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Update No: 02

In his State of the Nation address February 8, President Thabo Mbeki said that economy was expected to register more than two percent growth for 2001 despite a global slow down. He said interest rates, though still high, were lower than they had been for many years and the same could be said for inflation. The address made all the right noises, dwelled on the positive and was well received in the market as it touched on most of the crucial aspects of the economy. However, it still fell short of sufficiently addressing the biggest risk facing the economy. He did spend a little more time on AIDS than he has in the past, going as far as acknowledging that it is a problem, but is still not prepared to link it with HIV.
The Aids issue will remain a sticking point for Mbeki. Asking why he was "willing to wreck his presidency over Aids", Newsweek magazine said some believed it was for the sake of his economic policy, not wishing to break the budget for costly Aids treatment programmes. However, costs have plummeted since the big drug companies caved in to popular outrage over their pricing policies in the Third World. Political parties disagree on whether Mbeki should change the country's macroeconomic policy, but are unanimous in calling for urgent and decisive leadership on the issue of HIV/AIDS. They said Mbeki should clear up any lingering confusion about whether HIV causes AIDS. United Democratic Movement leader Bantu Holomisa warned that Mbeki's continued denial that HIV causes AIDS, will lead to South Africans giving him a "dignified exit" from office. An admission that the disease was seriously affecting the country and its economy would enable government departments to introduce programmes to fight the scourge. Mbeki's stance is also damaging South Africa's image internationally. He is under considerable pressure from health practitioners, civil society, the media and the international community to acknowledge the damage caused by AIDS in the country, and to allow universal access to anti-AIDS drugs to prevent mother-to-child transmission of the HIV virus.
On February 20 the 2002 budget was unveiled by Finance Minister Trevor Manuel, to a mixed response. His budget speech was hailed by economists as a step in the right direction. They concur that it is aimed at poverty eradication, economic growth, infrastructure development and job creation. Manuel gave the economy a R15,2bn cash injection in the form of tax relief for individual taxpayers. Most see it as a positive step although there are reservations. Manuel said in his budget speech that the country's economic growth performance has been remarkable despite rapid changes in the global economy. However, employment creation remained weak and efforts to accelerate investment and training and promote small business development had not yet turned the employment trend around. The minister said economic growth for 2002 was expected to be 2-3 percent, rising to 3,3 percent in 2003. While economists generally supported Manuel, his trade union critics argued he had not done enough, claiming that expenditure should have been higher and that tax cuts were biased towards middle- to upper-income earners. Cuts ranged from 25% for the lower tax brackets to 7% for those in the highest and a cut in the maximum marginal rate of personal income tax from 42% to 40%. Imports fell 25,2% from November to December, while exports were down 3,6%. Other matters of concern included inadequate education allocation and health expenditure. Labour unions welcomed the R15-billion income tax cuts, but were concerned that those in the upper income brackets once again benefited more than was necessary. The Congress of South African Trade Unions was disappointed. "Overall, the budget reflects the lack of a clear strategy to create jobs and ensure economic growth," it said. National expenditure rises 9,6% to R287.9bn over the revised estimate of R262.6bn and revenue increases by 6,7% to R265.2bn, from R248,4bn.
Little was said on the sale of state assets, and the government has been conservative in its estimate of privatisation proceeds for 2002/03, budgeting for only R12bn. Telkom will be the major privatisation exercise. Significant additional sums are allocated for the fight against HIV/AIDS. In addition to R4bn currently spent by provincial health departments, funding for prevention and community care programmes and hospital treatment will total R1bn. Manuel said this included a "progressive roll-out of the programme to prevent mother-to-child transmission". On the financing of the budget, Manuel said the R22.7bn shortfall would be funded by privatisation proceeds, giving a net borrowing requirement of R12.2bn, of which R4bn would be raised in short-term loans. Net foreign borrowing to the value of R16.3bn is proposed. This will allow domestic long-term debt to be reduced by about R11bn.
Shares on the JSE Securities Exchange SA (JSE) surged to record highs in mid-February, powered by the weak rand and commodities stocks. The rand responded favourably to the budget, gaining more than 20-cents on the day, due to dealers buying in anticipation of improved growth stimulated by the budget. The rand ended February at around R11.5 against the dollar and traders are blaming lingering concerns about violence in Zimbabwe ahead of next month's presidential elections. Having suffered a sharp depreciation of more than 47 percent since mid last year the rand appears to have stabilised but the latest issue of the Economist predicts that the currency will weaken to close to R14 against the US dollar this time next year. The forecasts for the next three months stand at R12.64. 
