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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF 
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER MARCH 16, 2007 
ISSUE 
 
 
¶1. (U) Summary.  This is Volume 7, issue 11 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Manufacturing up 6.2% 
- Business Confidence Down 
- Lack of Education and Skills Inhibits Rate of   Economic Growth 
- SAA Restructuring Prompts Route Review 
- SAG to Offer R1bn Lure for Call Centers 
- Launch of Solar Powered Geysers 
- Business Urges More Action Against Crime 
End Summary. 
 
Manufacturing up 6.2% 
--------------------- 
¶2. (U) According to Statistics South Africa (StatsSA), manufacturing 
output increased by 6.2% in volume terms year-on-year in January 
compared with 5.0% in December.  Analysts said the sector's fortunes 
have improved considerably in recent months as the rand weakened and 
spending by government and the private sector increased.  The rand 
lost nearly 10% of its value against the dollar in 2006.  Analysts 
remain optimistic about the manufacturing sector, based on a further 
weakening in the currency, indications of a pick-up in business 
expenditure, and infrastructural work spearheaded by the government. 
Also, the Investec purchasing managers index (PMI), a leading 
indicator of activity in the manufacturing sector, increased by 
three index points to 78, its highest level in more than 12 years. 
The revival in the supply side of the economy bodes well for 
economic growth and the large deficit on the current account. 
Manufacturing is South Africa's second largest sector, accounting 
for nearly 17% of gross domestic product, and is key to creating 
much-needed jobs in a country battling with unemployment of over 
25%.  (I-Net Bridge March 13, 2007) 
 
Business Confidence Down 
------------------------ 
 
¶3. (U) According to the Business Confidence Index (BCI), business 
confidence declined from 83 index points in the fourth quarter of 
2006 to 81 index points in the first quarter of 2007, its lowest 
level in two years, as higher interest rates negatively affected 
sectors that depend on consumer spending.  Economists said business 
confidence has remained consistently high for a long time, 
indicating that the economy was structurally healthier.  Retailers' 
confidence declined from 91 to 78, while wholesaler confidence eased 
further, down from 88 to 76.  Conditions in the building sector 
remain buoyant, with building contractors' confidence remaining 
unchanged at 90, a level around which it has fluctuated for most of 
the past two years.  New vehicle dealers' confidence edged up by one 
point to 72 in the first quarter while manufacturing sector 
confidence increased to 78, the highest level in 12 years. "The 
latest BCI results indicate that the source of growth is rotating 
away from the consumer sectors towards 
 
Manufacturing, and probably mining, given the expected impact of 
both higher interest rates and a weaker rand.  The survey was 
conducted between February 6 and March 6, 2007.  (Business Day, 
March 15, 2007) 
 
Lack of Education and Skills Inhibits Rate of   Economic Growth 
--------------------------------------------- 
 
¶4. (U) According to University of Pretoria professor Charlotte du 
Toit, who is also economic adviser to the social development 
minister, an improvement of 10% in the socioeconomic environment 
would increase South Africa's economic growth potential to 
approximately 6.5%.  In a study du Toit did for the Department of 
Social Development, she found that growth has not done much to 
reduce unemployment because of factors that affected insufficient 
access to effective education and skills development.  She concluded 
that the economy would not be able to sustain higher growth rates as 
long as it has a huge "untapped resource" of people who cannot be 
absorbed into the economy.  Du Toit has called for an integrated 
national strategy on social development that will improve South 
Africa's ability to absorb and mobilize human capital and so raise 
the economy's sustainable growth rate.  Du Toit, who is also 
responsible for the econometric modeling of South Africa's growth 
potential for the Reserve Bank, now estimates the economy's growth 
potential at 4%-4.5%, given that there are structural or supply-side 
impediments, particularly in the labor market.  Du Toit said that as 
 
PRETORIA 00001013  002 OF 003 
 
 
the economy grows faster, it starts to overheat, and that is 
reflected in domestic inflation and balance-of-payments pressures. 
"Supply-side impediments inhibit people who would be willing to work 
from doing so, preventing them from taking part in any form of 
economic activity" she said.  The South African economy has grown at 
about 5% for the past two years, and the government is targeting an 
average growth rate of 6% after 2010. (Business Day, March 14, 
2007) 
SAA Restructuring Prompts Route Review 
-------------------------------------- 
 
