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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
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ZNR UUUUU ZZH
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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2650
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 7744
RUEHTN/AMCONSUL CAPE TOWN 5073
RUEHDU/AMCONSUL DURBAN 9371

UNCLAS SECTION 01 OF 03 PRETORIA 003928 
 
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USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
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 NOVEMBER 9, 
2007 ISSUE 
 
PRETORIA 00003928  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 7, issue 45 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- SA's Competitiveness Slides 
- Business Confidence Hits Three-Year Low 
- Sub-Saharan Africa Experiences Sustained Growth 
- Net Reserves Up As Rand Firms 
- Black Inequality Increases 
- Holiday Inn Opens In Soweto 
- Mixed Views On Diamond Production Outlook 
 
End Summary. 
 
 
--------------------------- 
SA's Competitiveness Slides 
--------------------------- 
 
¶2. (U) According to the World Economic Forum's (WEF's) Global 
Competitiveness Index, South Africa's Competitiveness has slipped 
from 36th position last year to 44th this year.  South Africa 
continues to slip in the global competitiveness rankings, despite 
experiencing the highest economic growth in decades and having sound 
economic fundamentals.  This suggests that South Africa is failing 
to keep pace with other highly competitive markets.  According to 
the Global Competitiveness Report, South Africa was held back 
largely by inadequate infrastructure, health care and deterioration 
in higher education and training.  WEF economist Margareta Drzeniek 
said, "We see a deterioration in the aspects of health care, with 
businesses starting to feel the impact of HIV and tuberculosis, with 
the latter having a much higher impact this year than last year". 
"We have also seen a deterioration in the quality of higher 
education and training, with business leaders saying the quality of 
education overall has dropped, while other countries have moved 
faster," she said.  The WEF report painted yet another gloomy 
picture for the rest of sub-Saharan Africa, saying resurgent 
economic growth in the region was "not yet reflected in improved 
competitiveness rankings for the region".  South Africa seems to be 
on the downward trend in other surveys as well.  South Africa fell 
six places from 29th to 35th in the World Bank's Doing Business 2008 
survey last month, while the International Institute for Management 
Development's World Competitiveness Yearbook for 2007 showed a 
12-place drop in South Africa's ranking, from 38th to 50th out of 55 
countries.  (Business Day, November 1, 2007) 
 
--------------------------------------- 
Business Confidence Hits Three-Year Low 
--------------------------------------- 
 
¶3. (U) The South African Chamber of Commerce and Industry (SACCI) 
said its monthly Business Confidence Index (BCI) decreased from 98.7 
points in September to 96.9 points in October, its lowest level 
since June 2004.  According to the SACCI, the decrease in business 
confidence can be attributed to companies' concern about the impact 
of international market developments on the local economy.  The 
SACCI said "Businesses are becoming more concerned about 
international economic developments, as well as local adjustment 
taking place".  Accelerating inflation has raised the chances of a 
further interest rate hike in December 2007, while a global credit 
squeeze has led to uncertainty and volatility in world markets and 
has raised concerns about possible slowing world growth.  "The 
global economic slowdown and financial market uncertainty, in 
Qglobal economic slowdown and financial market uncertainty, in 
particular, may have a more severe impact on countries with large 
current account deficits and volatile portfolio financial inflows," 
SACCI said.  South Africa's current account deficit stood at 6.5% of 
GDP in the second quarter of 2007, but was still attracting enough 
inflows to finance it.  The National Treasury said in its 2007 
Medium Term Budget Policy Statement last week that the current 
account deficit would widen from 6.5% of GDP last year to 6.7% this 
year and 7.8% in 2010.  South Africa's import bill is expected to 
continue climbing due to the capital equipment needed for the 
massive government infrastructure spending program over the next 
three years.  Higher oil prices are also adding to pressure on the 
trade balance.  (Business Day, November 7, 2007) 
 
--------------------------------------------- -- 
Sub-Saharan Africa Experiences Sustained Growth 
--------------------------------------------- -- 
 
PRETORIA 00003928  002.2 OF 003 
 
 
 
¶4. (U) According to the International Monetary Fund's (IMF's) latest 
Regional Economic Outlook Survey, the Sub-Saharan African (SSA) 
region is experiencing its best period of sustained growth in 30 
years.  Growth in the SSA region is projected to increase by 6.0% in 
2007 and 6.8% in 2008.  Foreign Direct Investment (FDI) is reported 
to be particularly strong in oil-rich countries while South Africa 
is attracting the majority of private-portfolio investments.  This 
growth success reflects a potent combination of a favorable external 
environment, sound policy implementation and the rising openness of 
SSA economies, said the report.  Despite the positive forecast, the 
report warned that a possible weaker global outturn could impact 
negatively on future growth.  (IMF Regional Economic Outlook, 
November 2007) 
 
