This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 PRETORIA 003657
SIPDIS
DEPT FOR AF/S/KGAITHER; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/BARBER/WALKER/JEWELL
USTR FOR COLEMAN
PARIS FOR NEARY
E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER
September 9 2005 ISSUE
1. Summary. Each week, Embassy Pretoria publishes an
economic newsletter based on South African press reports.
Comments and analysis do not necessarily reflect the
opinion of the U.S. Government. Topics of this week's
newsletter are:
- Manufacturing Indicator Down in August;
- August Business Confidence High Although Declines
From Peak;
- Trade Activity at Breakeven Level Although Trade
Expectations Still High;
- Retail Sales Slow but Still Strong;
- July Manufacturing Production Growth Stalls;
- Mzansi Transfers Possible;
- Free State Municipalities in Debt; and
- Decline in 2005 SA Human Development Rating.
End Summary.
MANUFACTURING INDICATOR DOWN IN AUGUST
--------------------------------------
2. The Investec Purchasing Managers Index (PMI) has come
down slightly in August 2005 from record levels in July.
The August PMI was down to 56.8 from the historical high
of 61.7 recorded in July 2005, but still above the
critical level of 50. According to Andre Roux of
Investec, the reading of 56.8 is still fairly high and
consistent with 5 percent year on year growth in the
manufacturing sector. July's reading pointed to a 9
percent growth rate in the sector, a growth rate that was
not sustainable for any length of time. The PMI from the
Bureau of Economic Research in Stellenbosch records
activity in the manufacturing sector of the South African
economy. Source: Business Day, September 2.
3. Comment. The PMI is compiled on a monthly basis among
purchasing managers, released on the first working day of
each month. Purchasing managers manage the supply chain
within their respective factories, making sure there are
enough inputs for the process and no buildup of inventory.
Globally, this survey based on interviewing purchasing
managers gives an early and good indication of what's
happening in the manufacturing sector. Even though South
Africa's August reading has dipped, it is still above many
of its global counterparts. End comment.
AUGUST BUSINESS CONFIDENCE HIGH ALTHOUGH DECLINES FROM
PEAK
--------------------------------------------- ---------
4. The Business Confidence Index (BCI), compiled by the
South African Chamber of Business (SACOB), declined to
126.1 in August from 129 in July. July's level peaked at
the highest level so far for 2005. August 2005's BCI was
1.7 points below August 2004's level of 127.8. Of the 13
BCI sub-indices, seven made a positive contribution to the
August 2005 index while six had either a negative or a
neutral impact. Among those having a negative impact were
liquidations, merchandise goods export volumes, real
retail sales and core inflation for metropolitan and urban
areas. Manufacturing production and merchandise goods
import volumes had a neutral impact. Higher risk factors
are becoming more evident, such as: increasing credit
expansion; low domestic saving; greater price instability;
a slow down in value added exports; liquidations; possible
weaker financial inflows; and the higher price of crude
oil. SACOB believes that the present growth expansion,
fueled by demand, must be matched by expansion in domestic
supply for South Africa's higher growth to be sustainable.
Growth prospects may be jeopardized if not followed by
higher real expansion, particularly in the primary and
secondary sectors. Source: Business Report and Business
Day, September 6.
TRADE ACTIVITY AT BREAKEVEN LEVEL ALTHOUGH TRADE
EXPECTATIONS STILL HIGH
--------------------------------------------- ---
5. The August South African Trade Management Indices
indicate that the optimistic six month outlook continues
(reaching 60), although declining marginally compared to
July. Current trade activity hovers around the critical
50 level, where half of the respondents expect
improvement, and the activity index has remained there for
the last six months. A strong improvement in current
sales volumes pulled overall trade activity up in August
and optimistic views of continuing growth in sales over
the upcoming December holiday period signal that trade
conditions should remain good over the year. Source:
SATMI, Standard Bank, September 6.
RETAIL SALES SLOW BUT STILL STRONG
----------------------------------
6. According to Statistics South Africa (StatsSA), real
June retail sales increased 5.4 percent y/y from 5.7
percent growth in May, although declined by 1.8 percent on
a monthly basis. The slowing growth in retail sales may
indicate that the stimulus from the 6.5 percent reduction
in interest rates since June 2003 may be slowing. Vehicle
sales, a leading indicator of retail sales, recently
showed strong growth and business confidence continues to
be at relatively high levels, indicating that consumer
demand growth may continue. Downside risks include
continuing high oil prices and an overextension of private
sector credit demand which might lead to possible
reductions in retail sales. Source: Standard Bank,
Taking Stock, September 7; Business Day, September 8.
