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Cablegate: South Africa Economic Newsletter

This record is a partial extract of the original cable. The full text of the original cable is not available.

121356Z Aug 05




E.O. 12958: N/A
August 12 2005 ISSUE

1. Summary. Each week, AmEmbassy Pretoria publishes an
economic newsletter based on South African press reports.
Comments and analysis do not necessarily reflect the
opinion of the U.S. Government. Topics of this week's
newsletter are:
- Interest Rates Remain Unchanged;
- Gold Strike Lasts 4 Days;
- Manufacturing Shows Improving Growth in June;
- Jobs in Automobile Sector at 7-Year High;
- Stats SA Will Begin New Expenditure Survey; and
- Softening Consumer Demand
End Summary.


2. On August 11, the Monetary Policy Committee announced
that interest rates would remain unchanged, leaving the
repurchase rate at 7 percent. The Committee cited robust
domestic demand and an expected increase in inflation over
the next few months as reasons for an unchanged monetary
stance, although inflation is still expected to remain
within the 3 percent to 6 percent targeted band. High oil
prices pose the greatest source of future inflationary
pressure, even though the Committee's statement gave
generally favorable views of domestic inflation. Consumer
inflation excluding mortgage costs (CPIX) has remained
within the inflation target range of 3-6 percent for the
past 22 months. Services inflation has remained higher
than goods inflation (6.1 percent vs. 2 percent
respectively), although service inflation has declined
from the 7 percent level shown in June 2004. Wage and
unit labor cost trends have shown recent declines. Wage
settlements increased 6 percent for the first half of 2005
compared to 6.8 percent in 2004. Unit labor costs in the
non-agricultural sector increased 5.9 percent in the first
quarter of 2005, compared to 2004's last quarter increase
of 9.8 percent. The Committee statement did not mention
any current wage negotiations taking place other than to
note that future inflation will depend on these
settlements. Source: Statement of the Monetary Policy
Committee, August 11; Business Day and Business Report,
August 12.

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3. On August 7, the National Union of Mineworkers (NUM)
called for a strike against the gold mining companies.
Solidarity, another gold worker trade union, joined the
following day. These two unions represent about 75
percent of South African gold miners, or approximately
100,000 out of 130,000 workers. As the cost of the
strikes continues to increase, AngloGold Ashanti, Harmony
and Gold Fields, which had been negotiating under the
auspices of the Chamber of Mines, began to explore
separate deals with the unions. At one point, Solidarity
had threatened to request that the Commission for
Conciliation, Mediation and Arbitration to intervene,
suggesting that the Chamber was no longer representing the
mining companies. On August 10, the Chamber of Mines
offered a wage increase up to 7 percent, the biggest raise
in 18 years, a living-out allowance of R1500 a month and a
contribution of 1 percent towards the provident fund
(employee savings fund). Unions responded by saying that
they would recommend the offer to their members, an
indication that the 5-day strike might end soon. When the
strike started, the unions were demanding between 12
percent and 20 percent wage increases (NUM 20 percent,
Solidarity 12 percent) in addition to other benefits and
the Chamber of Mines was offering 5 percent. On August
12, the unions formally accepted the Chamber's offer and
agreed that wage increases next year would be one point
above inflation. Changes to the revised Chamber offer
include: a living out allowance of R1,000 per month and
R10,000 ($1540 using 6.4 rands per dollar) funeral
allowance. Estimates of the cost of the strike to the
gold industry were R130 million ($20 million) in revenue
or 40,000 ounces of gold per day. Gold industry analyst
Nick Goodwin estimated that the gold price would have to
increase by 25 percent for the industry to absorb the
increased labor costs assuming no change in other costs.
Source: Business Day and Sapa, August 11; Business Day
and Business Report, August 12.
4. Comment. South Africa accounts for about 15 percent
of global gold output and the sector contributes 2 percent
to South Africa's GDP and about 10 percent of export
revenue. Since 1995 employment in the sector has fallen
from 530,000 to 130,000. End comment.


