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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0218/01 0191421
ZNR UUUUU ZZH
R 191421Z JAN 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7775
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
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RUEHTN/AMCONSUL CAPE TOWN 3866
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UNCLAS SECTION 01 OF 03 PRETORIA 000218 
 
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 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 19, 
2007 ISSUE 
 
 
PRETORIA 00000218  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 03 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Growth Lifts Business Mood to Record High 
- Domestic Steel Sets New Records 
- Infrastructure Not Keeping Pace 
- SA Granted a R8.4bn Loan 
- Manufacturing Output up 5.4% 
- Group to Fund Cheap SA Housing 
- SA Economy '64% Free' 
- Gold Propels JSE to Near Record Peak 
End Summary. 
 
Growth Lifts Business Mood to Record High 
----------------------------------------- 
¶2. (U) Confidence in the South African economy climbed to a record 
high in December, due to optimism about SA's growth prospects.  The 
South African Chamber of Business (SACOB) Business Confidence Index 
rose to a record high of 103.5 in December 2006, while the Reuters 
Econometer, a measure of economic confidence, climbed to its highest 
level since May 2006, at 263.74.  Analysts said the outlook for 
economic growth remained positive, as infrastructure spending is 
expected to rise in the run up to the 2010 world Cup.  Economists 
forecast growth of 4.3% for 2007 and 4.6% for 2008.  Lower oil 
prices should restrain inflation, and analysts project that CPIX 
inflation (consumer price index excluding mortgage costs) will be 
5.3% in 2007 and 4.8% in 2008.  On the other hand, the current 
account deficit and higher interest rates remain worrisome.  The 
current account deficit rose to a record high of 6.1% of GDP in the 
first quarter of 2006, after which it narrowed to 5.2% in the third 
quarter.  (Business Day, January 12) 
 
Domestic Steel Sets New Records 
------------------------------- 
 
¶3. (U) South Africa's five steel producers dispatched 5.3 million 
tons of primary carbon steel products to the domestic market during 
¶2006.  This was the highest total on record and is 26% higher than 
the 4.2 million tons delivered to the domestic market in 2005. 
Imports of primary steel products into SA increased to 456,000 tons 
for the first ten months of 2006, giving an annualized figure of 
540,000 tons for the full year.  This represents an increase of more 
than 60% over the 336,000 tons for 2005.  This is the highest level 
of imports for 30 years.  Based on these projections, domestic 
consumption of steel should total about 5.8 million tons for 2006. 
This is an increase of 27% over the 4.6 million tons consumed in 
2005 and 10% higher than the previous record of 5.3 million tons in 
¶1981.  The record demand for steel, cement and other construction 
materials is indicative of the economic and construction boom that 
the country is experiencing. 
 
Infrastructure Not Keeping Pace 
------------------------------- 
 
¶4. (U) Speaking on South African Broadcast Corporation (SABC) 
television on January 15, President Thabo Mbeki said that 
infrastructure in South Africa has not kept pace with economic 
growth.  "For example, we thought we had spare capacity, but now we 
have a shortage of electricity supply as it did not keep up with the 
demand," Mbeki said, promising that the government would invest more 
money in roads, ports, railways and electricity supply to keep up 
with economic growth.  "It is a problem, but it is a good problem," 
he said.  According to the President, the private sector would also 
be encouraged to become involved.  Mbeki acknowledged that local 
governments had great difficulty making capital investments in 
infrastructure.  "We can have good national strategies and plans and 
even the money, but if local government doesn't implement these, it 
doesn't work," he said.   He explained that the SAG is dealing with 
the problem by calling experts out of retirement and looking abroad 
to recruit people with the necessary skills to implement the 
government's plans and strategies. (Business Day, January 16) 
 
SA Granted a R8.4bn Loan 
------------------------ 
 
¶5. (U) The European Investment Bank (EIB), the development bank of 
the European Union, will lend South Africa 900 million ($1.2 
billion) for public infrastructure projects and private sector 
 
PRETORIA 00000218  002.2 OF 003 
 
 
investment over the next seven years.  "The use of the 900million 
will be focused on infrastructure projects of public interest - 
power, water supply, sewerage and communications - and support for 
private sector investment, with substantial development values 
including small- and medium-scale investments," the EIB said in a 
statement.  The loan agreement with South Africa covers the period 
2007 to 2013.  The EIB also said it would grant power utility Eskom 
a loan of up to 300 million ($390 million) to help improve power 
transmission lines from power stations in the north of the country 
to the Western Cape province, which has suffered chronic electricity 
outages.  The loan to Eskom will be repayable over 25 years.  Under 
past agreements, the bank has loaned South Africa 1.5 billion ($2 
billion).  The EIB uses its top-notch credit rating to borrow funds 
on capital markets at low rates and best terms, which are then 
passed on to recipients on a cost-recovery basis.  (News 24, 
January) 
 
