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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: 14 - (03/03/03)

Budget 2003
Finance Minister Trevor Manuel delivered his budget February 26 amid much approval. Independent economist Sandra Gordon singled out the apparent shift towards increased social spending and the government's role in ensuring long-term growth. 'There was talk of a possible surplus but I am happy with the current 2.4% deficit - anything less than that would be too conservative.' Manuel described his 2003 Budget as "bold". He gave back R13.3bn to taxpayers, gave more to the poor and for infrastructure and took some significant strides in the relaxation of exchange controls. On the state of the rand Manuel said he'd like to think that the currency was excessively punished in 2001, but conceded that perhaps it had overcorrected on the upside since. 'It will find a level,' he said, adding that the factors involved were out of its control. He points specifically to the possibility of war in Iraq and the consequences of higher oil prices for inflation in Africa. Director general Maria Ramos closed off a press conference ahead of the Budget speech in Parliament on a positive note - confirming that International rating evaluator, Moody's Investors Service had upgraded South Africa's ratings for foreign currency debt and bank deposits from stable to positive. The agency cited declining government debt rations, improved external liquidity and careful macro economic management that compared favourably to South Africa's peers as the reason for the change.

Foreign Affairs Budget
South Africa is increasingly having to come up with hard cash for its international commitments. One of the budget's significant additions over the next three fiscal years is R1.3bn to support peacekeeping missions and Nepad. About R600m of this over three years will come from the defence budget, but the remainder is from foreign affairs, enabling a sizeable expansion in the number of South African diplomatic missions in African countries. This could well mark the beginning of a mounting external budgetary commitment by South Africa, because neither peacekeeping nor Nepad are short-term programmes. With a high portion of its costs in foreign currencies, the department's budget is heavily affected by exchange rate fluctuations. Much of the last fiscal year's budget increase of nearly 40% was due to the rand crisis in 2001. And the department has been allocated an additional amount of 20% on its original budget for the coming fiscal year, despite the rand's recent strength. In the foreign affairs budget, South Africa has also committed R170m to the United Nations World Food Programme, which continues to plead for additional donor support for the southern African food crisis.

State of the Nation Address 
Two major South African business organisations praised President Thabo Mbeki for a balanced and positive state-of-the-nation address. South African Chamber of Business (Sacob) CEO Kevin Wakeford described the president's speech today as "very balanced", while his colleague, National African Federated Chamber of Commerce (Nafcoc) CEO Sabelo Macingwane, said it was positive for the economy. Wakeford told Sapa the speech had included a number of practical examples of the state of the economy, and was reconciliatory in nature. The president had reassured the country on economic growth and spoken of a shared analysis and common vision between business and government. Wakeford said it was also pleasing to hear that government was to tackle HIV and Aids, both through prevention and research into a vaccine for the disease, and that talks with pharmaceuticals companies would continue on the supply of cheaper Aids drugs. 

GDP Growth 3% in 2002
Estimated Gross Domestic Product (GDP) figures were released by Statistics South Africa February 25. Economist Tony Twine described the rise of 3.0 percent for 2002 as compared to 2.8 percent in 2001, as 'gratifying news and an indication of good performance on the side of the economy.' 'There are many nations with economies more powerful than ours who envy this kind of GDP growth. Our economic breadth and strength are good in the sense that we have a sufficient platform to build on.' The data showed strong growth in the tertiary sector, which accounts for 67% of GDP, reflecting robust growth in sectors such as wholesale and retail trade, transport and communications, finance and real estate. The main contributors were the manufacturing (0.7 of a percentage point), finance, real estate and business services (0.7 of a percentage point), transport and communication (0.6 of a percentage point) and wholesale trade, hotels and restaurants (0.3 of a percentage point) industries. Commenting on the GDP announcement, ABSA Bank senior economist John Loos said much of the strength in last year's growth could be ascribed to the weak average value of the rand. This had offered significant levels of protection to domestic industry against import competition, while providing some support to exporters at a time when the global economy was weak. GDP is poised to grow by 3.3 percent during 2003, rising to four per cent in 2005, a confident finance minister Trevor Manuel said in Cape Town, February 26. 

Strong fundamentals in the local economy and massive structural weakness in the US, continue to buoy the South African currency. Exporters continue to bemoan dwindling revenues, which are being consistently eroded by the rising rand, but there is no immediate respite for the most important sector in the local economy: mining. Conventional wisdom suggests the breathtaking rise in the rand since its nadir of R13.82 against the dollar in December 2001, to current levels of around R8 to the dollar, is supported almost entirely by high interest rates. Many believe that once interest rates drop in South Africa, while they rise in the US that the narrowing differential between the two will make South African banks less attractive for foreign depositors. The resultant outflow would spell a weaker rand. However, a continuing weak dollar would certainly spell a longer period of strength in the rand. While the robust currency is good news for local inflation which ran riot last year, the pressure on exporter's margins and by implication the country's tax base, may force the South African government to employ some counter measures of its own to force the rand to resume its downward path. An expensive currency remains the single largest threat to the South African economy, according to Old Mutual economist Rian le Roux. In a pre-budget media briefing, Le Roux called on the South African Reserve Bank to relieve Balance of Payment pressures and for it to actively buy up dollars to facilitate rand weakness. He believes that a rand/dollar exchange rate of between R9.50 and R10 would make South Africa more palatable in a global environment of increased competition.

