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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: 17 - (03/06/03)

South African growth falters
South Africa's economy is growing more slowly than expected, making early cuts in the country's high interest rates more likely. Figures released on May 27 showed that the economy grew at an annual rate of just 1.5% in the January to March period, well down on the 2.4% registered in the October-December quarter, and far short of the predicted 1.8% expansion. Combined with suggestions that inflation estimates are to be revised downwards, the weak growth figures make an interest rate cut more likely when the Reserve Bank of South Africa holds its next rate-setting meeting on 11-12 June. "This is strongly supportive of an interest rate cut in June" from the current level of 13.5%, said John Loos, senior economist at ABSA. "We're looking at a 100 basis point cut" to 12.5%, he added. And the Reserve Bank's deputy governor, Ian Plenderleith, further reinforced expectations of a cut in borrowing costs at a breakfast hosted by Investec, the investment bank. "That market expectation of lower rates is a perfectly reasonable one," he said. "The uncertainty lies in the timing and the profile of that." Economists are looking at overall growth for 2003 of 2.5%, well down on last year's 3%, and just half the 5% that investment bank Goldman Sachs believes is required to make a dent in the 30% official unemployment rate. 

Unemployment
South Africa needs to grow at almost twice its recent rate if it is to make a dent in its massive unemployment problem, according to investment bank Goldman Sachs. In a report on growth and unemployment, the bank warns that growth needs to reach some 5% a year if the official 30% unemployment rate is to come down. South Africa's economy grew 3% last year, up from 2.8% the year before. The figures are an improvement on the average of 2.7% a year since 1994, but still well off the threshold Goldman suggests. Presenting the report, Carlos Teixeira, emerging markets economist for Goldman Sachs, said the government's policies were on the right lines, giving inflation targeting and trade liberalisation as examples. But more needed to be done to encourage investment and increase the use of labour in the economy. 

South Africa and US links
Trade and Investment between South Africa and the United States (US) received a boost following a successful visit by Minister of Trade and Industry Alec Erwin to the world's largest economy mid May. An upbeat minister Erwin briefed the media in Pretoria May 19 about his visit to the US and said there was 'tremendous interest and change of attitude' towards South Africa that was shown by US businesses. The meetings with US businesses during the visit were 'extremely successful, focused and intense,' said minister Erwin. South Africa and the US have had a working partnership through the SA-US Bilateral Co-operation Forum since 1994. The minister pointed out that South Africa/US import/export picture was improving with a growth in US exports of 8.2 percent, from two and half billion dollars in 1999 to 3.1 billion in 2000. At the same time, U.S. imports from South Africa increased from 3.2 billion dollars to 4.2 billion dollars in 2000. The minister said numerous trade and economic deals were done between South African and US companies and some of the announcements would soon be made. 'The message we got, especially from analysts was that South Africa was an up and coming destination and offered excellent, value and sophisticated service in call centres, finance and project management,' said minister Erwin. "There has been a fundamental change in attitude towards South Africa," he said. Contrary to general perception, potential US investors did not view South Africa's black economic empowerment policies as an obstacle. US companies had not raised major concerns about investing in South Africa. They were supportive of the mooted free trade agreement between the US and Southern African Customs Union, which would give the two regions increased access to one other's markets. Erwin said it was likely that South Africa would hold discussions with Boeing and General Motors about investment in the call centre and business processes outsourcing sectors. Erwin also hinted at future investment plans with automotive companies such as Chrysler, GM and Ford. The minister said the US trade mission on small, medium and micro enterprises (SMMEs) would visit South Africa to assess possible investment through partnerships with SMMEs in the country.
One of the largest US congressional delegations to visit South Africa arrived May 25 for a six-day visit. The visit stands to help raise South Africa's profile in Washington and help repair relations with the US, damaged by Pretoria's opposition to the war in Iraq. According to the US embassy, the purpose of the visit is to see at first hand HIV/AIDS programmes, speak to policymakers about the New Partnership for Africa's Development and learn about the truth commission. The visit is a joint one with a religious group, the Faith and Politics Institute, which seeks to improve US race relations. The visit comes at a time when the Bush administration appears to be paying increasing attention to African development problems.

