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SOUTH AFRICA

  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 104,235 113,300 127,900 35
         
GNI per capita
 US $ 2,600 2,820 3,060 94
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki

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: 23 - (02/12/03)

Problems of a strong rand
The strong rand, may be positive for inflation but not for exporters in tight global conditions. However, the proposed expansion of the African Growth and Opportunities Act (Agoa) has been tabled in the US Congress. The act allows for duty-free and quota-free access for more than 1,800 products, including automotive and textile commodities from South Africa and other sub-Saharan countries into the US. Agoa is estimated to have raised African exports to the US by 1000% since 2001 and created 60,000 jobs. The new bill proposes the extension of the programme from 2008 to at least 2015. Allied with inflation falling to a record low of 4.4% year on year last month, compared to the previous month's rise of 5.4%, this could bring much needed help. The decline in inflation leads to the expectation of a one percentage point interest rate cut in December. Some economists believe a more aggressive rate cut is necessary to kick-start the economy. Further interest rate cuts, while perhaps not resulting in a weaker currency as most exporters would want, would also be beneficial. Official figures show that gross domestic product (GDP) grew by just 1.1% in the third quarter, well below the expected 1.8%. Shortfalls in manufacturing and agriculture have led to estimates for the year to be revised. Agriculture contracted 21.8% compared to a decline of 19.4% in the second quarter. The strong rand and weak global demand for exports continued to weigh on the manufacturing sector, which contracted 1.7% the sector's fourth consecutive quarterly decline in growth compared with a 4.5% decline in the second quarter. South Africa's finance minister Trevor Manuel maintains that while the country's economic growth forecast has been scaled back from 3.3 percent to 2.2 percent for the current financial year, it is still forecast to rise to 4.0 percent by 2006. Economists expect economic growth for 2003 to fall far short of the revised target of 2.2%. Manuel has blamed the country's slowing economy on a lack of skilled workers, and accordingly says government will allocate R3 billion for the transformation of higher education. In his Medium Term Budget Policy Statement he expressed confidence in the country's future economic outlook, saying the nation's finances are in a sound condition while the level of investment in the economy continues to rise. The continued strength of the currency has led to greater macro-economic stability and the State's debt cost should be R3.8 billion less than anticipated in February.

Foreign Investment - OECD
The New Partnership for Africa's Development (Nepad) and the Organisation for Economic Cooperation and Development (OECD) have launched an African Investment Initiative to attract investment into the continent. Launching the initiative in Sandton, near Johannesburg November 19, Nepad Steering Committee chairperson Wiseman Nkuhlu said the initiative focused among others, on how African countries' trade policies were impacting on their ability to attract investment. The initiative was launched during the OECD Global Forum on International Investment summit, currently being held in South Africa for the first time, to discuss policy issues and obstacles hampering investment. South Africa could become the first African country to take part formally in the Organisation for Economic Co-operation and Development (OECD) if it agrees to sign a declaration on international investment and multinational enterprise. Marinus Sikkel, chairman of the OECD committee on international investment, said South Africa could be invited to sign the declaration if an OECD investigation found that the country had the "willingness to adhere" to a set of nonbinding factors linked to international investment. Taking part in the OECD would improve perceptions about South Africa among international investors and allow it to benefit from interaction with the organisation's members in policy design and research. Finance Minister Trevor Manuel told the conference that total investment increased by more than 8% in the first half of the year, compared to 9% growth in the second half of last year, while net private capital flows were estimated to reach $110bn this year. He said South Africa's investment rate of 16% of gross domestic product must increase to boost economic growth and lower poverty in South Africa.

