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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: 08 - (30/08/02)

Earth Summit Johannesburg
South African President, Thabo Mbeki, formally opened the World Summit for Sustainable Development (WSSD) August 26, amid fierce debate among the 189 participating countries over the role of multinational companies in delivering aid. In his opening speech, Mbeki who is chairman of the summit referred, as has been widely reported, to the unsustainable nature of a society "characterised by islands of wealth, surrounded by a sea of poverty." There is strong conviction to tackle rules of world trade that discriminate against the poor. Government delegations are coming under increasingly strong pressure from environmental organisations to reach agreement on the key issues under discussion at the World Summit. Friends of the Earth International is among the most critical of the NGOs, accusing the US, Canada and Australia, particularly, of standing in the way of international agreements. 
As thousands of delegates converge on Johannesburg for the WSSD, 13 million people face severe food shortages and famine across Southern Africa. This crisis has many causes. Climate, bad governance, HIV/AIDS, debt, and collapsing public services have all contributed. One major cause is the failure of World Bank and IMF designed agricultural reforms to deliver agricultural growth and food security. For 15 years the World Bank and IMF have promoted agricultural liberalization in poor countries. The 'one size fits all' liberalization policies have exacerbated the exclusion of the poorest from the market. The ability of governments to tackle the crisis is further undermined by crippling debt repayments to the World Bank, IMF and rich countries. Many of the world leaders meeting in Johannesburg share responsibilities for these policies. Western governments, especially EU and US, maintain massive subsidies to their own farmers, in a display of breathtaking double standards in every respect, except-that is how democratic politics currently works, to first look after their own taxpayers.
The Group of 77 (G77) developing countries will fight to secure substantial new trade and financing for development agreements at the WSSD. These are also key demands of the thousands of non-governmental organisations and community activists at the summit. The G77 want wealthy countries to stop subsidising their farmers. It is estimated that the European Union (EU) gives its farmers about US$1 billion a day. Because the subsidies help the European farmers to cover their costs, their goods are more competitive on world markets, and they effectively squeeze out products from emerging economies. However, at World Trade Organisation (WTO) talks in Doha, late last year, the Group of Seven (G7) wealthy countries agreed to start talking about phasing out their subsidies. These talks are carrying on at the moment and the G7 are not likely to make any compromises on these issues at the WSSD - preferring to keep talks about trade and subsidies in the WTO. 

Foreign Investment
Foreign investors are becoming increasingly nervous over recent moves to transform the financial services sector. The investment community is concerned about the mining bill, the empowerment charter and the Community Reinvestment Act. In 2001, South Africa's private equity market showed a marginal increase in funds under management, a decline in the level of funds raised and investments made, and only a slight increase in investment disposals, according to global business adviser KPMG and the Southern African Venture Capital and Private Equity Association, in their third private equity survey. Significant growth in private equity in other emerging markets, together with the depreciation of the rand, has resulted in the local industry dropping out of the world's top 20 private equity rankings. The poor growth in the overall private equity market was a direct result of the volatility in economic markets, as well as the events of September 11 last year. Popular investment sectors continue to be services and information technology, with telecommunications showing a marked increase compared to 2000.

Banking
Justice Minister Penuell Maduna has voiced concern over relationships independent company liquidators have formed with major banking groups, which are often among the largest creditors of a company that is being wound-up. In some instances, liquidators, who are required to be impartial, have worked with the banks prior to being appointed as liquidators on a case. There are also four banking groups in South Africa with stakes in liquidation practices. Maduna said an investigation was under way to probe the link between liquidators and banks where the banks were the major creditors. The recent high-profile case of the liquidation of Retail Apparel Group (Rag) in which one of the liquidators, Les Matuson, prepared a report for the banks and majority shareholders more than a month before the group went into liquidation launched the issue into the spotlight. The report, written by Matuson's firm, Credit Management Solutions (CMS), for certain shareholders, calculated a possible liquidation dividend should Rag be wound up. The report was commissioned about six weeks before Rag was placed in liquidation. After Rag was placed in liquidation, Matuson was appointed as one of the four liquidators at the request of the banks, having signed a declaration of non-interest in the matter. One of RAG's liquidators, Mark Lynn, said that the practice of banks holding a stake in liquidation firms was widespread. He said that Standard Bank, Nedcor Bank, Investec Bank and the failed Saambou Bank all had interests in liquidation practices. Standard Bank held 30% of Matuson's CMS, for example. Lynn said that no opportunity existed for a liquidator to benefit any one creditor over another.

