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Cablegate: South Africa Economic News Weekly Newsletter December 07,

DE RUEHSA #4155/01 3411431
R 071431Z DEC 07





E.O. 12958: N/A
2007 ISSUE

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1. (U) Summary. This is Volume 7, issue 49 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- Trade Deficit Widens
- Manufacturing Activity Slips
- Vehicle Sales Down
- Business Confidence Dips Further
- US Trade With Sub-Saharan Africa Increase
- SA Leads World on Life Cover
- The CAA Grounds Nationwide Airline
- CAA Restructuring Announced
- SA Companies Submit Emissions Reports
- Mineworkers Stage Safety Strike as Fatalities Top Previous Year's
End Summary.

Trade Deficit Widens

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2. (U) According to South African Revenue Service (SARS) data, South
Africa's trade deficit widened to a record R14.7 billion ($2.2
billion) in November 2007. Exports increased by 4.3% month-on-month
(m/m) to R41.5 billion ($6.2 billion) in November 2007, while
imports surged 27.4% m/m to a record R56.3 billion ($8.4 billion).
Oil imports doubled to R13.2 billion ($2 billion), more than a fifth
of the total imports, partly because of rising global crude prices
but also due to disruptions to local production and increased
purchases by refineries ahead of the year-end. SARS officials said
the surge in imports also reflected rising demand for capital goods
sparked by the government's R482 billion ($72 billion)
infrastructure spending plan and preparations to host the FIFA
Soccer World Cup in 2010. The cumulative trade deficit widened from
R55.3 billion ($8.3 billion) in the first 10 months of 2006 to R70.1
billion ($10.5 billion) for the same period in 2007. It means the
current account deficit would exceed last year's ratio of 6.5% of
gross domestic product (GDP), which was its largest in more than
three decades. National Treasury (NT) officials have acknowledged
that South Africa would have to live with a large current account
deficit for several years to come, largely due to its spending
program, which in the end will expand the economy's productive
capacity. NT has predicted that the current account deficit will
widen to 7.7% of GDP in 2009 and 7.8% in 2010, both near 60-year
peaks. Although the shortfall is covered by capital inflows, it
makes the South African economy vulnerable to any substantial shift
in global sentiment against emerging markets and high-yield assets.
South Africa has the second largest current account deficit as a
percent of GDP among the 25 emerging market economies. (Business
Day, December 3, 2007)

Manufacturing Activity Slips

3. (U) The Investec Purchasing Managers Index (PMI) which measures
underlying manufacturing activity, dropped from 56.1 points in
September to 54.3 points in October. A sharp fall in new sales
orders, a slowdown in activity and a decline in expected business
conditions conspired to put pressure on the sector, which accounts
for more than 16% of the economy. The PMI has been weighed down in
recent months by higher interest rates as the South African Reserve
Bank (SARB) strives to bring inflation under control. Investec
Asset Management head Andre Roux said the manufacturing sector is
continuing to adjust to pressure from higher interest rates, a
Qcontinuing to adjust to pressure from higher interest rates, a
slower global economy and strength in the rand. A stronger rand
tends to be bad for manufacturers as it erodes the competitiveness
of South Africa's exports while making imports less expensive,
encouraging substitution for locally produced goods. Figures last
week showed that manufacturing production decreased by 0.1% in the
second quarter of 2007 and by 2.5% in the third quarter of 2007,
which technically puts the sector in a recession for the first time
since 2003. (Business Day, December 4, 2007)

Vehicle Sales Down

4. (U) According to the National Association of Automobile
Manufacturers of South Africa (NAAMSA), total new vehicle sales

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declined by 13.8% year-on-year (y/y) in November 2007. The fall in
vehicle sales was particularly noticeable in the new passenger
vehicle segment of the market where sales decreased by 15.7% y/y in
November. According to NAAMSA the lagged impact of past interest
rate hikes, record high household debt levels, inflation and a
deterioration in consumer sentiment contributed to the contraction
in the volume of passenger vehicles sold over the past year. During
the January to November 2007 period, passenger vehicle sales were
9.2% lower than during the corresponding period last year. However,
sales of light commercial vehicles were 3.6% higher than during the
same period last year, while medium and heavy commercial vehicle
sales increased by 12%. Heavy commercial vehicle sales growth
remained relatively strong during 2007, but there was a noticeable
slowdown in medium commercial vehicle sales growth. Economists said
the continued contraction in vehicle sales, particularly passenger
vehicle sales is an indication of the effect of interest rate hikes
and inflationary pressures on household budgets, reducing the
consumer's ability to spend on interest rate sensitive items such as
motor vehicles. (ABSA Newsletter, November 4, 2007)

