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South Africa: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER FEBRUARY 02, 2007 ISSUE

     
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Reference ID: 07PRETORIA415
Created: 2007-02-02 13:32
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy Pretoria

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DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
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 FEBRUARY 02,
2007 ISSUE

PRETORIA 00000415 001.2 OF 003


1. (U) Summary. This is Volume 7, issue 05 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Drop in Producer Inflation
- Slowdown in Credit Growth
- Small Trade Surplus in December
- IPR Awareness Promoted by SARS
- Eight out of Ten Businesses Affected by Crime
- Appeals Against Nuclear Fuel Plant Overruled
- FCB Meets BEE Targets
- Nissan to Spend R95m on Infrastructure
- Plan to Bring Retail and Manufacturing into BEE Net
End Summary.


Drop in Producer Inflation
--------------------------

2. (U) According to data released by Statistics South Africa (Stats
SA) on January 26, South Africa's Producer Price Index (PPI)
increased by 9.3% year-on-year (y/y) in December 2006 from a 10.0%
y/y increase in November. Economists expected an increase of 10.3%.
December's increase was due to annual increases in the price
indices for locally produced commodities (+7.0 percentage points)
and for imported commodities (+2.3 percentage points), Stats SA
noted. Stats SA reported that PPI increased 7.7% in 2006, as
compared to 3.1% in 2005. PPI increased 0.6% and 1.7% in 2004 and
2003 respectively. (Fin24, January 25)

Slowdown in Credit Growth
-------------------------

3. (U) Official South African Reserve Bank (SARB) data, released on
January 29, showed that growth in demand for credit by the private
sector slowed to 25.81% in the year to December from 26.77% in the
year to November. During the same period, the broadly defined M3
measure of money supply grew by 21.93% from November's 25.33%.
Based on this data, together with official figures showing a
slowdown in consumer and producer inflation, many analysts now
believe that interest rates will not be increased at February's
Monetary Policy Committee (MPC) meeting. The MPC raised interest
rates by 200 basis points in 2006 and will meet in February to
decide on the next move. SARB Governor Tito Mboweni had previously
warned that debt levels were worrying. Faster economic growth in
the economy has been driven largely by domestic demand, pushing
household debt to a record 73% of disposable income. (Business
Day, January 30)

Small Trade Surplus in December
-------------------------------

4. (U) Data released by the South African Revenue Service (SARS) on
January 31, showed a trade surplus of R388 million ($55 million) in
December compared with a deficit of R10.5 billion ($1.5 billion) in
November. A Reuters survey of economists had predicted a R2 billion
deficit in December. Although a surplus is normally recorded in
December, this was the smallest surplus on record, analysts said.
According to SARS, imports of crude oil declined by R3.6 billion
($0.5 billion) in December, while imports of machinery and
electrical appliances were down R3.7 billion ($0.52 billion),
contributing to the overall 30% decline in imports. Exports fell by
11.6% compared to November. Analysts said the fall in exports and
imports could largely be attributed to seasonal shutdowns during the
holiday period, but the data was still better than expected.
Infrastructure spending in the coming years is expected to keep
demand for imports high. (Business Day, February 1)

IPR Awareness Promoted by SARS
-------------------------------

5. (U) In honor of World Customs Day, SARS Deputy Chief Operations
and Head of Customs, Leonard Radebe, has begun to push for
Intellectual Property Right (IPR) awareness. On SABC News, Radebe
explained the various types of IPR crimes, including the
counterfeiting of goods ranging from NIKE products to medicines. He
described training programs provided for customs officials,
including ethics training to counter corruption among border
officials. He called for the public to play a role in halting IPR

PRETORIA 00000415 002.2 OF 003


crimes by providing SARS with any feedback of possible counterfeit
products. The news clip also included references to local IPR
organization hotlines, and SARS hotlines for suspicious trading
activity. Radebe also penned an article for Pretoria News
outlining the seriousness of IPR crimes, their economic effect, as
well as the effect of counterfeit trade on South Africa. (SABC3
January 26, Pretoria News January 26)

Eight out of Ten Businesses Affected by Crime
---------------------------------------------