HIV/AIDS
Coca-Cola is to be targeted in what appears to be the first of a series of companies singled out by AIDS activists who have begun a campaign to put pressure on multinationals to provide antiretroviral medicines to their HIV positive employees. The newly formed Pan-African HIV/AIDS Treatment Access Movement said last night that AIDS activists have called for a global day of action on October 17 against Coca-Cola, which they describe as Africa's largest private employer. According to the activists, the company provides treatment to administrative staff, but not to its almost 100,000 bottlers and distributors. The new HIV/AIDS treatment group is also calling for the immediate implementation of the World Health Organisation goal of ensuring antiretroviral treatment for at least 3-million people in the developing world by 2005. Mining giants Anglo American, Anglo Gold and De Beers are the most recent examples of companies that have undertaken to provide treatment to their workers. AngloGold paved the way for company-funded anti-retroviral treatment and Transnet has recently implemented a HIV programme. Transnet took the initiative because it sees money spent on HIV/Aids as an investment rather than a cost.

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AVIATION

Denel moves back into the red

Defence group Denel moved back into the red in 2001-02, posting a significant net loss of R363m against a R24m profit the previous year, amid difficult conditions for the global defence sector. Denel's loss comes just ahead of the sale of 30% of Denel Aerospace and Ordnance to the UK aerospace group BAE Systems. The cabinet recently approved the sale, which has a price tag of R375m. The state-owned group posted a 9.2% increase in gross revenue to R3.95bn. Exports now account for 52% of Denel's business. The organisation said its order book stood at "a healthy" R7.5bn compared to just R1.2bn two years ago. "It can, however, be stated that the company expects good growth in the wake of a substantial order book and increased exports over the past year," said Denel CEO Flip Botha. Botha said the results needed to be viewed in the light of difficult economic conditions for defence industries in general, and the effect of the September 11 attacks on the US and in particular its effect on the aerospace business. He said the loss was made up of R126m spent on research and development for the Rooivalk helicopter; R124m in once-off restructuring costs; and R179m in Rooivalk production costs. With the exception of the profit posted in 2000-01, it has posted a loss every year since 1997, despite efforts to sell non-core assets and refocus the business.

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CONSTRUCTION 

Group 5 invests in pipe-making plant

Construction company Group 5 has invested in a R10m pipe-making plant in Saudi Arabia to produce steel pipes for the transport of water and gas, CE Mike Lomas announced August 22. He was presenting the company's results for the year to June, which sent the share price rocketing. Group 5 announced a 27% rise in revenue to R4bn, and a 60% rise in headline earnings a share to 102.9c. Results were helped by the weak rand, although Lomas explained that there had been mixed fortunes in the group in the past year, with its manufacturing operations under strain. However, construction had done well, and earnings outside South Africa had risen 64% and these foreign earnings now accounted for 37% of revenue compared with 28% last year. Angola was proving to be an attractive market and there were many other opportunities elsewhere in Africa. Meanwhile, the toll road division Intertoll had won new contracts in India and was exploring opportunities in Ireland, England and Germany.

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ENERGY

Eskom 

South African power utility Eskom is undertaking a feasibility study on a project, valued at more than US$1 billion, to build a power transmission network to supply electricity to its Southern African neighbours. Eskom's chairman, Reuel Khoza, told delegates at the World Summit on Sustainable Development August 27 that the study would test the viability of building an integrated power grid linking Angola, the Democratic Republic of the Congo, Namibia and South Africa. Botswana could also be included at a later stage, although it was not part of the initial agreement. Steve Lennon, Eskom's general manager of resources and strategy, said the agreement was first entered into about six months ago after the death of Jonas Savimbi, the leader of Angola's UNITA rebel movement. "That's when we thought stability might come to Angola," said Lennon. He said Eskom would be careful not to over invest in a project without the prospect of a solid market to consume the electricity. The sub-continent's mining sector is expected to be one of the main consumers of the power from the grid, provided regional political stability. Eskom's long-term vision is to create an integrated power grid linking the majority of African countries. If successful, the grid will bring together all of Africa's generators and electricity consumers in a continent-wide power pool which it hopes will facilitate economic development. Lennon said the ultimate goal of the plan would be to export African-generated electricity to Europe.
Eskom is offering to charge R41,73m to manage the Uganda Electricity Generation Company and is seeking a 12% return on any investments it will put into the facility, according to the financial bids opened in Kampala August 20. The money is the consolidated charge for a seven-year period after which new figures will be submitted for the ensuing period. The bid now heads for negotiation and review by the divestiture reform and implementation committee, which earlier approved a technical bid by the same company. The company was the only bidder for power generation when technical proposals were opened on July 19. Eskom has also submitted a joint bid with UK-based Commonwealth Development Corporation Capital Partners for a 20year concession for the distribution of electricity. Prospects for power export are also promising, with existing contracts for supply to Kenya, Rwanda and Tanzania.

Oil and Gas - Methanol 

South Africa's Industrial Development Corporation (IDC) has joined forces with a consortium of US companies to probe the establishment of a $1bn plant to produce methanol from gas, which would otherwise be flared. The project is among several being investigated by the IDC and companies worldwide to turn gas being wasted through flaring to value. About 37-billion cubic metres of gas is flared each year as a by-product of oil extraction in Africa. The gas, mostly methane, is a valuable source of energy, which is not only being wasted, but is also polluting the environment. The grade of methanol produced at the new plant would be suitable for use in areas where distillates such as kerosene or diesel are used and where less than 1,000 MW is needed for power generation. The project is in its early stages. However, if given the go-ahead, a plant could be set up in West Africa to tap gas from various offshore oil extraction plants and to convert the gas into liquid methanol. The plant would be a floating production, storage and off-loading vessel, producing about 15,000 tons of methanol a day. The most likely site for such a plant is off the coast of Nigeria, where most of the gas-flaring in Africa takes place.

