Air Zimbabwe among Zim parastatals that owed SA’s Transnet

Air Zimbabwe was among the top parastatals that owed South Africa’s Transnet thousands of rands as the economic crunch hit the country which was crippled by a shortage of foreign currency.

A South African newspaper said South Africa’s Public Enterprises Minister Alec Erwin had said that Zimbabwean utility companies owed Transnet R28.7 million and only 0.03percent or R949 000 would not be repaid.

Air Zimbabwe owed a monthly balance of R530 000 and the National Railways of Zimbabwe was in a net credit position.

ZESA, the Zimbabwean electricity utility, settled its debt, ranging from R138 million to R14 million to Eskom.

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TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF

SUBJECT: SOUTH AFRICA ECONOMIC NEWSLETTER JANUARY 13 2006

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:

– Manufacturing Production Growth Recovers;

– Housing Prices Continue to Slow;

– Credit Demand Slows;

– Trade Deficit Narrows;

– Transnet’s Credit Risk from Zimbabwe Parastatals Low;

– Reserves Above $20 Billion

– Business Confidence at 2005 Peak;

– SA’s Online Spending Increased 20%;

– SA Vehicle Sales Increase 28.5% in 2005; and

– High School Dropout Rate High

End Summary.

Manufacturing Production Growth Recovers

—————————————-

¶2. In November, South Africa’s manufacturing output rose

by 3.7% (y/y in volume terms, not seasonally adjusted),

compared to October’s yearly rise of 0.3% according to

Statistics South Africa (StatsSA). On a monthly basis,

manufacturing production rose by 2.1%. Using a year to

date basis, manufacturing production increased by 3.2%,

giving a better indication of overall 2005 growth. Seven

out of ten manufacturing sectors experienced positive

quarterly growth. The major contributors to increased

growth included the basic iron and steel, non-ferrous

metals and metal products and machinery sectors, followed

by motor vehicles sector. The petroleum, rubber, plastics

and chemical sector accounted for most of the negative

growth in sectors because of petroleum industry changing

to lead free fuel, followed by production decline in food

and beverages. Manufacturing is the second-biggest sector

(after the service sector) in South Africa, accounting for

more than 16% of the economy. Recent strengthening of the

rand poses potential risks to the manufacturing recovery,

especially if consumer demand softens. In recent trading,

the rand traded just under 6 rands per dollar. Source:

Reuters and Statistics SA Release P3041.2, January 12.

Housing Prices Continue to Slow

——————————-

¶3. In December 2005, nominal housing prices continued

their slowing trend, reaching 14.7% increase compared to a

30.8% increase at the beginning of 2005. The rate of

nominal house price growth peaked in September and October

2004 at 35% and has since declined steadily. According to

ABSA bank housing surveys, the average house price in 2005

was R700,200 ($110,100, using 6.36, the 2005 average

rand/dollar exchange rate) compared to 2004’s average

house price of R574,200 ($89,000, using 6.45, the 2004

average rand/dollar exchange rate). The 2005 growth in

mortgages reached 27% and 2006’s growth is expected to be

20%-22%, along with a growth in real disposable income at

6%, according to ABSA senior economist Jacques Du Toit.

Adrian Saville, chief investment officer at Cannon Asset

Managers asserted that residential property remained an

overvalued asset and vulnerable to interest rate

increases, although risks of interest rate hikes remain

low due to slowing in inflation, money supply and credit

growth. Source: Business Day, January 12.

Credit Demand Slows

——————-

¶4. November’s demand for credit by the private sector

reached 18.8% (y/y), slower than October’s growth of

19.3%. The broadly defined M3 measure of money supply

grew by 16.4%, below forecasts, after increasing by 15.9%

in October. Consensus forecasts expected private sector

credit demand and M3 to increase by 18.6% and 17.3%,

respectively. The strong demand for private sector credit

in 2005 has fueled strong growth in domestic expenditures,

leading to an expected 2005 GDP growth of over 5%.

Source: Business Day, December 30.

Trade Deficit Narrows

———————

PRETORIA 00000143 002 OF 003

¶5. According to the South African Revenue Service,

November’s trade deficit narrowed compared to October due

to strong growth in exports. The trade deficit narrowed

to R3.1 billion from October’s R5.5 billion, with exports

and imports increasing by 17.1% and 6.4%, respectively.

Exports showing the strongest November growth include:

vehicles, aircraft and vessels, jewelry, base metals,

machinery and electrical appliances and minerals. Nedbank

economist Magan Mistry said the deficit exceeded market

expectations of R2 billion. The cumulative deficit for

the period from January to November in 2005 was R24.9

billion, compared to R15.3 billion for the same period in

¶2004. Standard Bank economist Johan Botha said the

cumulative deficit had raised fears that the current

account deficit might increase from 4.7% of GDP to more

than 5%. Source: Business Day, December 30.

Transnet’s Credit Risk from Zimbabwe’s Parastatals Low

——————————————— ———

¶6. According to Public Enterprises Minister Alec Erwin,

Zimbabwean utility companies owed Transnet R28.7 million

($4.8 million, using 6 rands per dollar) in September but

only 0.03%, or R949,000 ($158,167), would not be repaid.

Transnet was exposed to credit risk from more than one

Zimbabwean parastatal. Air Zimbabwe owed a monthly

balance of R530,000 ($88,330) and the National Railways of

Zimbabwe (NRZ) was in a net credit position. Transnet did

not grant a credit line beyond the standard over-border

account between NRZ and Transnet. When Transnet agreed to

buy fuel for NRZ, the value was limited to the monthly

over-border account to ensure settlement within 30 days.

