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Cablegate: South Africa Economic Newsletter December 23 2005

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E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER December 23 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:

- Second Phase of BEE Codes Released;
- Unemployment SA's Challenge in 2005;
- Black Incomes Could Prolong Consumer Demand Growth;
- South African Charity; and
- SA Tourist Arrivals Up;
End Summary.

Second Phase of BEE Codes Released
----------------------------------

2. The Department of Trade and Industry (DTI) released
for public comment the second phase of the Black Economic
Empowerment (BEE) codes of good practice, which outline
multinational companies and small enterprise BEE
requirements. In terms of the codes, equity ownership
scores 20 BEE points out of 100, but foreign corporations
would be allowed to accumulate the 100 points through
other requirements. Multinational companies that meet
specific criteria will be given alternative options in
lieu of black equity ownership. DTI's Acting Chief
Director on BEE, Polo Radebe, said that in order to
qualify for the alternative option, a multinational would
have to submit evidence that it had a global policy in
place to maintain 100% ownership of its foreign
subsidiaries. One of the alternative options will be to
launch job-creating projects in government-identified
strategic economic sectors. Other options include
preferential procurement, skills development and small
business development as areas where multinationals could
score points. Foreign companies also have the option to
participate in public programs, which would be regarded as
equity equivalents. Participation would, however, have to
equal 25 percent of their local operations in order for
them to score full ownership points. Polo Radebe said
foreign companies could also meet ownership requirements
by selling offshore equity equivalent to 25% of domestic
operations to local black individuals.

3. Clarification regarding small business requirements in
meeting BEE goals was also released as well as plans for
creating an exit mechanism for black investors while
allowing the companies to keep their empowerment status.
The codes say "qualified small enterprises" (the code
defined qualified small enterprises' revenue and employee
limits for different economic sectors) can choose to meet
only five of the seven scorecard elements. DTI plans to
create a new warehousing fund that will buy shares from
black investors wanting to divest from empowerment deals.
DTI Deputy Director-General Lionel October said the
warehousing function would hopefully lead to less
stringent lock-in clauses in empowerment deals, which
typically prevented black partners from selling their
shares before a certain time, even if there were
legitimate reasons. To use the fund, a company must have
already found new black shareholders to whom it wanted to
sell, and the fund could only warehouse shares for a
maximum of three years. If the new black investors can't
come up with funding during that time, the fund will try
to find replacements. Industry has three months to
comment on the draft legislation, and the final version
may be ready for implementation by November 2006. Source:
Business Day and Business Report, December 21.

Unemployment SA's Challenge in 2005
-----------------------------------

4. Patrick Craven, from the Congress of South African
Trade Unions (Cosatu), identified unemployment and
contract labor as one of the biggest challenges facing
South Africa. The increasing wage gap between the poorest
workers and top South African executives, inherited from
the apartheid era, is another challenge the union plans to
address. Craven said that the income gap, unemployment,
increasing use of contract labor, and a reduction in the
quality of jobs were among the reasons for a number of
strikes in 2005. In 2005, South Africa experienced
strikes in the mining, steel and engineering, glass,
airport baggage handling, retail, electrical and other

PRETORIA 00004969 002 OF 003


small sectors. South Africa's official rate of
unemployment is 26.5%, while the expanded version, which
includes discouraged workers, is above 40%, according to
Statistics SA. Man-days lost to strikes and other forms
of work stoppages more than doubled to 2.2 million days
during the first nine months of 2005 from 1.05 million
during the same period in 2004, according to the South
African Reserve Bank's December 2005 Quarterly Bulletin.
Industrial action was largely related to wage disputes,
which accounted for 88.7 percent of the number of man-days
lost during the first three quarters of 2005. Source: I-
Net Bridge, December 19.

Black Incomes Could Prolong Consumer Demand Growth
--------------------------------------------- -----

5. The black middle class has grown by 30% in the past 12
months, adding another 421,000 black adults to South
Africa's middle-income group and increasing the black
population's share of South Africa's total middle class to
almost a third, according to the 2005 All Media and
Product Survey (AMPS) data released by the SA Advertising
& Research Foundation (SAARF). A Financial Mail article
defined the black middle income group as Living Standard
Measure 7-9, correlating to average monthly household
incomes ranging from R6,444 ($1,020, using 6.3 rands per
dollar) to R11,864 ($1,880). In the period between 2001
and 2004, there were only 300,000 new black entrants to
the middle class, but in just the past 12 months another
420,000 have joined, growing 30% in 12 months. Over the
past 12 months, LSM 8 grew by 42.6%, the largest increase
in black members for any LSM category. During the same
period, LSMs 1-3 (the lowest income categories) declined
by 802,000 blacks. LSM 10 (average monthly income of
R18,822 or $2990) increased by 18,000 blacks (17.6%
growth) in 12 months. However, the total number of blacks
in LSM 10 in 2005 was still only 120,000 people or 0.07%
of all blacks, whereas a third of all whites are in LSM
10. South African blacks have raised their share of the
total middle class from 28.4% in 2003/2004 to 32.6% in
2004/2005. During the same period, whites' share of the
total middle class fell from 45.4% to 41%. Between 1993
and 2003, though the demographic composition of the
population remained more or less the same, black
households' contribution to total household expenditure
increased from 36% to 46%, making blacks the country's
biggest consumer base. Source: Financial Mail, December
16 issue and Sunday Times, December 15.

South African Charity
---------------------

6. According to the State of Giving Project survey, South
Africans contribute 2.2% of the monthly income of working
age population to poverty alleviation and development.
About 17% of respondents volunteered their time, with
poorer people giving more time. More than half of
respondents (54%) have given money to charities or other
causes, a third (31%) gave food or goods, while less than
a fifth (17%) volunteered time for a charity or cause.
The survey questioned more than 3,000 South Africans over
the age of 18, including those living in informal
settlements and rural areas. Top priorities of charity
included the youth (22%), HIV/AIDS (21%) and the poor
(20%), with less than 8% giving to international causes.
Differences in largesse between gender and race groups
were slight, and there were similarly slight differences
between levels of education and socioeconomic status.
However, there were variations between the provinces.
Less than half of Gauteng's citizens (41%) gave money and
12% gave time, while 49% in Eastern Cape gave money and
16% gave time. Source: Business Day, December 19.

SA Tourist Arrivals Up
----------------------

7. According to Statistics SA, the number of overseas
tourists to South Africa in July 2005 increased 7.8%, with
arrivals from the U.K. and Germany still showing recent
growth. There was recently a decline in the numbers of
arrivals from these markets, attributed to the strong
rand. Statistics SA's overseas arrivals in July increased
to 148, 212 from 137,538 in the corresponding period 2004,
and most of these were from the U.K. (29,537), U.S.

PRETORIA 00004969 003 OF 003


(25,793) and Germany (12,013). At 17.6%, the U.S. showed
the biggest increase in arrivals, while there was a 30.9%
decrease in tourists from France. The number of tourists
from other African countries increased 26%, from 381,846
in July 2004 to 481,109 in July 2005. Lesotho accounted
for 28.8% of tourists, followed by Swaziland (16.2%) and
Botswana (15.5%). SA Tourism Chief Executive Officer
Moeketsi Mosola, said each tourist spent on average R408
($65) more than in the corresponding period last year.
Tourism contributed R93.6 billion ($15 billion), or 7.4%,
to the national economy in 2004. Second-quarter figures
from SA Tourism showed that African countries had made the
biggest contribution to total foreign direct spending in
South Africa, followed by Europe. Source: Business Day,
December 21.
TEITELBAUM

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