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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0514/01 0431351
ZNR UUUUU ZZH
R 121351Z FEB 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 8152
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 6178
RUEHTN/AMCONSUL CAPE TOWN 3943
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UNCLAS SECTION 01 OF 03 PRETORIA 000514 
 
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 FEBRUARY 9, 
2007 ISSUE 
 
PRETORIA 00000514  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 06 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Chinese President Arrives in South Africa 
- Earnings Gap Widens on Skills Basis 
- Car Sales Growth Slowing 
- Average House Costs R811,000 
- Reserves Increase Slightly 
- South Africa Department of Public Enterprises   Acknowledges 
Energy Shortage 
- South African Airways Cash Relief Talks 
- SA Stands to Gain Billions of Rand from Carbon Trading 
End Summary. 
 
 
Chinese President Arrives in South Africa 
----------------------------------------- 
 
¶2. (U) As part of his eight-nation, twelve-day African tour, Chinese 
President Hu arrived in South Africa on February 6, where he talked 
with President Mbeki about deepening the "New Strategic Partnership" 
forged at the Beijing Focac Summit in November 2006.  The two 
countries signed agreements on economic cooperation and opening the 
Chinese market to South African fruit exports.  China also pledged 
to assist with South Africa's Accelerated and Shared Growth 
Initiative (ASGI-SA), the Joint Initiative on Priority Skills 
Acquisition development program (JIPSA), and generating Chinese 
foreign direct investment in South Africa.  The countries also 
intend to launch a joint Economic and Trade Cooperation website this 
year.  (Business Day, February 7.  Pretoria News, February 7) 
 
Earnings Gap Widens on Skills Basis 
----------------------------------- 
 
¶3. (U) The earnings gap between unskilled and skilled workers has 
widened since the mid-1990s, but race and gender gaps in managers' 
earnings have narrowed in recent years.  This is according to new 
research on income inequality released by the Human Sciences 
Research Council's (HSRC's) Employment, Growth and Development 
Initiative.  Researchers found that earnings of low-skilled men and 
women, adjusted for inflation, declined between 1995 and 2003, but 
those of more highly skilled workers and managers did not change 
much.  In 1995-2003, unskilled men saw average real hourly earnings 
fall from R9 to R5.90, with a particularly sharp decline for 
unskilled black men.  Real earnings of unskilled women fell from R8 
to R5.10.  However, the gap between the earnings of black and white 
managers narrowed, as did the gap between male and female managers, 
mainly as a result of employment equity policies and legislation. 
Furthermore, the study found that large firms pay 10%-40% more than 
small firms, depending on the skills category, and the earnings gap 
is far narrower in the public sector than in the private sector. 
(Business Day, January 5) 
 
Car Sales Growth Slowing 
------------------------ 
 
¶4. (U) Figures released by the National Association of Automobile 
Manufacturers of South Africa (NAAMSA) indicate that 52,213 vehicles 
were sold in January 2007, an increase of 6.9% over January 2006 
sales.  Although higher than predicted by industry analysts, the 
figure was much lower than the double-digit increases of recent 
years.  Industry players predict that vehicle sales growth will come 
down in 2007 as consumers start facing-up to a tighter financial 
environment.  South Africans, already facing high personal debt, 
experienced four interest rate hikes in 2006 and more hikes are 
expected in 2007.  The January sales growth came mostly from sales 
of light and heavy commercial vehicles, which grew by 12.8% and 
18.6%, respectively, as high levels of economic activity and 
increased growth in spending on infrastructure drove sales in these 
market segments.  On the other hand, growth in car sales was a 
marginal 4.5% higher than the number sold in the corresponding month 
last year, despite the fact that January is traditionally a strong 
sales month (35,819 units sold in January).  NAAMSA expects the new 
car market to grow more modestly this year at between 4% and 6%.  SA 
again fared well on the export front, with 8,556 units exported in 
January, which is 7.9% higher than in January 2006.  NAAMSA projects 
exports to grow by 22% to 220,000 vehicles in 2007.  (Fin 24, 
January 5) 
 
PRETORIA 00000514  002.2 OF 003 
 
 
 
Average House Costs R811, 000 
---------------------------- 
 
¶5. (U) According to figures released by ABSA, South Africa's largest 
bank,  the average price of houses in the so-called middle segment 
of the residential property market increased by 15.2% year-on-year 
in 2006 (compared with a 22.7% increase in 2005) to about R811,000 
($112,000) in nominal terms.  Real house prices (adjusted for 
inflation) increased by 10% in 2006, compared with a growth rate of 
18.7% in 2005.  ABSA expects nominal house price growth to be 9.1% 
for 2007.  From 2000 to 2006, the South African residential property 
market experienced strong average price growth of about 20% a year 
in nominal terms and around 14.5% a year in real terms. 
Unfortunately, expansion of the country's road infrastructure has 
not kept pace with mushrooming new residential developments, causing 
higher levels of traffic congestion impacting negatively on 
productivity and transport costs.  (Fin 24, February 8) 
 
