VZCZCXRO4350
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3042/01 2421147
ZNR UUUUU ZZH
R 301147Z AUG 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1450
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 4757
RUEHDU/AMCONSUL DURBAN 9104
RUEHJO/AMCONSUL JOHANNESBURG 7266
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 PRETORIA 003042 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS USTR FOR PATRICK COLEMAN 
TREASURY FOR TRINA RAND 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
AF/S FOR RMARBURG 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV SF
SUBJECT: SOUTH AFRICA'S TRADE PERFORMANCE IN 2006 
 
PRETORIA 00003042  001.2 OF 003 
 
 
¶1.  (U) Summary.  South Africa's strong import demand for 
crude oil and capital equipment, along with comparatively 
moderate export growth, resulted in an 80 percent widening of 
the current-account deficit during 2006.  Strong consumer 
demand, spurred by relatively low levels of debt servicing 
cost, contributed to a 32.5 percent increase in merchandise 
imports in 2006, while merchandise exports increased by 20.3 
percent.  The South African Government's (SAG) 
multi-billion-rand capital expansion program will ensure 
import growth continues, while exports will benefit from 
strong global demand for commodities.  In 2007, exports are 
expected to benefit from a moderately weaker rand and strong 
global demand.  Economists expect the current-account deficit 
to remain above 6.5 percent of GDP in 2007.  China is slowly 
eating into Germany's position as the largest supplier of 
imports and the U.S. is threatening Japan's position as South 
Africa's largest export destination.  End Summary. 
 
--------------------- 
SOUTH AFRICAN IMPORTS 
--------------------- 
 
¶2.  (U) According to data released by the South African 
Revenue Service (SARS), the value of merchandise imports, 
which had increased by 14.5 percent in 2005, increased by an 
additional 32.5 percent in 2006.  The strong demand for oil 
and capital equipment and vibrant consumer demand contributed 
to the increase in 2006.  Imports of mineral products 
increased by 67.7 percent, largely because of higher crude 
oil prices, while imports of vehicles and transport equipment 
swelled by 17.8 percent in 2006.  Machinery imports, pushed 
by the upward trend in fixed capital formation, increased by 
32.5 percent and accounted for 26.2 percent of total imports 
in 2006. 
 
Value of South Africa's Major Imports 
--------------------------------------------- -------------- 
Imports           2005     2006    Percent   Percent of 
                                   Change    Total Imports 
--------------------------------------------- -------------- 
Machinery         $13.1bn  $17.3bn  32.5      26.2 
Mineral Products   $7.6bn  $12.7bn  67.7      19.2 
Vehicles           $6.5bn   $7.7bn  17.8      11.6 
Chemical Products  $1.6bn   $2.1bn  20.3       8.2 
 
¶3.  (U) China continued to expand its share of South Africa's 
import market at the expense of South Africa's other leading 
trading partners, including the U.S.  China's increased share 
in the import market was mainly due to high volumes of 
low-cost merchandise imports, which are slowly eating into 
Germany's position as the largest supplier of South Africa's 
imports. 
 
South African Import Sources 
---------------------------------- 
Country (Percent of Total Imports) 
               2005     2006 
---------------------------------- 
Germany        14.1     12.6 
China           9.0     10.7 
U.S.            7.7      7.6 
Japan           6.8      6.5 
Saudi Arabia    5.6      5.3 
U.K.            5.5      5.0 
Africa          4.9      6.7 
 
Imports from Africa increased largely due to a doubling of 
oil imports from Nigeria and Angola. 
 
----------------------------------- 
SOUTH AFRICAN IMPORTS FROM THE U.S. 
----------------------------------- 
 
¶4.  (U) The value of total imports from the U.S. increased by 
15.9 percent from $3.652 billion to $4.234 billion in 2006, 
according to the U.S. International Trade Commission (USITC). 
 South Africa imported mostly machinery and mechanical 
appliances, vehicles and aircraft, as well as medical 
instruments.  Moreover, there was a significant increase in 
imports of live animal products (805.5 percent), dairy 
produce (550.0 percent), fertilizer (447.3 percent), cement 
(390.4 percent), and iron and steel (214.7 percent) in 2006. 
 
PRETORIA 00003042  002.2 OF 003 
 
 
 
--------------------- 
SOUTH AFRICAN EXPORTS 
--------------------- 
 
¶5.  (U) SARS reported that the value of South Africa's 
exports increased by 20.3 percent in 2006.  Exports benefited 
from strong global demand and the surge in international 
commodity prices.  The increase was most noted in the 
"precious metals" category, where exports increased by 33 
percent in 2006.  Precious minerals constituted 28 percent of 
the total export basket with platinum the largest export 
earner in this category, followed by gold, and diamonds. 
Base metal exports, which mainly consist of basic iron and 
steel exports, increased by 16.2 percent in 2006 and 
constituted 17 percent to the export basket.  Higher gold 
prices served to offset a continuing decline in gold 
production, while the value of coal exports exceeded the 
value of diamond exports.  Mining exports in total 
constituted 45 percent and manufacturing 51 percent of the 
total value of South African merchandise exports in 2006, 
respectively. 
 