JULY MANUFACTURING PRODUCTION GROWTH STALLS
-------------------------------------------
7. July's manufacturing production grew at the same rate
as June, reaching 2.4 percent (y/y). On a quarterly
basis, manufacturing production increased by 0.8 percent
(q/q). Quarterly manufacturing production growth grew
slowly even though seven out of the 10 manufacturing sub-
sectors grew faster than total manufacturing production.
However, production in those industries more impacted by
the stronger rand declined, having a more important
contribution to overall manufacturing production. Food
and beverages, textiles, and basic metals and machinery
sectors declined 1.5 percent, 3.6 percent and 2.8 percent,
respectively, contributing 44 percent towards overall
manufacturing production. The stalled manufacturing
growth was somewhat of a surprise to analysts, given that
July's leading manufacturing indices, such as Investec's
Purchasing Manager's Index and SACOB's Business Confidence
Index, posted year-high levels. Source: StatsSA Release
P3041.2 and Standard Bank Manufacturing Unpacked,
September 8; Business Day and Business Report, September
9.
MNANSI TRANSFERS POSSIBLE
-------------------------
8. Banks and the Post Office have launched the second
phase of their Mzansi low-cost accounts, with a money
transfer facility now available. The Mzansi Money
Transfer is primarily aimed at the Living Standards
Measure 1-5 income groups (the bottom 5 income groups out
of 10, based on ownership of assets and provision of water
and telephone), which often has to transfer money to
family members in rural areas. They can now transfer up
to R5000 ($800, using 6.3 rands per dollar) per day using
the new facility. Nedbank, which had on average the most
expensive fees for the Mzansi Account launched in 2004,
now has the cheapest Mzansi Money Transfer rates. It
charges a flat rate of R15 ($2.40) for transfers from an
Mzansi account, while customers without an account who are
transferring money are charged R17.50 ($2.78) regardless
of the amount of money being transferred. The other banks
charge between R17 ($2.70) and R100 ($16.00) depending on
the amount being transferred. The Post Office charges R21
($3.30) plus 1.5 percent of the amount being transferred.
The person receiving the money receives the full amount as
the remitter pays the fee. The number of Mzansi accounts
opened since October 2004 has reached over 1.6 million.
ABSA now has the highest number of Mzansi accounts (31%),
followed by Post Bank (27%), Standard Bank (18%), FNB
(14%) and Nedbank (10%). Source: Business Day, September
7.
FREE STATE MUNICIPALITIES IN DEBT
---------------------------------
9. According to a National Council of Provinces (NCOP)
report presented to Parliament, debt in 25 of the Free
States' municipalities has now reached R2.56 billion.
Protestors in the province have complained about the lack
of services and corruption among municipal officials, with
the most recent being in the Kgotsong township of
Bothaville on August 23. Protesters have also complained
of inaction and corruption among municipal officials. The
average payment of local government debt was 72.25% of
what was owed. Only two councils collected all that was
owed to them. In spite of attempts to implement credit
controls and improve revenue collection, there had been no
decrease in debt levels. Chairman of the NCOP local
government committee Sicelo Shiceka said that of the 25
consolidated local councils in Free State, not one ran a
surplus. Source: Business Day, September 7.
DECLINE IN 2005 SA HUMAN DEVELOPMENT RATING
-------------------------------------------
10. South Africa's United Nations Human Development Index
(HDI) reached 120 out of 177 countries, slightly lower
than 2004's HDI of 119, largely due to a fall in life
expectancy because of HIV/AIDS and high levels of
inequality. The HDI index tracks indicators including
life expectancy, equality of income and education, based
on 2003 data. South Africa was rated higher than India
and most African countries, and lower than the occupied
Palestinian territory, Mongolia and Indonesia. Positive
trends include increasing real income and advances in
gender rights. However, South Africa has an average
HIV/AIDS prevalence rate of 21% for people aged 15-49.
Largely due to this high HIV/AIDS prevalence rate, life
expectancy dropped from 53 years in the period 1995-2000
to 49 years in the past five years. South Africa's income
inequality was among the highest. The richest 10% of the
population took 44% of the income, while the poorest 10%
got 1.4%. This gave South Africa an inequality rating
worse than Zimbabwe or Niger, even though South African
per capita income was much higher. On a Human Poverty
Index of developing countries, SA ranked in the middle, at
56 out of 103 countries. South Africa's GDP per capita of
$3489 was higher than many of the countries of similar
rank, growing faster than Russia and the United Arab
Emirates. Source: SAPA, Business Day, September 8.
TEITELBAUM