VZCZCXRO0589
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #1196/01 0831118
ZNR UUUUU ZZH
R 241118Z MAR 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2365
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 001196 
 
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 24 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: 
 
 -  Construction, Property BEE Charters Signed; 
 -  BER Expects 2006 Growth at 4.6%; 
 -  SA Firms See Expansion in Carbon Credits; 
 -  Firms that Use Import Parity Pricing may Lose Tax Benefits; 
 -  Services Key to Banks' BEE Procurement; 
 -  Schools Lack Computer Equipment and Literacy; and 
 -  China's Influence on Rand to Grow. 
 End Summary. 
 
 Construction, Property BEE Charters Signed 
 ------------------------------------------ 
 
 ¶2.  The construction and property black economic 
 empowerment (BEE) charters were signed after about two 
 years of negotiations.  Both charters proposed a range of 
 targets, including the sale of 25% of assets of the sector 
 to black partners within the next five years.  The 
 charters committed private corporations to set aside 10% 
 of their annual development investments to underdeveloped 
 areas and to achieve 40% black representation at board 
 level, half of them women.  The construction charter also 
 proposed a target of 70% for procurement.  The property 
 charter allows different treatment for sub-sectors, such 
 as estate agents, commercial property owners, property 
 services companies and property loan stock companies. 
 Source:  Business Report, March 20. 
 
 BER Expects 2006 Growth at 4.6% 
 ------------------------------- 
 
 ¶3.  Stellenbosch University's Bureau of Economic Research 
 (BER) expects South African growth to reach 4.6%, with 
 lower inflation and higher infrastructure spending.  BER's 
 prediction was lower than the government's 5% growth 
 forecast.  BER also expects 2007 growth slowing to 4.1%. 
 BER views robust increases in real disposable income as 
 the main reason for consumer-led growth.  According to 
 BER, as long as skills shortages are reduced, the economy 
 had a potential to create more jobs, leading to growth in 
 real income.  BER warned that growth could be slowed by a 
 drop in prices for commodities other than gold.  Business 
 confidence recovered in the first quarter 2006.  The 
 business confidence index rose to 86 from 85 in the 
 previous three months, according to a survey by Rand 
 Merchant Bank and BER.  The index reached a 24-year high 
 of 87.6 in the fourth quarter of 2004.  BER predicted that 
 the rand would average R6.35 a dollar in 2006 and R6.92 in 
 2007, while the currency was expected to be R7.79 against 
 the euro and R8.66 in 2006 and 2007, respectively. 
 Source:  Business Report, March 20. 
 
 SA Firms See Expansion in Carbon Credits 
 ---------------------------------------- 
 
 ¶4.  According to Pricewaterhouse Coopers (PwC), South 
 African companies could earn R5.8 billion ($950 million, 
 using 6.1 rands per dollar) over the next 10 years from 
 the sale of carbon credits earned on projects to reduce 
 greenhouse gas emissions.  Previous estimates of the 
 economic benefits reached R2.5 billion.  The R5.8 billion 
 projection applies to six South African projects that have 
 either been approved or are in the final stages of 
 approval by the executive board of the Clean Development 
 Mechanism (CDM), a global system that allows trade in 
 reductions of carbon emissions by signatories to the UN's 
 Kyoto Protocol.  Harmke Immink, a manager in the 
 sustainability solutions division at PwC, said the 
 estimate was based on an exchange rate of R10 to the euro 
 and a price of E8 per ton of certified emission 
 reductions.  The R5.8 billion excludes the potential 
 income accruing to several other projects that are still 
 undergoing CDM approval, 13 of which have already been 
 registered.  PwC's South African office has applied to 
 audit the projects that have applied for CDM status by 
 ensuring the projects meet the requirements of the Kyoto 
 Protocol and verifying that they are actually cutting 
 emissions.  Source:  Business Report, March 20. 
 
 
PRETORIA 00001196  002 OF 003 
 
 
 Firms that Use Import Parity Pricing may Lose Tax Benefits 
 --------------------------------------------- ------------- 
 
 ¶5.  According to officials at the Department of Trade and 
 Industry (DTI), government is considering withholding 
 incentives from companies that charge customers import 
 parity prices.  Government leaders, notably President 
 Thabo Mbeki and Trade and Industry Minister Mandisi 
 Mpahlwa, have spoken out against the continued use of the 
 controversial pricing mechanism, under which major local 
 manufacturers charge customers the price it would cost to 
 import the product.  State benefits that could be 
 reconsidered include programs such as government's 
 Strategic Industrial Projects (SIP) incentive initiative, 
 which offers tax breaks to companies investing at least 
 R50 million in qualifying projects.  Nimrod Zalk, the 
 Chief Direction of DTI's competitiveness unit, said the 
 decision would apply to future incentives and not 
 retroactively.  Mittal Steel SA spokesman Thami Didiza 
 said the company no longer applied the import parity 
 pricing mechanism, as prices were benchmarked on those of 
 comparable markets.  Source:  Business Day, March 22. 
 