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AUTOMOTIVE INDUSTRY

Barloworld lifts Avis to new high on R1.4bn offer

A R1.4bn offer by global brand management group Barloworld to minority shareholders in car rental group Avis SA was announced November 20, that will lay the foundation for further expansion by Barloworld's motor operations in partnership with Avis. The announcement sent the Avis share price soaring almost 20% to close at R12.45 on the JSE Securities Exchange SA. The renewed expansion is expected to include the acquisition of new Avis franchises offshore, new luxury car dealerships in the UK and the US, and a move into new businesses in South Africa, which could involve tyres and auto glass. However, it may delay an empowerment deal within Avis, which has been negotiating the sale of at least 25% of its South African car rental business. Barloworld plans to acquire the 65% of Avis shares which it does not hold, with each Avis shareholder receiving R9.70 in cash and 0,05 Barloworld shares per Avis share. Barloworld CE Tony Phillips said the firm would provide R1.085bn in cash from borrowings, and would issue R335m in new shares. The deal is subject to approval by shareholders of both Avis and Barloworld, as well as the normal regulatory requirements. The deal has its roots in 2000, when a strategic 24% of Avis was acquired. Avis chairman Glenn van Heerden said the Avis board backed the take-over.

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AVIATION

Airlines cut their prices 

An airline price war is looming as local carriers battle it out over the no-frills market. Kulula.com responded to the announcement that the new carrier 1time would offer the cheapest fares on the Johannesburg-Cape Town and Johannesburg-Durban routes from the new year by saying it would reduce prices to "30-year lows". SAA is believed to be considering entering the cut-price market. Other full-service carriers may be forced to compete with the low fares. Industry insiders say SAA feeder carriers SA Express and SA Airlink could be merged into one feeder carrier, and the shell of the remaining one turned into a low-cost operation. However, the airline's spokesman, Rich Mkhondo, would only say: "We have a team that is constantly evaluating trends and opportunities and an SAA-controlled no-frills service is being evaluated on a continuous basis." Industry sources predicted that a reduction in fares in the over-traded domestic market could lead to the demise of a local carrier.

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BANKING

Black Empowerment

South Africa's largest consumer bank Absa is close to completing a R2.6bn empowerment deal to sell 10% of its shares to a consortium led by Mvelaphanda chairman Tokyo Sexwale. The deal positions Absa to become the first of South Africa's big four banks to pull together a major empowerment deal, the largest in the finance sector thus far. The deal is in line with the financial services charter obliges banks to sell 10% of their shares to black investors by 2010 to boost their odds of obtaining state business. Absa CEO Nallie Bosman said new shares would be issued to the consortium, and the deal was expected to be finalised before February 2004. Although the bank is working on various potential funding structures, there is no agreement on how the deal will be financed. Part of the problem is that the Companies Act prohibits firms from financing sales of their own shares, but Bosman said Absa was considering a variety of solutions. Many had previously predicted Sexwale's involvement as he is already an Absa board member. Absa also unveiled a 40% jump in headline earnings for the six months to September, November 24. Absa had suffered last year due to a fallout in its Unifer micro-lending arm, which cut its profit. The bank already has a 25% market share in consumer banking, and the results were built on a boom in the retail banking environment as consumers took advantage of lower interest rates and inflation to borrow more. While the 40% earnings jump looked impressive, this was skewed by the new AC133 accounting standard, which forces companies to revalue their assets at their current fair market value. A more realistic gauge of Absa's performance would be the still strong 20% increase in earnings that emerged once the effect of AC133 is stripped out.

