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Update No: 07 - (26/07/02)

African Union Inauguration 
At least 40 of the continent's presidents and monarchs were in the port resort of Durban July 9, for the inauguration of the African Union (AU). The 53-member AU (all African nations except Morocco, which withdrew from the OAU in 1985 after the disputed territory of Western Sahara was admitted as a member.) modelled on the European Union (EU) will, in contrast to OAU, have the right to intervene in the affairs of its member states, when there are cases of genocide and war crimes. Although the AU is seen as the brainchild of the Libyan leader, Muammar Gaddafi, South Africa's President Thabo Mbeki will be its first chairman. In an opening speech at the ceremony, Mr. Mbeki urged Africans to start exporting manufactured goods in order to raise their living standards. According to him, "Africa's experience of the last 40 years calls for a radical change of the structure and content of the continent's political, economic, and social relations with the rest of the world. 
Gaddafi and Mbeki, the two most powerful men in Africa are waging parallel battles for the soul of the continent with their opposing ideas of what the AU should be. Through the ideals and programmes of the New Partnership for Africa's Development, the rapid growth and recovery plan for the continent, Mbeki is appealing to the intellectual highbrow and to the moral conscience of African society to drive his crusade. Gaddafi, on the other hand, surrounds himself with pageantry and seduces other African leaders by liberally handing out gifts and American dollars. In this way he has created a club of blindly loyal, highly indebted supporters among African leaders and citizens. At the final meeting of the Organisation of African Unity and the first of the AU, almost every head of state who spoke felt the need to pay homage to Gaddafi for initiating the new continental structure and for his passionate backing of African unity. Gaddafi has made no secret about his aspirations of a "United States of Africa". Like America, this would have one president ruling over a federation of states, each of which would be presided over by a governor. He wants one African army, uniform trade and foreign policies, and one leader representing all the African states to deal with the rest of the world. Gaddafi is adamant that Africa does not need the assistance or involvement of the West to improve its lot. As leader of one of the wealthiest nations on the continent, he would argue that he has the funds to bankroll whatever development projects are necessary. Mbeki's mission is to create a band of like-minded African democrats who share his goals of competitive markets, technological advancement, progressing economies and industrious populations The first year of the AU's existence is set to determine whose style will win the day. Despite the AU's emphasis on the importance of democracy, the leaders at the summit were drawn from a mix of elected heads of state, those who seized power and still others who have changed their country's rules to retain their grip on power. And the problems facing Africa remain the same: abject poverty, a massive AIDS pandemic, endemic malaria, a crippling debt burden, tough terms of trade with the rest of the world, and some 20 conflicts ravaging the continent. 

AIDS Conference
The world's biggest Aids conference closed July 12 in Barcelona with former South African president, Nelson Mandela, leading calls for new commitment in the fight against the deadly disease. This rounded off a week of talks dominated by demands for more funds to treat millions of sufferers in the developing world. The sophisticated drugs, that have turned HIV infection into a manageable condition in the West reach only one in a thousand in Africa, the epicentre of the crisis. Two decades into an epidemic that kills one person every 10 seconds, the gulf between rich and poor is starker than ever. A debate has raged throughout the conference over the balance between prevention and treatment in the developing world, home to 95 percent of the world's 40 million infections. Prevention is more cost-effective, but to ignore the provision of medicines for those already infected is not acceptable. Despite steep price cuts for poor countries and competition from generic drugs, combination therapy remains out of reach for the vast majority of those in the developing world. A range of developing countries from the Caribbean to sub-Saharan Africa have taken advantage of the favourable climate at the conference to conclude agreements for cheaper antiretroviral drugs and funds for HIV prevention and treatment programmes. But for South Africa the world AIDS conference has once again been a missed opportunity. Little seems to have changed the world's perception that the government lacks commitment to fight HIV/AIDS. Amir Attaran of Harvard University was blunt, addressing a session on barriers to antiretroviral treatment, he said: "The biggest hurdle to HIV treatment in South Africa is Thabo Mbeki." While the cabinet has reversed its opposition to antiretroviral treatment by resolving in April to offer the drugs to rape survivors, this message has not got to a world still gob-smacked by the president's flirtation with scientists who dispute the very existence of the HIV virus. South Africa has the biggest population of HIV positive people in the world. The health department puts the figure at around 4.5 million people. Others say it is closer to six million. With no antiretroviral treatment, most of these people will die. 

