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Cablegate: South Africa's Trade Performance in 2006

VZCZCXRO4350
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3042/01 2421147
ZNR UUUUU ZZH
R 301147Z AUG 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1450
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 4757
RUEHDU/AMCONSUL DURBAN 9104
RUEHJO/AMCONSUL JOHANNESBURG 7266
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 PRETORIA 003042

SIPDIS

SIPDIS

DEPARTMENT PASS USTR FOR PATRICK COLEMAN
TREASURY FOR TRINA RAND
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
AF/S FOR RMARBURG

E.O. 12958: N/A
TAGS: ECON ETRD EINV SF
SUBJECT: SOUTH AFRICA'S TRADE PERFORMANCE IN 2006

PRETORIA 00003042 001.2 OF 003


1. (U) Summary. South Africa's strong import demand for
crude oil and capital equipment, along with comparatively
moderate export growth, resulted in an 80 percent widening of
the current-account deficit during 2006. Strong consumer
demand, spurred by relatively low levels of debt servicing
cost, contributed to a 32.5 percent increase in merchandise
imports in 2006, while merchandise exports increased by 20.3
percent. The South African Government's (SAG)
multi-billion-rand capital expansion program will ensure
import growth continues, while exports will benefit from
strong global demand for commodities. In 2007, exports are
expected to benefit from a moderately weaker rand and strong
global demand. Economists expect the current-account deficit
to remain above 6.5 percent of GDP in 2007. China is slowly
eating into Germany's position as the largest supplier of
imports and the U.S. is threatening Japan's position as South
Africa's largest export destination. End Summary.

---------------------
SOUTH AFRICAN IMPORTS
---------------------

2. (U) According to data released by the South African
Revenue Service (SARS), the value of merchandise imports,
which had increased by 14.5 percent in 2005, increased by an
additional 32.5 percent in 2006. The strong demand for oil
and capital equipment and vibrant consumer demand contributed
to the increase in 2006. Imports of mineral products
increased by 67.7 percent, largely because of higher crude
oil prices, while imports of vehicles and transport equipment
swelled by 17.8 percent in 2006. Machinery imports, pushed
by the upward trend in fixed capital formation, increased by
32.5 percent and accounted for 26.2 percent of total imports
in 2006.

Value of South Africa's Major Imports
--------------------------------------------- --------------
Imports 2005 2006 Percent Percent of
Change Total Imports
--------------------------------------------- --------------
Machinery $13.1bn $17.3bn 32.5 26.2
Mineral Products $7.6bn $12.7bn 67.7 19.2
Vehicles $6.5bn $7.7bn 17.8 11.6
Chemical Products $1.6bn $2.1bn 20.3 8.2

3. (U) China continued to expand its share of South Africa's
import market at the expense of South Africa's other leading
trading partners, including the U.S. China's increased share
in the import market was mainly due to high volumes of
low-cost merchandise imports, which are slowly eating into
Germany's position as the largest supplier of South Africa's
imports.

South African Import Sources
----------------------------------
Country (Percent of Total Imports)
2005 2006
----------------------------------
Germany 14.1 12.6
China 9.0 10.7
U.S. 7.7 7.6
Japan 6.8 6.5
Saudi Arabia 5.6 5.3
U.K. 5.5 5.0
Africa 4.9 6.7

Imports from Africa increased largely due to a doubling of
oil imports from Nigeria and Angola.

-----------------------------------
SOUTH AFRICAN IMPORTS FROM THE U.S.
-----------------------------------

4. (U) The value of total imports from the U.S. increased by
15.9 percent from $3.652 billion to $4.234 billion in 2006,
according to the U.S. International Trade Commission (USITC).
South Africa imported mostly machinery and mechanical
appliances, vehicles and aircraft, as well as medical
instruments. Moreover, there was a significant increase in
imports of live animal products (805.5 percent), dairy
produce (550.0 percent), fertilizer (447.3 percent), cement
(390.4 percent), and iron and steel (214.7 percent) in 2006.