Reserves Increase Slightly 
-------------------------- 
 
¶6. (U) South African Reserve Bank (SARB) data showed that South 
Africa's gross reserves were up 1% at $25.88 billion in January from 
$25.61 billion in December.  Net reserves, also known as the 
international liquidity position, increased to $23.27 billion, up 
from $22.98 billion in December.  The moderate increase in reserves 
was due to a weaker rand that limited the Reserve Bank's activity in 
the market.  The rand has, however, started to claw its way back, 
which is expected to boost accumulation of reserves in coming 
months, analysts said. (Business Day, January 8) 
 
South Africa Department of Public Enterprises   Acknowledges Energy 
Shortage 
--------------------------------------------- 
 
¶7. (U) The Department of Public Enterprises (DPE) released a 
confidential report on February 3 which paints a bleak picture for 
 
SIPDIS 
energy consumers, calling for better energy planning and predicting 
future power shortages.  The report, "Review of Security of Supply 
in South Africa," recommends an overhaul to the energy planning 
process which has largely been led by parastatal electricity 
provider Eskom.  In a separate press statement, DPE stated that the 
responsibility for electricity supply security planning rests with 
the Department of Minerals and Energy and that Eskom's role is to 
help meet the demand for additional power generation.  The report 
acknowledges that the energy supply is very tight, as evidenced by 
last month's rolling blackouts.  At the time, DPE downplayed the 
black-outs as a one-time event.  Now, DPE has released a report 
which paints a much bleaker picture.  (Engineering News, February 6 
and DPE Press Release, February 3) 
 
South African Airways Cash Relief Talks 
--------------------------------------- 
 
¶8. (U) Talks are under way with the Treasury to secure state support 
for the further recapitalization of struggling national airline 
South African Airways (SAA), which had experienced another "very 
tough" financial year, Public Enterprises Minister Alec Erwin told 
Parliament February 1.   Erwin said that the airline needed 
additional funds to strengthen its balance sheet and to expand its 
fleet and route network.  In October last year, South African 
Airways started a low-budget airline, Mango, to compete with 
Nationwide, 1Time and Kulula airlines.  Mango sold thousands of 
below-cost tickets, prompting a price war among the other airlines. 
At the time, critics argued the government was subsidizing South 
African Airways and Mango and predicted a government bailout. 
Should the Treasury agree to the use of state funds for a 
recapitalization, it would be the second capital injection received 
by SAA in three years.  The first was the R6 billion ($0.85 billion) 
ploughed by Transnet into the organization early in 2004 to clear 
its hedge book losses.  The recapitalization would give SAA a boost 
as it separates from former parent company Transnet and operates as 
an independent state-owned enterprise reporting directly to 
government.  (Business Day, February 2) 
 
SA Stands to Gain Billions of Rand from Carbon Trading 
--------------------------------------------- - 
 
 
PRETORIA 00000514  003.2 OF 003 
 
 
¶9. (U) A survey conducted by the International Quality Productivity 
Center (IQPC) has indicated that South Africa stands to gain up to 
R5.8 billion ($0.8 billion) from carbon credit trading in the next 
10 years.  SA is reported to have a potential for millions of tons 
carbon credits, while many coal power-based industries are 
converting to clean energy.  Under the United Nation's Kyoto 
Protocol, which SA has ratified, developing and developed countries 
are encouraged to exchange carbon credits for the purpose of 
reducing global carbon emissions blamed for exacerbating global 
warming.  The Clean Development Mechanism (CDM) is the vehicle 
employed for carbon trading and SA has launched six carbon trading 
projects designed to reduce carbon emissions.  According to the IQPC 
survey, many countries have been slow to engage in the certified 
emission reduction process.  The study observed that some African 
companies need to see tangible proof of profitability from the 
carbon trading projects, while in the case of SA it found that some 
local municipalities were uncertain about the implications on 
projects under the Public Finance Management Act.  Of the six 
projects registered by SA companies, only the one implemented by the 
state-funded PetroSA is fully operational.  The project involves the 
transforming of biogas to energy.  The Department of Minerals and 
Energy is the authority responsible for the rules and regulations 
pertaining to carbon trading, while PriceWaterhouseCoopers oversees 
the accreditation process in SA.  (Business Day, January 15) 
 
BOST