Zimbabwe Crisis
A study released May 20th states that the chaos in South Africa's northern neighbour, Zimbabwe, has cost the country's economy at least R15bn per annum between 2000 and 2002. The impact on the real economy was around R9bn. Unpaid debt totalling US458.13m is owed to Telkom, Eskom, the Reserve Bank, Transnet and smaller amounts owed to several South African companies. The mounting cost from the Zimbabwe crisis and it will take many years for the negative effects to end even if there is a turnaround. This is the first publicly released study to quantify the effect of the crisis on South Africa and is likely to drive home the urgency of helping resolve the crisis to policy makers. "The Cost of Zimbabwe to the South African Economy," commissioned by the recently formed Zimbabwe Research Initiative, says that the crisis has cut South African GDP growth by 1.3% and led to between 20,000 and 30,000 actual and potential job losses in the three years to the end of last year. Had it not been for the crisis in Zimbabwe, South Africa would have grown by 3.5% instead of 3.2% last year. It also says the crisis has led to a weakening of the rand, higher inflation and higher interest rates. The report, written by Tradek economist Mike Schussler, says South Africa will have to deal with many direct and indirect economic costs from the crisis in the year ahead. The Zimbabwe Research Initiative, whose advisory council is headed by Johannesburg based Tepco Petroleum CEO, Shepherd Shonhiwa, brings together what it calls "disaffected" Zimbabweans inside and outside the country. Among its backers are the main opposition party in the country, the Movement for Democratic Change, and the Zimbabwe Congress of Trade Unions. In the model used by Schussler, the hit to the economy has come through reduced goods and services exports, the drop in tourism, failure by Zimbabwe to service its debt and reduced foreign direct investment. 

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ARMAMENTS

Spurned SA arms group to supply US Navy

While government may have decided the high-speed, real-time, data communications products of French arms group Thompson are better than those of Cape Town-based company C²I², the world's most powerful navy does not agree, Business Day has reported. 
Although rejected by the SA Navy, the electronics of C²I² are being fitted to the US's latest aircraft carriers and the US Marine Corps' newest San Antonio class amphibious assault ships. 
When C²I² MD Richard Young tendered to supply three corvettes on order for the navy with his firm's combat suites, which integrate the weapons, radar and sonar systems of a warship, he lost out to the local subsidiary of the French group Thompson. 
Last month, however, he won his first direct order from the US Navy for work on a training facility in California. Previously, he has subcontracted to big US systems suppliers such as General Dynamics and Raytheon. 
C²I², based in Kenilworth in Cape Town, turns over about R50m a year and employs 30 people. In March, Young booked about R15m worth of business with the US. C²I² combat suite equipment is being fitted to the newest US aircraft carrier, the Ronald Reagan. In addition, a new US missile launch system built by Raytheon will also incorporate C²I² technology. 
"I have always said SA technology was of the best. This decision by the US Navy just goes to show there were other forces at work in the (SA) procurement process," Young said. 

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AUTOMOBILES

South Africa seeks UK investment

A delegation of South African automotive component manufacturers will be heading for the UK in June to try to persuade their British counterparts to boost investment in South Africa. The trip aims to secure skills transfer and job-creating investment in South Africa as well as partnerships between UK and South African firms. The delegation's message is that while it may be problematic for UK firms to conquer the US market from their home base South Africa's favourable trade access to the US makes it ideal for export-oriented investment. Zaida Enver, the UK's trade development adviser in Johannesburg, said the UK visit followed a sojourn to South Africa by a number of British automotive companies last October and a trip to Europe by Trade and Industry Minister Alec Erwin that month. 
As well as meeting automotive manufacturers, the SA delegation would meet consultants who advise the British automotive industry on exports. She said government's decision to extend the Motor Industry Development Programme, which encourages export-oriented investment to 2012 brought more certainty for investors to plan their operations in South Africa. "In partnership with a South African company, they can use South Africa as a cost-effective base from which to export to the US to take advantage of provisions under the Africa Growth and Opportunity Act, but also to export to other markets such as Australia, China and India."

