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FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2846
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 004092 
 
SIPDIS 
 
DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA 
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 30, 2007 ISSUE 
 
 
PRETORIA 00004092  001.2 OF 003 
 
 
¶1.  (U) Summary.  This is Volume 7, Issue 48 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
 
- GDP Growth Accelerates 
- Inflation Tops 7 Percent 
- Business Confidence at 4-Year Low 
- Credit Growth Keeps Pressure on Rates 
- US Company First to Use Incentive Program 
- US is SA's Number One Market 
- Telkom Ends Disposal Talks With MTN, Vodafone 
- NECSA Moots Second Reactor at Pelindaba 
 
End Summary 
 
---------------------- 
GDP Growth Accelerates 
---------------------- 
 
¶2.  (U) According to figures released by Statistics South Africa 
(StatsSA), gross domestic product (GDP) growth accelerated from 4.4 
percent in the second quarter to 4.7 percent in the third quarter of 
2007, demonstrating that the economy has so far been resilient to 
tighter monetary policy.  "We believe the GDP data remove the last 
credible argument for the South African Reserve Bank (SARB) to leave 
interest rates on hold next week," Absa Capital said in a research 
note.  The financial services industry grew by 12.1 percent in the 
third quarter of 2007 as tighter credit had only a muted effect on 
consumer demand.  The construction sector grew by 14.7 percent in 
the third quarter, fueled by the government's R482 billion ($70 
billion) infrastructure spending drive.  Growth in retail sales, the 
third-biggest sector, slowed from 4.7 percent in the second quarter 
to 4.5 percent in the third quarter.  Manufacturing output 
contracted 2.5 percent in the third quarter, putting it into a 
recession and clouding official plans to boost exports.  According 
to the Bureau of Economic Research (BER), growth was expected to 
remain brisk at 5 percent this year, but would slow to "a little 
above 4 percent" next year.  This need not be viewed as a bad 
outcome, given that growth rates of more than 5 percent were helping 
to fan inflation and widen South Africa's current account deficit. 
(Business Day, November 28, 2007) 
 
------------------------ 
Inflation Tops 7 Percent 
------------------------ 
 
¶3.  (U) According to StatsSA, inflation rose from an annual rate of 
6.7 percent in September to 7.3 percent in October 2007, scaling a 
four-and-half-year peak.  Food and fuel were again the main drivers 
of the acceleration in the CPIX-inflation rate, putting it in breach 
of its 3 percent-6 percent target for the seventh month running. 
StatsSA data also suggested that inflation would peak above 8 
percent early next year, higher than previous forecasts and paving 
the way for an interest rate hike at the SARB Monetary Policy 
Committee meeting next week with possibly more hikes next year. 
Economists also observed that the unexpected pick-up in growth 
during the third quarter of 2007 should give the SARB ample scope to 
raise interest rates again.  The SARB has raised its repo rate 3.5 
percentage points to 10.5 percent since June 2006. (Business Day, 
November 30, 2007) 
 
--------------------------------- 
Business Confidence at 4-Year Low 
--------------------------------- 
 
¶4.  (U) The Bureau for Economic Research (BER) business confidence 
index decreased from 72 points in the third quarter of 2007 to 67 
Qindex decreased from 72 points in the third quarter of 2007 to 67 
points in the fourth quarter of 2007, the fifth consecutive fall and 
its lowest level since the final quarter of 2003.  The BER business 
confidence index peaked at 88 points in the fourth quarter of 2004 
but has been steadily falling since interest rates began to rise in 
the middle of 2006.  Sentiment in the retail sector was hardest hit, 
plunging by 13 points as sales volumes fell and price margins 
narrowed.  According to the BER, price margins have come under 
pressure as businesses find it difficult to fully pass on higher 
costs stemming primarily from higher commodity prices.  Economists 
said the sustained decline in business confidence indicated that the 
surprise pickup in economic growth during the third quarter of this 
 
PRETORIA 00004092  002.2 OF 003 
 
 
year was unlikely to last.  (Business Day, November 29, 2007) 
 
------------------------------------- 
Credit Growth Keeps Pressure on Rates 
------------------------------------- 
 
¶5.  (U) South African Reserve Bank (SARB) data showed that growth in 
demand for credit from the private sector eased marginally from 
22.46 percent in September to 22.27 percent in October 2007, while 
annualized M3 money supply was down from 24.94 percent to 23.39 
percent during the same period. However, analysts said the slowdown 
was not pronounced enough to placate the SARB's concerns over rising 
inflation and stubbornly high consumer spending.  "These numbers are 
huge despite a slowdown," said Citadel economist Salomi Odendaal. 
Credit growth has remained robust despite the higher rates and a new 
credit law, introduced in June, which clamps down on reckless 
lending.  (Business Day, November 29, 2007) 
 