¶6.  (U) Manufacturing exports benefited from the sustained 
buoyancy of the global economy and a weaker rand. 
Manufacturing exports in the form of machinery, vehicles, and 
chemical products increased by 35.6 percent, 17.4 percent, 
and 6.9 percent, respectively.  The export value of the 
"mineral products" category (petroleum 
refineries/synthesizers) increased by 22.5 percent in 2006. 
Agricultural exports constituted 4 percent of total exports 
and showed a 7.9 percent decline in 2006.  The poor export 
performance of the agricultural sector was mainly due to 
fewer maize exports as a result of a reduction in maize 
plantings during the 2005-2006 season. 
 
Value of South Africa's Major Exports 
--------------------------------------------- ------------- 
Exports             2005     2006    Percent Percent of 
                                     Change  Total Exports 
--------------------------------------------- ------------- 
Precious Metals     $11.8bn  $15.6bn  33.0    27.7 
Mineral Products     $6.8bn   $8.3bn  22.6    14.7 
Base Metals          $8.3bn   $9.6bn  16.2    17.0 
Machinery            $4.2bn   $5.7bn  35.6    10.0 
Vehicles             $4.5bn   $5.3bn  17.4    17.4 
Chemicals            $3.1bn   $3.3bn   6.9     5.9 
Agricultural Prod.   $2.2bn   $2.0bn  -7.9     3.6 
 
¶7.  (U) Japan and the U.S. remained South Africa's main 
export markets in 2006, receiving 10.7 and 10.5 percent of 
total exports, respectively.  Exports to China increased by 
64 percent, constituting 4.3 percent of total exports.  The 
U.S. increased its share of total exports, threatening 
Japan's position as the largest export market. 
 
South African Export Destinations 
---------------------------------- 
Country (Percent of Total Exports) 
              2005    2006 
---------------------------------- 
Japan         10.0    10.7 
U.S.           9.5    10.5 
U.K.           9.7     8.0 
Germany        6.5     6.8 
Netherlands    4.5     4.7 
China          2.7     4.3 
Africa        14.0    13.3 
 
--------------------------------- 
SOUTH AFRICAN EXPORTS TO THE U.S. 
--------------------------------- 
 
¶8.  (U) The USITC reports that the total value of exports to 
the U.S. increased by 28.1 percent from 2005 to 2006, driven 
by an increase in the value of precious metals and stones, 
iron and steel, machinery, aluminum, and vehicle exports. 
The value of exported precious metals and stones increased by 
40.6 percent for the period, followed by aluminum exports 
which increased by 24.7 percent and iron and steel by 41 
percent.  The value of vehicle exports increased by 64.6 
percent from $287.1 million in 2005 to $472.5 million in 
 
PRETORIA 00003042  003.2 OF 003 
 
 
¶2006.  South African paper exports to the U.S. increased by 
more than 600 percent from $1.3 million in 2005 to $9.2 
million in 2006. 
 
------------------------------------- 
SOUTH AFRICAN CURRENT ACCOUNT DEFICIT 
------------------------------------- 
 
¶9.  (U) South Africa's strong import demand for crude oil and 
capital equipment, along with comparatively moderate export 
growth and increased in dividend payments to foreign 
shareholders, resulted in an 80 percent widening of the 
current-account deficit in 2006.  The current-account deficit 
widened from R62.3 billion ($8.9 billion) in 2005 to R112.4 
billion ($16 billion) in 2006.  Relative to GDP, the deficit 
increased from 4.0 percent in 2005 to 6.5 percent in 2006. 
 
---------------- 
OUTLOOK FOR 2007 
---------------- 
 
¶10.  (U) Exports are expected to benefit from continued 
strong global demand and moderately weaker rand, predicted to 
be on average at $7.15/$ in 2007.  The SAG's 
multi-billion-rand capital expansion program, high crude oil 
prices, this year's drought, and a weaker rand will ensure 
that imports values will remain high.  According to the 
USITC, South Africa's exports to the U.S. increased by 20.4 
percent in the first half of 2007, increasing the likelihood 
that the U.S. will soon become South Africa's largest export 
market.  Given the trade outlook, economists expect the 
current-account deficit to remain above 6.5 percent of GDP in 
¶2007. 
Teitelbaum