Gold prices rose sharply on the financial markets, rising above $300 an ounce for the first time in two years at the beginning of February. As the month draws to a close the price sits just below the 300 mark. Gold, platinum and resources stocks were again the flavour of the month on the JSE South Africa, helped by strong precious metals prices. The high price may be a sign that investors have lost confidence in the real value of shares as a result of the scandal over accounting practices at the bankrupt energy group Enron. There has also been a surge in demand in Japan, where investing in the metal is seen as a potentially safer option than putting money in the country's ailing banks. The current opinion appears to be that gold is, once again, a safe haven. 
Preliminary estimates by Statistics SA show that South Africa's growth in 2001 slipped sharply as the global economic slowdown hit home. Africa's powerhouse economy grew just 2.2% in 2001 - bang in line with predictions made in the budget earlier in February but down from 3.4% the previous year. While this is far less than the growth recorded in 2000, it is in line with market and government expectations, and beats the economic performance of most of the world's developed nations. GDP grew by 2.5 percent on a quarter-on-quarter, seasonally adjusted and annualised basis between the third and fourth quarters. This compared with the growth rates of 1.2 percent, 1.8 percent and 1.5 percent recorded in the third, second and first quarters respectively. The figures show that troubles in the Northern Hemisphere that followed 11 September had little effect on South Africa. Mr Manuel predicts growth this year will barely increase, and is likely to be 2.3%. In 2003, though, his budget sees growth in GDP of 3.3%, with an expansion of 3.6% in 2004. South Africa's economic growth may have been slow last year and nowhere near the levels needed to deal with its social problems, but last year's performance was understandable as both developed and developing economies felt the pain of the global slowdown. Standard Bank economists said that South Africa's performance was above average, and that after trailing many emerging markets, South Africa was now outperforming Hong Kong, Singapore, Taiwan and Mexico in terms of growth.
President Mbeki has launched a campaign to tackle what he calls "negative perceptions" about South Africa amongst foreign investors. South Africa desperately needs increased foreign investment and has been trying since the end of apartheid rule to attract significant investment to stimulate economic growth and create jobs. After the February 24 meeting with his International Investment Council (IIC), Mr Mbeki said economic fundamentals and the quality of political and corporate governance should attract investment. However there are concerns about the handling of AIDS and Zimbabwe. His stance on Zimbabwe and opposition to European and US sanctions against President Robert Mugabe has been blamed for lack of investor confidence. Mbeki has reiterated his confidence that a free and fair election will take place in Zimbabwe despite the prevailing violence in that country. He expressed his belief that a free and fair election would take place just as it did with South Africa's first democratic election, despite the death of 1000 people in the two months before the South African poll. He said the government reaffirms its commitment to assisting the people of Zimbabwe to speak through the ballot box. The investment panel, which meets twice a year, was set up by Mbeki after he became president in 1999. This was the council's third meeting since it was set up to advise him on improving investment flows into South Africa. The IIC consists of top international business and finance leaders. Addressing the media conference, Mbeki said South Africa did not communicate a positive enough image to the world. Frank Savage, head of United States-based Alliance Capital, said it was important for outsiders to realise South Africa was not Zimbabwe.
South Africa and the US had initial talks in February to pave the way for the possible launch of negotiations on the creation of a free-trade agreement. Top US trade official Robert Zoellick, on a five-day visit to South Africa, met President Mbeki on February 17th and began talks with Trade and Industry Minister Alec Erwin. Zoellick, (who reports directly to President George Bush), is the first US trade representative to visit South Africa. The offer of free-trade talks is being made to members of the Southern African Customs Union, which includes South Africa, Botswana, Lesotho, Namibia and Swaziland. One of the challenges of any negotiation would be finding a way to secure an agreement to accommodate the wide disparities between the countries in the union. At a meeting between trade representatives of the Southern African Development Community (SADC) and Zoellick on February 16th, Malawi's minister of commerce and industry suggested that there might be wider regional interest in an arrangement like the North American Free Trade Agreement (Nafta). At the moment, the US has free-trade agreements with Canada and Mexico under Nafta, as well as with Israel and Jordan.