5. Manufacturing production grew by 2.3 percent (y/y) in
June 2005, up from May's y/y growth of 1.2 percent.
Monthly manufacturing output growth continues to show a
rebound in 2005 growth, indicating that production may
continue its growth in late 2005. On a seasonally
adjusted, month-on-month basis, manufacturing output rose
0.7 percent, compared to a 2.7 percent contraction in May.
Manufacturing output grew by a seasonally adjusted rate of
3.2 percent in the second quarter 2005 compared with a 1.9
percent contraction in the first quarter. The biggest
contributors to the 3.2 percent quarterly growth in
manufacturing output were the petroleum, chemicals, rubber
and plastic sectors, which contributed 1.4 percent. These
sectors were followed by the food and beverages industry,
which added 0.6 percent to manufacturing expansion. The
wood, paper, printing and publishing and the basic iron
and steel sectors each contributed 0.4 percent to
quarterly manufacturing growth. Source: Business Report
and Business Day, August 11; Manufacturing Unpacked,
Standard Bank, August 10.


6. According to the latest Quarterly Review of Business
Conditions, released by the National Association of
Automobile Manufacturers of South Africa (NAAMSA), vehicle
manufacturers created 773 jobs in the second quarter,
bringing the total number of people employed in the
industry to 34,431, the highest level in seven years. The
report said that a total of 2,295 jobs were created in the
previous 15 months. The vehicle manufacturing industry
comprises all the major vehicle and specialist commercial
truck manufacturers. Nico Vermeulen, NAAMSA's executive
director, said two companies had recruited new employees
during the second quarter, while other companies recruited
only to maintain their workforce. Toyota SA disclosed in
July that it had created more than 1,100 jobs at its
assembly plant at Prospecton in Durban during the past
eight months, with the export of its Hilux truck to more
than 70 countries. Nissan SA announced it had created
more than 200 jobs after launching a second shift in its
Rosslyn manufacturing plant to meet Hardbody pickup export
demand. The report mentions that the rising prices of
automotive steel continues to increase local content and
vehicle production costs, despite cost cutting efforts by
vehicle manufacturers in other areas. The NAAMSA report
said that capacity utilization levels throughout the
vehicle manufacturing industry remained at or near record
levels during the second quarter. Capital expenditure by
the industry was projected to total R5.9 billion ($922
million, using 6.4 rands per dollar) in 2005. Of this
amount, roughly 85 percent (R5.09 billion) would be spent
on product, local content, and investment for exports or
production facilities. Source: Business Report, August


7. In September, Statistics SA will start an income and
expenditure survey (IES) to update the consumer price
index (CPI) basket of goods and services. The survey will
measure household incomes and spending patterns of 24,000
homes nationally. The data will be used to re-weight
items in the CPI basket, with items on which a large
portion of household income is spent having higher
weightings. Major changes in the collection of
expenditure data are planned in the upcoming IES. A
sample size of 24,000 households will asked to complete a
diary of purchases for a month and then rely on memory for
all semi-and durable goods purchases during the past 11
months. In previous surveys, the entire data collection
process took one month. The upcoming IES data collection
will take one year. Previously, participating households
were interviewed once, now they will be interviewed five
times over the month. The last IES was done in 2000 and
released in 2002, revealing that the richest 20 percent of
the country's households accounted for nearly two-thirds
of spending, while the poor were responsible for only 2.6
percent of expenditure. Source: Business Report and
Business Day, August 11.

8. Comment. Because such a large number of South African
households are maintained by people outside the household,
Stats SA will use acquisitions as a measure for
expenditure and then ask whether the goods were donated or
given as gifts. In past surveys, respondents have been
reluctant to divulge information about income and savings.
For the upcoming IES, additional information about savings
and income is sought. A pilot survey in March 2005
received the lowest response rate from high-security
residential areas (63.6 percent) and improved responses
from farms and small holdings (88.9 percent). End


9. Retail sales grew by 4.8 percent (y/y) in May, slower
than April's 9.3 percent growth. This was the slowest
pace of growth in four months, suggesting a slackening of
domestic demand, which has been extremely strong due to
interest-rate reductions of 6.5 percentage points in the
past two years. Future retail sales may show a further
indication of cooling demand, as July's car sales showed a
six percent month-on-month decline. Expectations in the
retail sector remain high, with the latest Retail Trade
Survey (released by the Bureau for Economic Research)
increasing in the second quarter 2005 to 86, compared with
first quarter's 75 level. The stronger index was largely
based on improvements in the sales on non-durable items,
along with marginal improvements in semi-durables.
Source: Business Day, August 11, Taking Stock, Standard
Bank, August 10.


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