PRETORIA 00003042 002.2 OF 003

---------------------
SOUTH AFRICAN EXPORTS
---------------------

5. (U) SARS reported that the value of South Africa's
exports increased by 20.3 percent in 2006. Exports benefited
from strong global demand and the surge in international
commodity prices. The increase was most noted in the
"precious metals" category, where exports increased by 33
percent in 2006. Precious minerals constituted 28 percent of
the total export basket with platinum the largest export
earner in this category, followed by gold, and diamonds.
Base metal exports, which mainly consist of basic iron and
steel exports, increased by 16.2 percent in 2006 and
constituted 17 percent to the export basket. Higher gold
prices served to offset a continuing decline in gold
production, while the value of coal exports exceeded the
value of diamond exports. Mining exports in total
constituted 45 percent and manufacturing 51 percent of the
total value of South African merchandise exports in 2006,
respectively.

6. (U) Manufacturing exports benefited from the sustained
buoyancy of the global economy and a weaker rand.
Manufacturing exports in the form of machinery, vehicles, and
chemical products increased by 35.6 percent, 17.4 percent,
and 6.9 percent, respectively. The export value of the
"mineral products" category (petroleum
refineries/synthesizers) increased by 22.5 percent in 2006.
Agricultural exports constituted 4 percent of total exports
and showed a 7.9 percent decline in 2006. The poor export
performance of the agricultural sector was mainly due to
fewer maize exports as a result of a reduction in maize
plantings during the 2005-2006 season.

Value of South Africa's Major Exports
--------------------------------------------- -------------
Exports 2005 2006 Percent Percent of
Change Total Exports
--------------------------------------------- -------------
Precious Metals $11.8bn $15.6bn 33.0 27.7
Mineral Products $6.8bn $8.3bn 22.6 14.7
Base Metals $8.3bn $9.6bn 16.2 17.0
Machinery $4.2bn $5.7bn 35.6 10.0
Vehicles $4.5bn $5.3bn 17.4 17.4
Chemicals $3.1bn $3.3bn 6.9 5.9
Agricultural Prod. $2.2bn $2.0bn -7.9 3.6

7. (U) Japan and the U.S. remained South Africa's main
export markets in 2006, receiving 10.7 and 10.5 percent of
total exports, respectively. Exports to China increased by
64 percent, constituting 4.3 percent of total exports. The
U.S. increased its share of total exports, threatening
Japan's position as the largest export market.

South African Export Destinations
----------------------------------
Country (Percent of Total Exports)
2005 2006
----------------------------------
Japan 10.0 10.7
U.S. 9.5 10.5
U.K. 9.7 8.0
Germany 6.5 6.8
Netherlands 4.5 4.7
China 2.7 4.3
Africa 14.0 13.3

---------------------------------
SOUTH AFRICAN EXPORTS TO THE U.S.
---------------------------------

8. (U) The USITC reports that the total value of exports to
the U.S. increased by 28.1 percent from 2005 to 2006, driven
by an increase in the value of precious metals and stones,
iron and steel, machinery, aluminum, and vehicle exports.
The value of exported precious metals and stones increased by
40.6 percent for the period, followed by aluminum exports
which increased by 24.7 percent and iron and steel by 41
percent. The value of vehicle exports increased by 64.6
percent from $287.1 million in 2005 to $472.5 million in

PRETORIA 00003042 003.2 OF 003


2006. South African paper exports to the U.S. increased by
more than 600 percent from $1.3 million in 2005 to $9.2
million in 2006.

-------------------------------------
SOUTH AFRICAN CURRENT ACCOUNT DEFICIT
-------------------------------------

9. (U) South Africa's strong import demand for crude oil and
capital equipment, along with comparatively moderate export
growth and increased in dividend payments to foreign
shareholders, resulted in an 80 percent widening of the
current-account deficit in 2006. The current-account deficit
widened from R62.3 billion ($8.9 billion) in 2005 to R112.4
billion ($16 billion) in 2006. Relative to GDP, the deficit
increased from 4.0 percent in 2005 to 6.5 percent in 2006.

----------------
OUTLOOK FOR 2007
----------------

10. (U) Exports are expected to benefit from continued
strong global demand and moderately weaker rand, predicted to
be on average at $7.15/$ in 2007. The SAG's
multi-billion-rand capital expansion program, high crude oil
prices, this year's drought, and a weaker rand will ensure
that imports values will remain high. According to the
USITC, South Africa's exports to the U.S. increased by 20.4
percent in the first half of 2007, increasing the likelihood
that the U.S. will soon become South Africa's largest export
market. Given the trade outlook, economists expect the
current-account deficit to remain above 6.5 percent of GDP in
2007.
Teitelbaum

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