DaimlerChrysler 

In another positive indication that DaimlerChrysler SA could secure a large portion of world production of the next MercedesBenz C-Class, an industry source says the group is considering assembling left-hand drive cars at its East London plant in addition to right-hand units. Large scale domestic assembly of the C-Class successor, which would start in 2007, would attract several billion rands' worth of investment. The capital injection would be of significant benefit to the domestic economy, which needs foreign direct investment. 
However, DaimlerChrysler SA and its sister plants in Europe are all vying for a large slice of the assembly pie. World assembly of the current C-Class range would be terminated in about 2007. The assembly of left-hand drive vehicles will enable DaimlerChrysler SA to export vehicles to the US. This is a particularly attractive prospect for the German group, because vehicles assembled in South Africa are allowed duty-free access into the US under that country's African Growth and Opportunities Act (Agoa). 
Rival BMW is the only left hand drive vehicle assembler in South Africa at present and is the only car manufacturer benefiting from Agoa. BMW has been able to substantially boost export volumes from South Africa through Agoa. If the group's South African arm secures an expanded contract, foreign direct investment of about R2bn could be attracted to South Africa through retooling requirements at the East London plant. Köpke has warned that this depends on the company's East London plant maintaining its world-class performance. 
German representatives of DaimlerChrysler visited the plant earlier this year and found that the operation exceeded requirements. A R14m expansion of the East London harbour, which will be dedicated to DaimlerChrysler exports, is expected to start soon. Ports authorities say the expansion is not linked to production expansion plans by DaimlerChrysler, but that the project forms part of the original agreement between the car assembler and ports authorities.

Ford SA

Ford SA has announced an R280m investment in upgrading its paint shop "to ensure that the paint quality of all the vehicles in its model line-up is of world-class quality". The upgrade will improve the chances of Ford SA winning the new business for exports that it is seeking from its US parent, as it now will be able to produce better quality paintwork at the high volumes necessary for a viable export programme. Ford SA produces models for the local market at Silverton, east of Pretoria. These include the Ford Fiesta, the Mazda Etude, the Volvo S40 and V40, and the Landrover Defender.
It is believed export bids have been put in by Ford SA for Volvo production and for the Defender, but a decision on which models, if any, would be assembled in South Africa for export is still awaited from Ford's global headquarter in Detroit. Trade and Industry Minister, Alec Erwin, visited the Ford command centre during an investment promotion visit to the US. He said on his return that he was optimistic there would be new US investment in South Africa. Ford SA said "one of the highlights" of the refurbishment was the introduction of locally developed technology for repairing blemishes. Ford SA launch manager, Kobus Jansen, said the new technology used radiant ovens, enabling "the curing of repairs by baking the entire body at a lower temperature". "This is quicker, much more efficient and provides superior quality spot repairs."

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AVIATION

Planes soon to fly on coal from SA

Jet planes leaving from Johannesburg International Airport will soon be flying on synthetic fuel made solely from coal, a spokesman for South Africa's largest petroleum and chemical company says, AFP has reported. 
Johann van Rheede, spokesman for Johannesburg and New York-listed fuel company Sasol, says its jet fuel from coal project is expected to gain world-wide approval from aviation authorities by August. "The process of producing synthetic jet fuel solely from coal is in an advanced stage," Van Rheede says. 
"At the moment all planes are being refuelled with a semi-synthetic petroleum mix, but soon we hope to have a purely synthetic fuel," he says. 
The Johannesburg-based technical magazine Engineering News that the idea of synthetic jet fuel from coal originated 20 years ago, and arose from the need to ensure local availability of jet fuel during apartheid days, in case of an embargo. 
Piet Roets, Sasol's research and development manager told the magazine that about three years ago, the company's semi-synthetic jet fuel took off commercially when it gained the approval of the international aviation fuels committee, which is part of Britain's ministry of defence. 
Committee members also include manufacturers such as Pratt and Whitney, General Electric and Rolls-Royce and airframe manufacturers Boeing and Airbus. 
"Now world fuel authorities are scheduled to go the whole hog with a thumbs-up for the fully synthetic fuel, made from coal," the magazine said. 
"Sasol is currently completing aircraft engine turbine testing using fully-synthetic jet fuel in conjunction with the US Navy and will soon forward its report to the aviation fuels committee." 
Fully synthetic fuels have far lower emissions of harmful substances such as sulphur, better thermal stability so they act as a coolant in high-temperature jet engines, and are substantially cheaper to produce. 

