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Cablegate: South Africa Economic News Weekly Newsletter January 1,

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TAGS: ECON EFIN EINV ETRD EMIN EPET ENRG BEXP KTDB SENV
PGOV, SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWS WEEKLY NEWSLETTER JANUARY 1,
2008 ISSUE


1. (U) Summary. This is Volume 8, issue 1 of U.S. Embassy
Pretoria's South Africa Economic News weekly newsletter.

Topics of this week's newsletter are:
- Credit Growth Remains Strong
- Foreign Capital Inflows Decline
- Gold Mining Shares Up
- Student Test Scores Continue Decline

End Summary.

----------------------------
Credit Growth Remains Strong
----------------------------

2. (U) Despite numerous interest rate hikes since 2006, credit grew
an annual rate of 22.6 percent in November. The rate was down from
23.39 percent in October, but was still higher than expected.
Economists were divided over the implications. Some said that
continued robust spending would support the argument for another
rate hike when the South African Reserve Bank's Monetary Policy
Committee meets in late January. However, one economist noted that
the composition of credit is changing, with borrowing increasingly
being used for investment rather than consumption. He predicted
that the South African Reserve Bank would leave interest rates
unchanged. (Business Day, December 31, 2007)

-------------------------------
Foreign Capital Inflows Decline
-------------------------------

3. (U) Net foreign purchases of South African shares and bonds fell
to R81 billion ($11.6 billion) in 2007 from more than R100 billion
($14.3 billion) in 2006. While the amount is still substantial, and
continues to fund the widening current account deficit estimated to
be more than 7 percent of GDP for 2007, the slowdown highlights
South Africa's exposure to swings in the mood of global investors.
Analysts do not view the current account deficit as a problem
provided capital inflows remain substantial. However, a global
credit crunch and resulting risk aversion may curb investors'
appetites for emerging market assets. In addition, a slowdown in
South African economic growth due to the rising interest rates and
political uncertainty may diminish the appeal of South African
shares. However, surging prices of commodities are likely to
compensate. (Business Day, January 4, 2008)

---------------------
Gold Mining Shares Up
---------------------

4. (U) Gold-mining shares on the Johannesburg Stock Exchange (JSE)
are reaping the benefits of high gold prices, with the gold-mining
index jumping 6.07 percent on January 3. Analysts noted, however,
that gold now accounts for only 10-12 percent of South Africa's
exports and only 4-5 percent of the labor force. According to one
economist at RBC Capital Markets, the increase in gold prices is
"good news" for the economy but no reason to start "hammering the
drums." An economist at ABSA Capital said the rising trend in gold
prices would strengthen the rand, encourage more investment in the
mining sector, and help to finance South Africa's current account
deficit by boosting mining shares on the JSE. (Business Day,
January 4, 2008)

------------------------------------
Student Test Scores Continue Decline
------------------------------------

5. (U) Poor secondary school test results indicate that South Africa
is not producing the high-level skills the economy needs. The pass
rate, which has declined over the last four years, was 65.2 percent
Qthis year compared to 66.5 percent last year. The number of passing
students eligible to go to a university fell 400 to 85,454, or only
15 percent of those who took the exam. More importantly, only 40
percent of the 560,000 students who took the exam passed the math
portion, and only 25,415 of those passed higher grade mathematics.
Fewer than a third of the students passed science, with the number
passing higher grade science dropping to 28,122 from 29,781 last
year. With higher grade math and science a requirement for
university courses in subjects such as engineering, accounting,
medicine and science, the limited pool of qualified students paints

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a bleak picture of South Africa's long-term ability to meet its need
for high-skilled professionals. (Business Day Editorial, January 3,
2008)

BOST

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