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FINANCIAL NEWS

Exports -SA-US 

South African exports under the African Growth and Opportunity Act (Agoa), which grants preferential access to the US markets for some African goods, are up sharply, despite overall exports dropping 4.4% in 2002. Gillian Milovanovic, the charge d'affaires at the US embassy, said total exports from South Africa under Agoa for the first nine months of this year already exceeded the total figure recorded last year. Milovanovic said "many South African producers had adapted quickly to make the most of the opportunity and had vastly increased their exports to the US". She was speaking at the SA & USA: Building Business Partnerships conference in Johannesburg. Transport equipment exported under Agoa was at $588m for the first nine months this year compared to $615m for last year. Exports in this sector were up 24.3% on the corresponding nine-month period. This upward trend was mirrored in the mineral and metals sector, which showed a 20% rise for the first nine months when compared to the corresponding period. Chemicals, agriculture and textiles exported under Agoa have also grown. The envoy said it was remarkable that Agoa exports had increased, despite a drop in exports from SA to the US in 2002. That decrease was related to a decline in platinum exports, which do not have preferential access under Agoa. She said the fall in total exports could be attributed to the slowdown in the US economy and the appreciation of the rand. Although Nigeria exported more goods under Agoa than South Africa, Milovanovic pointed out that SA exported a wider range of goods, as the bulk of Nigeria's products were petroleum-related.
Unemployment - new deal
The public works programme has unveiled the biggest, most precise and most expensive pledge the government has made since it came to power in 1994. In a deal proposing to create a million job opportunities over five years at a cost of R20-billion. With President Thabo Mbeki announcing details of the Expanded Public Works Programme and Minister of Finance Trevor Manuel officially putting the money behind it in his Medium Term Budget Policy Statement (MTBPS), jobs are now at the apex of the government's economic policy. Sean Phillips, the head of Limpopo's public works department programmes, has been seconded to the national public works department to assist with the development of the programme. He says R15-billion will be spent on public works infrastructure, disbursed through and managed by provinces and local councils. Another R4-billion will go into environmental programmes such as Working for Water, while an initial R600-million will go to the community sector to fund a corps of community development workers likely to be deployed in providing home-based care for people living with Aids and in early childhood development. There are 4.7-million unemployed according to the official definition, and 7.8-million according to the expanded definition, which includes people who have given up looking for work.
Inflation - Monetary Policy 
The Reserve Bank will have much to cheer about at December's monetary policy committee meeting after meeting its inflation target for two months running. Figures released November 25 by Statistics SA show the target CPIX inflation measure (consumer inflation excluding mortgages) fell to a record low of 4.4% year on year last month from 5.4% in September. This puts CPIX comfortably within the 3%-6% target range. An impressive fall from the peak of 11.3% in November last year as a result of the rapid depreciation in the rand in 2001. The Bank's decision to tighten monetary policy last year raising interest rates four percentage points helped achieve its goal by limiting the secondary effects on inflation of the currency shock. But while hiking interest rates last year gave the rand a boost, with the currency gaining about 40% against the dollar last year, cutting interest rates has not resulted in the opposite: a weaker currency. In fact, the currency has gone from strength to strength since the Bank started slashing interest rates aggressively in June. Economists say the Bank expects CPIX to stay within the target range all next year and 2005, giving it enough room to cut interest rates by another one percentage point in the near future. However, there is some talk that a more aggressive rate cut, of perhaps 1.5 percentage points, is possible, given that inflation has some way to fall. Figures released November 25 by Stats SA show that gross domestic product grew 1.1% in the third quarter (on a seasonally adjusted and annualised basis) compared with 0.5% growth in the second quarter.

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INTERNATIONAL RELATIONS

SA and Russia 

South Africa and Russia concluded their three-day talks November 12 with a commitment to further improve co-operation between the two, as well as cementing political ties. The talks held under the Joint Inter-Governmental Committee on Trade and Economic Co-operation (ITEC), saw the two countries agreeing to improve their collaboration on various matters including investment and trading, agriculture, transport, minerals and energy. Foreign Affairs Minister Nkosazana Dlamini-Zuma together with Russian Deputy Prime Minister Vladimir Yakovlev co-chaired the third ITEC session in Moscow. According to their joint communiqué, the two expressed satisfaction on the state of bilateral interaction. The two sides also agreed to co-operate in the field of fundamental and applied research, particularly on exchange programmes for scientists, post-graduate students and students in the field of astronomy, medical chemistry, laser technology and marine biology. The visit comes a few months after officials from the Department of Trade and Industry visited Moscow in June during which it discussion culminated in the establishment a South African Trade Centre to showcase South African export products and act as a Trade Information Centre in the Russia capital.

South Africa and France

President Thabo Mbeki has welcomed the French decision to explore opportunities for co-operation between Paris and South Africa in areas of water and sanitation. Speaking at the City Hall of Paris November 18, President Mbeki said such co-operation would ensure that South Africa delivered a better life to its people. "It is for this reason, that I warmly welcome your remarks about the opportunities for co-operation between Paris and Johannesburg, particularly in the areas of water and sanitation. I also welcome the willingness of French regions, departments and municipalities to undertake programmes of decentralised co-operation with South Africa's provinces, cities and towns. These longstanding partnerships, we are sure, will be of great mutual benefit," President Mbeki and First Lady, Zanele, were on a three-day State visit to France to consolidate and strengthen political and economic relations between the two countries. The Minister of Foreign Affairs Nkosazana Dlamini-Zuma, Public Enterprises Minister Jeff Radebe, Trade and Industry Minister Alec Erwin and Social Development Minister Zola Skweyiya were also part of the delegation.