Health - HIV/Aids
Finance Minister Trevor Manuel gave a firm indication February 26 of government's commitment to combating HIV/AIDS, by almost doubling the amount available to fight the epidemic in the national budget. In a carefully worded response to questions from the media, Manuel also indicated provision had been made in the budget for antiretroviral medicines should the government decide to begin distributing the drugs in public health-care facilities. Because antiretroviral drugs are not provided by the state, they are presently not available to the majority of the estimated 11.6% of the nation's population infected with the virus. Activists have accused government of not doing enough to widen access to the drugs. Spending on HIV/AIDS will increase to R1.9bn, from slightly more than R1bn last year and R348m the year before. The funds will be spread across the health, education and welfare departments. Manuel said the HIV/AIDS allocation would increase to R2.9bn in 2004-05 and R3.5bn in the following year. The money would be used "to extend preventive programmes and finance medically appropriate treatment for HIV/AIDS," Manuel said. In total, health spending will increase 12% to R39.1bn. The health budget has given special emphasis to service delivery this year, with R3.1bn set aside to improve provincial hospitals through the hospital revitalisation programme over the next three years.

Black Empowerment
Government plans to plough R10bn into black economic empowerment over the next five years through the financing of new enterprises. The new ventures are expected to stimulate economic growth and generate desperately needed job opportunities. This objective is to be achieved through revamping the National Empowerment Fund (NEF). The fund was originally designed to receive shares in privatised state assets. And part of the R10bn will come from the proceeds of the exchange control measures announced in the budget of February 26. Maria Ramos, Director General of the national treasury, said that black empowerment needed the ability to fund empowerment transactions that were not just the normal merger and acquisition deals. Hundreds of billions of rand of funding will have to be raised over the next five to 10 years as equity stakes in key sectors are sold to new black owners.

Non-Aligned Movement
South Africa has made major strides in steering the ship of the Non-Aligned Movement (NAM) and has succeeded in developing dialogue and a coherent agenda with multilateral organisations to address the issues of poverty, globalisation and economic development. This was affirmed by foreign affairs acting Director-General Abdul Minty following a meeting of senior NAM officials convened before the ministerial meeting of the 13th NAM Summit. Mr Minty said when South Africa took over the chairpersonship of the 47-year old movement, it had identified poverty as the biggest threat to global society. However, lately, the role of NAM had taken a more strategic role under the leadership of South Africa. This included developing dialogue and a coherent agenda with leaders of the Group of Eight (G8) countries. For the first time in the history of the United Nations Security Council, it (South Africa) urged this body to have an open debate on any resolution on war against Iraq led by South Africa's representative to the United Nations (Dumisane Khumalo). 'South Africa indicated that the Security Council did not only agree to our request, but also allowed the inspectors to present the report on weapons inspection in an open meeting before presenting it to them,' Mr Minty explained. At the NAM Summit South Africa handed over the chair to host country, Malaysia. Issues to be discussed at the Summit include challenges facing the movement in the current context. Critical will be discussions around the situation in Iraq and the Middle East.

Mining Co-operation Plan
The mining industry's role in the New Partnership for Africa's development (NEPAD) is to increase with an agreement that will see 16 African countries working to bring uniformity to the industry's regulatory regimes and boost the development of the mining industry across the continent. They are hoping to create a cross-border mining partnership. The African Mining Partnership (AMP) will further its aims by appealing to the Canadian government in its role as a member of the G8 Africa Fund. The ministers, representing countries as geographically diverse as Kenya, Ethiopia and Zimbabwe, have also focused on picking up the thread of the World Summit on Sustainable Development (WSSD) held in Johannesburg last year. In practice, this means major mining economies in Africa will attempt to hammer home the importance of poverty eradication, conservation and rehabilitation. As such, the AMP is aimed at bringing African mining standards in line with first world economies. In the past, African mining countries have struggled to truly compete with economies in other parts of the world on the productivity and technology level. Sceptics point to the fact that labour costs in China and India are vastly more efficient and cheaper than in South Africa which has Third World labour problems and First World labour laws. Many cite the example of diamond cutting and polishing which has struggled to take off in sub-Saharan Africa even though the region is a major supplier of rough gems. "Shipping costs (for diamonds) are minimal but the fact of the matter is that production costs are a quarter or even a tenth less expensive in India," one analyst said.