Economic Freedom Index
South Africa shares 47th place in the world on the economic freedom ranking contained in the Economic Freedom of the World 2002 Annual Report. The 6th global economic freedom report ranks 123 nations on 37 variables with data provided at five-year intervals back to 1970. This allows readers to track the progress of countries across the 30-year period and clearly identify trends in economic policy in the countries analysed. Economic freedom is based on personal choice, voluntary exchange, freedom to compete, and protection of persons and property. This requires the rule of law, property rights, limited government intervention, freedom to trade, and sound money, and the report seeks to capture the extent to which countries follow these desirable policy options. The current ratings are based on 2000 data, the latest year for which comprehensive information is available. The Annual Report, published by Canada's Fraser Institute in conjunction with South Africa's Free Market Foundation and 53 other independent institutes from around the world, ranks countries on their level of economic freedom. Only Mauritius 30th and Botswana 35th are rated as having greater economic freedom than South Africa of all the countries in the African region. Although South Africa has not moved up the rankings significantly it is holding its own against many other countries that are liberalising their economies. 

Famine
A staggering 12,8-million people will be affected by severe shortages in staple foods as United Nations and world attention is focused on the looming famine in South Africa's neighbouring states, a similar tragedy within the country's borders is already in the making. Saliem Fakir, South African programme coordinator for the IUCN-World Conservation Union, says NGOs estimate that about 22-million people in South Africa live in abject poverty. The prices the poorest of the poor must pay for staple foods have increased dramatically over the past year -- the cost of maize and other cereals has doubled. So millions who struggled to feed themselves in the past are facing even more dire circumstances today. The rapid devaluation of South Africa's currency over the past year has battered the efforts of NGOs that distribute food in the region because most cereals are priced in dollars. Rocketing prices for staples such as maize have forced the groups to cut back aid for needy communities. For the next nine months the World Food Programme has identified nearly 13-million people in need of food aid, about 6-million of them in Zimbabwe. The agency says it cannot predict what will happen next year, but warns that the crisis may evolve into a wider humanitarian disaster. At the moment it is rushing to preposition food in the region to avoid what it says could be a disaster. It is the combination of the Zimbabwean situation, El Nino related weather patterns and HIV/AIDS that makes prospects for the year ahead so bleak. Next year's seed stocks will be down many villages across the region because of low crop yields this year. Zimbabwean white farmers ordered off their properties will not be able to plant later this year. UN agencies and other NGOs are preparing a massive operation to avert the effects of the famine looming in Lesotho, Malawi, Mozambique, Swaziland, Zambia and Zimbabwe. Much of the emergency food aid will be imported from South Africa. 

Foreign Investment
South Africa is starting to feature among the top global investment destinations as fund managers view emerging markets in a more positive light, says Frater Asset Management MD James Frater. His upbeat assessment of South Africa's prospects is echoed by Old Mutual Asset Managers (Omam) executive director Peter Linley, who says local equities should remain the "preferred asset class" while international markets struggle under the strain of economic and geopolitical uncertainty. Confidence in the South African economy was once again highlighted July 9 when 26 foreign banks granted a one billion US dollar loan to the South African Reserve Bank in London. The move is expected to boost the country's foreign exchange position and investor confidence. Foreign investment in South African property also appears to be continuing unabated