Business Confidence Dips Further

5. (U) The South African Chamber of Commerce and Industry (SACCI)
said its business confidence index (BCI) decreased from 96.9 points
in October to 95.8 in November, the lowest since February 2004.
Five of the 13 sub-indices of the BCI turned positive in November,
while eight sub-indices were negative. SACCI noted that economic
growth in prominent sectors, that have been pushing growth for the
last 12 months, slowed by a half to two percentage points
year-on-year. The October inflation data also indicate that
consumer inflation is accelerating and while producer inflation
slowed down somewhat. Producer inflation is still 1.5% points
higher than consumer inflation. "This could lead to greater price
instability if not managed prudently by business, policy makers and
other role players," the SACCI said. Of great concern to the SACCI
are the U.S. dollar prices of crude oil and the increasing rates of
food and non-food agricultural products, while higher real financing
costs are particularly detrimental to small and medium-size
business, especially in a slowing economy. However, the higher real
interest rates provide an incentive for attracting capital to South
Africa that support the rand and that finances the huge current
account deficit. SACCI believes that notwithstanding tougher
business conditions, South African business has shown resilience in
the past and when sound and consistent economic policy decisions
lead the way, business confidence will follow. (Business Day,
December 5, 2007)

US Trade With Sub-Saharan Africa Increase

6. (U) U.S. total trade with Sub-Saharan Africa (SAA) increased by
8% year-on-year (y/y) in the first 9 months of 2007, as both exports
and imports grew. U.S. exports to SAA increased by 24% to $10.6
Qand imports grew. U.S. exports to SAA increased by 24% to $10.6
billion in the first 9 months of 2007, driven by growth in vehicles
and parts, wheat, non-crude oil, medical equipment and platforms for
offshore oil drilling. U.S. imports from SAA increased by 4% y/y to
$47.6 billion in the first 9 months of 2007, mainly driven by oil
and platinum imports. U.S. exports to South Africa rose by 27%
while U.S. imports from South Africa increased by 22%, driven mainly
by increased imports in platinum, diamonds, and ferroalloys. Total
AGOA imports amounted to $35.9 billion, 5% more than in the first
nine months of 2006. Petroleum products accounted 93% of overall
AGOA imports and the top five AGOA beneficiary countries included
Nigeria, Angola, South Africa, Chad, and Republic of Congo. Once
again, South Africa was the largest beneficiary of non-oil AGOA
exports to the U.S. (U.S. Department of Commerce, November 30,

SA Leads World on Life Cover

7.(U) Life Offices Association (LOA) Gerhard Joubert said South
Africa's extensive antiretroviral therapy (ART) programs, which are
now treating more than 300,000 HIV-positive people, are making it

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possible for local life insurers to introduce more affordable and
comprehensive life and disability cover. Sanlam, Old Mutual and
Metropolitan, three of South Africa's largest life insurance
companies, were the first to introduce life insurance policies for
HIV-positive people as early as 2001. AllLife and AltRisk, two
smaller life insurance companies, subsequently pioneered more
affordable life insurance for people living with HIV. Sanlam is now
the first large life insurance company to announce new, affordable
and flexible life and disability cover for HIV-positive people.
Joubert said the previous lack of reliable data relating to the
HIV/AIDS survival rate and the way the disease responds to treatment
had encouraged insurers to use conservative assumptions when pricing
products for the HIV-positive, causing the products to be expensive.
Improvements in treatment over the past decade have increased
survival rates and have caused HIV to become a chronic treatable
disease. The new products require policyholders to be on ART,
monitored through a properly structured treatment program. The
LOA's HIV testing protocol, which regulates testing and counseling
for insurance purposes, was also hailed as one of the best in the
world. (Business Times, December 2, 2007)