Transport - Rail
The government is planning to spend over R1-billion per annum over the next 20 years, to address the infrastructure backlog in commuter rail transport. Addressing media in Parliament February 20, public enterprise minister Jeff Radebe said the long-distance passenger rail business (Shosholoza Meyl) required R450-million to refurbish coaches that were on average, 25-years-old. The rail transport regulator Spoornet subsidises this business by R175-million per annum. In terms of infrastructure development, Mr Radebe said Spoornet, would focus on signalling and electrification, concentrating on the application of new technologies that were cheaper, more effective and efficient.

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Moody's gives South Africa pat on back 

Moody's Investors Service announced on 26th February that it is changing the outlook for South Africa's Baa2 country ceilings for foreign currency debt and bank deposits to positive from stable. 
It cited declining government debt ratios, improved external liquidity, and careful macroeconomic management that compared favourably to South Africa's similarly-rated peers as the reason for the change, it was reported on -I-Net Bridge web site. 
"Accordingly, the outlook for the Republic of South Africa's Baa2-rated foreign currency bonds and notes has also been raised to positive from stable. 
"The outlook for the government's rand-denominated debt remains stable, however, since public finance characteristics appear generally consistent with the existing A2 rating. 
George Glynos, market analyst at MMS International: "It reaffirms what we saw in the S&P outlook in November and Moody's has followed suit. Both rating agencies cited Aids as a concern, saying more proactive action should be taken by government. But that aside, the fact that government has adopted prudent fiscal discipline and has put some good policies in place, and is sticking to these policies, is beginning to be reflected in our ratings. It is good news all round. But we await the Budget now." 
Mike Schussler, economist at Tradek: "We are having good news all around ahead of the Minister of Finance Trevor Manuel's national budget speech. This will definitely weigh positive on the bond market, and at the end of the day the rand is likely to improve on this news. In general it is very good for the equity market and very welcome." 
Marissa Fassler, economist at ABN AMRO Bank: "I'm surprised that Moody's announced the upgrade just before the budget. Moody's is definitely ahead of the curve in terms of ratings. The upgrade has been good for bonds and the rand." 
Matthys Strauss, economist at ABSA: "It's good news. What is really encouraging is that they're seeing what is happening in the country and what the government is doing on the debt side and the ability to repay debt. It doesn't come as too big a surprise, however. Overall, it's a very good positive reflection on South Africa. In the longer run it forms part of the bigger strategy to get everything in place for sustainable growth. But I doubt that it will have a very significant impact on the markets in the short-term." 

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SA lifts exchange control limits

Government is completely lifting the previous restriction on offshore foreign investments by institutions based on 10% of the prior year's net inflow of funds, effective from May 1, 2003, Finance Minister Trevor Manuel announced on 26th February, Lynn Bolin wrote on the I-Net Bridge web site. 
However, the existing institutional investment limits for foreign assets will remain at 15% of total assets for long-term insurers, pension funds and fund managers, and 20% of total assets for unit trust companies. 
Manuel announced the measures in Parliament during the presentation of government's 2003-04 budget, and are part of government's wider moves to ease exchange controls. 
Manuel said the Exchange Control Department of the South African Reserve Bank (SARB) reserved the right to stagger transfer of such funds in the interest of overall financial stability. The new regulations would become operational on May 1, once revised reporting requirements were in place as part of the shift to prudential regulation. 
Institutional investors will be required to submit additional information when making an application for a foreign investment allowance, as the shift to prudential regulation required improved data reporting. 
At the same time, for companies in general, Manuel announced that exchange control allowances for direct investment by South African companies outside of Africa would be raised from R500-million to R1-billion, to facilitate global expansion by local firms. 
In October 2002, exchange controls on firms investing on the African continent was raised to R2-billion. 
The allowance for investment outside of Africa will also be expanded from simply the financing of new approved foreign direct investments to also include "top-up" funding for the financing of new approved expansions of existing investments. 
Also as part of further exchange control relaxation, the government is proposing that dividends repatriated from foreign subsidiaries should be eligible for an exchange control credit, which will allow them to be re-exported, upon application, for approved foreign direct investments. 
This change would be synchronised with the removal of the foreign dividends tax, where the taxpayer has a meaningful say in the foreign subsidiary paying the dividend. 

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South Africa's Harmony bids A$155m for Australia's Abelle

South African gold miner Harmony Gold Mining Co. has launched a A$115m takeover bid for Australian miner Abelle Ltd. to be pitched at 75 cents cash a share, Andrew Trounson reported for Dow Jones Business News on 25th February.
Harmony is offering 45 cents for each listed option. It is also offering a price for unlisted employee options equal to the difference between the cash price offered to Abelle shareholders and the exercise price of each employee option.
Harmony said it has an irrevocable pre-bid agreement to acquire Guinness Peat Group PLC's 19.9% stake in Abelle.
Separately, subject to Abelle shareholder approval, Harmony has agreed to subscribe for 35 million shares in Abelle at 75 cents each.
Harmony said Abelle's board has welcomed the investment and Harmony's decision to launch the bid, as it provides Abelle with the financial and technical capacity to develop its Morobe and Wafi projects in Papua New Guinea. The offer value's Abelle's fully diluted share capital at around A$155 million.

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