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FM AMEMBASSY PRETORIA
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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 001805 
 
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 MAY 18, 2007 
ISSUE 
 
 
PRETORIA 00001805  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 20 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- R15 Billion Trade Deficit in First Quarter 
- 2010 to Boost GDP by R51.1 billion 
- Changes to Tax Return System 
- Rates Hit Manufacturing Growth 
- More SA Workers Stressed, Depressed 
- South African Airways Bailed Out 
- South Africa's Top CO2 Emitters Engaged in Carbon Disclosure 
Program 
End Summary. 
 
R15 Billion Trade Deficit in First Quarter 
------------------------------------------ 
 
¶2. (U) South African Revenue Service (SARS) data recorded a R15 
billion ($2.1 billion) trade deficit in the first quarter of 2007, 
due to rising imports of capital goods and increasing oil imports. 
Imports surged from R92.4 billion ($13.2 billion) in the first 
quarter of 2006 to R127.7 billion ($18.2 billion) during the same 
period this year.  Higher imports were mainly due to the importation 
of machinery and mechanical appliances, oil, cement, steel and 
vehicles.  The value of exports improved from R77.7 billion ($11.1 
billion) in the first quarter of 2006 to R112.7 billion ($16.1 
billion) during the first quarter of 2007, largely due to rand 
weakness and robust global demand for resources.  Economists believe 
South Africa's export growth will remain strong during 2007 on the 
back of ongoing robust global demand for resources, improved 
production efficiencies in the mining sector, and rand weakness. 
South Africa's demand for both imported capital and consumer goods 
is expected to remain robust, the former due to ongoing vigorous 
capital formation.  Strong foreign demand for South Africa's assets 
has provided ample capital inflows to finance the current account 
deficit, but poses a risk to South Africa should these flows dry up. 
 (Investec, May 9, 2007) 
 
2010 to Boost GDP by R51.1 billion 
---------------------------------- 
 
¶3. (U) According to a 2010 Soccer World Cup economic impact 
assessment study by Grant Thornton, the World Cup will contribute at 
least R51.1 billion to gross domestic product (GDP) between 2006 and 
2010, R21 billion ($3 billion) more than estimated during the 
bidding phase of the World Cup in 2003.  Of this revised amount, 
R17.7 billion ($2.5 billion) comes from higher-than-planned 
infrastructure spending, particularly transport infrastructure. 
Also, 500,000 more tickets will be available for soccer supporters, 
adding to the number of tourists expected to visit South Africa 
during this period.  (Fin24, May 14, 2007) 
 
Changes to Tax Return System 
---------------------------- 
 
¶4. (U) Finance Minister Trevor Manuel announced changes to South 
Africa's tax return system, making it easier for individuals and 
businesses to file returns.  However, industry experts warn the 
changes threaten the livelihoods of about 17,000 tax practitioners 
and advisers registered with the South African Revenue Service 
(SARS), as taxpayers would now be able to fill out their own tax 
returns.  Under the new system, tax assessment forms have been 
reduced from 10 pages to just two and taxpayers would not have to 
submit supporting documentation or make calculations.  The new 
self-assessment system put the onus on the taxpayer to ensure that 
amounts disclosed in the return are correct and that supporting 
documents are kept for five years.  Furthermore, the deadline for 
personal tax submissions has been pushed back from mid-July to 
October 31.  SARS intends to ensure greater efficiency and faster 
turnaround times verifying and assessing the information submitted 
by taxpayers.  Manuel said the number of returns that needed to be 
assessed each year had reached unprecedented volumes, and would 
continue to grow at about 8% per year over the next three to five 
years.  There are currently 7 million registered taxpayers in South 
Africa, of which there are 5 million individuals, 1.7 million 
companies, and 300,000 trusts.  SARS is also in the process of 
simplifying tax returns for companies, trusts and tax exempt 
institutions.  (News24, May 10, 2007) 
 
