VZCZCXRO9976
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #1316/01 0930705
ZNR UUUUU ZZH
R 030705Z APR 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2541
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 PRETORIA 001316 
 
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 31 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: 
 
 -  February Inflation up 4.5%; 
 -  February Producer Price Inflation Unchanged; 
 -  4th Quarter Growth Slows; Consumer Demand Still High; 
 -  Skills Initiative Launched; 
 -  Non-Agricultural Employment Grows 1.3%; 
 -  Social Security Agency Begins Operations; and 
 -  SA Slips in ICT Rankings. 
 End Summary. 
 
 February Inflation up 4.5% 
 -------------------------- 
 
 ¶2.  Slightly lower than expectations, February targeted 
 inflation (consumer prices excluding mortgage costs, CPIX) 
 increased 4.5%, well within the South African Reserve 
 Bank's range of 3-6%.  Reuters' poll of economists 
 expected February's CPIX inflation to be 4.7%.  Overall 
 consumer price inflation reached 3.9% in February. 
 February CPIX inflation was higher than January's 4.3% 
 because of higher food and fuel costs, although the rate 
 of increase in food prices weakened in February.  For both 
 December and January, food price inflation contributed 0.3 
 percentage points, while February food prices contributed 
 only 0.1 percentage points to CPIX monthly inflation.  The 
 prices of clothing, footwear and communication equipment 
 showed monthly declines as these industries are impacted 
 by a strong rand, competition from low-cost producing 
 countries, and technological advances.  By expenditure 
 group, the lowest quintile experienced the highest 
 inflation in February at 4.4%, while the very high 
 expenditure group saw a 4% inflation rate in the goods 
 they purchase.  Source:  Statistics SA Release P0141.1, 
 Reuters, Standard Bank, CPI Alert and Investec CPIX 
 Update, March 29. 
 
 February Producer Price Inflation Unchanged 
 ------------------------------------------- 
 
 ¶3.  February's producer price inflation increased by 5.5%, 
 unchanged from January 2006's annual change.  Food, 
 transport and electrical machinery prices were higher in 
 February, while basic metals, electricity and non- 
 electrical machinery prices came in lower than January's 
 rate of increase leading to an overall unchanged inflation 
 rate.  The producer prices for locally produced goods 
 increased by 5.1% compared to January's increase of 5.2%. 
 Prices of imported commodities increased 6.9% during 
 February from 6.4%, primarily due to a strong rand.  The 
 February producer price inflation met market expectations, 
 with a Reuter's poll of economists expecting 5.5% 
 inflation as well.  Source:  Statistics SA Release, 
 P0142.1, March 30. 
 
 4th Quarter Growth Slows; Consumer Demand Still High 
 --------------------------------------------- ------- 
 
 ¶4.  According to the South African Reserve Bank's (SARB) 
 Quarterly Bulletin, South African 4th quarter 2005 growth 
 slowed, primarily due to a substantial slowdown in 
 inventory investment.  Gross domestic expenditures 
 increased 3.9% (q/q, seasonally adjusted) from the 3rd 
 quarter 2005's growth of 7.4%.  Household consumption 
 remained strong, showing 6.8% growth during the last 
 quarter 2005 compared to the third quarter growth of 6.1% 
 growth.  Government consumption expenditure growth more 
 than doubled in the 4th quarter, showing 14.7% growth from 
 5.5% growth during the 3rd quarter.  Table 1 gives the 
 last two quarters' and 2005 annual growth rates of key 
 demand-side indicators, adjusted for inflation. 
 Table 1                      Q3 2005   Q4 2005      2005 
 Household consumption          6.1%        6.8%     6.9% 
 Government consumption         5.5%       14.7%     5.6% 
 Gross fixed capital formation  7.0%        7.5%     8.0% 
 Gross domestic expenditures    7.4%        3.9%     5.9% 
 Exports                       10.5%       -4.1%     6.7% 
 Imports                       21.6%       -1.2%     10.1% 
 GDP                            4.2%        3.3%      4.9% 
 
