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TAGS: ECON EFIN EINV ETRD EMIN EPET BEXP KTDB SENV PGOV
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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 15, 
2006 ISSUE 
 
 
PRETORIA 00005039  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 6, issue 27 of US Embassy Pretoria's 
South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
-  DTI rolls out B-BBEE Scorecard; 
-  SARB Governor complains about credit madness; 
-  South Africa's technological innovation; 
-  The Competition Tribunal approves sale of V&A  Waterfront; 
-  DA rates the Economic Cabinet; 
-  2006/2007 corn forecast; 
-  Key economic ratios changed. 
End Summary. 
DTI rolls out B-BBEE Scorecard 
------------------------------ 
 
¶2.  (U) The Department of Trade and Industry rolled out the 
Broad-based Economic Empowerment (B-BBEE) scorecard on December 14, 
a week after Cabinet approved the second phase of the B-BBEE codes. 
According to Department of Trade and Industry Deputy Director 
General Lionel October, this clears the way for SAG to "Gazette the 
codes and five sector charters before end of January."  The 
Cabinet-approved version of the codes includes a string of 
concessions.  Multinationals with a global policy on sole ownership 
of subsidiaries in other countries will be exempted from the equity 
component of the B-BBEE scorecard, but will have to make up for the 
allowance with alternative measures.  Medium-sized companies with a 
turnover from R5 to R35 million (up from R25 million) may choose 
from four of seven components from which they have to comply.  Small 
companies with a turnover of R5 million or less will be exempt from 
having to comply with any B-BBEE requirements.  The codes have also 
been simplified and include the principle of "once empowered, always 
empowered."  This will allow BEE owners to sell their shares in 
BEE-qualified companies to take advantage of higher stock prices 
without the companies losing their BEE status.  There will also be a 
limitation on the extent to which deals with employee trusts (i.e., 
pension funds) would be recognized as BEE deals.  This would leave a 
partial bias against broad-based minority employee ownership of 
BEE-qualified companies. 
 
SARB Governor complains about credit madness 
-------------------------------------------- 
 
¶3. (U) South African Reserve Bank Governor Tito Mboweni complained 
about credit "madness" when he announced last week's decision to 
raise the benchmark lending rate by 50 basis points, or 0.5%, to 
9.0%.  The commercial bank prime lending rate and mortgage rate are 
now 12.5%.  Mboweni previously complained about "excessive 
exuberance," and expressed the need for consumers to "tighten their 
belts, whether they are rich or poor."  The consumers appear to have 
ignored these warnings, based on credit extension, retail sales and 
the rise in the business and consumer confidence indexes.   For 
example, private sector borrowing grew at 27.5% in October y-o-y, 
mortgages jumped 30.9%, bank credit extension rose 28.6%, and other 
loans and advances increased 26%.  Retail sales grew 13% in 
September y-o-y, the fastest rate since 1999.  The South African 
Chamber of Commerce (SACOB) business confidence index was a record 
103.2 in November.  The Stellenbosch University Bureau for Economic 
Research (BER) index for the manufacturing sector rose to an 
eleven-year high, and the BER's consumer confidence index rose to 18 
in the third quarter.  One exception to this general optimism was a 
slight downturn in passenger car purchases in November.  The SARB is 
expected to raise interest rates again on February 15.  It is not 
clear whether this general optimism reflects a last minute 
purchasing binge before the impact of the higher interest rates set 
in, a refusal to accept economic reality, or a genuine disagreement 
with Mboweni's concern about inflation. 
 
South Africa's technological innovation 
--------------------------------------- 
 
¶4. (U) South Africa has a long history of technological innovation, 
which has grown exponentially since independence in 1996.  Several 
key South African inventions such as the Lodox Statscan, the 
mine-protected armored vehicle technology, and the Kreepy Krauly 
automatic pool cleaner are used throughout the world.  Others are 
stuck in the gap between invention and marketing.  The South Africa 
Department of Science and Technology (DST) aims to narrow that gap 
through its Patent Support Fund, Innovation Fund and the "Big Idea" 
forum. 
 
PRETORIA 00005039  002.2 OF 003 
 
 
 
The Competition Tribunal approves sale of V&A Waterfront 
--------------------------------------------- 
 
5.(U) The Competition Tribunal approved Transnet's sale of the 
Victoria and Albert Waterfront in Cape town to the broad-based 
consortium London and Regional for $1 billion (R7 billion) without 
conditions.  The only requirement that remains is the making of the 
cash payment which is due on December 29.  The investors have also 
agreed to invest another $143 million (R1 billion) to upgrade the 
investment.  This investment follows Barclay's $5.5 billion purchase 
of the ABSA bank and Vodafone's $2.4 billion investment in the 
Vodacom cellular phone company as the largest foreign investments in 
the last 15 months.  All three of these investments were purchases 
of existing properties.  The next major investment is expected to be 
Alcan's soon-to-be-announced greenfield investment of $2.7 billion 
in an aluminum refinery in the Coaga industrial complex 30 
kilometers east of Port Elizabeth in the Eastern Cape Province. 
 