----------------------------------------- 
US Company First to Use Incentive Program 
----------------------------------------- 
 
¶6.  (U) TeleTech, a US business outsourcing company, is the first 
investor to utilize the South Africa Department of Trade and 
Industry's (DTI) incentive program.  DTI launched its five-year, R1 
billion ($150 million) incentive scheme to attract outsourcing 
investors in March 2007.  DTI Chief Director of Strategy 
Competitiveness Raymond Ngcobo said TeleTech was one of seven 
companies identified under the program.  A multimillion-rand 
building is being built in Cape Town for TeleTech's operations, and 
TeleTech is expected to receive financial grants of R37,000 to 
R60,000 ($5,280 to $8,570) for each of its expected 1,300 call 
center seats.   Each call center seat can generate up to three jobs. 
 According to Teletech General Manager Craig Reines, Teletech was 
attracted by South Africa's "excellent infrastructure, growing 
talented labor pool and its positioning as the gateway to the rest 
of the continent."  (Business Report, November 27, 2007) 
 
---------------------------- 
US is SA's Number One Market 
---------------------------- 
 
¶7.  (U) According to Department of Trade and Industry statistics, 
South Africa exported more goods to the U.S. in 2007 up to August 
than any other country, including South Africa's traditionally 
largest trade partner Japan.  The US surpassed Japan by a slight 
margin with R34 billion ($466 million) in exports from South Africa 
compared to Japan's R33.8 billion ($483 million).  South Africa's 
exports to the U.S. are 22 percent higher this year than in the same 
period last year.  Platinum group metals and coal are Japan's 
biggest imports from South Africa, while the U.S.' major imports 
include mining products, vehicle parts and machinery.  (The Times, 
November 26, 2007) 
 
--------------------------------------------- 
Telkom Ends Disposal Talks With MTN, Vodafone 
--------------------------------------------- 
 
¶8.  (U) Telkom, South Africa's former telecoms monopoly, called off 
break-up talks with mobile phone rival MTN and partner Vodafone on 
November 28, sending its shares plunging over 10 percent.  Telkom 
said talks to sell part of its mobile phone assets to British-based 
Vodafone had hinged on a successful deal to sell all or some of its 
QVodafone had hinged on a successful deal to sell all or some of its 
fixed-line assets to mobile phone operator MTN.  Department of 
Communications Director General Lyndall Shope-Mafole said the South 
African Government, which owns 38 percent of Telkom and had backed 
the talks with MTN and Vodafone, remained confident in Telkom's 
board.  Telkom said it would continue to pursue its options to offer 
converged services, such as combined fixed and mobile voice and data 
services.  An industry analyst said that MTN was interested in 
Telkom's national back-bone, but Telkom probably wanted to foist 
much more onto MTN, including 30,000 staff.  (Business Day and 
Engineering News, November 29, 2007) 
 
--------------------------------------- 
NECSA Moots Second Reactor at Pelindaba 
--------------------------------------- 
 
¶9.  (U) The Nuclear Energy Corporation of South Africa (NECSA) has 
 
PRETORIA 00004092  003.2 OF 003 
 
 
been identified by the government as the lead agency to develop the 
nuclear industry, including R&D and development of nuclear fuel and 
enrichment facilities.  As a first step in the process, NECSA CEO 
Rob Adam said NECSA is considering building a second nuclear reactor 
at its Pelindaba research reactor site near Hartbeespoort dam in the 
North West, not far from Pretoria.  This would be a companion to the 
Safari 1 reactor, which was built in the 1960's and is the country's 
oldest reactor.  Safari 1 has propelled NECSA into being the world's 
third largest producer of medical isotopes, including molybdenum 99 
nuclear isotopes.  NECSA is developing processes aiming to shift its 
reliance on highly enriched uranium (95 per cent or weapons grade) 
to lesser enriched uranium (about 5 per cent or the level required 
to run nuclear power stations) to produce medical isotopes.  NECSA 
is considering building a second reactor to expand its commercial 
isotope production.  The article ended by noting "sensitivities 
illustrated by the attempted theft of a 'crucial' PC on a daring 
night raid on Pelindaba, thwarted but resulting in the suspension of 
six security officials.  Adams says he has no idea about the motives 
for the break-in, under investigation."  (Financial Mail, November 
23, 2007) 
 
BOST