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.




E.O. 12958: N/A
September 16 2005 ISSUE

1. Summary. Each week, Embassy 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:

- South Africa Improves in World Bank's Business
regulation Index;
- Import-Parity Pricing Might Be Phased Out;
- Eastern Cape Municipal Finances in Disarray;
- Transport Survey Reveals Concerns; and
- Unemployed Not Getting Job Information.

End Summary.

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

2. Doing Business in 2006, a report cosponsored by the
World Bank and International Finance Corporation, ranked
South Africa 28th out of 155 nations in its ease of doing
business, higher than Israel, Spain, Taiwan, Saudi Arabia
and France. In last year's report, South Africa's ranking
was in the low 30s, suggesting that the country has made
progress in creating an environment conducive to
investment. Overall, the World Bank rated South Africa as
one of the countries with the "most business-friendly
conditions" but warned that there were dire problems
elsewhere in Africa. For example, Madagascar's minimum
cost of starting a company rose to $5350 - 25 times the
average annual income. If all taxes were paid in Sierra
Leone, they would comprise 165 percent of a company's
gross profit. The report noted in Mozambique it takes 153
days to register a new business. In South Africa, it
costs less to start a business here than it did last year,
down from 9.1 percent to 8.6 percent of per capita income.
The country also scored well on investor protection, with
the strength of shareholder protection and extent of
disclosure both rated eight out of 10. These ratings
equaled UK's performance, and were better than Australia
or Denmark. In an index of labor inflexibility, South
Africa scored below the average for any region. Though it
was as hard to hire workers in South Africa as last year,
it had become 10 percent easier to fire them. The top 30
economies in the world in terms of the report's ease-of-
doing-business index, in order, were New Zealand,
Singapore, the United States, Canada, Norway, Australia,
Hong Kong/China, Denmark, the United Kingdom, Japan,
Ireland, Iceland, Finland, Sweden, Lithuania, Estonia,
Switzerland, Belgium, Germany, Thailand, Malaysia, Puerto
Rico, Mauritius, the Netherlands, Chile, Latvia, Korea,
South Africa, Israel, and Spain. Doing Business reports
use a set of regulatory indicators related to business
startup, operation, trade, payment of taxes, and closure
by measuring the time and cost associated with various
government requirements; the reports do not track
variables such as macroeconomic policy, quality of
infrastructure, currency volatility, investor perceptions,
or crime rates. Source: Business Day and, September 14.


3. Trade and Industry Minister Mandisi Mpahlwa alluded to
a possible phasing out of import-parity pricing, saying
that a set of policy proposals developed by the Trade and
Industry Department would be submitted to the cabinet in
the next month. Government launched a study into the
effects of import parity pricing in 2004 although the
results have not yet been released. Mpahlwa has said on
several occasions recently that prices of some raw
materials were significantly higher in South Africa than
in other countries. Efforts to increase value-added
product manufacturing in South Africa have had limited
success to date and analysts blame import-pricing parity
(the domestic pricing of raw materials at international
prices) as a primary culprit. Mpahlwa also gave strong
assurance that the government did not intend making major
changes to the support the automotive industry enjoyed
through the Motor Industry Development Program (MIDP).
The government recognized the importance of the automotive
industry, citing its 7.2 percent contribution to gross
domestic product in 2004. The industry is the third
largest sector in the domestic economy and accounts for 33
percent of manufacturing output. Source: Business Day,
September 14.


