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Cablegate: South Africa Economic News Weekly Newsletter April 26, 2007

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RUEATRS/DEPARTMENT OF TREASURY WASHDC
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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER APRIL 26, 2007
ISSUE

1. (U) Summary. This is Volume 7, issue 17 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Johannesburg Long-term Rating Upgraded
- Ownership Component of BEE Unimportant
- New Country of Origin Regulations
- Rural Women Ensnared in Poverty Trap
- South African Giant Retailers Go Green
- March Inflation Up, But at Expected Levels
- Work Permits for Professionals Underutilized
- SA Celebrates World IPR Day

End Summary.

Johannesburg Long-term Rating Upgraded
--------------------------------------

2. (U) International rating agency Fitch has upgraded the City of
Johannesburg's long-term rating from A to A+, based on improved tax
collection and a growing economy. The rating increase means that
the city's debt is seen as less risky, and this will enable it to
borrow for its capital projects at a lower rate of interest. Fitch
said the upgrade reflected the city's improved operating
performance, including improved tax collection, aided by the clean
up and updating of its asset register. This resulted in more assets
on the city's balance sheet. Fitch warned, however, that
Johannesburg would need to consolidate its debt collection efforts
to ensure that it did not allow bad debt to accumulate as it had in
the past. The agency said that Johannesburg contributed 16% of SA's
GDP and employed 15% of the country's workers. (Business Day, April
25)

Ownership Component of BEE Unimportant
--------------------------------------

3. (U) Broad-based black economic empowerment is firmly on the
agenda of medium to large privately held businesses, according to a
survey released by Grant Thornton LLP. The survey of 7,200 firms
conducted at the end of 2006 found that 67% ranked skills
development as the most important component of their BEE strategy,
followed by employment equity at 59%. Only 38% reported that black
ownership is of great importance. In fact, 16% of business owners
reported that black ownership was not at all important for them to
achieve their BEE targets. According to Tony Balshaw, managing
partner of Grant Thornton in Eastern Cape, "Businesses are beginning
to understand that a broad-based approach to empowerment entails all
seven elements of the codes [of good practice]." (Business Day,
April 25)

New Country of Origin Regulations
---------------------------------

4. (U) Department of Trade and Industry (DTI) Minister Mandisi
Mpahlwa has signed the final regulations relating to "country of
origin" labeling on clothing and textiles imported to SA. The
Merchandise Marks Act, which came into effect on April 14, is
designed to prevent the importation of products with misleading
labels, especially those that state that the goods originate from SA
when in fact they are imported. The Act also enables the DTI to
exclude the use of certain marks. Specifically, the Act prohibits
the importation or sale in SA of merchandise or goods listed in the
schedule, such as textiles, articles of textiles, clothing, shoes,
and leather goods, unless the goods are clearly affixed with a
country of origin label. Retailers will now be required to attach
labels indicating the country of origin and, if manufactured
locally, whether imported material was used. The DTI, South African
Revenue Service (SARS), and the South African Bureau of Standards
are tasked with ensuring enforcement of the regulations. SARS will
randomly detain consignments to conduct inspections, and
non-compliant goods will be seized. DTI also has requested that the
large retail group Edcon provide workshops to inform the public of
the new regulations. (Business Day, April 20)

Rural Women Ensnared in Poverty Trap
------------------------------------

5. (U) Deputy President Phumzile Mlambo-Ngcuka called for public and
private sector intervention to ease the plight of rural women during
the 4th World Congress on Rural Women held in Durban. Statistics

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released at the forum indicated that a quarter of the South African
population depends entirely on state grants. According to
Mlambo-Ngcuka, women are affected by unrewarding seasonal wage work,
subject to demands of the household, and suffer from double
exploitation and patriarchy. Women are working hard for too little.
She said rural women remained in a poverty trap and factors
perpetuating that poverty needed to be eradicated through a holistic
response from private and public stakeholders. Poverty factors
included a lack of access to affordable basic infrastructure, poor
health, not owning assets, poor or no skills, exposure to labor
market risks, and no social security. HIV and the Aids pandemic
were also targeted as a factor that was forcing young girls to look
after families. She named initiatives such as micro-credit,
co-operatives, adult education, and youth development as necessary
to assist the poor rural women. (Business Day, April 24 and The
Sowetan, April 24)

