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  SOUTH AFRICA

REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki

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Background:
The Union of South Africa that followed the Boer War (1899-1902) operated under a policy of apartheid - the separate development of the races. The 1990's brought an end to apartheid politically and ushered in black majority rule. Southern Africa as a whole is a very different place than it was two decades ago. Old single-party dictatorships and white minority government have given way to nascent democratic governments with varying degrees of success and maturity. On 10 May 1994, Nelson Mandela took office as the first president of the 'new' South Africa'. His inauguration marked the end of a long struggle to achieve a non-racial political regime and the beginning of an equally difficult and protracted process of state and nation building that is intended to lead eventually to the realisation of a stable democracy. 
The 1990's can be viewed as a success. The diminution of political violence, the relatively peaceful transfer of power, the continuation of the transformation process, albeit painfully slow, can be regarded with pride and promise. The retirement of Mandela as president in 1999 saw the second round of successful majority-rule elections. The succession process was amazingly smooth. Thabo Mbeki was officially named to ANC's candidate for president back in 1997. Mbeki may lack Mandela's charisma, and his capacity for fairness and sensitivity, but his style is different and more efficient and businesslike. Mbeki will remain unchallenged as president in 2002, but the ANC remains deeply divided.
South Africa is the most developed country in southern Africa, and the regional leader economically and politically. But South Africa (and every other country in the region) has its own problems. The political transition from a race-based polity to one based on majority rule is almost complete, yet subject to tensions. Changes have occurred with relatively little violence. Aside from the former Soviet-bloc countries, no nation has experienced greater change than South Africa over the past decade. The non-racial democracy is still in its infancy and still requires nurture and development. 
South Africa has the most sophisticated economy in black Africa. Unlike other African countries its manufacturing sector is relatively advanced. It is the largest sector of the economy, contributing about a quarter of the GDP. Agriculture is also relatively diversified, producing wine, citrus products and wool for export and maize for internal consumption. Agriculture accounts for about 4 percent of the GDP. The population is growing fast at 2.6% pa. In 1999 it totalled 45 million - 76% African, 13% white, 8.5% coloured, and 2.5% Asian. The GNP per head is over $3000 (compared to $300 in Nigeria) but this figure masks inequitable distribution of wealth between the races.
In Southern Africa as a whole, South Africa accounts for less than one-third of the population but for more than 75 percent of the GDP. Its economy is 3.4 times larger than the combined economies of the other members of the Southern African Development Community - SADC (Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, Zimbabwe). This suggests that South Africa occupies a position in Africa similar to the United States within the global economy. While the United States accounts for 26 percent of global GDP, South Africa accounts for about 44 percent of Africa's GDP. South Africa's economic outreach into and beyond the region grew substantially after the ending of apartheid, and shows every sign of continuing to do so. Many of South Africa's largest conglomerates, banks, and financial institutions have found openings for investment in some twenty countries in Africa. The countries of greatest immediate interest are Angola because of its oil and mineral resources, and the Democratic Republic of the Congo with its huge potential for mining development. 

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Update No: 10 - (05/11/02)

GDP Growth
South Africa's economy has proved resilient in the wake of the global slowdown, and gross domestic product growth this year is expected to hit 2,6% compared with previous estimates of 2,3%. Finance Minister Trevor Manuel, tabling. his medium-term expenditure framework in Parliament, said that the better growth performance had been underpinned by healthy increases in capital formation and private consumption expenditure. "In particular, we are beginning to see important signs of investment in the economy, with real gross capital formation rising by 6% in the first quarter, and by more than 7% in the second, on an annualised basis, with both private and public sectors contributing." He said that the better growth performance, coming at a time when there was uncertainty for the global economy, was good news and also a testimony to the resilience of South Africa's economy. The rand's 37% depreciation has been one of the catalysts of the better than expected economic performance, as local companies increased investment expenditure to meet increased demand for the nation's exports. According to data released with the medium-term statement October 29, South Africa's merchandise exports rose by 3,9% in the first half of this year, as against the 1,6% growth rate recorded last year. The depreciation of the rand also encouraged domestic production in response to higher import prices. Manuel said he expected growth to maintain the upward trend in the medium term with rates of 3,5%, 3,7% and 3,9% over the next three years. Economists think healthy balance of payments will underpin the rand's relative strength this year, in which the currency regained almost 20% of the 37% lost against the dollar last year.