¶5. (U) South African Parastatal airline South African Airways (SAA) 
is conducting a comprehensive review of its routes as part of its 
strategic plan to restructure the company.  The review is expected 
to take six months to complete.  SAA has decided to postpone the 
proposed May 9 launch of a new route from Johannesburg to Chicago. 
Ticketed passengers are being re-routed to the existing 
Johannesburg-Washington (Dulles) route.  SAA has suffered 
significant financial losses over the past year, prompting the 
Department of Public Enterprises to seek a government bail-out 
before parliament last week. (SAA press release, March 9, 2007) 
 
SAG to Offer R1bn Lure for Call Centers 
--------------------------------------- 
 
¶6. (U) The South African government has earmarked R1 billion ($135 
million) in investment incentives over the next five years to lure 
international business services to South Africa to boost job 
creation and increase foreign direct investment.  The plan was 
launched by Trade and Industry Minister Mandisi Mpahlwa in Pretoria 
on March 15.  The plan forms part of a broad industrial policy 
framework and is key to government's accelerated and shared growth 
initiative (ASGISA) which aims to boost economic growth to 6% and 
halve unemployment by 2014.  The investment incentives are on a par 
with a global benchmark in providing grants equal to half of the 
salary of each job created and a skill-training grant.  Depending on 
the size of the investment and the number of jobs created, companies 
can claim grants of up to R60, 000 ($8,100) per "seat", where a seat 
would provide jobs for one to three people, depending on whether the 
firm operates shifts.  The Department of Trade and Industry 
estimates the plan will translate into 100,000 new jobs by 2009 and 
draw about $175 million in foreign direct investment, which could 
push the sector's contribution from 0.92% to 1.36% of Gross Domestic 
Product (GDP) by 2009.  Call centers currently employ 54,000 call 
center agents and the sector has reported growth of 8% a year over 
the past four years.  (Business Day March 16, 2007) 
 
Launch of Solar Powered Geysers 
------------------------------- 
 
¶7. (U) CEF (Pty) Ltd, together with some partners, launched a pilot 
project of developing a high-quality water heating system for mid to 
upper-income homes in South Africa (SA) in March.  The company was 
established to support the public Central Energy Fund's objectives 
of searching for appropriate energy solutions to meet South Africa's 
future energy needs.  CEF partnered with the Department of Minerals 
and Energy (DME), the Department of Science and Technology (DST), 
the South African Bureaus of Standard (SABS), the Global 
Environmental Fund (GEF) and the United Nations Development Program 
(UNDP) to work on the project.  The project is aimed at inspiring 
confidence in the use of renewable energies and to help ease the 
growing pressure on the local electricity supplier.  A CEF official 
also said that the project was designed to raise awareness and to 
remove market barriers to solar technology.  Three approved 
distributors would supply 200 and 300-liter solar-heated geysers to 
501 private homes, and install 167 geysers in each of the provinces 
of Gauteng, Kwa-Zulu Natal and the Western Cape.  According to CEF 
CEO Dominic Milazi, South Africa is one of the countries with the 
highest 24-hour solar radiation averages in the world, while water 
heating accounts for one-third or half of household energy 
consumption.  Milazi said it made sense to take advantage of solar 
energy because of these reasons.  Such a move has the potential to 
leverage electricity saving and reduce greenhouse gas emissions. 
The SABS-approved geysers will cost between $1,400 and $2,800 and 
will be monitored and measured for effectiveness and compliance to 
the national standards.  (The Star, March 7, 2007) 
 
Business Urges More Action Against Crime 
---------------------------------------- 
 
 
PRETORIA 00001013  003 OF 003 
 
 
¶8. (U) Business Against Crime called on the government to adopt new 
strategies to combat crime and make the police force and Department 
of Justice and Constitutional Development more efficient.  Outrage 
over crime is growing as South Africa tries to show it is safe 
before hosting the 2010 Soccer World Cup.  Corporate leaders have 
forged a partnership with government officials to mount a campaign 
against the country's rampant murder, rape and robbery rates.  A 
joint industry-government taskforce has collected $2 million in 
private donations for crime-busting projects, ranging from cracking 
crime syndicates to addressing social problems.  The projects are 
due to roll out by next month.  The projects are also aimed at 
improving the under-paid police and justice system.  President Thabo 
Mbeki, who has often been accused of downplaying crime, acknowledged 
in his State of the Nation address in February that many live in 
fear of crime and pledged to expand the police force.  (Fin 24, 
March 13, 2007) 
 
BOST