South African Giant Retailers Go Green
--------------------------------------

6. (U) Two of SA's giant retail chains, Pick n' Pay Stores and
Woolworths, have announced that they will commit to energy
reductions and combating climate change. Pick n' Pay Stores intends
to become the first local retailer to disclose its carbon dioxide
emissions, while Woolworths aims to reduce its "relative carbon
footprints" by 30% in the next five years. It plans to replace all
its refrigerators with more environmentally friendly ones in an
effort to reduce greenhouse gas emissions. Pick n' Pay said that in
addition to its energy reduction program, it would also stock only
fish that are harvested in a sustainable way, such as hake, snoek
and tuna. Woolworths' CEO Simon Susman said his company would cut
electricity consumption and transportation emissions by 30% and 20%,
respectively. Woolworths also plans to reduce food packaging, an
area which it has been previously criticized for overdoing, by 30%.
Susman said the company would reduce current packaging as well as
recycle and reuse the current packaging material. In the longer
term, the company is evaluating the feasibility of investments in
solar power, wind energy and heat recycling at its massive central
delivery facility. Beyond this retail sector, however, South
African corporate commitments to environmental measures are few.
(Business Report, April 23 and Financial Mail Magazine, April 13)

March Inflation Up, But at Expected Levels
------------------------------------------

7. (U) March's CPIX inflation (CPI less mortgage interest rates)
rose in line with expectation to 5.5% year-on-year, up from
February's 4.9%. This brings the CPIX ever closer to exceeding the
target bandwidth of 3-6%. CPI was recorded at 6.1% year-on-year, up
from last month's 5.7%, but at lower than expected levels. The
monthly rise in CPIX inflation of 0.9% is mainly attributed to
increases in education and transport costs. Annual increases in
school and university fees increased by 8% year-on-year, while fuel
prices, a subcomponent of transportation costs, rose 4.3% due to a
24 rand cents/liter increase. As reported last month, food price
inflation due to the drought continues to cause pressure on CPIX.
Next month's forecast indicates continued upward movement largely
due the recently announced further increase in fuel prices by 69
rand cents/liter. (Business Day, April 26)

Work Permits for Professionals Underutilized
--------------------------------------------

8. (U) Revised legislation last year enabled the Department of Home
Affairs to simplify the recruitment of highly skilled foreigners to
work in SA. Under the legislation, the government identified
critical sectors in which SA suffers from a severe shortage of core
skills. Quotas were then offered to enable professionals in these
categories to apply for work permits without first securing
permanent employment. The categories include the financial
services, engineering science, education and telecommunication
sectors.
9. (U) However, Minister of Home Affairs Nosiviwe Mapisa-Nqakula
revealed during her announcement that 34,825 work permits will be
available under this year's quota and that only 10% of last year's
quota was actually used by the private sector. She attributed the
low utilization to the department's failure to adequately publicize
the program, cumbersome application processes and red tape,
immigration regulations that are overly burdensome for companies to
bring in needed skills, foreign perception of high crime, and global

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shortages of engineering skills. (Business Day, April 26)

SA Celebrates World IPR Day
---------------------------

10. (U) In celebration of World Intellectual Property Day, South
African companies have focused on enhancing public awareness and
altering public perception that piracy is not a crime. Microsoft,
in a two page newspaper insert, published numerous articles
detailing the challenges of combating piracy, the need to alter
public perceptions of the crime, the negative economic consequences
caused by piracy, and how the public can recognize a pirated copy.
The articles cite Business Software Alliance's report, which
indicates that SA has a 36% piracy rate, and that reducing it to 27%
over the next few years could add 15,000 jobs. According to a
leading IPR law firm, Bowman Gilfillan, counterfeiting in SA covers
all areas from designer handbags to computer software, clothing,
toys, and pharmaceuticals. Crime syndicates are known to use
counterfeiting as a way of laundering drug money. Despite these
negative aspects, the Group Manager for Microsoft, SA stated that
although piracy is still a significant problem, SA has made
considerable gains considering that its piracy rate was 64% in 1999
compared to the current 36%. Department of Trade and Industry is
also participating in World IPR Day by co-hosting an exhibition with
local industry stakeholders and the Companies and Intellectual
Property Registration Office. The exhibits will be based on the
World Intellectual Property Organization's (WIPO) theme "Encouraging
Creativity." (Business Day, April 26)

BOST

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