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BANKING

SA return planned by Standard Chartered

Standard Chartered, the emerging markets bank, plans to return to South Africa for the first time since it pulled out of the country in 1987 during the apartheid era, the Financial Times has reported on 28th May.
The London-listed bank also said that it was carrying out a feasibility study that could lead to it opening its first branch in Afghanistan.
StanChart has already applied for a banking licence in South Africa, which it hopes to get approved by the end of June.
About US$30m has been earmarked by the bank for its expansion in South Africa.
Peter Sullivan, chief executive of Africa operations, said StanChart wants to open a branch in Johannesburg for corporate and institutional clients.
It only has a representative office in the republic but wants to be able to take advantage of increasing trade between South African companies and countries in Africa and Asia.
"We have seen good levels of growth in South Africa and trade between African companies and the Far East is increasing," Mr Sullivan said.
However, he said StandChart only planned to "dip a toe into the water" in 
South Africa because the market is "not easy" and is already dominated by four large banks.

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ENERGY

Black empowerment

Petroleum company, Total SA, is in transformation after it sold 25% of the business to an empowerment group. Total SA MD, Didier Harel, said the group was committed not only to developing the skills levels of its black employees, but also to ensuring its management structure reflected the country's population. While happy with the progress Total SA had made in transforming its management structure, Harel hinted there was still room for improvement. The 42% figure it had achieved in fitting its management structure to its empowerment criteria was "honourable", but Harel said this was a "moving goal post", and that this target could reach 50%.
Harel said Total SA would also foster empowerment through buying more goods and services from black suppliers. While Total SA has shown commitment in aligning itself with the country's transformation goals, it did so understanding that contracts to supply government and state enterprises could be more difficult to come by if it did not commit to these changes. To this end, bringing in Calulo Investments as a black partner for its commercial wholesale operations a few years ago was important for the petroleum company.

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FOREIGN ECONOMIC RELATIONS 

French trade delegation meets SA industrial directors on multi-billion dollar deal. 

A French trade delegation, which includes the gian,t Pechiney company, and the French ambassador, is meeting the Coega Development Corporation in South Africa to discuss a deal worth well over US$2.5 billion, ChannelAfrica.org has reported. 
The discussions could seal a contract for a major anchor tenant, for the Coega industrial harbour in the Eastern Cape province. 
Chairperson of the Coega Development Corporation, Moss Ngoasheng, says it is just a matter of tying up some loose ends before the deal is signed and sealed. 
The French Ambassador to South Africa, Jean Cadet, says he hopes the deal will not be the last they will have with Coega. 

L'Oréal to Expand Its SA Operation

French cosmetics group, L'Oréal, has committed to investing R140m in South Africa over the next five years and is on the verge of making an acquisition. The investment in the local operation is part of the cosmetics company's plans to increase its presence in Africa. 
L'Oréal SA MD Dave St Quintin said selling hair-care products which catered specifically for black consumers was one of the group's key growth strategies. L'Oréal aimed to capture 50% of the African market within the next five to 10 years as well as increase its share of 41% in the R950m South African market. St Quintin said there were only two L'Oréal plants worldwide that made products specifically for black consumers. He said one was in the US, while the other was just outside Johannesburg.
One of the factors driving the growth in the South African market was the rapid growth of the black middleclass, he said. The growth in the South African market saw Carson, the SA company L'Oréal took over about three years ago, having difficulties coping with demand. St Quintin, who was running Carson at the time, said when L'Oréal took over the company, it gave the South African group all the necessary support it needed to keep up with the product demand. St Quintin would not say much on the possibility of another acquisition of a South African company. He said that acquiring local companies formed part of L'Oréal's expansion strategy

