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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 9740
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RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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RUEHTN/AMCONSUL CAPE TOWN 4331
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UNCLAS SECTION 01 OF 03 PRETORIA 001702 
 
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USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
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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 
 
PRETORIA 00001702  001.2 OF 003 
 
 
¶1.  (U) Summary.  This is Volume 7, issue 19 of U.S. Embassy 
Pretoria's South Africa Economic News weekly newsletter. 
 
Topics of this week's newsletter are: 
- Foreign Reserves Increase 
- SA Economic Action Set to Slow 
- Vehicle Sales Down 
- Average House Cost R911,800 
- Hunting Law's Reform Postponed 
- Cement Exports Fall As Construction Expands 
- Alcoa Bids for Alcan Raises Questions About $2.7 Billion Coega 
Aluminum Smelter 
End Summary. 
 
Foreign Reserves Increase 
------------------------- 
¶2.  (U) According to the South African Reserve Bank (SARB), net gold 
and foreign exchange reserves increased from $23.97 billion at the 
end of March 2007 to $24.59 billion at the end of April 2007, 
reflecting further improvement in the South Africa's financial 
position.  The SARB attributed the increase in reserves to a 
combination of valuation adjustments as well as SARB foreign 
exchange operations.  The SARB has previously said it will continue 
to build its reserves by buying foreign exchange when market 
conditions permit, but will do so cautiously to avoid affecting the 
value of the rand.  Analysts welcomed the rise in foreign exchange 
reserves, saying it would be favorable for the South African economy 
in the long run and ease speculation and investor's fears. 
Economists expect the build-up of reserves to continue at a steady 
pace, possibly accelerating, as a result of the stronger rand 
exchange rate.  The SARB brought a long-standing negative reserves 
position into balance early in 2004 with the elimination of its 
loss-making forward foreign exchange book, historically seen as a 
weak point for the rand.  Since then, SARB has gradually increased 
net reserves, although the total still lags behind comparable 
emerging markets.  (Fin24, May 8, 2007) 
 
SA Economic Action Set to Slow 
------------------------------ 
 
¶3.  (U) The South African Chamber of Business' (Sacob's) Business 
Confidence Index (BCI) increased to 101.9 points in April 2007, 2.4 
points higher on a month-on-month basis, but 1.2 points lower on a 
year-on-year basis.  "Although April 2007 may be the start of 
another wave to higher levels of the BCI, domestic economic 
developments indicate that the moderation of business confidence may 
continue throughout 2007," Sacob said.  According to Sacob, the 
improvement in the BCI in April could largely be ascribed to the 
positive global financial market sentiment that spilled over onto 
the domestic financial markets. It pointed out that although the 
real domestic economy made a marginal positive contribution to 
April's increase in the BCI, there are definite signs of a slowing 
tempo in domestic economic activity.  Sacob recommended that special 
attention be given to the reasons for and the appropriate remedies 
for monetary excesses, higher inflation, types of financial inflows, 
the current account deficit and excessive domestic demand.  Also, 
capacity and physical constraints that stem from the public sector 
should be urgently addressed.  Notwithstanding a challenging 
economic environment at present, Sacob is confident that real 
domestic economic developments suggest that while business 
confidence will continue to moderate, it could remain at relatively 
high levels.  (I-Net Bridge, 8 May 2007) 
 
Vehicle Sales Down 
------------------ 
 
¶4.  (U) South African new vehicle sales declined by 4.4% year-on-year 
in April as higher interest rates and rising debt levels curbed 
spending on passenger cars.  The National Association of Automobile 
Manufacturers (Naamsa) said the industry sold 45,590 units in April 
2006 compared to 43,588 vehicles during April 2007.  New passenger 
car sales were down by 15.9% to 25,912 units, mainly due to interest 
rate hikes between June and December last year to curb rising 
inflationary pressures, high consumer spending and record high 
household debt levels.  However, light commercial vehicle sales and 
heavy trucks sales increased by 20.8% and 17.9% in April, 
respectively, reflecting robust economic growth and a buoyant 
construction industry, bolstered by a huge infrastructure spending 
drive.  Vehicle production is one of the biggest industries within 
 
PRETORIA 00001702  002.2 OF 003 
 
 
South Africa's manufacturing sector and accounts for 17% of gross 
domestic product. 
 