The CAA Grounds Nationwide Airline

8.(U) The South African Civil Aviation Authority (CAA) suspended its
approval of Nationwide Airlines' aircraft maintenance organization
(AMO) on November 30. The CAA also suspended the airworthiness
certificates of Nationwide's fleet of 16 Boeing aircraft. In a
cascading series of events, the CAA recalled all of the
non-Nationwide aircraft that had been serviced by the Nationwide AMO
and the International Air Transport Authority (IATA) suspended
Nationwide from its interchangeable ticket agreement. The
combination of these events led to the cancellation of 60 Nationwide
flights and the stranding of 6,000 passengers just as most schools
closed for the holidays on November 30. Many passengers were unable
to purchase the more expensive, regular-priced tickets on competing
airlines. The CAA's decision was related to an accident in which an
engine fell off of a Nationwide Boeing 737-200 at the Cape Town
International Airport on November 7. The CAA said it had raised 21
safety concerns with Nationwide, including the fact that the airline
was using possible pirate parts that did not comply with safety
regulations. The local press claims that the CAA raised its
concerns about Nationwide's inability to trace whether some of its
bolts were genuine parts three months ago (i.e., before the November
7 incident). (Pretoria News, December 1, 2007 and Business Day,
December 4, 2007)

CAA Restructuring Announced

9.(U) The South African Civil Aviation Authority (CAA) announced on
December 4 that CEO Zakes Myeza had resigned to allow the CAA to
unify the positions of CEO and Commissioner for Civil Aviation. The
announcement explained that Minister of Transport Jeff Radebe had
issued a policy directive to unify the two positions in response to
Qissued a policy directive to unify the two positions in response to
concerns raised by two international audits conducted on the CAA.
CAA Spokesperson Phindi Gwebu said that the two international audits
had been conducted by ICAO and the FAA. She also said Myeza's
resignation had "nothing to do with" the November 30 action taken
against Nationwide Airlines. Radebe spokesperson Collen Msibi also
said that the Nationwide action and the CAA restructuring were
separate issues and that it was Myeza's decision to resign. The new
CEO/Commissioner has not been announced, but Embassy sources report
that the SAG would like South African Airways' Manager of Operations
to occupy this position. In another management shake-up, CAA Board
Member and Auditor General Head of Operations and Transaction
Management Bridget Mohlala was suspended on December 3 after being
found guilty of several financial offences. (Pretoria News,
Business Day, and Die Burger, December 5, 2007 and News 24, December
4, 2007)

SA Companies Submit Emissions Reports

10. (U) The Carbon Disclosure Project (CDP) presented a report on

PRETORIA 00004155 004.2 OF 004

emissions by South Africa's top 40 JSE-listed companies. The
companies had to report on climate change risks as well as the
accounting and management of green house gas emissions. The report
fingered state electricity supplier ESKOM as the leading emitter,
with emissions 2.8 times higher than the next highest among the 40
companies. SASOL, BHP Billiton, Anglo American and Sappi were the
other companies identified as large emitters. Minister of
Environmental Affairs and Tourism Marthinus Van Schalkwyk has urged
CEOs and Board Chairmen to rise to the new challenges and
opportunities and to move away from the "business as usual"
approach, which he regarded as a high-risk approach. The CDP will
continue with the rating on an annual basis and hopes to include the
top 100 JSE-listed companies in the near future. (Business Day,
November 23, 2007)

--------------------------------------------- ----
Mineworkers Stage Safety Strike as Fatalities Top Previous Year's
--------------------------------------------- ----

11. (U) Some 240,000 members of South Africa's biggest union, the
National Union of Mineworkers (NUM), staged a one-day strike and
march against deteriorating safety conditions on December 4. The
Chamber of Mines said the chamber and the NUM had agreed on the
protest action because the two needed to cooperate in tackling
safety issues. The number of deaths in South African mines this
year, at 201 thus far, has already topped last years' year-end
figure of 199. This has galvanized concerns about safety in the
aftermath of the recent incident of 3,200 workers trapped, but
ultimately rescued, at Harmony's Elandsrand mine. Mining companies
reported substantial output losses due to the work stoppage.
Platinum producer Anglo Platinum said the impact of the one-day
strike was expected to be a loss of about 9,000 ounces of production
as some mines experienced an almost 100 percent stay-away. South
Africa's top gold producer AngloGold Ashanti said it experienced
substantial mine worker stay-aways, to the extent that none of its
South African operations were producing gold on December 4.
(Business Day, Mining Weekly, 102.7 Classic FM news, December 4-5,


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