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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 03 PRETORIA 000119 
 
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 JANUARY 18, 
2008 ISSUE 
 
PRETORIA 00000119  001.2 OF 003 
 
 
¶1. (U) Summary.  This is Volume 8, issue 3 of U.S. Embassy 
Pretoria's South Africa Economic News Weekly Newsletter. 
 
Topics of this week's newsletter are: 
- House Price Growth at Lowest Level in Seven Years 
- Rate Hikes Hammer Retail Sales 
- JSE Down 
- Not All Lenders Comply With NCR 
- First Greenfield IPP Targets Ground-breaking 
- SA Business 'Still Optimistic' 
- U.S. Second Largest Market for Overseas Tourists 
End Summary. 
 
 
--------------------------------------------- ---- 
House Price Growth at Lowest Level in Seven Years 
--------------------------------------------- ---- 
 
¶2. (U) According to the latest Absa House Price Index, growth in 
house prices in the middle-segment of the market (80m2 - 400m2) 
slowed from 12.5% y/y in November to 11.2% y/y in December 2007, 
which brought the average price of a house to almost R964,000 ($140, 
000) at year-end.  This was the lowest price growth since December 
1999, when it was 9.3%.  House prices increased on average by 22.5% 
in 2005, 15.2% in 2006 and 14.5% in 2007.  ABSA forecast house price 
growth may drop to as low as 9% in 2008 after the downward trend in 
price growth accelerated towards the end of 2007.  Lower growth in 
house prices is largely driven by the tightening of monetary policy 
since mid-2006, the impact of the National Credit Act on the growth 
in credit extension to consumers, as well as an expected slower pace 
of economic expansion and lower growth in real household disposable 
income during the course of the year.  (ABSA Newsletter, January 15, 
2008) 
 
------------------------------ 
Rate Hikes Hammer Retail Sales 
------------------------------ 
 
¶3. (U) According to Statistics South Africa (StatsSA) data, retail 
trade sales growth slowed down from a low 1.8% y/y in October to 
0.2% y/y in November 2007, its lowest pace in nearly five years. 
Retail sales growth slowed for four quarters in a row, which is 
worrying as this is the third-biggest sector of the economy, making 
up 14% of gross domestic product (GDP).  Analysts said higher 
interest rates continue to curb consumer spending, the economy's 
main growth engine.  The South African Reserve Bank (SARB) hiked 
interest rates by four percentage points in the past 18 months to 
fight inflation, which still breached the upper end of its 3%-6% 
target for eight months running.  Economists pointed out that 
although past interest rate increases have already had an impact on 
spending, the full effect of some of the past interest rate 
increases still need to filter through the economy.  Consequently, 
retail trade sales growth is likely to slow down further, with real 
sales growth likely to move into negative territory in the coming 
months.  The latest retail sales data indicate a slowdown in 
economic activity in the fourth quarter of 2007, a trend that is 
likely to persist into 2008.  However, the question for many 
analysts is whether slower economic growth will outweigh the 
inflation risks from high international oil prices and food prices, 
second round inflationary pressures and the prospects of electricity 
and other tariff increases when the SARB Monetary Policy Committee 
meets on January 31.  (Business Day, January, 17, 2007) 
Qmeets on January 31.  (Business Day, January, 17, 2007) 
 
-------- 
JSE Down 
-------- 
 
¶4. (U) The Johannesburg Stock Exchange (JSE) has fallen almost 16% 
since October, with investors increasingly worried about economic 
woes in the U.S. and other developed country markets.  The JSE fell 
2.4% on January 16 alone, following Asian and European markets 
downward on news of record losses at Citigroup and poor retail sales 
in the U.S.  Bonds also weakened moderately and the Rand weakened 
substantially, nudging close to R7/$1.  "The U.S. is most certainly 
in a recession and the news flow has been terrible," said Patrick 
Mathidi, an investment advisor at RMB Asset Management.  According 
to John Cairns, a currency strategist at RMB, international 
investors are withdrawing funds from emerging markets, dragging down 
equities and the Rand.  The decline in the JSE suggests that the 
 
PRETORIA 00000119  002.2 OF 003 
 
 
South African economy has not de-linked from the U.S. economy, as 
some local analysts have argued.  (Business Day, January 17, 2008) 
 
------------------------------- 
Not All Lenders Comply With NCR 
------------------------------- 
 