 
PRETORIA 00001805  002.2 OF 003 
 
 
Rates Hit Manufacturing Growth 
------------------------------ 
 
¶5. (U) According to Statistics South Africa (StatsSA), manufacturing 
output growth slowed from 7.2% year-on-year in February 2007 to 5.2% 
in March 2007, adding to evidence of weaker domestic demand and 
backing the case for interest rates to remain steady this year.  The 
South African Reserve Bank (SARB) raised interest rates by two 
percentage points in the second half of last year to curb 
inflationary pressures fanned by rapid growth in credit demand and 
consumer consumption, along with rising food and fuel costs.  Since 
then, growth in retail sales, private sector credit and vehicle 
purchases has subsided, suggesting higher interest rates are having 
an effect on the demand side of the economy.  Also, expected slower 
global growth and rand gains are likely to keep the trend in place 
by dampening appetite for South African exports.  That does not bode 
well for the manufacturing sector, which accounts for more than 17% 
of the economy and is seen as crucial to sustaining economic growth 
and job creation.  (Business Day, May 11, 2007) 
 
More SA Workers Stressed, Depressed 
----------------------------------- 
 
¶6. (U) According to a study by Corporate Absenteeism Management 
Solutions (CAMS), increasing numbers of South Africans are taking 
sick leave because of psychological illness, costing companies more 
than R1 billion ($140 million) a year.  About R19 billion ($2.7 
billion) was lost due to sick absenteeism in South Africa in 2006, 
of which R1.2 billion ($17 million) was due to psychological 
reasons.  CAMS studied a sample of more than 100,000 employees in 
more than 60 companies, and examined the medical certificates 
presented by employees after returning from sick leave.  It found 
that between March 2005 and the beginning of March 2006, 45 out of 
every 1,000 employees took time off for psychological reasons.  This 
had risen to 65 out of every 1,000 employees between March 2006 and 
March 2007.  Psychological illness includes depression and 
absenteeism due to stress.  The average number of days per year an 
employee was ill for psychological reasons was 4.6 days, double the 
time the average employee takes off for other illnesses.  The 
statistics may reflect the impact of high crime levels, 
socio-economic problems, and transformation in the workplace on the 
South African workforce.  (Business Day, May 15, 2007) 
 
South African Airways Bailed Out 
-------------------------------- 
 
¶7. (U) Parliament has agreed to provide financially troubled South 
African Airways (SAA) with a R1.3 billion ($188 million) guarantee 
to fund recapitalization and restructuring.  The state-owned airline 
had asked for R4 billion ($580 million) but Parliament's public 
enterprise committee balked, saying that the various restructuring 
plans submitted by SAA over the past two years were "troubling." 
Public Enterprise Minister Alec Erwin said that a two-year deadline 
had been set for restructuring and cost-cutting.  Erwin said this 
would involve simplifying the corporate structure, improving 
accountability and disposing non-core assets.  Erwin warned that up 
to 1,000 of SAA's 11,000 jobs could be lost in the process. 
(Business Day, May 4, 2007) 
 
South Africa's Top CO2 Emitters Engaged in Carbon Disclosure 
Program 
--------------------------------Q------------ --- 
 
¶8. (U) Leading South African companies are to participate in a 
carbon disclosure program (CDP) scheduled to run until the end of 
May 2007.  CDP is a survey launched in the UK in 2000 and designed 
to determine the impact of business on the environment.  According 
to the CDP survey, many companies contribute to climate change 
through greenhouse gases emitted during their different working 
processes.  Growing fear of the potential impact of climate change 
on the global economy and people's livelihoods is increasingly 
forcing nations to develop mitigation and adaptation mechanisms 
against climate change.  World markets are also intensifying demand 
for products manufactured and harvested in environmentally 
sustainable ways, while customers and consumers frown upon products 
manufactured through carbon-intensive processes.  South Africa is 
one of the countries beginning to feel the pressure of these new 
developments.  South African coal companies find it more difficult 
to penetrate European coal markets, as authorities in those 
 
PRETORIA 00001805  003.2 OF 003 
 
 
countries believe that coal imported from South Africa, relative to 
other import sources, tends to be high in oxide and carbon dioxide 
emissions when burned.  The EU's Large Combustion Plant Directive is 
to start limiting nitrogen oxides and sulphur dioxide emissions 
which may pose significant problems for South African coal exports. 
South African carbon dioxide (CO2) production is reported to have 
been on the increase from 1980 to 2004, making it higher than Brazil 
with four times South Africa's production.  The World Resource 
Institute estimated South Africa's CO2 production at 417 million 
tons for 2000, making South Africa the world's 19th largest emitter 
of the gas.  The initial CDP survey involved only FT 500 companies, 
while the current survey is the first to include developing 
countries like Brazil, India and South Africa.  South Africa's top 
emitters, ESKOM and SASOL, are expected to participate in the 
survey. (Business Day and Business Report, May 14, 2007) 
 
BOST