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Cablegate: South Africa Economic News Weekly Newsletter November 9,

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RUCPCIM/CIMS NTDB WASHDC
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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 TRINA RAND
USTR FOR COLEMAN

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER NOVEMBER 9,
2007 ISSUE

PRETORIA 00003928 001.2 OF 003


1. (U) Summary. This is Volume 7, issue 45 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- SA's Competitiveness Slides
- Business Confidence Hits Three-Year Low
- Sub-Saharan Africa Experiences Sustained Growth
- Net Reserves Up As Rand Firms
- Black Inequality Increases
- Holiday Inn Opens In Soweto
- Mixed Views On Diamond Production Outlook

End Summary.


---------------------------
SA's Competitiveness Slides
---------------------------

2. (U) According to the World Economic Forum's (WEF's) Global
Competitiveness Index, South Africa's Competitiveness has slipped
from 36th position last year to 44th this year. South Africa
continues to slip in the global competitiveness rankings, despite
experiencing the highest economic growth in decades and having sound
economic fundamentals. This suggests that South Africa is failing
to keep pace with other highly competitive markets. According to
the Global Competitiveness Report, South Africa was held back
largely by inadequate infrastructure, health care and deterioration
in higher education and training. WEF economist Margareta Drzeniek
said, "We see a deterioration in the aspects of health care, with
businesses starting to feel the impact of HIV and tuberculosis, with
the latter having a much higher impact this year than last year".
"We have also seen a deterioration in the quality of higher
education and training, with business leaders saying the quality of
education overall has dropped, while other countries have moved
faster," she said. The WEF report painted yet another gloomy
picture for the rest of sub-Saharan Africa, saying resurgent
economic growth in the region was "not yet reflected in improved
competitiveness rankings for the region". South Africa seems to be
on the downward trend in other surveys as well. South Africa fell
six places from 29th to 35th in the World Bank's Doing Business 2008
survey last month, while the International Institute for Management
Development's World Competitiveness Yearbook for 2007 showed a
12-place drop in South Africa's ranking, from 38th to 50th out of 55
countries. (Business Day, November 1, 2007)

---------------------------------------
Business Confidence Hits Three-Year Low
---------------------------------------

3. (U) The South African Chamber of Commerce and Industry (SACCI)
said its monthly Business Confidence Index (BCI) decreased from 98.7
points in September to 96.9 points in October, its lowest level
since June 2004. According to the SACCI, the decrease in business
confidence can be attributed to companies' concern about the impact
of international market developments on the local economy. The
SACCI said "Businesses are becoming more concerned about
international economic developments, as well as local adjustment
taking place". Accelerating inflation has raised the chances of a
further interest rate hike in December 2007, while a global credit
squeeze has led to uncertainty and volatility in world markets and
has raised concerns about possible slowing world growth. "The
global economic slowdown and financial market uncertainty, in
Qglobal economic slowdown and financial market uncertainty, in
particular, may have a more severe impact on countries with large
current account deficits and volatile portfolio financial inflows,"
SACCI said. South Africa's current account deficit stood at 6.5% of
GDP in the second quarter of 2007, but was still attracting enough
inflows to finance it. The National Treasury said in its 2007
Medium Term Budget Policy Statement last week that the current
account deficit would widen from 6.5% of GDP last year to 6.7% this
year and 7.8% in 2010. South Africa's import bill is expected to
continue climbing due to the capital equipment needed for the
massive government infrastructure spending program over the next
three years. Higher oil prices are also adding to pressure on the
trade balance. (Business Day, November 7, 2007)

--------------------------------------------- --
Sub-Saharan Africa Experiences Sustained Growth
--------------------------------------------- --

PRETORIA 00003928 002.2 OF 003

4. (U) According to the International Monetary Fund's (IMF's) latest
Regional Economic Outlook Survey, the Sub-Saharan African (SSA)
region is experiencing its best period of sustained growth in 30
years. Growth in the SSA region is projected to increase by 6.0% in
2007 and 6.8% in 2008. Foreign Direct Investment (FDI) is reported
to be particularly strong in oil-rich countries while South Africa
is attracting the majority of private-portfolio investments. This
growth success reflects a potent combination of a favorable external
environment, sound policy implementation and the rising openness of
SSA economies, said the report. Despite the positive forecast, the
report warned that a possible weaker global outturn could impact
negatively on future growth. (IMF Regional Economic Outlook,
November 2007)