4. Most municipalities' finances in the Eastern Cape
Province are in a bad shape, with most local authorities
unable to calculate how much money they are owed for
services rendered. Local government Member of Executive
Council Sam Kwelita stated only two municipalities out of
more than 40 had received unqualified audit reports from
the auditor-general, while a significant number had not
bothered in eight years to report their finances for an
audit by the auditor-general. Of the 36 municipalities
that had been audited, 10 received qualified reports and
24 had "disclaimers" attached to the audit reports, mainly
concerning the late submission of financial statements.
Since 2001, 34 investigations had been conducted into
inadequate administration in local government in Eastern
Cape. The Eastern Cape along with the provinces of the
Western Cape, Free State and Mpumalanga presented the
state of their finances to Parliament's Local Government
Portfolio Committee during the past few weeks. Deficits
and poor financial record-keeping were some of the common
elements. Reports from these provinces showed large
disparities between the budgeted income of most
municipalities and what was actually collected.
Municipalities across the country are owed more than R40
billion ($6.3 billion, using 6.3 rands per dollar), mostly
because of the refusal by consumers to pay and the
inability of local councils to collect what is owed to
them. Eastern Cape was able to supply only budgeted
figures and not actual figures for its towns. Eastern
Cape municipalities were also owed R80 million ($13
million) by government departments. The worst offenders
were the Department of Public Works at R27 million ($4.3
million) and the Department of Education at R21 million
($3.3 million). Like Free State, Eastern Cape has
recently experienced street protests and violence as
communities have complained about poor service delivery.
Source: Business Day, September 14.


5. A recent comprehensive survey of household transport
use has found high levels of public dissatisfaction with
all forms of public transport. The national household
travel survey, which interviewed 45000 households, found
that 30 percent of all households regarded personal safety
as a serious public transport issue, either because of
motor accidents or crime. The highest level of concern
was about minibus taxi accidents and bad driver behavior.
Only 30 percent of all households interviewed did not
experience any serious transport problems with 82 percent
of rural households, 73 percent of metropolitan households
and 59 percent of urban households complaining about
serious transport problems. Currently, minibus taxis,
which carry 64 percent of the country's passengers, are
unsubsidized, while rail and buses get R2.5 billion ($400
million) and R2.2 billion ($350 million) in government
subsidies annually. The survey found that 48 percent of
all households experience problems with access to
transport, particularly in rural areas, with 76 percent
having no access to train services; 38 percent no access
to bus services; and 9 percent no access to taxi services.
Only 10 percent of those surveyed could access a train
within 15 minutes of their homes. The survey found that
of the nearly 10 million people who travel regularly to
work, about 3.9 million use public transport, 64 percent
of them relying on taxis (despite taxis being more
expensive), 21 percent on buses and 15 percent on trains.
Twenty-three percent of all households find transport too
expensive, spending on average R170 ($22, using 7.56, the
2003 rand per dollar exchange rate) a month on trains;
R200 ($26) on buses; and R220 ($29) on minibus taxis (at
2003 prices). Eighteen-percent of households spend more
than 20 percent of their household income on public
transport and 18 percent (1.7 million) of commuters travel
for more than two hours a day to work. Problems in the
transport sector include: (1) inadequate regulation and
law enforcement; (2) destructive competition within and
between modes of transport; (3) poorly trained and
undisciplined drivers; (4) age and poor condition of
equipment; and (5) services ill-matched to the needs of
consumers. Source: Business Day and,
September 14.


6. Inefficient information flows in the job markets may
be one of the factors contributing to youth unemployment,
according to the latest South African Reserve Bank
publication Labor Market Frontiers. The lack of matching
job seekers with opportunities may be contributing to
unemployment being worse for those without job-seeking
skills such as proper interview techniques. The lower the
level of education of the unemployed, the more likely it
was that job seekers inquired directly at workplaces. Job
advertisements appeared to reach mainly those with high
school or tertiary education. Nearly 70 percent of those
without any schooling looked for jobs by making direct
inquiries; this percentage dropped to 32 percent among
those with tertiary education. By contrast, the
percentage responding to advertisements increased with the
level of education from about 2 percent among those with
no education to 24 percent for those with completed
secondary education and 52 percent at the tertiary level.
White people were more likely to depend on relatives or
friends in their job searches, while coloured people were
most likely to make direct inquiries at places of
employment. Of South Africa's more than 3 million
unemployed youth, only about 3 percent had received job
offers in the previous six months. Another study in Labor
Market Frontiers found that most of the formally employed
with some tertiary qualifications were in non-science, non-
technical fields such as education, business, commerce and
management studies. In addition, most of those in formal
employment merely have high school education, often
incomplete, rather than vocational or industry-related job
training. Source: Business Day, September 14.


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