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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: 15 - (01/04/03)

War in Iraq - South African opinion
The South African government says that a unilateral war against Iraq is regrettable, and sets a bad precedent, which undermines the authority of the United Nations in dealing with global affairs. Reacting to the US-coalition war against Iraq, government said 'war is not a solution to world problems.' 
President Thabo Mbeki appointed a ministerial committee on March 30th to assess the impact on South Africa of the war in Iraq. Foreign Affairs Minister Nkosazana Dlamini-Zuma leads the committee, which also includes Finance Minister Trevor Manuel, Trade and Industry Minister Alec Erwin and Minerals and Energy Minister Phumzile Mlambo-Ngcuka. It is to report to Cabinet on an ongoing basis on issues relating to the country, such as the fluctuating oil price, economic and trade repercussions and the security situation. 
Mbeki and his ministers have warned that the war in the Middle East country would push the New Partnership for Africa's Development (Nepad) off the agenda for the G8 industrialised nations. Senior figures in the African National Congress, including water affairs minister Ronnie Kasrils, staged a lunch-time anti-war demonstration in Cape Town March 27th. Among the protesters, some of whom held up "stop the war" posters, and chanted anti-Bush slogans, were deputy foreign minister Aziz Pahad, ANC Western Cape leader Ebrahim Rasool, South African Communist Party deputy general secretary Jeremy Cronin and several Western Cape MECs.
Finance Minister Trevor Manuel does not believe a US-led war against Iraq will knock the South African economy off the rails. Manuel said the effects of a war would "definitely be bad," but he remained firm that the steps taken to build the South African economy so far would stand the country in good stead. Manuel said trade might fall off for a while and the higher oil prices would negatively affect African economies. But, the detail of what a war might entail and how long it might last was still uncertain at this stage. 
Manuel believes that the South African economy can continue to outperform other struggling economies, and stands by his growth rate of more than 3% forecast in this year's National Budget. Certain economists argue that in the event of conflict in Iraq and the broader Middle East, the prospects for the rand strengthening seem very good. As an ailing US economy embarks on an unpredictable war with obvious cost implications, risk-averse capital will seek out alternative investment venues with an element of certainty, sophistication and stability. Against a bleak international background, the South African economy and currency have a strong chance to represent an entirely new economic standard. 
This new paradigm will be driven by an ailing US economy and dollar and northern hemisphere instability hence a stampede for markets with stability, certainty, a sophisticated financial infrastructure, and underpinned by alternative stores of wealth, such as gold.

Gold
The rapid ascent of the gold price during March, with war in Iraq looming has bolstered the metal's safe-haven status. In spite of the higher gold trading range, since the start of the year (spot gold price has averaged $355,64/oz) South African gold companies have experienced a series of re-ratings and restatements of earnings a share estimates since the start of the year. The strength of the rand is negating the increase in the gold price, and this is expected to weigh on these companies' earnings. The share price of South Afrca's second-largest gold company, Gold Fields has slipped about 26,6% since the start of the year.

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FOREIGN ECONOMIC RELATIONS

South Africa and Namibia to boost trade links

South Africa and Namibia have agreed to boost their trade links, with Namibia saying it will host an investment conference for South African business this year. Trade and Industry Minister, Alec Erwin, and his Namibian counterpart, Jesaya Nyamu, said March 18th. They also resolved to improve co-operation in the tourism industry. 
The announcement came after the two ministers met in Pretoria. Nyamu, who was part of a delegation led by Namibian President Sam Nujoma on a day long visit, called for greater co-operation between the countries. Nujoma met President Thabo Mbeki for private discussions about the state of the world. The two are believed to have discussed the US's decision to go to war and Commonwealth secretary-general Don McKinnon's decision to extend Zimbabwe's suspension from the group. Namibia and South Africa are members of the 54-member Commonwealth and Nujoma is considered a close ally of Zimbabwean President Robert Mugabe. 
A government official close to the talks said Mbeki briefed Nujoma about developments in Burundi and the Democratic Republic of Congo, where fresh fighting threatens to undermine peace accords backed by South Africa and the United Nations.
The presidents are also reported to have discussed the diversion of traffic from the Durban and Cape Town ports to Walvis Bay in Namibia to ease congestion within South Africa. They also discussed the development of the Auzit Corridor, a tourist project that seeks to link the southern part of Namibia to Northern Cape. The bulk of the corridor falls within Namibia, but South Africa provides most of the technical expertise. Mbeki and Nujoma also agreed to call for the speeding up of trade talks intended to lead to a free trade agreement between the US and the Southern African Customs Union.

South Africa - Mozambique cooperation

Mozambican and South African government delegations, headed by the presidents of the two countries, Joaquim Chissano and Thabo Mbeki, met in Cape Town on March 28th to assess the state of bilateral cooperation. The two spokespersons for the meeting were Mozambican Finance Minister Luisa Diogo, and South Africa's Minister of Industry and Trade, Alec Erwin. Erwin claimed that the presidents and their delegations "were very satisfied at the results that bilateral cooperation has brought to both countries." 
He added "In this meeting we analysed a range of projects we have been undertaking together, and reached the conclusion that everything was progressing without problems, such as the construction of the Greater Limpopo Transfrontier Park, and the preparation for building the new road between Mozambique and South Africa. We saw that work on the gas pipeline from Temane in Inhambane is pushing ahead on schedule, we looked at the advantages of the Zambezi Valley project in central Mozambique, and at the business opportunities that will come with the relaunching of the Nacala Corridor following the donors' conference held last month." 
The meeting had also examined of the illegal migration of Mozambicans into South Africa in search of employment. Erwin said that the agreements already signed between the two countries seeking to regulate this problem through work contracts was the best way of proceeding.