Zesa, the Zimbabwean electricity utility, settled its

debt, ranging from R138 million ($23 million) to R14

million ($2.3 million), to Eskom by May 2005. Source:

Business Day, January 6.

Reserves Above $20 Billion

————————–

¶7. The South African Reserve Bank (SARB) increased its

December foreign reserves to $664 million compared to a

$125 million increase in November so that its gross

foreign and gold reserves exceeded $20 billion for the

first time. Economists view $20 billion as a minimum

safety cushion and many economists expect SARB’s foreign

reserve buying to continue, given continuing high

commodity prices and rand strength. In August 2005, two

ratings agencies (Standard & Poor’s, as well as Fitch)

upgraded South Africa’s foreign currency rating to BBB

plus, in part because of the Bank’s accumulation of

foreign reserves, leading to an improvement in South

Africa’s ability to repay foreign debt. Up until February

2004, the foreign exchange reserves had fluctuated around

the $6 billion since 1999, but then rose to $8.3 billion

in March and have risen steadily since. Although the

value of reserves increased 3.7% from $19.9 billion in

November to $20.7 billion by December, reserves are now

equal to 3.8 months’ import cover, lower than the

international standard of six months. Source: INET,

Business Day, January 9; Business Day, January 10.

Business Confidence at 2005 Peak

——————————–

¶8. The South African Chamber of Business’s (Sacob)

business confidence index reached its 2005 peak in

December due to stable interest rates and an optimistic

inflation outlook. December’s Sacob business confidence

index rose to 129.4 points, up from 126.5 in November.

During 2005, business confidence averaged 127.1 points,

compared with 124.4 in 2004. Sacob economist Richard

Downing cited strong domestic economic activity as

enhancing business confidence but warns about increasing

current account deficits as possible risks to the business

confidence outlook. The current account deficit, at 4.7%

of GDP in the third quarter of 2005, far higher than the

“ideal” 3%, is expected to stabilize at about 4% in 2006.

Downing said that in order for business confidence to

continue to be positive, the rand had to remain strong to

prevent serious inflationary consequences, but not so high

as to dampen the export sector. Sacob also attributed the

rise in confidence last month to the rise in gold and

platinum prices. Recently gold prices reached a 24-year

PRETORIA 00000143 003 OF 003

peak of $537/oz, while platinum peaked at $1014/oz on

strong demand and supply constraints. The metals account

for about 20% of South African exports. Source: Business

Day, January 6.

SA’s Online Spending Increased 20%

———————————-

¶9. South Africans spent R514 million ($86 million)

shopping online in 2005, 20% higher than 2004, according

to a report by research firm World Wide Worx. The 2005

total did not include 2005 online air ticket sales of R1.8

billion ($300 million) compared to its 2004 total of R850

million ($142 million). The 2005 online retail shopping

growth was lower than the 2004 growth of 25%. The survey

of 800 online retail outlets cited lack of speed in

internet access and affordable access to broadband as the

biggest obstacles to growth in online sales. The online

retail market was dominated by 10 online retail sites: M-

Web ShopZone and Digital Mall, online grocers Pick ‘n Pay

Home Shopping and Woolworths, book retailers Kalahari.net

and Exclusive Books, florist NetFlorist, wine retailer

Cybercellar, electronics store Digital Planet, and health

and beauty store Ascot Direct. World Wide Worx expects a

further 20 percent increase in online retail shopping in

¶2006. Research firm BMI-TechKnowledge expects broadband

users to increase to 870,000 in the next five years from

40,000 in 2005, on expectations of lower internet access

prices. The number of online retail sites has grown from

719 at the end of 2003 to 826 in 2005. The fastest-

growing major categories were auctions, gifts and apparel.

Source: Business Report January 10.

SA Vehicle Sales Increase 28.5% in 2005

—————————————

¶10. South Africans bought more new vehicles in 2005 than

in any previous year, according to sales figures released

by the National Association of Automobile Manufacturers

(NAAMSA). New vehicle sales (including cars, trucks and

buses) reached R125 billion ($21 billion) in 2005 compared

to R96 billion ($16 billion) in 2004. Domestic vehicle

sales figures for 2005 increased 28.5% to almost 617,500

units, double the number of new vehicles sold five years

ago, and higher than the previous record of 482,000 units

in 2004. Sales figures compiled by NAAMSA include NAAMSA

and non-NAAMSA members, accounting for 8% of South

Africa’s market. Lower interest rates and growing middle

class were credited as the major stimulus behind record

car sales. McCarthy chairman Brand Pretorius estimated

that McCarthy, South Africa’s largest dealer network, sold

one of every four or five new cars, and one out of every

three used cars, to black customers. It now took an

average South African household in the living standard

measure 10 category (average monthly income of R18,822 or

$3137) about 37 weeks’ earnings to buy a car, compared to

71 weeks three years ago. NAAMSA has not yet totaled its

export figures but estimates that approximately 145,000

vehicles were exported in 2005, up from the 110,507

vehicles exported in 2004. The vehicle industry

contributes about 7.4% to GDP. Source: Business Day,

January 11.

High School Drop Out Rate High

——————————

¶11. Less than half of South Africa’s grade 10 students in

2003 took their high school graduation (matric) exams two

years later. In 2005, 508,363 students took the exams in

grade 12, although 1,096,214 students were registered as

grade 10 students in 2003. While 347,184, or 68% of

students who took the exam passed in 2005, when calculated

as a percent of the 2003 grade 10 class, only 32% of

students graduated and 587,851 dropped out of school.

Teacher unions had asked for more research about the

increased dropout rate in high schools but little has been

released. Source: Business Day, January 11.

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