Manufacturing Output up 5.4% 
---------------------------- 
 
¶6. (U) Growth in manufacturing production slowed by 5.4% in November 
after growing 7.7% in October, as higher interest rates and a 
relatively stronger rand put the brakes on growth in some sectors. 
The South African Reserve Bank (SARB), which has hiked interest 
rates by 200 basis points so far in the current cycle, is expected 
by some analysts to hike them another 50 basis points next month. 
Higher interest rates are expected to have a slightly negative 
effect on manufacturers supplying the retail sector, analysts said. 
The manufacturing sector, which has in the recent past struggled to 
survive as the rand strengthened to about R6 to the dollar, could 
get some relief from a weaker rand in 2007.  The rand weakened about 
9% against the dollar in 2006 and 4% so far this year.  Analysts 
believe that the Reserve Bank will leave interest rates unchanged 
once the rand settles above R7 to the dollar and the inflation 
outlook improves.  If this happens, growth in the manufacturing 
sector should firm in 2007.  The manufacturing sector is the 
economy's second-largest sector, accounting for just more than 16% 
of gross domestic product.  (Business Day & News 24, January 12) 
 
Group to Fund Cheap SA Housing 
------------------------------ 
 
¶7. (U) International Housing Solutions (IHS), an international joint 
venture between MuniMae of the U.S. and Irish property group Howard 
Eurocape, has expanded its operations to the African continent, with 
its head office for Africa to be situated in Johannesburg.  With 
extensive experience financing affordable housing around the world, 
IHS aims to bring foreign capital and expertise to South Africa to 
boost the supply of affordable housing for low and moderate income 
families.  Elize Stroebel, who will head the South African 
operations, said IHS has conducted extensive research into the South 
African market.  "Figures from the SA Banking Association show a 
growing demand for housing which local financial institutions and 
developers are unable to meet, causing the current housing deficit 
to grow by about 180,000 units each year," Strobel said, adding, 
"Short-term finance has proved to be a major stumbling block in the 
construction of more of these houses.".  Initially, IHS aims to help 
finance homes for households earning between R3 500 ($480) and R8 
200 ($1,120) per month.  Although the government has subsidized the 
construction of some 2.2 million homes in SA since 1994, a further 
2.4 million homes are needed, according to an October 2006 report 
from the National Treasury.  (Inet-Bridge, January 15) 
 
 SA Economy '64% Free' 
-------------------- 
 
¶8. (U) According to the Heritage Foundation's Index of Economic 
Freedom, South Africa ranks 52nd among 157 ranked countries with a 
score of 64.1 points (64.1% free).  That makes the economy 
"moderately free."  The index ranks each economy according to the 
level of government intervention, trade and monetary policy, 
property rights and regulations, as well as labor freedom.  South 
Africa is ranked 3rd out of 40 countries in the sub-Saharan Africa 
region (Mauritius and Botswana are rated ahead of South Africa). 
The report lauded South Africa's financial system as the most 
developed in Africa. It also said the country maintained fairly high 
levels of business freedom, fiscal freedom, monetary freedom and 
freedom from government intervention.  Inflation is low and tax 
revenue as a percentage of GDP is moderate.  Starting a business in 
 
PRETORIA 00000218  003.2 OF 003 
 
 
South Africa takes an average of 35 days, compared with the world 
average of 48 days.  The report points out that South Africa can 
improve investment freedom, property rights, and freedom from 
corruption.  It also said the judicial system is slow, primarily 
because of understaffing and inefficiency, and that black economic 
empowerment laws and unclear regulation are hampering foreign 
investment.  Hong Kong is the world's freest economy for a 13th 
successive year, scoring 89.3 points on the index. (News 24, January 
17) 
 
Gold Propels JSE to Near Record Peak 
------------------------------------ 
 
¶9. (U) The Johannesburg Stock Exchange (JSE) raced to near-record 
highs on January 15, closing at [what did it close at?] few points 
below its best level yet, as a slight recovery in precious metals 
prices buoyed the local bourse.  The gold index was up more than 2% 
and the market jumped to a close of 25,194 on January 15, just shy 
of the record 25,208 reached two weeks ago.  Gold climbed to its 
highest level in nearly two weeks as a wobbly dollar elevated the 
precious metal's appeal as an alternative investment tool. (Business 
Day, January 16). 
 
BOST