Telecommunications
Seven black empowerment groups competing for a stake in South Africa's second phone operator have failed to impress the judges, with their bids showing questionable technical skills, weak financial proposals and a complete failure to comply with the tender requirements. The scathing verdict comes from Next Generation, a group of legal, accounting and technical experts appointed to help the Independent Communications Authority of South Africa (Icasa) select the strongest bidder. As well as criticising the empowerment bids, its 88-page report casts serious doubts on the viability of the second network operator as a whole. Government intends for the licence to be 51% held by an experienced foreign operator able to provide serious competition to Telkom. The foreigner is expected to work with an empowerment partner holding 19% and with state-owned Eskom and Transtel, holding 30% between them. Government's main aims in imposing a black partner are to boost empowerment and to give the operator credibility via their understanding of South Africa's social and technical issues. Yet those hopes could be dashed as the applicants displayed little understanding of the technologies involved. Their financing plans were condemned as equally dubious. A second network is unlikely to be profitable for at least five years, so a foreign operator needs partners with deep pockets. No applicant could show significant funding or the ability to raise further capital. In every bid, the banks funding their efforts would be the prime beneficiaries of any revenue for up to 20 years. Moreover, Next Generation said that none of the contenders would add any value to a foreign bidder, and their very presence could deter potential investors from taking that crucial 51% stake. Even the inclusion of Eskom and Transtel, which already operate telecoms networks, was of dubious value, it said. Their technologies might be so out of step with the needs of a second carrier that they could prove a liability rather than an asset. 

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AUTOMOBILES

TMC acquire shareholding in TSA

The Toyota Motor Corporation (TMC) of Japan announced July 17 its acquisition of a majority shareholding in Toyota South Africa (TSA). Yoshio Ishizaka, vice-president of TMC, said in a media statement that TMC had increased its holding in the local firm from 35.7 percent to 74.9 percent with the purchase of shares from JSE-listed Wesco Investments. "This controlling shareholding allied to substantial investment in Toyota South Africa signifies a strengthening of our commitment to South Africa and our intention of growing our business in this region," Ishizaka said. "Toyota Motor Corporation has enjoyed a relationship going back more than 40 years with Toyota South Africa and the Wessels family. Since 1961 TSA has enjoyed consistent growth under the outstanding leadership of the late Dr Albert Wessels and the present chairman, Bert Wessels." Ishizaka said TSA was now set to become "a significant exporter of fully built up vehicles, starting with the building of the new Corolla for the Australian market early in 2003."

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AVIATION

SAA reports profit

National carrier South African Airways (SAA) has reported headline profit of R553-million for the year ended March 31 2002 compared with a loss of R998-million the year before. The net profit after tax increased to R2,144 billion versus R408 million in 2001. SAA attributed the increase in headline earnings to increased revenue, improved operating cost management and income from other financial management programmes. SAA said that for the purpose of disclosure it continues to report results on a headline earnings format. As such headline earnings do not include the profit/losses made on the sale of aircraft and other assets, but do include one off exceptional items. SAA increased revenue 26.1% to R13.664-billion from R10.839-billion before, mainly due to increased passenger revenue, cargo revenue and third party maintenance work performed in technical. SAA said a highlight of the financial year was the start of a 10-year fleet modernisation program, which includes the purchase of 41 new Airbus aircraft. The new aircraft will be able to carry containerised cargo on SAA's domestic, regional and long haul services, adding to the strong income base. 