Rand to Remain Strong
The rand is expected to maintain its resilience for the rest of this year, according to research house Merrill Lynch. In the wake of the Brazilian election, the rand moved up by more than 0,6% to R10.04 against the dollar October 28, its strongest level since late July. In a research report analysing the effect of the rand on inflation, Merrill Lynch chief economist Jos Gerson said the group expected the rand to end next year at about R9.50 to the dollar. "We expect the rand's resilience to persist despite the global uncertainties. It remains fundamentally undervalued," the report said. Merrill Lynch bases its optimistic outlook on a number of contingencies. These include the likelihood that the rand will narrow its producer pricing parity with the Australian dollar. Also, when the global recovery takes off, the Australian dollar is likely to gain against a basket of major currencies, dragging the rand with it. Another factor cited by Gerson is that the US dollar may continue to weaken against the euro and sterling, which is likely to strengthen the rand and Australian dollar in dollar terms. The Brazilian election, which was concluded October 29, is good news for the rand. The new president, former union leader Luiz Inacio Lula da Silva, committed the country to International Monetary Fund policies and meeting its debt obligations. South Africa is grouped with Brazil in the emerging market portfolio, and stands to gain from greater stability in the South American country.

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AVIATION

Maintenance contract set up

Local carrier British Airways-Comair has forged a R1bn maintenance contract with SA Airways (SAA), a move which will see its key competitor maintaining its planes for the next five years. The deal, a renewal of an earlier contract, is a boost for SAA's technical division, the largest maintenance facility in Africa. It will maintain BA-Comair's 10 B737 aircraft. 
SAA Technical CEO, Vince Raseroka, said October 29th that the fact that SAA's competitors entrusted the safety of their aircraft to the airline's hands was "a great achievement". Other SAA Technical customers include Air France, Air Seychelles, Air Zimbabwe, Alitalia, Hydro Air, Lufthansa, SAA and TAAG Angola. 
The BA-Comair contract comes in the wake of SAA's decision to buy 41 Airbus aircraft, the first of which is scheduled to arrive by the end of the year. Deliveries of the 41 new aircraft will continue until 2010. Of the new aircraft, 38 are orders placed with Airbus and three will be acquired through international lease finance corporations. Airbus will provide pilot, cabin crew and technical staff training. Raseroka said SAA Technical would seek to ensure it continued its maintenance track record once the new Airbus aircraft arrived. "We are well on track with the training of our technical staff to do maintenance work on these new aircraft, with 40 technical staff already trained in Toulouse, France." 

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AUTOMOBILES 

Toyota SA to expand its export markets

Toyota SA has revised its export plans, saying on October 24th that it would more than double its production capacity to 200,000 units a year within three years. The increase, following a step-up to 150,000 units within five years announced in July, means that Toyota will make up half the units produced by all other South African vehicle manufacturers combined. 
Toyota's ability to develop export markets is a result of Toyota Japan gaining control of the local company in a R1bn deal earlier this year. The local operation now forms part of the Japanese parent's worldwide supply network, while the Japanese company will also provide the bulk of funds needed to expand local production. The growth plans, announced by Toyota SA chairman Bert Wessels, will provide a boon to South Africa's economy. In addition, component suppliers stand to benefit greatly, because the manufacturer's export strategy will include large-scale localisation of vehicle components. While exports to Europe were not official yet, Wessels appeared confident yesterday that Toyota SA would soon start exporting to that market. The export strategy is also aimed at achieving a 25% share of the stagnant SA market in the short to medium term.