Average House Cost R911,800 
--------------------------- 
 
¶5.  (U) According to the ABSA House Price Index, nominal house price 
growth of 15.5% year-on-year was recorded in April 2007, bringing 
the average price of a house in the survey to R911,800 ($130,300). 
The Index recorded an average price increase of 15.6% for the first 
four months of 2007.  House prices increased by 22.7% and 15.2% in 
2005 and 2006, respectively.  Absa researchers said that house 
price growth in 2007 could be expected to continue the downward 
trend to about 9% before improving again in 2008.  They stated that 
short-term risk for interest rates was on the upside, pointing to 
high fuel and food prices as concerns on the inflation front. 
(I-net Bridge, May 7, 2007) 
 
Hunting Law's Reform Postponed 
------------------------------ 
 
¶6.  (U) Minister of Environmental Affairs and Tourism Marthinus Van 
Schalkwyk announced that the date of effect for the Protected 
Species Regulations has been moved forward from June 1, 2007 to 
February 1, 2008.  Van Schalkwyk's decision was prompted by concerns 
raised by some Provincial Environmental Ministers who complained 
that there were some challenges which would make it difficult to 
implement the regulations by June 1, 2007.  Van Schalkwyk plans to 
phase out the controversial practice of "canned hunting" which is 
regarded as reprehensible and unethical, through the introduction of 
the regulations.  His office gave no details of the challenges 
stated by the provincial Ministers.  However, the new regulations 
seek to outlaw the hunting of captive-bred predators within two 
years of their release into a game farm for the purpose of hunting. 
North West Agriculture, Conservation and Environment Minister 
Mandlinkosi Mayisela welcomed Van Schalkwyk's shifiting of the 
implementation date to next year.  He said this gave them some 
"breathing room" to engage further in discussion with the National 
Minister, with the hope of striking a favorable compromise for his 
province.  Mayisela said that over 350 lions are hunted per year in 
North West province.  While waiting for the regulations to come into 
effect, the Department of Environmental Affairs and Tourism will 
convene countrywide information sessions to ensure that the public 
and all other stakeholders are ready for implementation and 
compliance by February 1, 2008.  The Department encouraged 
interested parties to apply for licenses or permits to avoid an 
unnecessary backlog on the effective date.  The new regulations were 
developed in terms of the National Environmental Management 
Biodiversity Act 10 of 2004. (Business Day, May 7, 2007) 
 
Cement Exports Fall As Construction Expands 
------------------------------------------- 
 
¶7.  (U) South Africa's cement exports dropped by 34% in 2006 as the 
country's construction boom expanded.  Only 156,256 tons of cement 
were exported in 2006, or just 1% of exports, according to the 
latest Cement and Concrete Review published by the Cement and 
Concrete Institute.  Cement exports have been declining for the past 
ten years with the exception of two peaks in 1999 and 2002.  The 
review attributed the decline to rising local demand, which limited 
the amount of cement available for export, and the strength of the 
rand, which decreased the competitiveness of South African exports. 
South African cement exports typically go to neighboring countries 
and Indian Ocean islands.  All four South African cement 
manufacturers have begun importing clinker or cement to meet 
domestic demand and total cement imports were about 1 million tons 
of cement product in 2006.  Investment in new production capacity is 
also up.  Pretoria Portland Cement, the largest producer, is 
expanding capacity by 1 million tons per year at a cost of R1.68 
billion ($240 million).  Lafarge South Africa, the local subsidiary 
of the French building materials group, is expanding capacity by 1 
million tons at a cost of R1.2 billion ($171 million).  NPC, owned 
by Cimpor Cimentos de Portugal, is expanding its Simuma plant in 
KwaZulu-Natal as a cost of R800 million ($114 million).  Most of 
these projects are scheduled to come on stream in 2008.  (Business 
Report, April 25, 2007) 
 
Alcoa Bids for Alcan Raises Questions About $2.7 Billion Coega 
Aluminum Smelter 
 
PRETORIA 00001702  003.2 OF 003 
 
 
--------------------------------------------- ----------------- 
 
¶8.  (U) U.S aluminum group Alcoa's hostile bid for Canadian rival 
Alcan has raised questions about the expected start date of Alcan's 
$2.7 billion Coega aluminum smelter project near Port Elizabeth. 
The concern is that if the bid is successful, the start date could 
be delayed as Alcoa integrates Alcan and reassesses the project's 
potential.  The same thing happened in 2003 when Alcan bought the 
French group Pechiney, which completed the first feasibility study 
in 2001.  Local analysts believe it would only be a delay, because 
all the top aluminum producers need to increase output, the Alcoa 
group has a many less efficient smelters in North America and 
Europe, and the Coega smelter would compare well in any project 
pipeline in a combined Alcoa-Alcan group.  The Coega smelter moved 
closer to a start date last November with the signing of a 25-year 
power supply contract between state power producer Eskom and Alcan. 
The next steps are the completion of an engineering study and the 
arranging of project finance.  The Coega smelter could eventually 
become the world's largest aluminum smelter if Alcan exercised an 
option to extend the facility to 1 million tons.  (Business Report, 
May 9, 2007) 
 
BOST