6. (U) According to Grant Thornton's 2007 International Business
Report (IBR), 84% of medium-to-large privately held businesses in
South Africa reported that they, their staff or families of staff
have been personally affected by crime over the past 12 months. The
200 business surveyed have been affected by crimes such as
housebreaking, hijacking, assault, road rage or similar offenses.
Of those medium-to-large privately held businesses affected by
crime, 88% reported having incurred increased costs for security,
65% report decreased productivity and motivation of staff and 41%
report a decrease in creativity, ingenuity and resourcefulness of
staff. Grant Thornton's National Chairperson, Leonard Brehm, said
that business must be able to operate in a safe environment if South
Africa is to meet its growth targets. "This can only be achieved
through strong and sustained action by government and security
agencies, supported by a culture of community participation in
assisting with the detection and control of crime," he said. The
statistics do not include the occurrence of white- and blue-collar
crime within businesses. (I-net Bridge, January 31)

Appeals Against Nuclear Fuel Plant Overruled
--------------------------------------------

7. (U) The Minister of Environmental Affairs and Tourism (DEAT),
Marthinus van Schalkwyk, dismissed appeals against the establishment
of a Pilot nuclear-Fuel Plant (PFP) in Pelindaba outside Pretoria.
After considering the diverse appeals from various interested
groups, Van Schalkwyk granted authorization to the state-run South
African Nuclear Energy Fund (SANEF) to develop the PFP. According
to The Record of Decisions (ROD), the formal response document to
the public, the approval was granted on the grounds that the
negative environmental impacts associated with project can be
mitigated, on condition of compliance with the law. The other
reasons given were that there has been sufficient public
participation in the process, and that no fatal flaws were
identified during the Environmental Impact Assessment (EIA).
Meanwhile the opponents of the Minister's decision argue that it may
have been prompted by the widespread blackouts which occurred in
South Africa the week before. (Business Day, January 30)

FCB Meets BEE Targets
----------------------

8. (U) THE world's third largest advertising agency, U.S.-listed
Interpublic Group (IPG), has taken a novel approach to Black
Economic Empowerment (BEE) by agreeing to give 24% of its 74%
shareholding in its South African arm, FCB SA, to local staff for
free. The deal was struck to allow FCB SA to meet BEE targets. FCB
SA is the fifth-largest revenue generator in IPG's global business,
which spans 130 countries and reported revenue of R290 million ($41
million) in 2006, which according to some experts keeps it level
with Ogilvy as the two largest advertising agencies in SA. FCB SA's
Chief Executive Officer (CEO) Neil van der Weele said that the deal
under which IPG would "lend" its 24% of FCB SA to staff was only
reached after "tough negotiations" in the US. Effectively, this
increases FCB's black ownership level from 25% to 35%. Van der
Weele said FCB SA's board will also now have the same number of
black and white directors. By making this concession, IPG is giving
up its dividend stream from SA, and the new shareholders will get
immediate right to dividends, as well as voting rights. However, in
10 years IPG has the right to take back the shares it is now
"lending" to the staff trust. The Association for Communication and
Advertising was reported in the Financial Mail in December as saying
that even though 76% of advertising agencies had more than 26% black
ownership, nearly two-thirds of their staff was white. (Business
Day, January 24)

Nissan to Spend R95m on Infrastructure
--------------------------------------

PRETORIA 00000415 003.2 OF 003



9. (U) Nissan Diesel and its dealer network are to spend R89-million
($12.5 million) on new infrastructure developments across South
Africa, the truck manufacturer has announced. An additional R6
million (R0.8 million) will be invested in the training of
much-needed technical apprentices and sales personnel. Dealer
infrastructure investment amounted to R34 million ($4.8 million) in
2006. Executive Vice-President of Nissan Diesel South Africa, Frans
Cloete, said, "Trucking forms an integral part of the South African
economy and it is of great importance to ensure that the wheels of
industry and business continue to rotate effectively and
productively." Nissan Diesel SA wants to increase its market share
to around 13%, in an industry that is expected to sell up to 38,000
units in 2007. (I-Net Bridge, January 22)

Bring Retail and Manufacturing into BEE Net
--------------------------------------------- ------

10. (U) The Department of Trade and Industry (DTI) is undertaking a
review of South Africa's black empowerment legislation to ensure
that sectors such as retail or export manufacturing, which have
little reason to empower themselves under current legislation, are
brought into the empowerment net. Polo Redebe, DTI's Chief Director
for Black Economic Empowerment (BEE), explained to parliament that
current BEE legislation relies on voluntary economic incentives such
as eligibility for government tenders or licenses. However, large
sections of the economy are impervious to these incentives, with the
result that some of the biggest beneficiaries of economic growth are
not required to do anything about empowerment. (Business Day,
February 1)

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