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ENERGY

South Africans urged to rally behind PetroSA

President Thabo Mbeki has urged South Africans to rally behind the country's newly formed petroleum corporation, the Petroleum Oil and Gas Corporation of South Africa (PetroSA), saying its effectiveness will position it better to contribute positively towards the economy. Speaking at the corporation's launch in Cape Town October 15, President Mbeki said an effective PetroSA would ensure that the country made crucial savings and earned necessary revenues, consequently contributing towards poverty eradication and improving living conditions for all. 
"Accordingly, it is also important that we do whatever we can to ensure that we increase the necessary capacity within the PetroSA so that this company is able to continue, as a matter of urgency, to explore and develop South Africa's natural resources of oil and gas," he said. He added that it was the duty and responsibility of all to achieve the targets PetroSA had set itself, including the provision of low cost energy both domestically and in the southern African Region, as well as increasing the capacity of the industry to create employment. 
Furthermore, President Mbeki noted that "Although our production of oil and energy is still small, it is encouraging to see that we are producing a range of high quality products that are also environmentally friendly and conform to the demanding standards of the international markets."

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FOREIGN ECONOMIC RELATIONS

Presidential Binational Commission held in Algiers

President Thabo Mbeki lead a South African delegation to the 3rd session of the South Africa - Algeria Binational Commission (BNC), in Algiers, Algeria on October 22. Speaking to journalists in Pretoria, foreign affairs deputy minister Aziz Pahad said this was one of only two Presidential Binational Commissions South Africa had entered into. He said it attested to the excellent bilateral relations existing between the two countries. "This relationship has its roots in a common world view, informed by shared values and a commitment to the development of the African continent," he said. A raft of international agreements already exists between South Africa and Algeria, establishing a solid legal framework for the two countries interaction. 
Mr Pahad said since the inception of the BNC in 2000, the relationship between the two countries grew exponentially. Algeria is now South Africa's second largest export market in North Africa. He said significant potential for engagement existed in areas such as energy and mining, infrastructure development, water treatment and management, information technology and communications. Algeria has historically played a strong leadership role in international organisations, within the Organization of African Union (OAU) and international organisations such as the United Nations, the Non-Aligned Movement as well as the G-77. As a founding member of the New Partnership for Africa's Development (Nepad), Algeria continues to give active support to the continent's economic recovery plan.

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MINERALS & METALS 

Kumba boosts profits

Kumba Resources reported a 74% increase year on year in operating profit for the three months to the end of September, October 28. September quarter sales climbed to R1.2bn from R783m in the same quarter last year. Iron ore, Kumba's biggest and most profitable division, raised its contribution to total earnings in the period from R191m to R299m. Production was little changed, with iron ore output of 6,98-million tons compared with 6.97m in the same quarter last year. "Net operating profit (from iron ore) rose by 56%, reflecting the higher export volumes and weaker exchange rates which were partially offset by lower iron ore prices and higher dollar denominated distribution costs," said the company. 
There is some concern that the steel market, iron ore is used in steel making, may be slowing down in Europe and the US. However, Kumba is confident that demand in China where it exports a significant amount of iron ore will hold up. "Globally China is the single bright spot," said Allan Cooke, a mining analyst at Rice Rinaldi Securities. Kumba's coal division recorded a 42% increase in net operating profit during the period and although production was slightly down the company said the figure was insignificant. The amount of coal produced during the period dropped to 4.72-million tons from 4.78-million tons. Kumba also has some of the lowest cost zinc operations in the world. Going forward, though, this could be curbed if the rand continued to strengthen. Kumba's heavy minerals business reported sales of R38m up from R8m in the same quarter last year.

New Gold Mine

Avgold, the South African mid-tier gold producer, is to study the feasibility of the construction of a new mine in the Northern Free State to tap into a resource of more than 70 million ounces. Avgold has long trumpeted the growth possibilities of the so-called Paradise ore body to the north of Target, which started its production ramp-up in November last year. The new mine comprising the Paradise, Siberia and Mariasdal zones would together have an indicated resource of 21.6 million ounces and an inferred resource of 48.2 million ounces. The prospect of a new mine in the Northern Free State could be an appetising one for major gold producers scrabbling for additional production ounces and, more importantly, reserves. Avgold chairman Rick Menell has stated several times on the record that Avgold would take a partner on board to share the development financing risk for the project, which will have long lead times and massive capital requirements.

