VZCZCXRO8400
RR RUEHC
DE RUEHSA #0888/01 0621208
ZNR UUUUU ZZH
R 031208Z MAR 06  ZDK PER HZC 888/01
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1970
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 PRETORIA 000888 
 
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 3 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: 
 
 -  Fourth Quarter GDP Growth Slows Sharply; Yearly Growth 
 at 4.9%; 
 -  Credit Demand Picks Up; 
 -  Mortgage Market Expected to Benefit from Proposed Tax 
 Changes in 2006 Budget; 
 -  SA's Public Private Partnerships; and 
 -  January Trade Deficit Increases. 
 End Summary. 
 
 Fourth Quarter GDP Growth Slows Sharply; Yearly Growth at 
 4.9% 
 --------------------------------------------- ------------ 
 
 ¶2.  South Africa's GDP grew at the slowest pace in two 
 years during the fourth quarter 2005 after the rand's 
 strength slowed manufacturing and mining production. 
 According to Statistics SA (Stats SA), GDP increased 3.3% 
 (annualized) in the fourth quarter from 4.2% in the 
 previous quarter and significantly slower than the Reuter 
 economists' poll forecast of 4%.  For 2005, GDP grew by 
 4.9%, the fastest in more than two decades, from 4.5% in 
 ¶2004.  The 2005 growth came in at slightly below National 
 Treasury's estimate of 5%, published in the 2006 Budget 
 Review, released February 15.  The slower fourth quarter 
 growth was due to a 4.5% contraction in the mining sector, 
 which accounts for 6.3% of GDP, and a 0.3% contraction in 
 manufacturing at 16.4% of GDP.  The wholesale and retail 
 trade and hotel and restaurant sector contributed most to 
 the 2005 fourth quarter growth, accounting for 1.2 
 percentage points.  The finance, real estate and business 
 services sectors contributed 0.7 percentage points, while 
 the transport, storage and communications industries 
 contributed 0.6 of a percentage point, according to Stats 
 SA. 
 
 ¶3.  Table 1 shows seasonally adjusted fourth quarter and 
 annual 2005 growth rates and the relative importance in 
 the fourth quarter 2005 for important sectors. 
 Industry           Q405 %GDP     Q405 Growth   05 Growth 
 --------           -----------   -----------   --------- 
 Mining/quarrying      6.3%           -4.5%        3.1% 
 Manufacturing        16.4%           -0.3%        4.1% 
 Construction          2.8%           12.4%       10.0% 
 Trade                13.8%            9.0%        6.1% 
 Transp./Communic.     9.9%            6.5%        5.6% 
 Finance/Real Estate  19.5%            3.7%        7.7% 
 GDP                                   3.3%        4.9% 
 
 ¶4.  In the fourth quarter, production disruptions of oil 
 refineries leading to fuel shortages and the strong rand 
 negatively affected manufacturing production.  Strong 
 consumer spending supported growth in the retail and 
 wholesale sector and construction sectors.  For the next 
 three years, National Treasury expects GDP growth to reach 
 4.9%, 4.7% and 5.2% for 2006, 2007 and 2008, respectively. 
 Quarterly growth from 1998 until 2005 along with a (log) 
 trend line, illustrates how future growth has to 
 accelerate in order to reach the government's growth 
 target of 6% by 2010 so that unemployment and poverty is 
 halved by 2014.  Economic growth has averaged 3.4% since 
 1994, up from 1% during the previous 10 years.  Source: 
 Business Report and Business Day, March 1; Stats SA 
 Release P0441 and SAPA, February 28. 
 
 Credit Demand Picks Up 
 ---------------------- 
 
 ¶5.  According to the South African Reserve Bank (SARB), 
 demand for credit by the private sector rose by 20.4% in 
 January, slightly above expectations of 20.1%, and faster 
 than December's revised growth of 19.6%.  The broadly 
 defined measure of money supply (M3) increased 19.7%, 
 above the consensus expectations of 18.4%, from December's 
 increase of 19.9%.  South Africa's total domestic credit 
 extension grew by 16% y/y in January from 14.7% in 
 December.  The SARB also indicated that its international 
 liquidity position rose to $18.7 billion in January from 
 $17.2 billion in December.  Source:  I-Net Bridge and 
 
PRETORIA 00000888  002 OF 002 
 
 
 Business Day, February 28. 
 
 Mortgage Market Expected to Benefit from Proposed Tax 
 Changes in 2006 Budget 
 --------------------------------------------- -------- 
 
 ¶6.  ABSA bank expects mortgage growth to benefit from the 
 Budget announcement on transfer duty on property.  ABSA 
 projects average nominal housing prices to increase by 12% 
 in 2006 compared to 2005's growth of 21.9%, while 
 mortgages should increase between 22% and 24%, compared to 
 2005's growth of 27.6%.  Finance Minister Trevor Manuel 
 announced that mortgages of up to R500,000 ($83,000, using 
 6 rands per dollar) will no longer have to pay transfer 
 taxes as from March 1.  According to the South Africa 
 Reserve Bank, mortgage advances by the monetary sector 
 increased 27.4% year-on-year in January 2006, which was 
 marginally lower than a growth rate of 27.6% recorded in 
 December 2005.  According to ABSA, the declining trend in 
 mortgage advances growth since October 2005 resulted from 
 a slowing residential property market.  Source:  I-Net 
 Bridge, Sunday Times, February 28. 
 
 SA's Public Private Partnerships 
 -------------------------------- 
 
 ¶7.  Over the next three years, the National Treasury's 
 public-private partnership (PPP) office expects R20 
 billion ($3.3 billion) worth of PPPs as the government 
 pushes for more private sector participation in the 
 country's multibillion-rand infrastructure development 
 program.  The PPP unit, which was formed in 2000, had 
 facilitated investment in public infrastructure by the 
 public and private sector amounting to R6 billion ($1 
 billion).  At present, there are 50 PPPs at a feasibility 
 stage or on offer in the market.  The R20 billion ($3.3 
 billion) Gautrain rapid rail project is one example of a 
 planned PPP.  Although only responsible for PPP projects 
 involving the South African government, the PPP office 
 expects additional PPP projects with state-owned 
 enterprises in the areas of electricity, telecoms, 
 railways, ports and the restructuring of Transnet.  Bill 
 Lacey, an economic consultant at the South Africa Chamber 
 of Business, argue that while increased PPP participation 
 at the national level looks promising, local involvement 
 remains problematic due to lack of capacity.  Source: 
 Business Report, March 2. 
 
 January Trade Deficit Increases 
 ------------------------------- 
 
 ¶8.  In January, the trade deficit reached R8 billion from 
 December 2005's surplus of R3.9 billion, as exports 
 declined by 27% m/m and imports increased by 13.6% m/m. 
 In December, imports declined by 23.3% and exports 
 declined by only 2.7%, on a monthly basis.  Imports of 
 original equipment components increased the most, at R1.23 
 billion, while exports of minerals, base metals and semi 
 precious and precious stones explained most of the January 
 decline.  The strong rand has boosted imports, along with 
 a relatively confident business sector, rising incomes and 
 higher growth.  Europe consumes approximately 35% of South 
 African exports.  Weak growth in Europe suppresses South 
 African export growth.  Source:  Foreign Trade Alert, 
 Standard Bank, February 28. 
 
 TEITELBAUM