 Services Key to Banks' BEE Procurement 
 -------------------------------------- 
 
 ¶6.  Despite South Africa's major banks increasing their 
 spending on procurement from black economic empowerment 
 (BEE) entities, BEE firms provide mainly stationery, 
 cleaning and security services.  Standard Bank, the 
 largest bank by assets, spent R1.75 billion ($290 million) 
 on procuring goods and services from BEE companies in 
 2005, representing 38% of its total procurement spending. 
 First National Bank (FNB) spent 45% on BEE suppliers in 
 the past year.  To ensure participation by different 
 players, FNB was using a rotation system, where shorter 
 contracts were given to BEE parties to allow more to 
 become involved.  The financial sector charter has set 
 procurement targets at 50% and 70% by 2008 and 2014, 
 respectively.  Drawbacks to increasing BEE small firm 
 participation include capacity constraints, no economies 
 of scale in information technology and inability to 
 provide support services on a national scale.  Nedbank 
 wants to achieve at least 20% of its BEE procurement 
 expenditure in high value services.  The bank spent 34.5% 
 of its procurement budget on BEE firms in 2005.  (Business 
 Report, March 22) 
 
 Schools Lack Computer Equipment and Literacy 
 -------------------------------------------- 
 
 ¶7.  Education Department statistics show that by the end 
 2005, 28% of South African schools used computers for 
 teaching, even though 58% of schools had computers.  The 
 58%, however, does include computers used exclusively for 
 administrative purposes.  Provincial statistics are stark 
 in comparison to one another.  While 14.2% of Eastern 
 Cape's schools have computers, only 4.5% use them for 
 teaching; 99.4% of Western Cape's schools have computers 
 with 61.8% using them for teaching.  In some provinces up 
 to 60% of schools do not have access to electricity, and 
 other infrastructure issues such as adequate roads and 
 buildings also need to be provided.  Students in the 72% 
 of schools where computers are not used for teaching are 
 using the education department's new curriculum which, in 
 some parts, assumes the 12-million or so pupils at South 
 Africa's public schools have access to computer 
 technology.  Government's white paper on education, 
 published in 2003, promised that every South African 
 school pupil will be information and communications 
 technology-literate by 2013.  The Education Department's 
 heads of education committee emphasized teacher training 
 in computer-based education for 2007.  There is 
 substantial business investment in providing schools with 
 computers, and teachers with training.  Parthy Chetty, 
 South African education manager for Intel, points to 
 Intel's investment of R9 million ($1.5 million) on 
 training 30,000 out of South Africa's 400,000 teachers in 
 computer technology since 2003.  According to Chetty, 
 Intel has found there is often a gap between training and 
 teachers using what they have learnt because their access 
 to computer laboratories is limited.  A minimum of five 
 teachers in each school has to be trained so that a viable 
 support system exists.  The Education Department plans to 
 
PRETORIA 00001196  003 OF 003 
 
 
 issue a bid to audit the information technology 
 infrastructure available in South African schools in the 
 next few months.  This audit is separate from one being 
 conducted countrywide about school resources and the 
 schools register of needs, which aims to give a clear 
 picture of exactly what is needed to equip all state- 
 funded schools.  The first audit began in September 2005 
 by examining school needs of water, electricity, 
 classrooms, libraries, laboratories and sports facilities 
 and should be completed by March 2007.  Source:  Business 
 Day, March 22; IOL, March 23. 
 
 China's Influence on Rand to Grow 
 --------------------------------- 
 
 ¶8.  According to James Robertson, Standard Chartered 
 Bank's Head of Global Markets, China will have a greater 
 impact on the value of the rand in the future because of 
 rapidly shrinking trade with South Africa's traditional 
 trading partners.  South Africa's trade with China is 
 growing 26% annually compared with a decline of 26% in 
 trade between South Africa and the U.S. and 4% decline 
 between South Africa and the United Kingdom.  He also 
 noted that the current composition of the trade weighted 
 rand basket was still primarily made up of the euro 
 (36.4%), U.S. dollar (15.5%), UK pound (15.4%), the 
 Japanese yen (10.4%) and 22.5% in other currencies. 
 Robertson suggested that the South African Reserve Bank 
 (SARB) could add the Chinese yuan into the trade weighted 
 rand calculation, even though the yuan is now in a managed 
 float, pinned to the U.S. dollar.  Robertson expects the 
 yuan to become a larger portion of the rand calculation, 
 especially if it is allowed to float.  Higher commodity 
 prices will also support the rand's strength, despite the 
 possible secondary inflation effects of higher oil prices. 
 South Africa's exports to China have increased four-fold 
 in the first nine months of 2005 to R22 billion from only 
 R5 billion in the first nine months of 2004.  Source:  I- 
 Net Bridge March 23. 
 
 # TEITELBAUM