 
PRETORIA 00001316  002 OF 004 
 
 
 ¶5.  An increase in real disposable income supported the 
 strong increase in household consumption, but a 
 substantial portion of increased household spending was 
 financed by credit.  During 4th quarter 2005, household 
 debt as a percentage of disposable income rose to 65.5% 
 from 63.5% in the previous quarter.  Savings to disposable 
 income of households reached 0.1%, the lowest rate ever 
 reported.  In a country with uneven distribution of wealth 
 and a small minority of the population with access to 
 credit, the debt may be concentrated in a relatively few 
 number of households.  Other factors supporting the strong 
 growth in consumer spending are employment gains, wealth 
 effects of increasing asset prices, high consumer 
 confidence and low inflation and nominal interest rates. 
 During the 4th quarter, real gross fixed capital 
 investment showed strong growth, primarily due to a 15.5% 
 increase in capital outlays by public corporations. 
 Private sector capital formation increased 8%, while 
 capital formation by government grew at slower rates. 
 
 ¶6.  The trade deficit on goods and services improved in 
 the final quarter of 2005, narrowing to R10 billion from 
 R20.7 billion in the 3rd quarter.  However if net service 
 income and current transfer payments were included, the 
 balance on current account widened to R71.6 billion in 4th 
 quarter 2005 compared to R68.4 billion during the 3rd 
 quarter.  As a percentage of GDP, the current account 
 balance increased to 4.5% from 3rd quarter's 4.4% and for 
 2005, came in at 4.2% compared to 3.4% in 2004.  The 
 current account deficits have been financed by capital 
 inflows.  Source:  Standard Bank QB Crux, Business Report 
 and Investec SARB Quarterly Bulletin Update, March 23. 
 
 Skills Initiative Launched 
 -------------------------- 
 
 ¶7.  Deputy President Mlambo-Ngcuka announced the beginning 
 of a new skills initiative that would alleviate skills 
 shortages in South Africa.  The Joint Initiative on 
 Priority Skills Acquisition (JIPSA) will identify 
 constraints in education and training and determine needed 
 skills in the short to medium time frame.  JIPSA will 
 ensure that there are sufficient skills for the 
 implementation of the R372 billion ($60 billion, using 6.2 
 rands per dollar) three-year infrastructure development 
 program that is a crucial component to successful 
 implementation of the Accelerated and Shared Growth 
 Initiative of South Africa (ASGISA).  According to Mlambo- 
 Ngcuka, South Africa wants to recruit skilled retirees and 
 underemployed workers in South Africa first, and then 
 extend the skill search overseas to foreigners and South 
 Africans who had left the country.  In addition, South 
 Africa's Further Education and Training colleges will 
 receive extra funding as part of an effort to increase 
 artisan and technical skills.  There are also program to 
 ensure sufficient city, urban and regional planning and 
 engineering skills; management and planning skills in 
 education, health and municipalities; and teacher training 
 in math, science, information and communication technology 
 and language competence.  JIPSA, which has an initial 
 three-year lifespan, is made up of the joint task team, 
 chaired by the Deputy President, and a technical working 
 group, headed by Gwede Mantashe, General Secretary of the 
 National Union of Mineworkers.  Other members of the joint 
 task team include the Ministers of Defense, Education, 
 Home Affairs, Labor, Public Service and Administration, 
 Public Enterprises, Science and Technology, Sport and 
 Recreation, and Trade and Industry.  Business 
 representatives include Transnet's Maria Ramos, Eskom 
 Chief Executive Thulani Gcabashe, Unilever SA's Gail 
 Klintworth, Sasol's Pat Davies, Standard Bank's Jacko 
 Maree, BHP Billiton SA's Executive Chairman Vincent 
 Maphai, University of South Africa's Barney Pityana and 
 AngloGold Ashanti's Bobby Godsell.  Godsell wants South 
 African companies to spend at least 5% of their labor 
 costs on skills development.  Source:  Business Report, 
 Business Day, March 28. 
 