-----------------------------
Net Reserves Up As Rand Firms
-----------------------------

5. (U) According to South African Reserve Bank (SARB) data, the Net
Gold and Foreign Exchange Reserves (international liquidity
position) increased by more than 5% from $28.42 billion in September
2007 to $29,93 billion at the end of October 2007. The SARB
increased its buying of dollars in the wake of rand gains, while the
gold price surged (increasing the dollar value of the SARB's gold
reserves) and foreign loans held fell. Analysts said the increase
in reserves reinforced the SARB's stated drive to ramp up reserves
during spells of rand strength, without disrupting the market. Net
Gold and Foreign Exchange Reserves have increased by about 30% while
the rand has gained about 7% against the dollar so far this year.
South Africa brought a long-standing negative reserves position into
balance early in 2004 with the elimination of its loss-making
forward foreign exchange book. Since then it has increased net
reserves although the total still lags comparable emerging markets.
(Business Day, November 7, 2007)

--------------------------
Black Inequality Increases
--------------------------

6. (U) Inequality among blacks is growing faster than among any
other population group in South Africa, according to a new survey by
Institute of Race Relations. The survey showed that, since 1996,
inequality has grown 20% among the African population, 19% among the
colored (mixed race) population, and 6% among Indians. Inequality
in the white population has declined 2%. Inequality was found to be
the highest in rural provinces such as Eastern Cape, Limpopo, and
Mpumalanga. Heavily urban Gauteng province had the lowest level of
inequality. According to Standard Bank economist Goolam Ballim,
"Findings that inequality is increasing among the African population
sound very alarming, but it does not mean the lot of lower-income
individuals has not improved." Goolam noted that non-cash benefits
were among the fastest areas of fiscal spending growth. "It has
been found that small increases at a low-income level translate to
marked improvement in the welfare of those people." (Business Day,
November 7, 2007.)

---------------------------
Holiday Inn Opens In Soweto
---------------------------

7 (U) Hotel operators Zatic Hotels and Resorts opened a brand new
Q7 (U) Hotel operators Zatic Hotels and Resorts opened a brand new
48-room Holiday Inn hotel in Soweto in early November. The R23
million ($3.5 million) hotel is the first of its kind to be built in
a township and is expected to create over 40 jobs for the local
people. The hotel operators said the hotel is in a safe area, but
it would also ensure that there is more visible police and security
presence to allay the guests' fears. The hotel is built in an area
which has a very rich history, for example the old residences of
Nelson Mandela, Desmond Tutu and Walter Sisulu are in Soweto, which
is also the only place in the world where two Nobel Peace Laureates
come from the same street. The Soweto Accommodation Association
welcomed the opening of the hotel and said it was good for the hotel
industry and Soweto. Over 200,000 tourists visit Soweto every year.
(Business Day, November 6, 2007)

-----------------------------------------
Mixed Views On Diamond Production Outlook

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-----------------------------------------


8 (U) Views of the global diamond production outlook diverged at an
industry summit held in Johannesburg. MSA Geoservices Director
Frieder Reichhardt said significant opportunities existed in Africa,
in particular citing diamondiferous kimberlite cratons in West and
Southern Africa. De Beers' Patrick Bartlett offered a contrarian,
pessimistic view. He doubted that new kimberlites would be of
similar value to big historical finds such as Botswana's Jwaneng and
Orapa mines. "There have been no major finds in sub-Saharan Africa
since the early 1970's, and production from major mines worldwide
has reached a peak or is in decline, specifically in reference to
kimberlites, with Canada the only major new find in recent times,"
Bartlett commented. He added that many of the world's most notable
diamond operations, such as Alrosa's Udachny and Mirny mines in
Russia, Rio Tinto's Argyle, and De Beers' Kimberley mines will reach
their peak within the next 20 years and production will then
decline. Bartlett explained that many older mines now have to go
underground if production from these sources is to continue,
especially so in South Africa. (Mining Weekly, October 25, 2007)

BOST

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