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IMPORTS 

Sugar Duties

South Africa has slapped a 67% duty increase on refined sugar imports to protect the local industry from the dumping of cheap sugar. The customs duty on cane and beet sugar was raised from 78.4c a kg to 131.2c a kg on August 16 after a sharp fall in the international price of sugar earlier this year. The increase is triggered automatically when the international price of raw sugar falls $20 below the base price the dollar-based price and stays there more than 20 days, as was the case in April, when the price had fallen to $214 a ton from a base price of $238 a ton. Fears that the local market would be flooded with excess sugar, as other sugar-producing countries look to dump surpluses, necessitated the high tariff, according to the Sugar Association of South Africa (Sasa). Sasa executive director Trix Trikam said the customs duty was "appropriate to make imports (of sugar) not viable. The low international price makes it a dumping price," The tariff hike was not at odds with moves to deregulate the international sugar industry and the trade and industry department's Board on Tariffs and Trade had assessed the local sugar industry and had found it necessary to be protected "because of the distortions in the global market". Southern Africa has one of the lowest-cost sugar sectors in the world, but its competitive advantage is eroded by global market conditions. Sugar-exporting countries, such as the US and those in the European Union, give an unfair advantage to farmers through export subsidies. This was given as one of the reasons for the surplus in sugar supply on the world market and the falling price.

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MINERALS & METALS

Impala Platinum R330 investment

Impala Platinum has brushed aside spiralling political risk and a crumbling Zimbabwean economy in a R330 million investment, which gives it effective control of 327,000 ounces of additional platinum group metal production. The world's second largest platinum company said August 22 that it had bought a further 21% in Australian-listed Zimbabwe Platinum Mines (Zimplats) for R200m. It has increased its stake in two Zimbabwean operations, insisting that the potential of the assets outweighs the political risk. News of the purchase comes as the international community is putting more pressure on government to take a firmer stance on the turmoil in Zimbabwe. Another important aspect of the Zimplats deal lies in the fact that Impala holds a pre-emptive right over another 15 percent of the company, currently held by South African banking group ABSA. According to Impala's annual report, ABSA intends to hold its stake for the short term only". Buying the stake when ABSA chooses to exit its investment would be a "logical progression" for Impala; it would leave it with a 51 percent stake in Zimplats. Control of the Australian-listed company would give Impala a useful vehicle to raise offshore capital for any foreign expansions it might undertake; although offshore growth opportunities in the Platinum sector appear limited, Zimplats will give Impala another option if and when it decides to clean up its investment portfolio.

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PHARMACEUTICALS

Aspen reports 41% rise in revenue

Pharmaceutical company Aspen, which leads the local generics market, reported a 41% rise in revenue and a 36% increase in headline earnings per share for the year to 30 June. Operating profit before amortisation of intangible assets was R430m, up 45%. Also notable is the strong cash flows generated by the business (net cash inflow from operating activities were R240.5m). These cash flows have enabled it to wipe out most of the R900m debt it had after its 1999 acquisition of SA Druggists. Despite having made other acquisitions along the way, including offshore businesses, it has a net debt of R30.8m. Although 19% of its revenues are now generated outside South Africa, there was enormous growth in domestic volumes. One in every four tablets or capsules supplied by government now has the Aspen stamp on it. Secondary infections arising from HIV/Aids are generating the growth in demand for state-supplied medication. In order to meet this burgeoning demand for pharmaceuticals, Aspen will be trebling its production capacity in South Africa, from 2.5bn pills to 7.5bn.

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STOCK MARKET

SADC - Stock Market Harmonisation

The heads of 10 Southern African Development Community (SADC) stock exchanges will meet in Gaborone, Botswana in September to discuss how they can harmonise the activities of their bourses. The meeting will also consider ways of increasing awareness of stock markets, said Tebogo Matome, CEO of Botswana Stock Exchange. The heads of the stock exchanges have set a deadline of 2006 for laying the foundations for future regulation, automation, public education and corporate governance in the regional markets. "Our regulations and operations are still backward and there is need to try to uplift our stock markets to at least the minimum international level to attract international investors," Matome said. The regulations will ensure that there are independent authorities in each country to monitor institutions affiliated to the exchanges. "The automation of the stock markets will help us deal with some suspicious trading, such as insider trading and also make information readily available," Matome said. The plan will entail rigorous training and the application of uniform standards so that the region can be marketed as a single package tailored on the European model. Although the regional model seems to be the most popular idea in SADC, debates are expected about which country would be the pillar of the regional exchanges.

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