¶5. (U) The National Credit Regulator (NCR) has warned that lenders 
risked being fined up to 10% of their annual turnover if they failed 
to comply with the National Credit Act (NCA), which was promulgated 
in 2007 to protect borrowers.  The warning came amid reports that 
some of South Africa's larger borrowers had failed to submit 
quarterly reports in the manner prescribed by the NCA, much to the 
annoyance of the NCR.  One NCR official told journalists that some 
of the reports received from "larger lenders" in the quarter ending 
November 2007 had been returned for further work.  "The quality of 
submissions varies," she said.  "In some cases, systems need to be 
reviewed to ensure reporting requirements are met."  (Business Day, 
January 14, 2008) 
 
-------------------------------------------- 
First Greenfield IPP Targets Ground-breaking 
-------------------------------------------- 
 
¶6. (U) The South African Independent Power Producer (IPP) AES Khanya 
consortium announced that its construction start for two open-cycle 
gas-turbine power stations would be delayed to February due to 
delays in closing financing.  Department of Minerals and Energy 
(DME) Chief Director: Electricity Ompi Aphane said the stations 
would still come on line by the end of 2009.  The two power plants 
will together add 1,000 MW to the national grid and will be located 
in KwaZulu-Natal and Coega in the Eastern Cape.  DME estimated the 
cost of the plants at $750 million, of which $120 million would be 
from foreign direct investment.  The AES Khanya project represents 
the first IPP involved in a significant greenfield project.  The 
consortium is led by U.S.-based AES and incorporates local partners 
Tiso Energy, Mbane Power and the Kurisani Trust.  (Engineering News, 
January 10, 2007) 
 
----------------------------- 
SA Business 'Still Optimistic' 
----------------------------- 
 
¶7. (U) According to a survey by global audit firm, Grant Thornton, 
the majority of privately held businesses in South Africa are still 
optimistic about the country.  The survey researched the 
expectations of privately held businesses in 34 countries.  In South 
Africa the research was conducted among 30 privately held businesses 
that employ 100-400 staff.  More than 75% of the businesses were 
optimistic about South Africa, ranking it as the ninth-most 
optimistic country of those surveyed.  Also, South Africa was found 
more optimistic than the global average of 42%.  The most optimistic 
province was Gauteng, at 85%, and the least optimistic province was 
the Western Cape, at 67%.  (Business Day, January 15, 2008) 
 
--------------------------------------------- --- 
U.S. Second Largest Market for Overseas Tourists 
--------------------------------------------- --- 
 
¶8. (U) The U.S. has overtaken Germany as South Africa's second 
largest overseas tourism market.  Statistics South Africa (StatsSA) 
reported that the U.S. represented the largest overseas growth 
Qreported that the U.S. represented the largest overseas growth 
market for tourism in 2007, the sixth successive year of growth for 
U.S. arrivals.  A favorable exchange rate is expected to drive 
continued growth of U.S. travelers.  South Africa Tourism Chief 
Operating Officer Didi Moyle stated that going forward, air 
travelers would drive growth in South Africa's tourism sector.  She 
noted that growth in this market will depend on continuous and 
seamless increases in air travel capacity.  Moyle added that South 
Africa is now looking to the markets of the future, such as India 
and China.  Stats SA reported that as of October 2007 arrivals from 
India grew by 21% y/y and arrivals from China grew by 11% y/y after 
a period of decline.  Arrivals from Brazil and other South American 
countries are also reported to be on the rise.  Additionally, the 
World Travel and Tourism Council said the growth potential of South 
Africa's tourism market outstripped that of competing destinations 
in Africa.  The tourism sector has become one of the largest 
contributors to South African gross domestic product (GDP).  Foreign 
arrivals contributed R222 billion ($32 billion) to South Africa's 
 
PRETORIA 00000119  003.2 OF 003 
 
 
economy between 2003 and 2006.  The South African tourism industry 
grew by 13.9% y/y in 2006 compared to a global tourism growth of 
only 4.5% y/y in 2006.  Southern African Development Community 
(SADC) countries represent the largest tourism market for South 
Africa and generate more than 60% of South Africa's tourism revenue. 
 The growth in land arrivals from SADC countries is attributed to 
increased integrated economic development of the region and much of 
the travel is driven by wholesale and retail shopping trips.  The 
SAG's Accelerated and Shared Growth Initiative (ASGISA) has 
designated tourism as an "immediate high priority" sector.  Business 
leaders welcome this prioritization and note that this sector is 
labor-intensive and has the potential to generate more jobs than 
manufacturing.  (Business Day, January 16, 2007) 
 
BOST