DA rates the Economic Cabinet 
----------------------------- 
 
¶6. (U) The opposition Democratic Alliance party released its annual 
report card for the cabinet.  The average score dropped from 5 in 
2004 to 4.5 in 2005 to 4.3 in 2006 on a scale of 1 to 10.  Minister 
of Finance Trevor Manuel and Minister of Science and Technology 
Mosibudi Mangena both received a score of 7, the highest scores of 
any cabinet members.  There rest of the economic ministers received 
above average to slightly below average scores, led by Minister of 
Minerals and Energy Buyelwa Sonjica (6), Minister of Public 
Enterprises Alex Erwin (5), Minister of Transport Jeff Radebe (5), 
Minister of Agriculture and Land Affairs Lulu Xingwana (5), Minister 
of Environmental Affairs and Tourism Marthinus van Schalkwyk (4.3), 
Minister of Trade and Industry Mandisi Mpahlwa, and (4) Minister of 
Communications Ivy Matsepe-Casaburri (4).  On average, the social 
ministers received much lower ratings than the economic ministers. 
 
¶7. (U) DA leader Tony Leon praised Manuel for "his continuing 
stylish management of South Africa's booming economy" when 
introducing the report.  The DA report noted Manuel's decline from a 
score of 8 in 2004 and 2005 and criticized his "dogged disregard for 
the power of fiscal policy," lack of boldness "in making investing 
in South Africa, employing South Africans or exporting from South 
Africa more attractive," "his meek acquiescence to some of the 
government's more contentious, large-scale spending projects, and 
his refusal to consider a more expansionary approach that would 
favor taxpayers and incentivise investment."  Minister of Trade 
Mpahlwa was described by the DA report as "gentlemanly and serene" 
but was criticized "for a lifeless performance."  The report went on 
to say that he "never speaks up on any issues of note, he does not 
seem actively to build relationships with stakeholders, and he does 
not seem to be particularly busy behind the scenes."  He was also 
criticized for his silence when the Doha round of world trade 
negotiations faltered and trade quotas were set on Chinese textile 
imports.  Leon faulted Minister of Communications Matsepe-Casaburri 
for "her ongoing reluctance to take on Telkom (the state 
telecommunications company), whose monopolistic practices make South 
Africa one of the most expensive places in the world to 
communicate." 
 
2006/2007 corn forecast 
----------------------- 
 
¶8. (U) During the 2005/2006 crop year, South African corn farmers 
voluntarily cut back production, successfully reducing surplus 
stocks.   Coupled with high international prices, this cutback now 
contributes to better prospects for the crop that has just been 
planted.  FAS expect the current area planted to increase by more 
than a million hectares to 3.2 million hectares.  Assuming normal 
rainfall, the crop may reach 10.5 million tons, up from 6.9 million 
tons last year.   This would help guarantee a healthy GDP growth 
figure for 2007, since GDP growth in 2006 was undercut by a 40% 
decline in maize plantings that resulted in a 15% contraction of the 
agricultural sector. 
 
Key economic ratios changed 
--------------------------- 
 
¶9. (U) Based on Statistics South Africa's revisions to the GDP 
 
PRETORIA 00005039  003.2 OF 003 
 
 
growth data and the South African Reserve Bank's revisions to other 
economic data, important economic ratios have also changed.  These 
ratios have been revised as follows: 
                               2006 
                       2005    1Q      2Q     3Q 
--------------------------------------------- -----       Current 
account balance to GDP 
------------------------------ 
Previous ratio      -4.2%   -6.4%   -6.1%     - 
Revised ratio       -3.8%   -6.1%   -5.7%   -5.2% 
 
Investment to GDP 
----------------- 
Previous ratio      17.2%   17.9%   18.4%     - 
Revised ratio       17.0%   17.9%   18.5%   18.7% 
 
Savings to GDP 
-------------- 
Previous ratio     14.0%    13.0%   13.7      - 
Revised ratio      14.5%    13.6%   14.2%   14.8% 
 
Government debt to GDP 
---------------------- 
Previous ratio     35.7%  33.7%   34.8%      - 
Revised ratio      35.4%  33.3%   34.5%    34.8% 
Fiscal deficit (-)/surplus (+) to GDP 
------------------------------------- 
Previous ratio    -0.3%   0.5%    -1.1%     - 
Revised ratio     -1.1%   0.4%    -1.1%    0.6% 
 
BOST