationally this year, 
 and had 36937MW of capacity. An abnormally cold winter 
 could add about 1000MW to peak demand.  Source:  Reuters, 
 March 14; Business Day, March 15. 
 
 South Africa's Entrepreneurship Ranking Falls 
 --------------------------------------------- 
 
 ¶4.  The 2006 Global Entrepreneurship Monitor (GEM) showed 
 that South Africa's entrepreneurship ranking had dropped 
 from 20th position out of 34 countries in 2004 to 25th 
 position out of 35 countries in 2005.  GEM differentiates 
 between businesses that are started because people sense 
 an opportunity to earn more money, for lifestyle reasons, 
 or simply a business opportunity, and those businesses 
 that are started because people have no other option.  The 
 
PRETORIA 00001123  002 OF 003 
 
 
 GEM report showed that less than 3% of businesses started 
 due to lack of options, such as those in the informal 
 sector, were likely to create a significant number of 
 jobs.  In addition, more educated people were more likely 
 to start a business, sustain a business, and employ 
 people.  In South Africa, tertiary educated adults create 
 employment 2.5 times more than those who only completed 
 secondary education, and 11 times greater than those who 
 had not completed secondary education.  In other 
 developing countries, there isn't such a large difference 
 between secondary and tertiary education,  so someone in 
 another developing country who has secondary education has 
 almost as much chance of being able to start a business 
 and employ people as someone with tertiary education.  GEM 
 revealed that South African Indians and whites were more 
 likely to start a business than "coloureds" and black 
 South Africans.  This is the fifth year that South Africa 
 has participated in the study, conducted by the University 
 of Cape Town (UCT) Center for Innovation and 
 Entrepreneurship at the UCT Graduate School of Business. 
 Source:  Business Report and Business Day, March 13. 
 
 Value of BEE Transactions Decline but Numbers Increase 
 --------------------------------------------- --------- 
 
 ¶5.  According to the BusinessMap Foundation Report, 
 announced black economic empowerment (BEE) transactions 
 amounted to R55 billion ($8.6 billion using 6.36 rands per 
 dollar, the 2005 average exchange rate) in 2005 compared 
 with BEE transactions worth R62 billion ($9.6 billion, 
 using 2004's average exchange rate of 6.45 rands per 
 dollar) in 2004.  The number of announced BEE transactions 
 increased in 2005 to 350 from 250 in 2004.  According to 
 BusinessMap, the top BEE deals by value for 2005 included 
 transactions of Old Mutual's R3.4 billion, Nedbank Group's 
 R3 billion, Transnet Retirement Funds Property Trust's 
 R1.4 billion, Growthpoint Properties' R1 billion, and 
 Nafcoc Investment Holding Company's agreement with Johnnic 
 Holdings, worth R675 million.  Black ownership of 
 companies trading on the JSE remained at 7%, 18 percentage 
 points lower than the government's 2014 ownership target 
 of 25%.  BusinessMap estimated that 10% of listed 
 companies were owned by BEE firms.  However, given that 
 most of these companies were only 50% owned directly by 
 black individuals, this meant that there was direct black 
 ownership of listed companies of around 5%, with 7% of the 
 value of assets owned by blacks.  If BEE activity included 
 the frequency of general business activity rather than by 
 number of financial transactions, then BusinessMap 
 estimated that more than 400 major BEE transactions took 
 place in 2005.  These activities include contracts offered 
 to BEE companies, joint venture projects, mining 
 transactions where assets are sold rather than shares, as 
 well as exchanging share ownership.  Source:  Business Day 
 and Business Report, March 15. 
 
 Importance of Informal Sector Underestimated 
 -------------------------------------------- 
 
 ¶6.  According to the head of Statistics SA, Statistician- 
 General Pali Lehohla, GDP understates the contribution of 
 the informal sector, which could be as high as 10% rather 
 than 4%, according to current estimates.  Measuring the 
 informal sector is difficult because those active in it 
 are not registered as taxpayers.  The lack of accurate 
 data on the sector affects measurement of GDP and 
 unemployment, as being outside the formal sector does not 
 necessarily mean people are without employment.  There are 
 an estimated 4 million people involved in the informal 
 sector, including about 800,000 domestic workers, and 
 about 7 million in formal sector employment.  Lehohla said 
 the GDP growth figure for 2005 might be understated, and 
 could be revised upwards in November to take account of 
 new data.  Current figures show the economy grew 4.9% in 
 ¶2005.  The 2004 growth rate was revised in November 2005 
 from 3.7% to 4.5%.  In a separate statement to Parliament, 
 Lehohla expects that Statistics SA will not spend 7% of 
 its allocated budget in 2005/06 financial year, compared 
 to 30% of last year's budget not being spent.  Source: 
 Business Day, March 16. 
 
 South Africa Ranked 28th in Ease of Doing Business 
 --------------------------------------------- ----- 
 
 
PRETORIA 00001123  003 OF 003 
 
 
 ¶7.  According to World Bank's 2006 Doing Business report, 
 South Africa is ranked 28th out of 155 countries in 
 overall ease of doing business.  The top rank went to New 
 Zealand and Democratic Republic of Congo attained the 
 155th position.  Mauritius was the only other country in 
 Africa ranked higher than South Africa, coming in at 23 
 with Botswana being the next closest African country at 
 ¶40.  In order to rank overall ease of doing business, 8 
 categories were compared across the 155 countries.  The 8 
 categories include:  starting a business, licenses, hiring 
 and firing, registering properties, protecting investors, 
 paying taxes, trading across borders, and enforcing 
 contracts.  South Africa received its highest score in 
 protecting investors (ranked 8th) and its lowest score in 
 paying taxes (ranked 84th).  The next best South African 
 rank was in dealing with licenses and enforcing contracts, 
 at 37th and 38th, respectively.  Source: 
 www.doingbusiness.org, March 16. 
 
 TEITELBAUM