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INSURANCE

Positive feedback from improving SA economy 

THE SA short-term insurance industry is in relatively good shape and the underwriting profitability of the major companies is good when compared with historical levels, Andrew Gillingham wrote in Business Day.
Willem Roos, joint MD of Outsurance, says there has been significant consolidation in the local market and this has resulted in less competition, less capital being available in the market, fewer alternatives and more scope for premium increases.
He says over the past 20 years the industry has been in decline, in real terms. The pie has become smaller and insurance cover has become expensive. However, there are signs of a reversal of this trend.
"The SA economy has not been performing spectacularly, but compared with many other countries around the world SA is doing well. As a result, South Africans have more assets and they are seeking to protect these assets via insurance," Roos says.
He says there is a band of emerging insurance consumers who are establishing themselves, acquiring property and buying insurance, though this is at a relatively low level at present.
Paolo Cavalieri, CEO of Hollard Insurance, says in terms of gross premium income the short-term insurance industry in SA is worth R28bn annually. "The growth of the industry is entirely dependent on the growth of the SA economy as a whole, and over the past five years the industry has been fairly static," Cavalieri says.

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MINERALS & METALS

Anglogold/Ashanti merger talks

African gold producers AngloGold and Ashanti Goldfields said May 16th that they were in merger talks aimed at producing the world's largest gold producer. If successful, the $983 million deal would create a pan-African gold company with production of around 7.6 million ounces, making it comfortably larger than North American producer Newmont, which at a shade over 7 million ounces is the world's current number one. The joint statement released by the two came after a run in Ashanti's share price in recent weeks, on speculation that it was a takeover target for one of the world's gold majors. "(The) boards of Ashanti and AngloGold are in discussions regarding a proposed merger of the two companies at a ratio of 26 AngloGold shares for every 100 Ashanti shares or global depository receipts," the companies said in a statement.
It cautioned that there was no certainty of success. Asked for early views on the possible merger, Johannesburg gold analysts said the deal looked to be a good one for AngloGold. "The fact that they've been crawling all over Ashanti's assets since the beginning of the year and that they've now released the statement, means they've got a high level of confidence that it will happen," said one senior analyst.

Harmony to stay in South African gold

Harmony Gold on 5th May insisted it had no plans to diversify, as it set out its strategic stall following the merger with African Rainbow Minerals (RM) the Financial Times has reported.
The combination of the two South African companies creates the world's fifth largest gold miner. "As an investment alternative Harmony will now offer a unique opportunity, being the largest unhedged South African gold producer, exposed to both the US dollar price and the volatility of the rand" said Bernard Swanepeole, chief executive.

Belarus' diamond cutting giant may opt for cheaper South African material

The Belarusian diamond cutter Kristall, based in the city of Homel has to temporarily stop buying feedstock from its main raw diamond supplier, the Russian uncut diamond monopoly Alrosa, because the latter has raised its prices, a Kristall official told Prime-TASS News Agency on 19th May. 
From March to May the price rose 19.3 per cent, which may lead to a situation when the price for Kristall's polished diamonds exceeds the world's by 20 per cent, the official said.
In Russia, the difference between the price of non-polished and polished diamonds stands at around 15 per cent, while in Belarus the figure until recently has been 18 per cent. 
At the same time, the official said, Kristall rules out the possibility of completely stopping purchases from Alrosa as the alternative feedstock from South Africa is of lower quality than Alrosa's. 
Kristall controls about 90 per cent of Belarus' diamond cutting and 40 per cent of the jewellery production. The company exports up to 99 per cent of its output. 
The company's capacity allows for the production of US$100m worth of polished diamonds a year as well as US$40m worth of jewellery.

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