Cablegate: South Africa Economic News Weekly Newsletter December 15,

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SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER DECEMBER 15,
2006 ISSUE

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1. (U) Summary. This is Volume 6, issue 27 of US Embassy Pretoria's
South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- DTI rolls out B-BBEE Scorecard;
- SARB Governor complains about credit madness;
- South Africa's technological innovation;
- The Competition Tribunal approves sale of V&A Waterfront;
- DA rates the Economic Cabinet;
- 2006/2007 corn forecast;
- Key economic ratios changed.
End Summary.
DTI rolls out B-BBEE Scorecard
------------------------------

2. (U) The Department of Trade and Industry rolled out the
Broad-based Economic Empowerment (B-BBEE) scorecard on December 14,
a week after Cabinet approved the second phase of the B-BBEE codes.
According to Department of Trade and Industry Deputy Director
General Lionel October, this clears the way for SAG to "Gazette the
codes and five sector charters before end of January." The
Cabinet-approved version of the codes includes a string of
concessions. Multinationals with a global policy on sole ownership
of subsidiaries in other countries will be exempted from the equity
component of the B-BBEE scorecard, but will have to make up for the
allowance with alternative measures. Medium-sized companies with a
turnover from R5 to R35 million (up from R25 million) may choose
from four of seven components from which they have to comply. Small
companies with a turnover of R5 million or less will be exempt from
having to comply with any B-BBEE requirements. The codes have also
been simplified and include the principle of "once empowered, always
empowered." This will allow BEE owners to sell their shares in
BEE-qualified companies to take advantage of higher stock prices
without the companies losing their BEE status. There will also be a
limitation on the extent to which deals with employee trusts (i.e.,
pension funds) would be recognized as BEE deals. This would leave a
partial bias against broad-based minority employee ownership of
BEE-qualified companies.

SARB Governor complains about credit madness
--------------------------------------------

3. (U) South African Reserve Bank Governor Tito Mboweni complained
about credit "madness" when he announced last week's decision to
raise the benchmark lending rate by 50 basis points, or 0.5%, to
9.0%. The commercial bank prime lending rate and mortgage rate are
now 12.5%. Mboweni previously complained about "excessive
exuberance," and expressed the need for consumers to "tighten their
belts, whether they are rich or poor." The consumers appear to have
ignored these warnings, based on credit extension, retail sales and
the rise in the business and consumer confidence indexes. For
example, private sector borrowing grew at 27.5% in October y-o-y,
mortgages jumped 30.9%, bank credit extension rose 28.6%, and other
loans and advances increased 26%. Retail sales grew 13% in
September y-o-y, the fastest rate since 1999. The South African
Chamber of Commerce (SACOB) business confidence index was a record
103.2 in November. The Stellenbosch University Bureau for Economic
Research (BER) index for the manufacturing sector rose to an
eleven-year high, and the BER's consumer confidence index rose to 18
in the third quarter. One exception to this general optimism was a
slight downturn in passenger car purchases in November. The SARB is
expected to raise interest rates again on February 15. It is not
clear whether this general optimism reflects a last minute
purchasing binge before the impact of the higher interest rates set
in, a refusal to accept economic reality, or a genuine disagreement
with Mboweni's concern about inflation.

South Africa's technological innovation
---------------------------------------

4. (U) South Africa has a long history of technological innovation,
which has grown exponentially since independence in 1996. Several
key South African inventions such as the Lodox Statscan, the
mine-protected armored vehicle technology, and the Kreepy Krauly
automatic pool cleaner are used throughout the world. Others are
stuck in the gap between invention and marketing. The South Africa
Department of Science and Technology (DST) aims to narrow that gap
through its Patent Support Fund, Innovation Fund and the "Big Idea"
forum.

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The Competition Tribunal approves sale of V&A Waterfront
---------------------------------------------

5.(U) The Competition Tribunal approved Transnet's sale of the
Victoria and Albert Waterfront in Cape town to the broad-based
consortium London and Regional for $1 billion (R7 billion) without
conditions. The only requirement that remains is the making of the
cash payment which is due on December 29. The investors have also
agreed to invest another $143 million (R1 billion) to upgrade the
investment. This investment follows Barclay's $5.5 billion purchase
of the ABSA bank and Vodafone's $2.4 billion investment in the
Vodacom cellular phone company as the largest foreign investments in
the last 15 months. All three of these investments were purchases
of existing properties. The next major investment is expected to be
Alcan's soon-to-be-announced greenfield investment of $2.7 billion
in an aluminum refinery in the Coaga industrial complex 30
kilometers east of Port Elizabeth in the Eastern Cape Province.