Villagers to Gain From Mpumalanga Airport

Villagers near the new R350m Kruger Mpumalanga International Airport in Nelspruit will be watching the jets taking off and landing with more than the usual interest they have a 10% stake in the project, Business Day, Johannesburg reported.
The airport, which is being built by global power and automation technologies group ABB, should be opened in September. A lot of work has already been undertaken to ensure local empowerment.
"As the first greenfields airport in SA for many decades, we had the unique opportunity to incorporate all the modern aspects of sustainability including economic contribution, environmental assessments and corporate social investment," said ABB South Africa Chief Executive, Carlos Poe.
He said the local Mbuyani community, from which a portion of land was acquired for the airport and its 3,1km runway, were at the outset given a 10% share in the airport.
In addition, the local community will receive a specified fee of about R5 for every departing passenger. Poe said further opportunities existed for empowerment partners to own a share of the airport.
Employment during construction, which commenced just more than a year ago, had received special attention, with at least 50% of the 950 construction personnel being sourced from the Mbombela area.
ABB said that local people would also be given preference for the more than 100 permanent positions that it was expected would be created, depending on the growth in airport business.
Meanwhile, where possible, the managers of the project had tried to contract small firms with existing skills for defined portions of the project, to assist in supporting business skills development, the group said.
"The environmental standards met by the airport were stringent," said ABB. "It complied with all necessary legislation and has in some instances surpassed requirements.
"At a cost to the airport, a special filtration system has been implemented to capture wastewater from the runway, cleaning it before it passes to nearby farmland," said ABB. "The airport buildings have been designed aesthetically with thatched roofs and matching natural colours to blend in with the African bushveld experience."
Project manager John Manning said that in one ravine near the runway, a community spring had been preserved. Manning gave the assurance that local people would have unrestricted access. The preservation of the spring was made possible by redesigning and reinforcing the runway embankment at a cost of an additional R3m.
When the airport is operational, ABB plans to begin looking into the corporate social investment aspects of the community.

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BUSINESS & FINANCE

Technology Incubator Opens in Pretoria

An incubation centre for young technology companies has been opened in Pretoria under an ambitious scheme to provide premises and business services and mentoring for entrepreneurs, reports Business Day, Johannesburg.
The Softstart centre is one of several incubation hubs being planned by the Godisa Trust, and backed by the arts, culture, science and technology department, the trade and industry department and the European Union (EU).
The hubs will house innovative, early stage software entrepreneurs and help them build a sustainable business.
The Softstart centre is one of the first incubators it has launched, and is situated on the campus of the Council for Scientific and Industrial Research (CSIR).
To find its first batch of tenants, Softstart is now inviting software entrepreneurs with long-term potential to submit proposals.
Young companies selected for the centre will have access to shared services such as a receptionist, Internet access, conference facilities and rentable equipment such as PCs, printers and projectors. Softstart will also facilitate start-up capital.
"Time is money, especially in the software business," said Softstart CEO Ben Zaaiman. "Anything we can do to help an entrepreneur with a good product has tremendous value," he said.
Time used to set up an office could be better spent developing a product or finding customers, he said, so Softstart would handle those mundane tasks while entrepreneurs focused on their innovations. Many building blocks had to be assembled to create a sustainable business.
"Tenants will need to develop evidence that their business concept is feasible. Proposals will also need to reflect innovation, medium-term earnings potential and the promise of long-term growth.
"We are also looking for proposals that will contribute to the diversity of the Softstart portfolio," said Zaaiman.
The centre is offering different levels of support. One option does not include office space, but training and networking services. Another option gives the start-ups permanent office space, while a third will see Softstart put money into promising ventures to boost their growth.
For entrepreneurs who have not yet turned their ideas into action, Softstart staff will provide mentoring services to help them turn a concept into a business plan.

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ENERGY 

Energy Africa Set to Build On Offshore Success

Oil exploration and production company Energy Africa is set to follow its "phenomenal success" off Equatorial Guinea over the past year by drilling in the same blocks but away from the OkumeOveng complex where the other discoveries have been made, Business Day, Johannesburg reported.
Addressing the annual meeting, chairman, Idris Mansor, said he was confident of further successes, "although of course we cannot expect every well to be a discovery and some will be drilled partly for purposes of geological and seismic information."
The most recent well drilled to test a previously unexplored reservoir system, the F3 well in Block F, was not a commercial success.
However, Mansor said it did encounter a potential oil source rock interval below the primary target.
He said Energy Africa's active development programme would need external funding, with the US$50m limited recourse facility secured during the past financial year to be augmented by another tranche of debt.
Mansor said there was also some disappointment over two appraisal wells drilled, to try to prove the reserves of offshore Namibia's Kudu gas field. Reserves of a minimum size were needed for operating partner Shell to proceed with proposed liquefied natural gas plans.

