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Cablegate: South Africa Economic News Weekly Newsletter November 16,

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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 16,
2007 ISSUE


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1. (U) Summary. This is Volume 7, issue 46 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- Manufacturing Production Slows
- Textile Tariff Plan A Boost For Factories
- South Africans Forced To Live In Higher-Density Developments
- Mboweni In Favor Of Another Rate Hike
- No Apology Needed For Budget Surplus
- SA Banks Not For Sale
- Stadium Workers Strike

End Summary.


------------------------------
Manufacturing Production Slows
---------------------------

2. (U) According to Statistics South Africa (StatsSA), manufacturing
output volumes declined from 5.2% y/y in August 2007 to 1.4% y/y in
September 2007. This decline was largely the result of lower
production during September, which can be traced to strikes in the
automotive component manufacturing industry, which had knock-on
effects in the automobile sub-sector. Apart from the automotive
components industry, the food and beverages industry, the glass and
non-metallic mineral products sector, and the iron and steel
industry also dragged manufacturing output growth lower. However,
the negative contributions made by these industries were partially
offset by increases recorded in the petroleum and chemical sector,
the clothing and textiles sector, as well as the furniture
manufacturing sector. According to analysts, the contribution of
the manufacturing sector to the third quarter Gross Domestic
Product (GDP) is likely to slow down, or perhaps even turn negative,
from the 0.5% annualized growth recorded during the second quarter
of 2007. (Fin 24, November 8, 2007)

-----------------------------------------
Textile Tariff Plan A Boost For Factories
-----------------------------------------

3. (U) The Department of Trade and Industry's (DTI) plan to cut
tariffs on key inputs into strategic industrial sectors has got
underway in earnest, with DTI's International Trade Administration
Commission (ITAC) announcing the review of tariffs on textiles,
aluminum and chemicals. The textile tariff review is of particular
importance as it could bring some relief to beleaguered clothing
manufacturers who have been battling to survive an influx of cheap
imports. Clothing Trade Council of South Africa President Hassim
Randeree said the removal of tariffs on textiles would be a
significant step to help the clothing industry become
internationally competitive. The South African textile industry
enjoys an effective protection rate of 22% on a wide range of
textiles, primarily on textiles not manufactured in South Africa,
putting a needless burden on clothing manufacturers who are taxed on
fabrics they have no choice but to import. Moreover, manufacturers
complain that South African textile mills are inflexible and unable
to do short runs on product lines or produce the variety required by
the clothing industry. However, the review could be challenged by
other members of the Southern African Customs Union (SACU) with
interests in the sector, while labor union resistance may also be
expected. Textile Federation Executive Director Brian Brink
cautioned that the review should be tackled "sensibly and not too
Qcautioned that the review should be tackled "sensibly and not too
narrowly," as it could have sweeping implications for related
industries, such as farming, which provide some raw material inputs.
(Business Day, November 13, 2007)

--------------------------------------------- --
South Africans Forced To Live In Higher-Density Developments
--------------------------------------------- --

4. (U) The total number of newly-built South African houses of above
80m2 as a share of the total houses built declined from 62.2% in
2001 to 43.8% in 2007, whereas the share of newly-built flats and
townhouses increased from 37.8% in 2001 to 56.2% in 2007. Urban
conditions such as traffic congestion and increased transport costs
have forced many people to live in higher-density residential
developments close to places of work and amenities such as shopping
centers, schools and access routes. Moreover, land scarcity,

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especially in the major urban areas, the affordability of housing,
and security concerns have also played an important role in the
increasing popularity of higher-density housing. Analysts expect
the construction of more higher-density housing -- and even
high-rise high-density housing -- to continue in the future in view
of changing urban lifestyles, an increasing scarcity of development
land, and the continuous upward trend in property prices. (ABSA
Newsletter, November 13, 2007)

-------------------------------------
Mboweni In Favor Of Another Rate Hike
-------------------------------------

5. (U) South African Reserve Bank Governor Tito Mboweni said
inflation pressures in South Africa were on the upside, and that he
would raise interest rates in December 2007 if he were the sole
member of the Monetary Policy Committee (MPC). The MPC, which
Mboweni chairs and which meets once every two months, has increased
interest rates by a cumulative 350 basis points since June 2006.
CPIX-inflation (consumer price inflation excluding mortgage interest
rates) has stayed above the top end of the Reserve Bank's 3%-6%
target band since April this year. In response to tighter monetary
policy, retail sales growth slowed from 6.6% y/y in August to 2.0%
y/y in September. (Business Day, November 14, 2007)

------------------------------------
No Apology Needed For Budget Surplus
------------------------------------

6. (U) Finance Minister Trevor Manuel defended the budget surplus
planned by the government over the next three years, saying there
was "no shame" in having a surplus and the government would not
apologize for it. The budget surplus was a precaution against
uncertain prospects for the international economy which could result
in next year being a tough year, Manuel said, "There is no failure
in running a surplus. There is no shame in taking out the
unevenness, the boom and bust, and we shall not apologize for this".
The National Treasury has estimated cyclical revenue to amount to
R87.7 billion ($13.5 billion) over the next three years. Of this
amount, R44.5 billion ($6.8 billion) would be saved, almost R15
billion ($2.3 billion) a year for three years, or 0.6% of gross
domestic product. In spite of the surplus, Manuel pointed out that
the SAG was committed to alleviate the erosion of social grants by
inflation. Manuel also argued strongly against any change to the
inflation targeting band "even if it looks bad." Manuel said there
must be a commitment to price stability and he voiced confidence
that the CPIX-inflation would fall back within the band next year.
Manuel has been criticized for running a budget surplus in a
developing country with huge social problems. (Business Day,
November 14, 2007)

---------------------
SA Banks Not For Sale
---------------------

7 (U) South African Reserve Bank Governor Tito Mboweni has told
parliament that the recent $5.5 billion acquisition of 20% of
Standard Bank by the Industrial and Commercial Bank of China was a
"good thing" that "will help cement the relationship between China
and South Africa." Mboweni stressed, however, that the deal does
not mean that a "for sale" sign has been hung on South African
Qnot mean that a "for sale" sign has been hung on South African
banks, as the state should "maintain strategic interests" in the
banking sector. Mboweni told parliament, "South Africa has to
maintain its own strategic banking interest. Does it mean that
other banks are for sale? No." Some banks and analysts were
critical of Mboweni's position, accusing the central banker of
flouting standards of fair competition. They said that allowing
foreign investment in some banks (such as Standard and ABSA) at the
expense of other banks would result in unfair competition and
disadvantage consumers. (Business Day, November 15, 2007)

----------------------
Stadium Workers Strike
----------------------

8 (U) Hundreds of construction workers at the Moses Mabhida Stadium
in Durban, one of the stadiums under construction for the 2010
Soccer World Cup tournament, are engaged in a strike to protest
against poor pay conditions. Workers are demanding a minimum wage

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of R11 an hour, project bonuses of R1,500 a month, and safety
improvements. The National Union of Mineworkers (NUM), which
represents construction workers, claimed that workers were paid only
R6 an hour, which they regard as pitiful and unfair. The
construction company, Group Five, disputed the claims, saying that
the starting rate is R11.98 an hour, though it is said that
subcontractors might be paying less. NUM spokesperson Lesiba
Seshoka said a sympathy strike at the 10 other stadiums under
construction would commence soon if the demands of the Durban
workers are not met. This has raised concerns about the completion
of infrastructure for the World Cup. Meanwhile, over 3,000 FIFA
delegates are expected to visit Durban to inspect the sites at the
end of November. (Pretoria News, November 15, 2007)


BOST

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