Anglo to go ahead with Chilean copper project

Anglo American is to go ahead with a 654m copper project at its Compaía Minera Doa Inés de Collahuasi (Collahuasi) joint venture in Chile. The board of Collahuasi, in which Anglo American has a 44% stake, Falconbridge with another 44% and a Japanese consortium, lead by Mitsui with 12%, gave the go ahead for the construction of a new grinding circuit at its Ujina concentrator as part of the Ujina to Rosario transition project. 
When the project is completed in June 2004 capacity at the Collahuasi's concentrator will rise to 110,000 tons a day from the current 60,000 tons. Anglo said that the concentrator upgrade would not add to copper production but allow the joint venture to hold the Collahuasi mine production at about current levels of 450,000 tons a year. Copper prices have regained some ground this year since hitting a 14-yearlow late last year but analysts have said the recovery in the price has not been as great or come as quickly as some had hoped for at the start of the year. It is also expected that Anglo's 1.3bn deal to buy Chilean copper mine Minera Disputada de Las Condes (Disputada) from Exxon Mobil, announced earlier this year, should be finalised soon. Completion of the transaction had been on hold while Exxon sorted out a disagreement over an option which gave Chile's state-owned mining company, Enami, the right to buy a stake in Disputada and settled a tax issue with the Chilean government.

State-owned diamond mine for sale

The four-year process to privatise at least 51 percent of Alexkor, South Africa's state-owned diamond producer, will reach its final milestone in November when closing bids to buy part of the mine are lodged. Gopalang Makokwe, an executive director of the Johannesburg-based black empowerment company New Diamond Corporation, told Mineweb his company would be one of only five which had pre-qualified to bid for the mine; eight groups had initially shown interest. Makokwe said final offers have to be lodged with government's advisers, Standard Corporate and Merchant Bank by 8 November, after which the state would announce the winner. South Africa's minister of public enterprises, Jeff Radebe, said in parliament October 25 that 'five or six international operators' had expressed interest in the privatisation, which he hoped would be concluded before the end of January. He added that the government would reserve 10 percent of the equity in Alexkor for local communities. The New Diamond Corporation (NDC) is certainly one of the top contenders in the bid having previously been the lead member of the Nabera consortium that managed the mine under contract to the state until mid-2001. The mine has not been financially viable for some time and Makokwe, who has first hand knowledge of Alexkor's operations, would not be drawn on the reasons for NDC's bid amid Alexkor's obviously deteriorating condition. "We see great potential there," was all he would offer. He is clearly not alone in his eagerness to gain control of Alexkor, which besides being South Africa's second largest producer of alluvial diamonds has extensive marine diamond resources which remain relatively untouched.

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TELECOMMUNICATIONS

Regulation and competition top of the agenda

Developing countries need foreign investment to finance the building of infrastructure and the only way to achieve this is through a "strong, fair and independent regulatory body", former US federal communications commissioner Andrew Barrett said at the opening of the Tel.Com Africa 2002 conference in Johannesburg on October 23rd. Regulation and competition in the telecommunications sector were top of the agenda at the opening session, which included strong calls for the immediate opening up of the industry, as well as for developing telecommunications projects that meet the unique needs of developing countries. Sutherland said too many countries had followed the "bad example" set by countries like the UK that have established a duopoly in the sector with resultant high costs and low service delivery. Barrett stressed the overriding importance of the relevant investors to the development of telecommunications in developing countries. Sutherland said international best practice indicated it was best to open up markets as soon as possible and not allow delays in the process. "The real catch is there is too little time to make mistakes because other people are ahead of us already and others are attracting investors."

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