SE Asia 

It is crucial that South Africa develops a strategy to manage its ties with Southeast Asia. China's economic growth of about 8% a year could have substantial effect on South Africa and its trading partners. Despite this, South Africa does not have a clear strategy to manage this, suggested speakers at a discussion on greater China hosted by the South African Institute of International Affairs November 13. South Africa's trade deficit with the region had already expanded from R2bn about ten years ago to R10.7bn in 2001. Meanwhile, an expert on the Association of South East Asian Nations (Asean) told delegates that South Africa had competitive advantages over several Asian countries. There is a lucrative opportunity for South Africa to export agriculture and food products to China. Beef products, in particular, were being imported at high cost from Australia.

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MEDICAL NEWS

South Africa proceeds with launch of free Aids drugs

South Africa's government gave the green light recently to the long-awaited provision of free anti-retroviral drugs in public hospitals to fight the HIV/Aids pandemic sweeping the country, the Financial Times reported on November 20th.
The cabinet "instructed the department of health to proceed with implementation of the plan," Manto Tshabalala-Msimang, the health minister, announced.
The plan, which aids activists, doctors and nurses around the country had been urging for year, envisages that "written a year there will be at least one service point in every health district across the country and, within five years, one service point in every local municipality."
South Africa's anti-retroviral programme will be the biggest in the world. The drugs are already available free in Botswana, but it has a tiny population. They are distributed in Brazil, but the infection rate is a fraction of South Africa's.
South Africa has the largest HIV-positive population in the world: an estimated 5m citizens, or 11.7 per cent of the total, according to treasury figures. About 1m people would benefit from anti-retroviral treatment.
The logistics will be daunting, given the number of patients, the vastness of the country, the shortage of health professionals and the contrast between first-world health facilities in some provinces and decaying infrastructure in others.
The cost of training nurses, collecting data, running clinics in all nine provinces and developing infrastructure, including labs, will be higher than that of anti-retroviral drugs.
The cost of drugs, once prohibitive, has been slashed, partly by pharmaceutical companies' price cuts and partly by the introduction of generics. "To deliver this kind of care across the country, with equitable access to all, will require a major effort to upgrade our national health-care system," Dr Tshabalala Msimang said recently. This will cost "over half of the total budget."
Trevor Manuel, the finance minister, gave details of the government's financial commitment to the battle against Aids.
A sum of R1.9bn (US$287m) has been budgeted to cover the launch of the drug programme this year, while a further R12.1bn will be spent on Aids over the next three years.
More money and help is coming in form donors, such as the Clinton Foundation, backed by former US president, Bill Clinton, which has assisted the department of health in formulating the plan.
For years the South African government refused to consider the use of anti-retrovirals in the public sector, pushing an Aids strategy focused on awareness, prevention and nutrition rather than treatment.
High-profile people, including President Thabo Mbeki and Dr Tshabalala Msimang, openly questioned the effectiveness and even the safety of anti-retrovirals, once described as "poisons" by the health minister.
But unrelenting pressure from public opinion and non-governmental organisations, as well as the threat of Aids becoming an election issue next year, prompted the government's policy turnaround.
In August this year the cabinet instructed the ministry of health to develop a detailed operational plan on an anti-retroviral treatment programme "as a matter of urgency." 

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MINERALS & METALS

Mining hit by strong rand

South Africa's mining sector, which accounted for 10.7% of the total fixed investment in the South African economy last year and contributed 8.1% of the country's gross domestic product, is coming under increasing pressure as a result of the rand's strength against the dollar. Diamond group De Beers said earlier this year that it was carrying out a review of its South African operations. The company has delayed its decision on the R7bn Premier C-Cut expansion until the second half of next year as a result of the strong rand and uncertainty surrounding the Royalties Bill and is looking for voluntary redundancies at a corporate level. Anglo Platinum, in which Anglo American has a stake of at least 73%, is also carrying out a review of its operations, with production down sharply. The company has said it may cut jobs as a result of the strong rand and has been reviewing the viability of some of its proposed expansion projects. 

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