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AVIATION

SAA Reconsiders Abuja Deal

National carrier SA Airways (SAA) may be forced to halt the recently acquired route between Johannesburg, Lagos and New York unless it can renegotiate a money-losing agreement with Nigeria Airways, Business Day has reported.
The route was launched in February last year by former SAA CEO Coleman Andrews, and was heralded as a victory at the time.
It connected Lagos with New York for the first time in eight years, and allowed SAA and Nigeria Airways to establish a strong hub in Lagos.
Negotiations between the two airlines on extending the agreement will begin tomorrow, with SAA believed to be seeking significant changes to the pact in a bid to make it profitable. The airline is understood to have lost about R54m in 2001/02 on the route.
SAA's views on the deal are in sharp contrast to those of Nigeria Airways. It claimed recently that the initial one-year agreement had been extended because a two-month notice period was needed before cancellation, and this had not been given.
SAA spokesman Rich Mkhondo said airline officials would meet with Nigeria Airways tomorrow to discuss the agreement. He said the route between Johannesburg and Lagos was lucrative, but the leg between Lagos and New York was not doing as well.
While the routing was considered cumbersome, poor load factors had become particularly noticeable in the wake of the September 11 terrorist attack on the US.
SAA is also understood to be holding talks with other airlines on the continent about flights to west Africa, notably with Air Senegal. Flights to Dakar in Senegal could replace the Nigerian route if the deal with Nigeria Airways is cancelled.
In terms of the agreement between SAA and Nigeria Airways, SAA agreed to allocate 109 seats out of the 330 seats of the Boeing 747-300 being used on the route.
The flights are operated by SAA under the command of SAA flight deck crew. The joint onboard service is provided by a SAA and Nigerian Airways' cabin crew. One industry official said the route was expensive for SAA to maintain but cost Nigeria Airways little. SAA paid for the crew, food, logistics and fuel.
SAA is understood to be planning to enter negotiations tomorrow with a view to changing the terms of the agreement.
This could involve reducing the number of seats allocated to Nigeria Airways; considering other ways to generate revenue from the route; or canceling the New York leg of the trip.
Nigeria Airways MD Jonathan Jiya told Nigeria's Guardian newspaper last week that it could be in the best interest of the airline to operate the New York part of the trip with its own aircraft.
Nigeria Airways management was said to be favourably disposed to the continuation of the agreement for the time being.
There are three flights a week between Johannesburg, Lagos and New York. SAA also flies direct to New York four times a week, and these flights are not affected by the agreement with Nigeria Airways.

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CONSTRUCTION

R42m for Mdantsane facelift 

The Government's massive R42 million injection into Mdantsane's urban renewal over the next three financial years is set to give the ageing and dusty township a fresh look, Zama Feni eported for Dispatch Online. 
Delivering his opening address at Buffalo City's first council meeting, mayor Sindisile Maclean said an amount of R13m would be allocated to the project for the 2002/2003 financial year. 
"We are grateful to our government that the Eastern Cape has received 45 per cent of the total roll-out for the Integrated Sustainable Rural Development and Urban Renewal Programmes," he said. 
According to the Mdantsane urban renewal report tabled at the council meeting, development and planning director Craig Sam said the key aim of the plan was the improvement of operation, efficiency and economic potential of South African townships, where the severe negative impact of under-development during the apartheid era is still manifest. 
"This is viewed as the means through which the economic competitiveness and viability of dormant towns such as Mdantsane may be addressed and improved," he said. 
Sam said Buffalo City had identified key development sectors as focus areas of intervention. They are economic development, infrastructure and housing. 
These are contained in a business plan which was submitted to the Provincial and Local Government Department last year. 
Sam's report highlighted the provision of roads, infrastructure network, industrial investment, small and informal business as the main areas of concern. 
Also on the proposed list are the provision of community halls, streetlights, rehabilitation of the Highway Taxi rank, clinics, resource facilities, recreation parks and several other amenities to be constructed over the three years. 
"We do not doubt that social progress in our city will assist in reducing our levels of crime," Maclean said. 
Sam said Mdantsane had a population of between 240000 and 270000, representing almost 30 percent of the Buffalo City area, with about a 42 percent unemployment rate.

E-Cape housing dept spent only a third of budget 

The Eastern Cape housing department has spent just 33% of its R540-million budget and has just one month left in the current financial year to utilising the remaining R360-million, the Daily Mail & Guardian has reported.
Housing representative, Mbulelo Linda, said the "mechanisms" for spending "most" of the balance were in place through the Rapid Land Development Programme (RLDP).
"We are confident that if we have to apply for a rollover (of funds to the next financial year) it will be minimal and well within the required five percent (of the total housing budget)."
Linda said spending was delayed by the conveyancing stage which dealt with the transfer of property. 
Housing MEC, Gugile Nkwinti, said he had raised the problem with the national Housing Department. He recently complained that the distribution of land to local authorities was being radically slowed down by bureaucratic delays. This was worsened by conveyancing problems and the Cape Town deeds head office, which did not prioritise Eastern Cape land transfers. 
He called for the strengthening of the provincial deeds offices in Umtata and King William's Town so they serve the province promptly. 
Another problem slowing down the housing delivery process was the lack of administrative and financial capacity at municipal level. 
Linda said a total of 23 787 serviced sites were developed with the RLDP and emerging contractors were currently building houses on these sites.