DA rates the Economic Cabinet
-----------------------------

6. (U) The opposition Democratic Alliance party released its annual
report card for the cabinet. The average score dropped from 5 in
2004 to 4.5 in 2005 to 4.3 in 2006 on a scale of 1 to 10. Minister
of Finance Trevor Manuel and Minister of Science and Technology
Mosibudi Mangena both received a score of 7, the highest scores of
any cabinet members. There rest of the economic ministers received
above average to slightly below average scores, led by Minister of
Minerals and Energy Buyelwa Sonjica (6), Minister of Public
Enterprises Alex Erwin (5), Minister of Transport Jeff Radebe (5),
Minister of Agriculture and Land Affairs Lulu Xingwana (5), Minister
of Environmental Affairs and Tourism Marthinus van Schalkwyk (4.3),
Minister of Trade and Industry Mandisi Mpahlwa, and (4) Minister of
Communications Ivy Matsepe-Casaburri (4). On average, the social
ministers received much lower ratings than the economic ministers.

7. (U) DA leader Tony Leon praised Manuel for "his continuing
stylish management of South Africa's booming economy" when
introducing the report. The DA report noted Manuel's decline from a
score of 8 in 2004 and 2005 and criticized his "dogged disregard for
the power of fiscal policy," lack of boldness "in making investing
in South Africa, employing South Africans or exporting from South
Africa more attractive," "his meek acquiescence to some of the
government's more contentious, large-scale spending projects, and
his refusal to consider a more expansionary approach that would
favor taxpayers and incentivise investment." Minister of Trade
Mpahlwa was described by the DA report as "gentlemanly and serene"
but was criticized "for a lifeless performance." The report went on
to say that he "never speaks up on any issues of note, he does not
seem actively to build relationships with stakeholders, and he does
not seem to be particularly busy behind the scenes." He was also
criticized for his silence when the Doha round of world trade
negotiations faltered and trade quotas were set on Chinese textile
imports. Leon faulted Minister of Communications Matsepe-Casaburri
for "her ongoing reluctance to take on Telkom (the state
telecommunications company), whose monopolistic practices make South
Africa one of the most expensive places in the world to
communicate."

2006/2007 corn forecast
-----------------------

8. (U) During the 2005/2006 crop year, South African corn farmers
voluntarily cut back production, successfully reducing surplus
stocks. Coupled with high international prices, this cutback now
contributes to better prospects for the crop that has just been
planted. FAS expect the current area planted to increase by more
than a million hectares to 3.2 million hectares. Assuming normal
rainfall, the crop may reach 10.5 million tons, up from 6.9 million
tons last year. This would help guarantee a healthy GDP growth
figure for 2007, since GDP growth in 2006 was undercut by a 40%
decline in maize plantings that resulted in a 15% contraction of the
agricultural sector.

Key economic ratios changed
---------------------------

9. (U) Based on Statistics South Africa's revisions to the GDP

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growth data and the South African Reserve Bank's revisions to other
economic data, important economic ratios have also changed. These
ratios have been revised as follows:
2006
2005 1Q 2Q 3Q
--------------------------------------------- ----- Current
account balance to GDP
------------------------------
Previous ratio -4.2% -6.4% -6.1% -
Revised ratio -3.8% -6.1% -5.7% -5.2%

Investment to GDP
-----------------
Previous ratio 17.2% 17.9% 18.4% -
Revised ratio 17.0% 17.9% 18.5% 18.7%

Savings to GDP
--------------
Previous ratio 14.0% 13.0% 13.7 -
Revised ratio 14.5% 13.6% 14.2% 14.8%

Government debt to GDP
----------------------
Previous ratio 35.7% 33.7% 34.8% -
Revised ratio 35.4% 33.3% 34.5% 34.8%
Fiscal deficit (-)/surplus (+) to GDP
-------------------------------------
Previous ratio -0.3% 0.5% -1.1% -
Revised ratio -1.1% 0.4% -1.1% 0.6%

BOST

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