 
----------------------------- 
Net Reserves Up As Rand Firms 
----------------------------- 
 
¶5. (U) According to South African Reserve Bank (SARB) data, the Net 
Gold and Foreign Exchange Reserves (international liquidity 
position) increased by more than 5% from $28.42 billion in September 
2007 to $29,93 billion at the end of October 2007.  The SARB 
increased its buying of dollars in the wake of rand gains, while the 
gold price surged (increasing the dollar value of the SARB's gold 
reserves) and foreign loans held fell.  Analysts said the increase 
in reserves reinforced the SARB's stated drive to ramp up reserves 
during spells of rand strength, without disrupting the market.  Net 
Gold and Foreign Exchange Reserves have increased by about 30% while 
the rand has gained about 7% against the dollar so far this year. 
South Africa brought a long-standing negative reserves position into 
balance early in 2004 with the elimination of its loss-making 
forward foreign exchange book.  Since then it has increased net 
reserves although the total still lags comparable emerging markets. 
(Business Day, November 7, 2007) 
 
-------------------------- 
Black Inequality Increases 
-------------------------- 
 
¶6. (U) Inequality among blacks is growing faster than among any 
other population group in South Africa, according to a new survey by 
Institute of Race Relations.  The survey showed that, since 1996, 
inequality has grown 20% among the African population, 19% among the 
colored (mixed race) population, and 6% among Indians.  Inequality 
in the white population has declined 2%.  Inequality was found to be 
the highest in rural provinces such as Eastern Cape, Limpopo, and 
Mpumalanga.  Heavily urban Gauteng province had the lowest level of 
inequality.  According to Standard Bank economist Goolam Ballim, 
"Findings that inequality is increasing among the African population 
sound very alarming, but it does not mean the lot of lower-income 
individuals has not improved."  Goolam noted that non-cash benefits 
were among the fastest areas of fiscal spending growth.  "It has 
been found that small increases at a low-income level translate to 
marked improvement in the welfare of those people."  (Business Day, 
November 7, 2007.) 
 
--------------------------- 
Holiday Inn Opens In Soweto 
--------------------------- 
 
7 (U) Hotel operators Zatic Hotels and Resorts opened a brand new 
Q7 (U) Hotel operators Zatic Hotels and Resorts opened a brand new 
48-room Holiday Inn hotel in Soweto in early November.  The R23 
million ($3.5 million) hotel is the first of its kind to be built in 
a township and is expected to create over 40 jobs for the local 
people.  The hotel operators said the hotel is in a safe area, but 
it would also ensure that there is more visible police and security 
presence to allay the guests' fears.  The hotel is built in an area 
which has a very rich history, for example the old residences of 
Nelson Mandela, Desmond Tutu and Walter Sisulu are in Soweto, which 
is also the only place in the world where two Nobel Peace Laureates 
come from the same street.  The Soweto Accommodation Association 
welcomed the opening of the hotel and said it was good for the hotel 
industry and Soweto.  Over 200,000 tourists visit Soweto every year. 
 (Business Day, November 6, 2007) 
 
----------------------------------------- 
Mixed Views On Diamond Production Outlook 
 
PRETORIA 00003928  003.2 OF 003 
 
 
----------------------------------------- 
 
 
8 (U) Views of the global diamond production outlook diverged at an 
industry summit held in Johannesburg.  MSA Geoservices Director 
Frieder Reichhardt said significant opportunities existed in Africa, 
in particular citing diamondiferous kimberlite cratons in West and 
Southern Africa.  De Beers' Patrick Bartlett offered a contrarian, 
pessimistic view.  He doubted that new kimberlites would be of 
similar value to big historical finds such as Botswana's Jwaneng and 
Orapa mines.  "There have been no major finds in sub-Saharan Africa 
since the early 1970's, and production from major mines worldwide 
has reached a peak or is in decline, specifically in reference to 
kimberlites, with Canada the only major new find in recent times," 
Bartlett commented.  He added that many of the world's most notable 
diamond operations, such as Alrosa's Udachny and Mirny mines in 
Russia, Rio Tinto's Argyle, and De Beers' Kimberley mines will reach 
their peak within the next 20 years and production will then 
decline.  Bartlett explained that many older mines now have to go 
underground if production from these sources is to continue, 
especially so in South Africa.  (Mining Weekly, October 25, 2007) 
 
BOST