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FINANCIAL NEWS

Nomzamo economy takes off 

Business is booming in the informal settlement of Nomzamo in Somerset West where shops and small businesses are thriving from a rewarding partnership with the City of Cape Town, Cape Business News has reported. 
The community is hard at work on a project to build supermarket premises to complement the 13 shops and six container shops already up and running. 
All the work is being done by local builders, carpenters and bricklayers who formed the Nomzamo Builders Trust three years ago. With a total financial contribution of R1,7 million from the City of Cape Town for the four stages of the project, the Trust is going from strength to strength. 
The City has contributed R912 000 for the fourth and last stage - the building of the 225 square metres of supermarket premises - and the community is optimistic that the anchor tenant will be a well-known name in small supermarkets. There is also provision for an open trading area in the same complex. 
The Post Office and Eskom have indicated that they will be taking space in some of the hives, and an opportunity exists for a bank. 
Councillor Kent Morkel, the City of Cape Town's Executive Councillor for Economic Development, Tourism and Property Management, says the key to Nomzamo's success is the spirit of partnership that has evolved over the years with the Council. 
"The Council recognises that future economic development and job creation largely depends on encouraging entrepreneurship in all our communities," he said. 
"The Council identifies those projects that have the potential to teach people to help themselves, and then we help with training, infrastructure and funding where possible. 
"The spirit of entrepreneurship is thriving in Nomzamo and the community is flourishing because of it," he said. 

Trade levels expected to ease 

January's foreign merchandise trade was likely to have been affected somewhat by the clearing of backlogs following industrial action at South Africa's ports late last year, according to SCMB Securities, Daily Mail & Guardian has reported. 
Previewing the release of South Africa's external trade balance in SCMB Securities said that in December, imports fell by 25% largely as a result of operational constraints at the ports. January's figures would probably reflect some "correction" and one was likely to see imports recover substantially. "It would therefore be prudent not to read too much into the monthly data. "However, more longer-term trends indicate that exports and imports are easing, a consequence of the economic slowdown in SA's major export markets and the rand's weakness. "These trends will probably be sustained until late into the second quarter."

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TOURISM

Hemingways Hotel opens its doors 

The Hemingways Hotel, a Tsogo Sun Development which forms part of the R222million Hemingways Casino and entertainment development here, has been officially opened, Dispatch Online has reported. 
The hotel, which has a sub-tropical appearance that recalls a tranquil island lifestyle, will predominantly be a corporate hotel providing business travellers with an assurance of excellence. 
Hotel general manager, Steve Chimana, said the accommodation comprised 73 rooms including three executive rooms, two suites and one presidential suite. 
The facilities include a fitness centre and outdoor swimming pool. 

Pretoria, Paris form tourism partnership 

South Africa's Environmental Affairs and Tourism Minister, Mr Mohammed Valli Moosa, and the Minister of Equipment, Transport and Housing of the French Republic, Mr Jean-Claude Gayssot, have signed an administrative arrangement to develop co-operation in Tourism and encourage investment in the sector, a press release from GCIS has stated. 
The parties, who signed the arrangement in Pretoria on 26th February, will co-ordinate their efforts for the sustainable promotion and development of the tourism industry, and will give special attention to the development and expansion of tourism relations between South Africa and France. 
The co-operation will include exchange of information and expertise by professionals and experts from the two countries. Among the exchange programmes will be the training of South African tour guides in the French language. 
Furthermore, the two governments will actively encourage the establishment of relations between their tourism industries in order to contribute to the increase of the tourism traffic between the two countries. 
Speaking before the signing ceremony, Minister Moosa said France was one of the greatest tourist destinations of the world, adding that a partnership with that country stood to greatly benefit South Africa's tourism industry.

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TRANSPORT

One rail service mooted for SA 

A task team investigating the restructuring of Spoornet has recommended all South Africa's rail operators be combined into one institution, Public Enterprises Minister, Jeff Radebe, announced pm 27th February, Dispatch Online has reported.
Briefing Parliament's public enterprise committees, he said this would be state-owned and have its passenger operation subsidised, as was the practice in most countries in the world. 
The restructuring would see about 8000 retrenchments - out of the current 34000-strong workforce - in the period up to 2006. 
In a joint statement with the three trade unions recognised by Spoornet, issued after the briefing, Radebe said the task team, comprising the public enterprises and transport departments and the unions, had been formed early last year. 
Members of Spoornet's management had been co-opted and a technical working group formed. 
Radebe said the government and labour had agreed on the task team's recommendations setting out a final model for Spoornet's restructuring. 
The parties had agreed consideration should be given to combining the Shosholoza line, Metro Rail and South African Rail Commuter Corporation into one operation. 
They had also agreed on establishing a two-tier system of management for the low-density lines.

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