 Non-Agricultural Employment Grows 1.3% 
 -------------------------------------- 
 
 ¶8.  During the 4th quarter 2005, non-agricultural 
 employment grew by 1.3% (q/q), with the service sectors 
 showing the strongest growth, according to Statistics SA's 
 
PRETORIA 00001316  003 OF 004 
 
 
 Quarterly Employment Survey (QES).  Mining and transport, 
 storage and communication industries showed the largest 
 4th quarter job losses at -2.3% and -1.2%, respectively. 
 The highest level of employment increases occurred in the 
 wholesale and retail trade sector (50,000) followed by the 
 financial services sector (30,000) and the construction 
 sector (11,000).  In the mining sector, 10,000 jobs were 
 lost while the transport sector lost 4,000 jobs. 
 Manufacturing, employing 17% of non-agricultural workers, 
 reported a 0.8% increase or 10,000 jobs during the 4th 
 quarter.  For 2005, 158,000 non-agricultural jobs were 
 created, contributing to a total of 7.3 million jobs. 
 Gross earnings increased 6.9% in 2005 compared to the end 
 of December in 2004.  Table 2 shows annual growth in jobs 
 and output for 2005.  Source:  Statistics SA, Release 
 P0277.1 and Standard Bank, Labor QES, March 28. 
 Table 2 
                         %Employment  Growth  Output Growth 
 Mining                        6%     -4.8%            3.1% 
 Manufacturing                17%      1.8%            4.1% 
 Construction                  6%     20.6%           10.0% 
 Wholesale/Retail Trade       20%      3.1%            6.1% 
 Transport, Communication      4%      1.6%            5.6% 
 Finance/Real Estate          21%     -0.7%            7.7% 
 Personal Services            25%      2.4%            2.5% 
 Total                                 2.2%            4.9% 
 
 ¶9.  Comment.  Statistics SA replaced the previous survey 
 of non-agricultural firms, the Survey of Employment and 
 Earnings, with the QES in June 2005.  The QES is a larger 
 survey of 24,000 firms registered for taxes and includes 
 firms in the small business sector.  The Labor Force 
 Survey, conducted every six months using 30,000 
 households, provides the official unemployment rate.  End 
 comment. 
 
 Social Security Agency Begins Operations 
 ---------------------------------------- 
 
 ¶10.  Social Development Minister Zola Skweyiya announced 
 that the new Social Security Agency will start to pay 
 social grants to beneficiaries in Gauteng, Western Cape 
 and Northern Cape provinces.  The Department created the 
 new agency to distribute social grants after massive fraud 
 was uncovered.  The Social Security Agency will assume 
 payment responsibility for the remaining provinces by 
 March 2007.  Skweyiya announced that the Department's 
 Special Investigating Unit had had removed more than 
 130,000 fraudulent grant recipients from the grants 
 register, and saved R4.5 billion ($730 million).  Source: 
 Business Report, March 29. 
 
 SA Slips in ICT Rankings 
 ------------------------ 
 
 ¶11.  The World Economic Forum (WEF) has ranked South 
 Africa 37th out of 115 countries surveyed in its latest 
 network readiness index (NRI), compared to 2004's ranking 
 of 34.  The NRI measures the country's ability to use 
 information and communications technology (ICT) for 
 development and increased competitiveness.  The index 
 examines a country's macroeconomic, regulatory and 
 infrastructure environment; the readiness of individuals, 
 businesses and governments to use and benefit from ICT; 
 and its actual usage of the latest information and 
 communications technologies.  South Africa, which leads 
 sub-Saharan Africa in network readiness, was ranked 35th 
 in the environmental component and 42nd in individual 
 usage.  South Africa ranked highest in foreign technology 
 licensing, which the WEF ranked 3rd, its financial market 
 (12th), the effectiveness of its law-making bodies (13th), 
 the efficiency of its legal framework (8th), and 
 protection of property rights (19th).  However, South 
 Africa ranked lowest in the quality of math and science 
 education (105th), the quality of the overall education 
 system (81st) and the shortage of engineers and scientists 
 (90th).  In addition, shortage of telephone lines, poor 
 quality of competition in the internet service provider 
 industry and high monthly telephone subscription charges 
 also led to lower overall rankings.  South Africa has less 
 than 5 million fixed telephone lines and also less than 5 
 million active computers.  According to a report by World 
 Wide Worx released in 2005, 3.6 million people are using 
 the internet in South Africa out of an estimated 
 
PRETORIA 00001316  004 OF 004 
 
 
 population of 46 million.  High telecommunications costs 
 serve as a barrier for South Africa to increase the 
 penetration of high speed internet access.  Source: 
 Business Day, March 29. 
 
 TEITELBAUM