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MINERALS & METALS

Mining groups suffer tax blow in South Africa

South Africa recently unveiled a new tax regime which will force mining companies to pay royalties of 8% of gross sales, reported the Financial Times on the 21st of March..
Some within the industry said the move was excessive and would deter investment.
However, De Beers, the world's largest diamond producer, announced it would invest more than US$150m in the country this year.
The long-awaited Mineral and Petroleum Royalty Bill ends decades-long virtual holiday for mining companies in South Africa. It proposes a sliding scale of royalties on gross sales, ranging from 1% for deep-water oil and gas to 8% for diamond producers.
Royalties on gold and platinum are respectively 3% and 4%. The provisions will be phased in over four years and the full royalty regime will be in place by 2007.
"The rates are eminently reasonable," Trevor Manuel, the finance minister, said. Royalties will be deductible against income tax but will significantly boost fiscal revenue. "If they had been introduced last year they would have brought in R4.2bn (US$518m)," he said.
However, disappointed mining executives warned that the royalties were at the high end of internationally competitive ranges and would result in significant additional costs for miners in South Africa. Analysts said the discounts at which South African companies trade would likely be reinforced. "This bill makes investing in Chile a hell of a lot more attractive," a Johannesburg-based mining executive said recently. Chile does not impose mining royalties.
The bill gives effect to the Minerals and Petroleum Resources Development Act - approved last year - and transfers all mineral rights from the private sector to the State.
The accompanying Mining Charter, which sought to promote black economic empowerment, or affirmative action, caused panic among investors last year when a first draft suggested a 51% black ownership target for the sector within 10 years.
A revised and more industry-friendly charter was approved last October, but mining shares have yet to recover fully from last year's selling spree. De Beers emphasised that the bill was not a low but a document open to debate.
Gary Ralfe, De Beers managing director, said the "exceptional performances of diamond sales in 2002" would enable the company to invest more than US$150m this year to increase production and prolong the life of some South Africa Mines.

Impala Platinum strike 

Impala Platinum [JSE:IMP] has blamed internal union ructions on the mineworkers' strike that has now affected more than two-thirds of the platinum producer's workforce. The net daily affect to Impala is the loss of some 2,700 ounces of platinum and 2,000 ounces of palladium, equal to a cost of production of nearly $3 million (R24 million). The union disaffection appears to be internal and relates to confusion over the introduction of new funeral benefits. 
An unprotected strike was initially declared on March 17th by about one third of the work force (9,000 staff out of a total of 27,000) at the north shafts - shafts 6, 7A, 7, 8,12 and 14. This spread to the southern shafts with 70 percent of the workforce now on strike. The strike relates to operations on all sections of the Impala Lease, an area which produces about 1.1 million ounces a year. However, it does not include Impala's mineral processing operations, which treat concentrate and smelt matte from Aquarius, Lonplats and Northam among others. 
Some 3000 Impala Platinum mineworkers had, by March 25th returned to work after the week long illegal strike, the company said.

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PRIVATISATION

Privatisation progress 

The main privatisation deals planned are the sale of the remaining 4% stake of M-Cell held by Transnet, the Komatiland forests, a majority stake in diamond mine, Alexkor and the remaining Aventura leisure resorts. The partial privatisation of defence group Denel is also likely to be finalised and concessions granted on Durban's port terminal.
The focus on restructuring sectors rather than big asset sales comes against a background of global market turmoil. The rail, electricity and ports sectors will receive close attention from the public enterprises department in 2003-04, although this will relate largely to restructuring rather than big asset sales. At a recent Merrill Lynch conference in Johannesburg, the public enterprises department's initial public offer office head, Eugene Mokeyane, said government's vision for restructuring state enterprises set out the continued role of the state in the economy. This was in light of recent international experience with state-owned enterprise restructuring and the developmental needs of the state. "Restructuring programmes are not synonymous with a withdrawal of state power, authority and responsibility for the provision of services, employment and investment," he said. 
Mokeyane said a government task team, in conjunction with South African Airways (SAA) and Transnet, were developing further restructuring options for SAA and the incorporation of regional carrier SA Express into SAA was being investigated. On forestry, a new bidding process for the Komatiland forests in Mpumalanga and Limpopo was due to be completed by December while other transactions were under way.

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TELECOMMUNICATIONS

Telkom Listing

Empowerment grou,p Ucingo Investments, has turned to government for help after facing a cash crunch over payment for its 3% stake in Telkom, the value of which has dropped in line with a lower listing price. 
Ucingo acquired its 3% stake in 2000 for R565m using debt finance. This was granted on the assumption that the Telkom's stock, which was valued at R3.81 a share at the time, would appreciate ahead of its listing, allowing Ucingo to repay the lenders the capital and mounting interest costs. However, Telkom was listed on the JSE Securities Exchange SA at R28 a share on March 4th. This means that Ucingo and its bankers are out of pocket to the tune of about R75m, excluding interest payments. One analyst estimated that the share price would have to rise to about R45 to allow Ucingo to meet its repayments. 
Unless Ucingo can find a way to restructure its debt, or gets assistance from government, it could mean the failure of the high-profile black empowerment deal. Ucingo is a consortium made up of 20 shareholders, including community trusts, professional organisations, women's groups and black economic empowerment companies. Ucingo entered into a deal with government ahead of the listing not to sell its stake when the phone monopoly listed.

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