Eskom bid for electricity concessions

South African-based Eskom have turned out to be the major bidders for two electricity concessions in Uganda. The Utility Reform director, Emmanuel Nyirikindi, opened two bids for Uganda Electricity Generation Company (UEGC) and Uganda Electricity Distribution Company (UEDC) respectively. Eskom emerged the sole bidder for the generation concession (UEGC) and then teamed up with the UK-based CDC Globoleq to form a consortium to bid for the distribution consortium (UEDC). The two bids, which comprised a transaction and financial proposal, were opened July 2. Both concessions (UEGC and UEDC) will run for 20 years, with each being licensed by the Electricity Regulatory Authority (ERA). The two firms are expected to agree on how their businesses are to be coordinated. 

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FOREIGN ECONOMIC RELATIONS

Romania, South Africa ready to strengthen bilateral ties 

Romania's government is willing to bolster its commercial ties with South Africa, according to Senate President, Nicolae Vacaroiu, iafrica.com reported. To do so, Romania will send more trade missions to the African state, the Romanian official was quoted as saying. 
Following an official four-day visit to South Africa, Vacaroiu told reporters that securing ties with South Africa will help Romania forge other investments across the African continent. "Both Romania and South Africa consider that with US$45m two-way annually, our economic relations are not operating to their potential," Vacaroiu noted. "In pursuit of our mutual wish to improve this, we will be developing more trade missions between Romania and South Africa," he added. "South Africa should be the gateway for Romania into Africa. Equally, Romania is South Africa's point of entry into central and southeastern Europe." Vacaroiu spoke with South African President, Thabo Mbeki, during his visit.

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MINERALS & METALS

Avgold Overcomes Start-Up Troubles

Avgold increased its earnings in the June quarter as gold production at its new R2,1bn Target Mine lifted sales, reports Business Day, Johannesburg.
The mine in the Witwatersrand Basin opened in March. While Avgold said there had been some start-up difficulties, gold output from Target, which was added to the income statement starting in May, boosted net earnings to R13,8m from R8,1m recorded in the March quarter.
Headline earnings a share in the final quarter of Avgold's financial year rose to 2c from 1c in the previous quarter as gold production in the period grew to 66472oz from 21649oz in the March quarter. Sales climbed to R171m from R65m.
Targets's new metallurgical plant had start-up problems though, and some ore mined was of a lower grade than expected.
Gerhard Potgieter, an executive director at Avgold, said that in spite of this Target was producing gold at an average price of US$156/oz in May and June. Gold has been trading at US$290/oz to more than 300/oz in the June quarter.
In May and June Target milled 172500 tons, lower than design capacity, as a result of difficulties at the mine's new mill. Ultimately, Avgold plans to build up production at Target with a production goal of 350000/oz a year.
The company is looking at the possibility of expanding its Northern Free State gold operations, and is carrying out exploration drilling on the Paradise property.

Tisco mulls setting up ferro-chrome plant in S Africa 

Tata Iron and Steel Company (TISCO) is considering a proposal to set up a ferro-chrome plant in South Africa entailing an investment in the region of Rs 250 crore and Rs 300 crore, Tisco's Managing Director, B Muthuraman, said recently "We will take the final decision in the next few months".
He recently inaugurated a Rs five crore integrated service facility for cold rolled coils of R S Steel Tech, a sister concern of Ramsaroop and Sons, one of south's leading distributors for Tisco, India times reported.
Muthuraman indicated that Tisco is looking at Kerala-government-owned Titanium company. "We are talking to the Kerala government", he said and indicated that Tisco was open to acquiring steel companies to enhance its capacity.
"We are looking at some more steel. The addition of capacity may not be in Jamshedpur. It may be existing capacity elsewhere. We are seriously and definitely looking for more steel to enhance our capacity", Muthuraman said.
He said Tisco has signed an MoU with the Tamil Nadu government to carry out a techno-commercial feasibility study on extracting titanium which is in the form of mineral sand. The study would cost Rs 15 crore and would be completed by next year-end, Muthuraman added. 

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